Saturday, April 30, 2005

Angry Bear

Angry Bear: "In summary, a likely scenario for when the boom ends: prices will probably deflate slowly over several years, but transaction volumes will drop precipitously. Housing related employment will fall in relation to the drop-off in transactions and, if interest rates remain steady or increase, mortgage equity withdrawal will decrease significantly leading to less consumer spending and most likely (my own opinion, not necessarily Angry Bear) a recession."

It all sounds fairly routine, in summary. What's not routine is the possibility that interest rates will rise as the recession gets under way -- the opposite of what usually happens. The Federal government, already reeling under huge deficits, will not have a lot of room to spend the country out of the recession, either. The big risk is that either (or both) Fannie Mae and Freddie Mac get into trouble, as interest rates and foreclosures rise.

Krugman explains why Bush & Co. seem so serene. Things are good in the U.S.A., if you are very wealthy or a giant corporation.

The Coming Perfect Storm, however, "predicts" that running record deficits is probably not, overall, a good policy.

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