When will they stop? 4.5%? 4.75%? 5%? 6%?
Are Alan and Ben specifically targeting the housing bubble?
How much higher will Ben go?
Does Greenspan take any personal responsibility for creating his second bubble?
Will history view Greenspan favorable or unfavorably?
December 13, 2005
Readers - The Fed raised again today... What's your take?
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Rather long copy and paste, but the last statement is priceless.
".... On balance the outlook is good, but it holds risks. I`m Charles Schultze."
CHARLES SCHULTZE, SENIOR FELLOW EMERITUS, BROOKINGS INSTITUTION: Over the last four years, employment expanded slowly. Despite large productivity gains, real wage rates for workers also grew slowly, while the share of income going to corporate profits rose much more rapidly than usual. Yet despite the slow growth of wage and salary incomes, consumer spending increased handsomely. Early on, large tax cuts helped fuel this growth. More recently consumers found another way to raise spending in the face of lagging wage and salary incomes. The sharp rise in home prices since the year 2000 produced huge gains in the equity value of household real estate, relative to consumer income amounting to some $2.5 trillion, even after deducting the increase in mortgage debt.........
homeowners extracted some of that increased equity in cash to support consumption spending, through home equity loans,.........
A large portion of the capital gains from rising home values are still untapped and mortgage borrowing could help keep consumption growing nicely for a while even with continued weak growth in wage incomes. But this kind of expansion is particularly subject to a slowdown should there by a major rise in mortgage interest rates and should the rise in home prices come to a sudden halt. On balance the outlook is good, but it holds risks. I`m Charles Schultze.
If they are basing the rate icreases on employment then a there has been a tidal change. NEIRU went out under Clinton when Tyson convinced Greenspan to let Unemployment go below the 6% area and well you all lived through that. Their reasoning was globalization raised the umber in the labor pool. I think they are BSing everyone.
I think it is obvious that it is all about the housing bubble. Their slow ratcheting up is not to tip things over too fast in all of the sensitive markets. We have just about seen the dreaded inverted yield and that is pushing mortgag rates higher albeit reluctantly.
Additionally I think the trade deficit has alot to do with it. If you go to another blog called calculated risk, on friday's postyou will see a lovely graph that shows the growth in the economy when MEW or Mortgage extraction is subtracted and there was virtually no growth while at the same time the deficit ballooned.
http://calculatedrisk.blogspot.com/
any chance the fed knowingly caused the housing bubble - to create the housing atm used to get us out of a recession, and now is knowingly creating the end of the housing bubble now that businesses have recovered and will pick up the spending that the economy needs?
hmmm...
or, perhaps greenspan is just an idiot who has no idea what he's doing
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