This is another factor. They seem to be saying that when the NASDAQ crashed they lowered interest rates which made real estate prices more attractive. This in turn made people invest in real estate instead of the stock market and that kept the stock market depressed.
The argument seems to be that when the NASDAQ crashed the Fed sharply lowered interest rates. This reduction in interest rates then--in a highly normal, expected, and predictable fashion--raised property prices. Falling mortgage rates made individuals willing to bid more for houses, and at low interest rates the stream of expected future rents from apartments is worth more. So property prices rose. And then--I think the next stage of the argument goes--a positive-feedback loop got going. Because people had made big profits investing in real estate even as the NASDAQ collapsed, other people began buying real estate simply because it was going up. As real estate prices rose, people feeling wealthier stopped their saving out of income and began borrowing against their houses to support consumption spending. Eventually the people who buy real estate just because its price is going up will realize how big a mistake they have made. But in the meantime the Fed's accomodation has set off a real estate bubble--and planted a ticking time-bomb in the American economy, for when the real estate bubble pops the consequences (collapsing consumption spending, large-scale foreclosures and household bankruptcies, corporate bankruptcies, et cetera) may well be dire.
Current Events » in reply to P.S. The Rest of the Story
re: P.S. The Rest of the Story
The whole thread (18 posts)
- why did the Bush recession start?
- Since the clinton recession started in 2000, you tell me. (n/t)
- When you start taking 300 and 400 level classes, let us know. I'm sure we'd all be glad to help. (n/t)
- According to the NBER (the official arbiter of when U.S. recessions begin and end), the economy peaked in March of 2001 . . .
- This has GOT to be the longest reach I've seen yet.
- Correction: why did the Clinton recession start? It began in late spring of 2000 with the dot-com collapse. Don't you remember. I notice that your graph omits this period. (n/t)
- Answer, because Clinton started it a year before.
- Look at the trend. It was falling during Clinton's last year.