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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory -- Ignore unavailable to you. Want to Upgrade?

To: ild who wrote (61480)	5/19/2006 5:41:11 PM
From: CalculatedRisk	Read Replies (2) \| Respond to of 110194

I'm hoping for some sort of soft landing ... I know, hope is for dopes<G>. I agree ... it seems likely that the slowing housing market will take the economy into recession. There are too many possible negative feedback loops: 1) as housing slow, jobs will be lost - and lost jobs means houses need to be sold. Arizona: Housing decline triggers layoffs azcentral.com California Construction Employment Falls calculatedrisk.blogspot.com 2) as housing slows, those with ARMs and little or no equity will start feeling the pain. That means rising foreclosures, and more housing inventory, and lower prices, and more people in trouble. 3) as housing slows, consumption will fall as homeowners borrow less (the infamous MEW - Mortgage Equity Withdrawal). As consumption falls, the trade deficit will fall and there will be less Foreign CB money to invest in US treasuries. So rates will rise ... causing housing to slow more. Feedback loops are scary in economics. Any or all of these could make a bad situation much worse.

To: ild who wrote (61480)	5/19/2006 5:48:08 PM
From: CalculatedRisk	Read Replies (1) \| Respond to of 110194

Good Q&A on tax cuts, economy and housing: Alan Gertler, Reno, Nev.: I'm a scientist, not an economist, so I'm fairly naive when it comes to what drives the economy. My question is this: Have the tax cuts stimulated the economy as claimed (which I don't believe given the past cases of Reagan and Bush senior), or has it been the willingness of the government to continue massive spending by increasing our debt that has led to the growth of the economy? Paul Krugman: It's actually neither. About the Bush tax cuts: the tax cuts of 2001 evidently didn't do the job; these days, the Bush people talk about the economy as if history began in the middle of 2003, after their SECOND wave of tax cuts. But while the economy did start growing, finally, in 2003, the growth wasn't at all of the form you'd expect if tax cuts were responsible. The main tax cuts were on dividends and capital gains; supposedly this would make it easier for businesses to raise funds and invest. But business investment hasn't been the main driver of growth; in fact, businesses have been sitting on huge piles of earnings, reluctant to invest. Instead, the big driver was housing construction and consumer spending. So what really happened? Low interest rates led to a housing boom that eventually turned into a housing bubble. High house prices made people feel richer, and they could borrow against the increased value of their homes, feeding consumer spending. Tax cuts had nothing to do with it. economistsview.typepad.com

To: ild who wrote (61480)	5/19/2006 7:27:28 PM
From: chainik	Read Replies (2) \| Respond to of 110194

Have you seen this? izvestia.ru Loose translation: Russians are rushing to buy mutual funds after 15% drop in russian stock market. The consensus is that this is an excellent buying opportunity. Looks similar to an excellent buying opportunity in internet stocks in March 2000 (g).