More and more economic writers are wringing hands over the housing bubble. They all understand this is due to low interest rates. When the super low rates first came about after 9/11, I was puzzled. The economic and banking matrix didn't suddenly change for the better allowing us the luxury of low interest rates thanks to money pouring into banks in savings. With a huge kitty of savings, of course, banks must put the money to work thus the low interest rates.
This didn't happen. Right after the funeral orations, Bush said, "Go shopping!" "Go to Disneyworld!" and to insure this, the Feds dropped interest rates even as Bush also ominously said, "Go to war!"
Taxes were immediately cut, too. Everyone was yelling about spending and the Fed fed this via incredible interest rates which we all knew were below the rate of inflation thus were funny money made up for us to party with and party we did. Relentlessly. Each time it looked like sensiblilty was going to rear its party pooper head, the Fed dropped rates more. People took out money from their new Home ATMs and poured it into a host of things and everyone became richer, seemingly. The monthly payments for homes dropped even as prices shot up, a certain sign that money was valued below its true value.
Greenspan was called a genius for creating this systematic elevator to nowhere. In physics, when a bubble gets too big, it begins to tear as the membrane or gravity stretches, the bubble disintigrates. Ever blow too much air into a child's party balloon? It gets thinner and thinner and then suddenly pops and the fragments fly through the air at a tremendous speed. This is why, in all the bubbles for the last 500 years, the price of whatever is the bubble's object balloons in price at a tremendous speed at the last minute before disintigration.
Krugman of the NYT wonders plaintively:
So what happens if the housing bubble bursts? It will be the same thing all over again, unless the Fed can find something to take its place. And it's hard to imagine what that might be. After all, the Fed's ability to manage the economy mainly comes from its ability to create booms and busts in the housing market. If housing enters a post-bubble slump, what's left?You never "run out of bubbles" if money is free and it doesn't matter that no one is saving anymore. Creating bubbles is ridiculously easy. The ultimate bubbles are currency bubbles: inflation/deflation or gold.
Mr. Roach believes that the Fed's apparent success after 2001 was an illusion, that it simply piled up trouble for the future. I hope he's wrong. But the Fed does seem to be running out of bubbles.
And guess what has been going up lately? And the IMF is talking about diluting the gold market by selling of their gold hoard. And as I selected yesterday, the thing to watch now is gold because Bretton Woods 2 is collapsing and just like when Bretton Woods 1 collapsed, the price of gold suddenly shot up teriffically as the real estate market collapsed...which is why I bought real estate during that time frame, not gold...yes, Mr. Krugman, so long as our rulers want to play games, they will find the ultimate marker for this: gold. And if they still hand out loans, they will do this until that final game is done and then all currencies will be revalued brutally.
This is why it is dangerous to let the people benefitting from bubbles run things. The men running this gambiling casino called "America" are all desperadoes who don't care if this collapses into a pancake. Just remember. Bush called the 9/11 year "winning the trifecta".
Did he ever.