From the Financial Times via MSN Money:
Housing boom due to global intergration says Greenspan
The great boom in US house prices that abruptly petered out in recent months was caused by increased global integration, not loose monetary policy, Alan Greenspan, the former chairman of the Federal Reserve, has claimed.
“I don’t think that the boom came from a 1 per cent Fed funds rate or from the Fed’s easing. It came from the collapse of the Berlin Wall,” Mr Greenspan told a private audience in Canada on Friday.
The former Fed chairman said the collapse of Communism in eastern Europe and the shift towards more market-based economies in China and other parts of the developing world brought “billions of cheap labourers onto the scene”.
This, he said, “brought disinflation and lowered inflation risk premiums and long-term interest rates, creating a decline in real interest rates and equity-risk premiums.”
In consequence, “the real market value of assets increased faster than GDP”.
“It came from the collapse of the Berlin Wall…”
At first I thought he was joking.
He wasn’t.
I can’t even believe he said that.
maybe when the wall fell down, it damaged a bunch of houses, thereby causing a housing shortage…
I don’t have a PhD in economics but even I can figure out that the bubble was caused by greed and corruption, and now that the easy money days are over, all of the people who got rich will move on the other industries. The rest of us will be left holding the bag.
“I don’t think that the boom came from a 1 per cent Fed funds rate or from the Fed’s easing. It came from the collapse of the Berlin Wall,”
Wow!!! In other words this whole housing bubble can be attributed to Ronald Reagan!!!
I distinctly remember when Greenspan was pushing, Adjustable Rate Mortgages{ He stated– people were not taking full advantage of low rates.}
Does he not feel that this did not have some type of bearing on the collapse, or was it just the Berlin Wall
Jim,
So right you are;
Greenspan’s remarks, 2/23/2004;
American consumers might benefit if lenders provided greater mortgage product alternatives to the traditional fixed-rate mortgage. To the degree that households are driven by fears of payment shocks but are willing to manage their own interest rate risks, the traditional fixed-rate mortgage may be an expensive method of financing a home.
http://www.federalreserve.gov/boarddocs/speeches/2004/20040223/default.htm
The fact that he’s even trying to defend himself shows that he was part of the problem.
Reminds me of those ‘Family Circus’ comic’s where the little ghost is running around with “Not Me” written on him.
-Richie
Grim, you can be honest with us.
You got this from The Onion, right?
“Mr. Gorbachev, tear down this wall!”
…Wow, I guess we know now that Regan was really giving Mr. Gorbachev home improvement tips.
Renting,
Tear it down, now flip it!!!!
Okay. I could potentially buy the argument that lower interest rates can “legitimately” lead to higher home prices, especially if we really believe that people (not everyone, but many) only really care about their monthly payment. For example, at a 10% interest rate, a $1,000 per month payment will buy $114k worth of home, at a 5% interest rate; the same payment will buy $186k worth of home.
If housing prices simply “readjusted” to price-in permanently lower interest rates, then why is affordability so dismal in so many places? The average monthly payment shouldn’t have changed. In reality, prices have climbed higher than can be accounted for by the offsetting decline in interest rates. How does Mr. Greenspan explain this?
Actually Greenspan is technically correct. The Current Account imbalance is what allowed the central bankers to reinvest in Treasuries and Agency debt.
You must look behind the curtain to see who really pulls the strings; you must realize that the Chairman really is not that powerful, they are mostly figure heads that implement policy for the people that are called “King Makers.”
-Sapiens
I have to agree with somewhat Mr. Greenspan too.
I think he actually does bring up a great point that alot of people over looked or thought it was a stretch. But the collapse of the wall changed alot in terms of globilization, but I think he handled it wrong, as well as the US govt (both parties). Now, he doesn’t want to look like the bad guy, especially when he is making like 100,000/speech. He wants to pass the buck sort of speak.
But, if you really want to know whats going on, review his speeches from the last 6 months he was chair. During those 6 months, he really came clean, and said some things that really was telling.
just my 2 cents worth.
SAS
Reniting in NJ said,
“Mr. Gorbachev, tear down this wall!”
People mistook that phrase what he said was
“Mr. Gorbachev, move that bus.”
Greenspan stated the bottom of the Real Estate market has been met, is he on drugs or just wishful thinking.
In the coming years you will find out just how much damage he has done, by the way the Berlin Wall came down in 1989. Just what is he smokin????
It’s very simple: Greenscam threw the biggest party the world has ever seen ( recently passed the bottle to Ben “Helicopter” Bernanke).
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