Fireworks and the earth moving were the metaphorical stuff of sex scenes for novelists back before steamy films made such word-play limp rather than lurid.
Today’s world of commerce is neither a novel nor a movie, but instead a reality that is on the cusp of heading into earth moving or phantasmagoric fireworks territory. That’s because the Federal Reserve System is on the cusp of ending the near zero interest rate policy the Fed relied on throughout the recession and post-recession period, along with massive quantitative easing by buying bonds awhile to keep stirring the money pot.
Fear of Fed change is obvious on Wall Street. On Main Street, however, and all the way down to Carson City’s main drag called Carson Street — despite some fearing an end to loose monetary policy — those in the know realize it could unleash good times. The earth already is moving. Graders or, for less ambitious projects, back-hoes are moving dirt in construction projects.
In Carson City alone we already have the Big MAC (multi-purpose athletic center) and animal shelter projects this year, the downtown Carson Street remake upcoming, and on the horizon in the private sector later comes the Schulz Ranch subdivision at the city’s south edge. That subdivision calls for 100 lots in the first phase, more than 400 eventually.
These are just local examples and small in comparison with what will come after the Fed finally pulls the trigger. Wall Street will dither, some there running for cover as the easy money spigot ends. They are yokels who don’t understand the real underpinning of finance. Bottom line: banks will be back, no longer backed up against a wall.
This is the most telegraphed end to a Fed borrowing binge (unbalanced balance sheet up from some $1 trillion in 2008 to $4.4 trillion in 2014) in history. Now the private side takes a turn.
What will happen when Fed rates begin to rise is market rates will, too, bringing banks off the sidelines. Banks had to heal after shooting themselves in the foot big time in the housing finance crash, which stemmed from a half century of federal policy and banking complicity that made home ownership the underpinning of an economic semi-Ponzi scheme. The aftermath, ugly though it was, is nearing an end.
Banks didn’t lend in recent years because the Fed reined them in while simultaneously washing their books with cheap (low interest) money to shore up reserves; many private sector companies needing to borrow were starved for cash flow anyway, making them greater risks than banks take on in hard times. What the Fed’s movement from near-zero interest rates means is the Fed’s money laundering project is ending.
Banks will lend more because rates will warrant more risk. The partially-healed private sector will join the public sector in new construction projects.
It won‘t be “happy days are here again” yet; that awaits an end to a scabbing over and new skin-in-the-game process still under way. But the earth will move and, this Independence Day, fireworks will burst with burnished brightness.
John Barrette covers Carson City government and business. He can be reached at jbarrette@nevadaappeal.com.
