Greenspan: End of home boom inevitable

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This may be the most honest thing this man has uttered since becoming Federal Reserve Chairman 18 years ago (gosh, has it really been that long?). This is simple mathematics. It is no secret that the cost of living is skyrocketing (see the current oil debacle) while wages are decreasing. Everywhere you look more neighborhoods worth living in are being over-developed and gentrified so much that the average American simply cannot afford to live a moderate, middle-income life.

Many people my age (I'm 29) are either still living with their parents or are shacking up with their respective others out of sheer economics rather than actual desire. In order to pay for housing, transportation, food and clothing (without going insane on any of the above items) one has to have wages well over 35K or it becomes impossible to make ends meet. On the flip side of that, suppose you can scrape together a living that at least meets your basic needs, in order for the economy to grow and flourish, consumerism must expand exponentially. Simply put, we gots to buy stuff. It's Pet Rock-uber alles or bust!

Now when you take falling wages, shortages of jobs (no matter what Rush Limbaugh is telling you), and combine them with the rising cost of needs based resources such as housing, you can easily see where all of this going. The bubble is going to burst because reality cannot perpetrate a fraud forever. You cannot raise the cost of a needs based resource like housing so high that the average consumer cannot afford them. At some point the law of supply and demand must take effect and correct the marketplace.

This is what happened with the Internet bubble. People kept dumping oodles of cash into a market, which only served to inflate its worth. The problem was that adequate consumer spending did not back it. The demand was simply not there. At the peak of the Internet boom, the average consumer still thought Amazon was a B-grade schlock skin movie you might see on Cinemax at three in the morning. The average consumer still likes to actually go to the store and feel the item they were purchasing. Sure Internet sales have increased since then but the malls aren't exactly empty either. My point is that this market was inflated well beyond the consumer’s ability or willingness to support it.

That takes us back to housing. If we cannot afford to buy the house, we won't. When the market has too many unbought expensive (or relatively inexpensive for that matter) houses then the whole kitten caboodle will come crashing down. Not to mention that interest rates, as low as they are now, cannot stay this low forever. Markets fluctuate all the time. What comes up must go down. As long as this administration continues to push an agenda of corporate feudalism, there will never be enough consumers to support the rising housing markets.

One last item on this before I cite the article that spawned this rant. One of the other reasons that the Internet bubbled and then busted was that the much-ballyhooed Dot Com stocks were traded so fast and so furiously that they never developed any real value. It was all fake value dependant on the rate of trading. The same thing is happening in the housing market. People are buying houses and quickly turning them over for a fast profit. For the time being that's fine and dandy for those actively trading in the housing market but for the rest of us whom have our lives invested in the home we live in (like my fiancé), when the housing bubble does indeed burst, it will dramatically effect the value of the homes we live in now. After the inevitable bust, we will be shelling out ridiculous sums of money for relatively worthless property. Sure, those that got out early and already turned over their houses won't be affected but the rest of the country will most likely fall into at least a recession if not a depression altogether.

But don't just take my word for it, here's Cheaty McStealsurmoney, Mr. Alan Greenspan:

U.S. home prices could fall as the housing boom "inevitably" slows, Federal Reserve Chairman Alan Greenspan said on Saturday as he cast doubt on central banks' ability to sway such asset values.

Greenspan offered the warning about the U.S. housing market in concluding remarks to an annual Kansas City Fed symposium, his last as Fed chairman and one focused this year on a retrospective of his 18-year tenure.

In unusually explicit terms, the central bank chief gave his reading of challenges he sees facing his still-unknown successor and laid out his own views on issues such as inflation targeting, fiscal policy and economic imbalances.

"The housing boom will inevitably simmer down," Greenspan said in the prepared remarks. "As part of that process, house turnover will decline from currently historic levels, while home price increases will slow and prices could even decrease."

Greenspan said while he expects continuing debate over whether the Fed could and should use its power over interest rates to try to influence prices for assets such as stocks and homes, he did not think it was feasible to do so.

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