Friday, July 22, 2005

Calculated Risk: Housing, Jobs and Bernanke Revisited

Calculated Risk: Housing, Jobs and Bernanke Revisited: "There is a housing bubble, it is going to burst, and those areas dependent on housing related jobs will experience a snowball economic effect."


But, is it enough to throw the economy, nationwide, into a loop?

In other words, is there a scenario, where this (finally) gets us into serious trouble?

Well, there is, if policymakers make a big boo-boo -- or they find themselves in a circumstance in which a big mistake is almost inevitable. For example, if China and Japan stop financing the U.S. federal deficit, and long-term interest rates are forced up, just in time to exacerbate the bursting of the housing bubble. Or, panicking over signs of inflation picking up, the Fed over-reacts and actually creates a deflation, which, in turn, leads to a kind of financial panic.

No comments:

Post a Comment