Wednesday, August 31, 2005

Greenspan Warns About Dangers of Overheated Housing Market

"Easy Al" Greenspan made another warning abut the state of the housing market. This was made in couched terms, as usual, but the fact that he feels the need to keep making pronouncements on the matter should be telling. This one was made last Friday at an economic conference,

"Federal Reserve Chairman Alan Greenspan on Friday cautioned Americans against thinking the value of their homes and other investments will only go higher, saying 'history has not dealt kindly' with such optimism.

. . . .

Rising house and stock prices have made many people feel more wealthy and have helped to support consumer spending, a key ingredient of the economy's good health.

Greenspan, however, said people shouldn't count on that paper wealth, which can evaporate if economic conditions deteriorate rapidly.

'What they perceive as newly abundant liquidity can readily disappear,' he said. 'Any onset of increased investor caution' could cause home and stock prices to drop, he said.

A long spell of low interest rates and low risks for investors has especially encouraged investment in homes. Greenspan worried about what would happen if that climate were to change.

'History has not dealt kindly with the aftermath of protracted periods of low-risk premiums,' he said."

Greenspan Sends Up a "Yellow Flag"


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