Industry News

Market scarred by inflation, capital exhaustion

Commentary: Reality sets in and it ain't pretty
Published on Jun 23, 2008

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by CareyBot

Mortgage rates have improved, down to 6.5 percent, as credit-market psychology has entered a substantial reversal.

In the mass psychosis of late May, the financial markets suddenly decided that the economy had passed bottom; the banking system was recovering; inflation had become the dominant risk; the Fed would therefore begin an extended rate-raising campaign; and it was a good idea to dump every IOU within reach. That hallucination is now responding to medication.

Nothing like hard news to clear the mind: Mortgage applications collapsed 8.8 percent in a week under the weight of spiking rates. Industrial capacity in use fell again in May, now 79.4 percent, overall production sliding 0.2 percent versus expected gain.

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