Its the housing market. Its already tanking in some regions and has started its slide here in Cali. According to Dean Baker, co-director of the Center for Economic and Policy Research,this is going to have a major impact on the economy that the Shrub keeps telling us is so friggin rosy. People with ARM's (adjustable rate mortgages) will really be hosed since the interest rate will continue to rise, even though the value of their home will decrease. The failure rate of mortgages will skyrocket and bankruptcies will ..well..you can figure out the rest. But if you can't figure it out ..as I can't.. you might be interested in several articles Mr. Baker has published on this subject, this one on TomPaine.com, the other on the Home Page for CEPR. Just a few bits from his TomPaine article below:
"The weakening of the housing market was further assisted by an entirely predictable rise in mortgage interest rates. The Federal Reserve Board deliberately pursued a low interest policy to help the economy recover from the stock crash, pushing interest rates to their lowest level in 50 years. With inflation picking up steam due to the oil price spike, higher import prices, weaker productivity growth, and a stronger labor market, interest rates are rising back to more normal levels. The exact course going forward will depend to a large extent on how rapidly interest rates rise, but the basic plot is easy to see. With housing construction still far outpacing the growth in households, there will be a further build-up of inventories. In addition, many people who had been holding homes in anticipation of price rises will rush to sell, now that the market is headed downward. The supply of housing will be increased further by duress sales by people who cannot afford the jump in monthly payments on their adjustable rate mortgages. In addition, the rapidly rising foreclosure rate means that many financial institutions will be auctioning off repossessed homes."
Some folks might not make it through this very well as Baker uses that nasty word "recession". He states that when the stock market crash occured in 2001 and the recession hit, Greenspan used the housing bubble to guide the economy back upward...that valve won't be here for Bernanke. This might seem a boring subject, but unless you grasp it and understand how it can affect all of us in one way or another, its worth a few minutes of your time to read the articles..
Tags: Economy, Housing Market,Recession
