Below, two Bloomberg reporters interview several economists who believe the only way to keep the US economy healthy is to increase long-term interest rates, thereby increasing the cost of borrowing, which, they hope, will lead to lower home prices, or at least a cooling off in appreciation. And, the only way to increase long-term rates, in their opinion, is to increase short-term rates. So, they are calling on the Federal Reserve to get moving.
The disturbing/exciting part of the article is where the economists explain how our nation’s economy is so tied to the housing market:
Greenspan Housing View Seen Hazardous by Wall Street Economists – Bloomberg.com
"Rosenberg credits housing with 40 percent of the 2.3 million jobs added since the 2001 recession. In a report to clients last week, Lehman Brothers Inc. said related industries accounted for more than a third of the nation’s economic growth over the four quarters that ended in March. Fed data show appreciation helped add $5.2 trillion to consumers’ balance sheets during the current expansion, or 68 percent of all wealth creation."
By Andrew Ward and Alison Fitzgerald, Bloomberg
Federal Reserve Chairman Alan Greenspan isn’t worried about the hot U.S. housing market so he isn’t cooling it off by raising interest rates faster.
Worry, say Wall Street economists including David Rosenberg of Merrill Lynch & Co. and Stephen Roach of Morgan Stanley.
The economists say the Fed must act, for a simple reason: The U.S. has become so dependent on real estate and construction to fuel growth and jobs that an eventual, wrenching correction has the potential to sink the entire economy.
"Act now and cut off the pinky, or wait till later and risk slicing off the entire hand,” Rosenberg said in an interview last week. "Either way it hurts, but you can still type with nine fingers.”