Posted on 12/01/2006 8:49:30 PM PST by InvisibleChurch
Friday, Dec. 1, 2006 10:36 p.m. EST Greenspan: Worst is Over for Housing
Former Federal Reserve chairman Alan Greenspan said on Tuesday that the worst of the housing adjustment was over, and that he was preparing to publish an analysis of the "serious dispute" over the true effect of mortgage wealth on consumer spending.
Housing starts and other data indicated the dampening effect that a slow housing market had on gross domestic product was at its maximum in the third quarter, when growth slowed to a weaker-than-expected 1.6 per cent annual rate, he said at an investor conference organized by investment bank Friedman, Billings, Ramsey Group Inc.
Greenspan said he expected inventory levels to come down at a "reasonably rapid pace" and that "it looks as though sales figures have stabilized." But he also said there would be actual price declines in housing. "That will have some impact on consumer expenditures," he said. "We haven't seen it yet."
Separately, the National Association of Realtors reported Tuesday that the median price of a home dropped to $221,000 in October, a decline of 3.5 per cent from a year ago. It was the biggest year-over-year price decline on record for an asset that many Americans use as a gauge of their financial well-being.
The question over mortgage equity extraction was whether equity that is extracted is "acting as a proxy for all types of financing of goods that would've been bought anyway."
"The debate going on is a very interesting one, but I would say is inconclusive," Greenspan said. Continue Article
The paper Greenspan is co-writing will include data on gross equity extraction dating to 1968 and a more detailed analysis of data from 1991 to the present. He did not say when the research would be released.
He also spoke on topics ranging from the burden of the Sarbanes-Oxley law, the transfer of workers from centrally controlled economies to market-based ones, the separation of banking from commerce and the appeal of gold.
While he said it was difficult to tell whether Sarbanes-Oxley has affected capital investment, he was critical of the accounting aspects of the landmark 2002 reform law. He said most of the law is a "cost-creator with no benefit I'm aware." Greenspan said the whole process of accounting dictated by the regulation is essentially a diversion that keeps chief executives from doing what they should be, namely thinking through projects, instead of figuring out how to stay out of jail.
He said regulators were examining regulatory adjustments but he believed there should be statutory changes in the law.
"I hope it happens before the whole financial system walks off to London," he said.
On the separation between banks and other companies, he said that the changing nature of the economy was making the distinction between the two less obvious.
"Over time, we will find it impossible to make that distinction," he said, in response to a question about Wal-Mart Stores Inc., which has applied to establish an industrial loan corporation, a kind of bank. "Banking is now essentially in cyberspace."
He predicted that physical bank branches would become anachronisms but conceded that an obstacle to that was that people like dealing with people.
About global inflation, he said the shift of people from rural areas to urban ones, such as the one happening on a large scale in China, is leading to a very significant fall in labour costs around the world. He said it would reduce the rate of inflation and accelerate growth in developing countries.
Greenspan, who retired as Fed chairman in January, is writing a book and runs Greenspan Associates, a consulting firm in Washington.
© 2006 Associated Press. All Rights Reserved. This material may not be published, broadcast, rewritten or redistributed.
"They won't even be able to build enough houses in the DC area in the next 10 years to keep up with the incredible demand that is coming here"
How so? Really, I am curious. What will drive people there? Is not that area already packed?
I read that 125,000 will be coming to this area. Government jobs and a great economy. Lots of great private industry jobs also.
Suprisingly there is a lot of room left for building. I'm 50 miles west of DC and we fight development tooth and nail.
Sorry, that was meant to be 125,000 per year!
Having a bit of gold in one's portfolio, from time to time, is perfectly sane. To claim, as the goldbuggers do, that gold is it, it, IT and ONLY IT, is delusional.
Why can't you use M2? Repurchase agreement information is still available. Where's the conspiracy?
If the money supply is being expanded so far beyond what's required for GDP growth, where's the inflation? 10-year bonds are yielding about 4.4% so inflation is in the 2.5% range. You can still get a 30-year mortgage for 6.15%, which means that the long term expectation for inflation is low.
Besides, The Fed has used interest rates instead of money supply to spearhead monetary policy for the past 20 years. The fact that M2 and M3 have grown so much with low inflation speaks volumes to the disconnect.
The Euro was worth $1.20 when it was created. You say it's now worth $1.30. That means the Euro is less than 10% stronger today than when it was introduced. Is that how you define incinerated? No wonder you worry so much.
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