Inflation bears, gold bugs and the Buzz Lightyears of global growth

Mortgage broker and Inman News syndicated columnist Lou Barnes today explains why mortgage rates are higher this week than last: financial markets have been taken over by "inflation bears, gold bugs and the Buzz Lightyears of global growth."

Fed Chairman Ben Bernanke "played this thing exactly right" by slashing interest rates Tuesday, "and has gotten nothing for his trouble but a run on the dollar," Barnes laments.

Investors are fleeing dollar-based investments for t he euro and gold. The lack of demand for Treasurys and similar investments has pushed long-term interest rates up. It's disturbing, Barnes says, that in a time of financial crisis money is running away from the dollar, "the historical safe-haven."

Some people are worried that the Fed's abandoned the fight against inflation. Barnes isn't -- cheap overseas labor will keep wages and prices from spiraling here, he says.

Others think we haven't begun to see the true underlying weakness in the economy. Barnes thinks there's a European real estate bubble that's about to burst. While liquidity is loosening, "global credit is vastly tighter than it was six weeks ago," he says

The Economist has similar worries, calling the prospect of a global housing slump "a very frightening one. For the moment, it remains a plausible risk." Even if global home prices hold up, the article warns, credit market disruptions are likely to harm growth in 2008.

Barnes says to mark your calender for Oct. 5, when the Department of Labor releases September job numbers.

"A new, weak number that day, and Bernanke will be a genius, more cuts in prospect, long-term rates falling," Barnes predicts. "Strong job gains ... a bond market disaster and a discredited Fed."

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