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Thursday, June 02, 2005

More Bubble Trouble

Very interesting article over at BOP News about the housing bubble, where Oldman argues that the Fed is doing everything it can to perpetuate it:
How long could this last? Well for political reasons that transcend the Atlantic it would be my guess that it lasts at least another three years. Another three years since whoever takes over the Fed from Greenspan is likely going to have to promise to be even more accommodating to the bubble to sustain economic activity and because to push it into early 2009 will be the requirement to consolidate and seal the Republican hold on power for another Presidential cycle. Look for further tax-cuts, raiding Social Security, and whatever else must be done to keep the bubble going from the politicians....

It will be a more brutal ending than most people can anticipate and it should be allowed to end now before the damage wrought is too great. However for political reasons it will likely be stretched out at least through the 2006 elections and quite probably through the 2008 ones. In three years the ending of this bubble will have incredible destructive financial results, wiping out wealth not just for a few years but potentially up to a decade plus further cascading consequences such as triggering the failure of the dollar. That alas is the price of hubris, but forewarned is forearmed whether you intend to ride this bull or insulate yourself from it.
While nobody has a good crystal ball for these things, comments from the Fed today seem to support the thesis. I'd be interested to know your thoughts on the article, it's well worth the read. But I fear that Bushian economics could be leading us all into an incredible financial train wreck.

Who thought it was a good idea to trust the cokehead with the money?

Update: I'm hearing some speculation that the big push to get bankruptcy reform through Congress was because the finance industry knew this bubble was ready to burst and wanted to mitigate the hit they know they are going to take. Makes sense.

Update: Billmon is discussing the bubble conundrum this morning, as is Barbara at Mahablog.