Subject: [Homestead] Of housing bubbles and China.
Date: Mon, 30 May 2005 20:55:56 -0700
The recent Paul Krugman column had an interesting twist on the housing
bubble. He is not sure of it himself but some are saying that Greenspan
encouraged the housing bubble to keep the economy going after the stock
bubble burst. The housing bubble was to go only as long as needed until
the economy picked up but the bubble continues to grow beyond expectations
while the economy is still limping. Signs of the bubble bursting are
starting to show in very high priced markets in California and Florida.
The column last week had another interesting twist in that China is in some
ways responsible for the low interest rates. Much of our debt is being
picked up by China largely with what is in effect our trade surplus with
China. This surplus cash is holding interest rates down in the face of a
steadily increasing prime rate. If China were to hold back on its bond
purchases the bubble would burst and maybe take down the whole
economy. One figure I recently heard is that 50% of the jobs in California
are related to the housing industry.