Take away the excess cash, take away the easy credit, you take away the flow of no-doc, no-down, interest-only buyers, you take way demand, you take away the ability to raise prices.
And you pop the bubble.
This is beyond the comprehension of most people - economics ain't easy to explain in simple terms. But what they understand is what hits their pocketbook - rising interest rates and inability to secure mortgages is pretty easy to grasp. And so are a sea of "Price Reduced" signs.
Years of super-cheap credit are coming to an end as the world's major central banks begin to act in unison to drain excess cash that many fear could have severe repercussions for economic and price stability.
As heads of the US Federal Reserve, European Central Bank and Bank of Japan meet in London this weekend with finance ministers and bankers from the Group of Seven economic powers, they are likely to conclude there is still much to do.
By the middle of next year, all three of these central banks may be withdrawing cash from the global economy - via higher Fed and ECB interest rates or, in the case of Japan, by ceasing to pump even more cash into the system.
Accelerating output alongside sky-high oil prices has left central banks with a potential headache of accelerating credit growth, rising headline inflation, low long-term borrowing rates, buoyant equity markets and regional housing booms.
December 02, 2005
Major central banks move to mop up excess cash - and usher in the end of the housing bubble
Subscribe to:
Post Comments (Atom)
8 comments:
Wow, I love this blog. You comment on many of the same news articles as Ben Jones and the rest, but you apply your own distinctive, dour spin on it.
May you never run out of hillarious images! Ra!
Christian in Seattle
It is interesting to me that the news media keeps on reporting the war in Iraq.
No mention that for the last 5 months US citizens have spent more that they earn.
While inside the belly of USA this creeping crud of wild housing purchases is ignored or reported as positive growth for the economy. Ug. Ug.
a picture is worth a thousand words they say
thanks for the kudos.. just doing my part
keith
you wonder if the central bankers talk to each other and are all freaking out about now at the coming crash of their housing markets
at the end of the day, they have to stop it - or it could get horrific
some would say the media is causing the bubble by reporting it
which i find hilarious. Like they're causing earthquakes by reporting them
this bubble will be the most important economic event of our lifetime, with repercussions to be felt for a generation
you heard that here first.
Keith:
The problem really goes way back to 1999. The Feds started tightening monetary supply to choke the stock market bubble, which would have eventually choked on itself. Now comes 2001 - a recession and lower rates. A terrorist attack and lower rates. The deep recession we were in caused Greenspan & CO to lower rates well below what they should have. I think 3% would have been sufficient and the economy would have recovered without aiding & abetting the housing bubble.
The problem is now that once the spigot is closed the economy will come perilously close to a major crash. Yet if it's not shut off it will choke itself eventually when no one can buy homes.
In my opinion (as I stated in my blog) the real way to fix this problem was to kick it in the knees earlier this year by raising rates in 1/2% increments. This would have the effect of showing people the fed was serious about stopping this train. Housing prices would be flat already and we wouldn't have another 10% to lop off the prices.
The correction will be much more severe at this point.
greenspan's a smart guy. I think he now sees the error of his group's ways. his one single mistake (going too low) will devastate a generation, a nation and the world economy. Oops!
but now it's bernie's problem. santa greenie retires as a hero. mr. ben is going to be a goat.
and it's happening right now. today. Some see it, some will soon, and some never will.
Greenspan is very smart, but this is the THIRD, repeat THIRD bubble that has developed on his watch.
1st - Property bubble of 1989
Identified in 1988, crashed in 1990
2nd - Stock bubble of 1999
Identified in 1996, crashed in 2000
3rd - Housing Bubble of 2005
Identified in 2002, crashed in 2005/06(???)
Each bubble was caused by the same thing - too low of interest rates compounded with lack of action to rein in runaway assets.
Greenspan has admitted he prefers to deal with the aftermath. Great idea. I'll run all my credit cards to the limit, file bankruptcy, and deal with no credit for 10 years. At least I had fun spending 60 grand while I spent the next 10 years thinking ONLY IF...
A lot of people in my age group will get burned on thier first houses...this will scar an entire generation, much like my grandparents remember the great Depression.
Post a Comment