Monday, August 8, 2005

That Hissing Sound - New York Times

That Hissing Sound - Paul Krugman: "the U.S. economy has become deeply dependent on the housing bubble. The economic recovery since 2001 has been disappointing in many ways, but it wouldn't have happened at all without soaring spending on residential construction, plus a surge in consumer spending largely based on mortgage refinancing. Did I mention that the personal savings rate has fallen to zero?

"Now we're starting to hear a hissing sound, as the air begins to leak out of the bubble. And everyone - not just those who own Zoned Zone real estate - should be worried."

OK, so here is one essential element of the perfect storm, an economic recession driven by a large, irresitable momentum in the economy, to wit, the collapsing housing bubble.

It should be said, and Krugman did not say it clearly enough, that, "the" housing bubble is really a great many local housing bubbles, spread across the English-speaking world, and varying in intensity. Lots of areas have not been affected. Others will be affected intensely.

There are some other economic threats out there as well. The Chinese may decide that they like revaluation. Something may happen, which causes spikes in gasoline prices.

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