I am puzzled why the remarkably similar housing bubbles that emerged in more than two dozen countries between 2001 and 2006 are not seen to have a common cause. The dramatic fall in real long term interest rates statistically explains, and is the most likely major cause of, real estate capitalization rates that declined and converged across the globe. By 2006, long term interest rates for all developed and major developing economies declined to single digits, I believe for the first time ever.
That's right -- it happened everywhere so I'm not at fault. What a self-justifying idiot. This is like an alcoholic blaming a bartender for his problem.
Let's review the basic facts.
First, in the United States (where most US home buyers will get a loan), the Fed dropped interest rates to generational lows in the early 2000s. Here's a chart of the effective federal funds rate from the St. Louis Federal Reserve
At there rates, banks are basically paying people to take money. And take money they did. According to the Federal Reserve's Flow of Funds Report (PDF) total mortgage debt outstanding increased from $5.3 trillion in 2001 to $10.5 trillion in 2007. The number increased to $8.8 trillion in 2005.
For Greenspan -- who is a market based economist -- to now argue that the price of a good (here money) has no impact on its demand is the height of chutzpah.
3 comments:
Ron Paul brought up a similar point last wednesday when Bernake was testifying to the Joint Economic Committee. Although agree with him whatsoever on the political front and even the economic as well he does bring up the same point you outlined above.
Here's the video:
http://www.youtube.com/watch?v=Wy-w6y6DTxw
When your blog came to my attention it was in an interview with Cenk on the Young Turks. I heard an interview with Ravi Batra last week on TYT which could be accessed from TYT web pages. I would be interested in your opinion. He says that the liquidity in the market is counter to what should have happened with the rise in productivity. His remedy is to raise wages to reflect productivity. Maybe you could answer your opinion of your blog.
The central banks in Europe, and the owners of the Fed, are essentionally a global cartel, much as the Fed nationally is a cartel of privately owned banks. They have joint ownership of the Bank of International Settlements in Basel, which was formed in 1930 in the midst of the Great Global Depression. When countries went off the gold standard, much of the gold in the US and UK was sent there. It is not surprising that they have similar monetary policies.
"Whereas the Powers signatory to the Hague Agreement of January, 1930, have adopted a Plan which contemplates the founding by the central banks of Belgium, France, Germany, Great Britain, Italy and Japan and by a financial institution of the United States of America of an International Bank to be called the Bank for International Settlements;
And whereas the said central banks and a banking group including Messrs. J. P. Morgan & Company of New York, the First National Bank of New York, New York, and the First National Bank of Chicago, Chicago, have undertaken to found
the said Bank and have guaranteed or arranged for the guarantee of the subscription of its authorised capital amounting to five hundred million Swiss francs equal to
145,161,290.32 grammes fine gold, divided into 200,000 shares; And whereas the Swiss Federal Government has entered into a treaty with the Governments of Germany, Belgium, France,Great Britain, Italy and Japan whereby the said Federal Government has agreed to grant the present Constituent Charter of the Bank for International Settlements and not to repeal, amend or supplement the said Charter and not to sanction amendments to the Statutes of the Bank referred to
in Paragraph 4 of the present Charter except in agreement with the said Powers; "
Greenspan is one of the gatekeepers of the truth, which must be concealed from the masses, for there lies a grand conspiracy that would shake the world should it leak out.
Control of the Fed and other central banks basically lie in Basel. Basel I and Basel II created the current crisis, yet it is rarely even discussed. Greenspan is just having some fun, he must be bored in his retirement.
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