Posted on 09/21/2007 5:28:58 PM PDT by GodGunsGuts
House prices to drop much lower: Greenspan
Fri Sep 21, 2007
VIENNA (Reuters) - A big overhang of property will bring U.S. house prices down further, but it is too early to say if the economy will plunge into recession, former Federal Reserve chief Alan Greenspan was quoted as saying on Friday.
Greenspan said in an interview with Austrian magazine Format that low interest rates in the past 15 years were to blame for the house price bubble, but that central banks were powerless when they tried to bring it under control.
"It's a difficult situation, there is an enormous overhang on the real estate market," Greenspan was quoted as saying. "Many buildings which just have been finished can't be sold ..."
"So far, prices have dropped only slightly. But it was enough to cause alarm around the world," he said. "Prices are going to fall much lower yet."
"However, it is too early to answer the question about a recession. We simply don't know yet. It depends on how flexibly the economy can react," he said.
Greenspan said deregulation and the introduction of market economies in the former Communist bloc after the Berlin Wall fell in 1989 had caused a global boom and a worldwide reduction of interest rates, which both helped fuel the property bubble.
"There is no doubt about the fact that low interest rates for long-term government bonds have caused the real estate bubble in the United States," he said.
"The Federal Reserve began a series of interest rate increases in 2004. We were hoping to bring the speculative excesses in the real estate sector under control. We failed. We tried it again in 2005. Failure," he said.
"Nobody could do anything about it, neither us nor the European Central Bank. We were powerless," he said.
No crystal ball needed. You just have to look at the number of resetting ARMs for the next five years. The loan to value disparity has been obvious and growing since 2003.
http://attheselevels.com/archives/678-The-Forgotten-Resets.html
I really don’t give a rip if the dow goes to 3000 or 30,000. Any stocks I buy are because the share is a fractional percentage of a properly valued company, IOW based upon it being a fair price for the percentage of the business I am buying based on how much money the business makes. Maybe I’m just dumb and ignorant but to me there is no difference between buying one share and all of them*- either the business you are buying makes money because they have, and will have a product or service that people buy, or it’s smoke and mirrors based on expectations.
*except for the matter of management, of course.
The world ain’t going to end if the Dow goes back to 2000, nor will all our problems be over if it hits 20,000. I own my house and buy annuities and dollar cost average into a well run mutual fund; I care no more for the fate, company or opinions of people who want to get rich quick than I do for the folks that get Schedenfreud at the thought of The End Of The World As We Know It, be they goldbugs, Pre millennial tribulationists or watchers for Black helicopters.
just a cranky .02:-)
Fiscal policy means tax policy, Congress sets that. The Fed sets monetary policy.
They should reinstitute the Department of Treasury to issue currency and take it away from the fed.
Before the Fed, under the National Bank Act of 1864, banks were able to issue their own currency.
Satyajit Das is laughing
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