A view of the Greenspan/Bush housing bubble, not to be confused with the Greenspan/Clinton tech bubble -- this is the sequel. Joy. Full post and analysis at
Points West on the complete version of this essay from economist Dean Baker and a bit about Bush/Hoover from Eschaton:
After his failure regarding the largest financial bubble in the history of the world, it looks like Greenspan is now actively promoting the world's second-biggest bubble: the housing market.
The basic story is simple: Over the last eight years housing prices have outpaced the overall rate of inflation by more than 35 percentage points. There is no precedent for this sort of rise in home prices. In the past, home prices largely kept even with the general rate of inflation. [...]
[If, as the "housing bulls" claim,] underlying factors, rather than irrational exuberance, are the basis for the increase in home prices, then these factors should be having the same effect on rental prices. Studies have shown that, historically, rents and home prices have appreciated together. In other words, underlying factors will drive up home sale prices and rental prices by roughly the same amount. The rental markets tell a different story. [...]
Where does Greenspan fit in? He has promoted the housing bubble by reassuring people in public statements that there is no bubble. He also helped drive mortgage interest rates to 40-year lows earlier this year -- allowing people to spend more money on houses, which adds to price inflation and to the bubble.
The health of the economy will be the key to George W. Bush's reelection. Over the last three years, the housing market has been the driving force in the economy. [...]
When President Bush's first tax cut was being debated before Congress in January 2001, the public anxiously awaited Greenspan's views. He told Congress that the tax cuts were a good idea and that he was worried that without them the budget surpluses would be too large and that the government would pay off the national debt too quickly.
Three years later, we face huge budget deficits. There is no reason to ask whether Greenspan -- who doesn't have to answer to anyone -- would pursue a destructive economic policy for political reasons because he has already done so.
Great essay, read the complete post at Points West.