As reported this afternoon, Fed’s Olson says no U.S. housing price ‘bubble’. Perhaps Olsen has been talking with (or even conspiring with?) the IMF, who have recently come out with a statement that there is no housing bubble and a short while before that no chance of a financial crisis. Or perhaps he hasn’t been watching TV, where flipping property has its own reality show.“”In order for there to be a true bubble, there has to be a single market,’ Olson said.”. I’m not quite sure about that. Surely people move from one region to another that has cheaper housing? More to the point, however, is that the credit expansion that has fueled the housing bubble is nationwide, and increasingly worldwide as the US exports its inflation to other countries who buy dollars.
The housing GSEs – Fannie and Freddie – are keys to funelling of credit expansion into housing and recycling of dollar debt overseas. The ablity to continually expand their balance sheet may be threatened as they are now starting as their finances come under more scrutiny. See Peter Eavis explains Fannie’s hedging.
{ 2 comments }
After the tech and telecom bubble burst:
Greenspan himself weighed in on the matter, claiming that there was no way for the Fed to have deflated the stock market bubble without risking an unnecessary recession, and, moreover, that they weren’t even really sure that there was a bubble until after it burst.
so what are we to believe…..Greenspan claims he can’t see a bubble then assures the public that one isn’t or hasn’t formed in housing….
my experience has been to view the FED and its rhetoric as disinformation rather than information….
1996 Irrational Exuberance = stock boom
1999 New Economy / New Era = stock crash
the only mandate of the FED is to inflate credit period. where that inflated credit goes the fed can’t control….stocks, bonds, commodities, housing….
Watch out when appreciation slows. This will dry up the cash out refinance market. In 2003, 300 billion was withdrawn. This amounts to almost 3% of GDP. Take this away and we’re flat on GDP growth. Take away the government defecit and we’re -3% GDP. The contribution to GDP of cash out refinancing and government deficit in 2004 numbers will be higher because of the larger governement defecit. 2005 or early 2006 the economy will come to a screeching halt and then and will start a rapid accelleration in reverse. It will be a bloodbath, I think.
Comments on this entry are closed.