Best of the Week
Most Popular
1.How U.S. Dollar Destruction Threatens the Global Economy - Steve Forbes
2.Why UK House Prices Will Continue Rising - 'It's Immigration Stupid' - Nadeem_Walayat
3. Bitcoin Price at Beginning of a Move up? - Mike_McAra
4.Gold Price to Plunge, Visiting Fort Knox - David_Hague
5.Silver Price Forecast - Metal to Gain Ground in August on These Factors - Jim Bach
6.Gold And Silver Will Rise With US Dollar Demise, Just Not Soon - Michael_Noonan
7.Bitcoin Price Strong Move Possible - Mike_McAra
8.Israel Gaza War Crimes - Soldier's Ordered to Shoot Civilians Including Children - C4News - C4News
9.UK House Prices Crash Warning - Daily Mail Cognitive Dissonance - Nadeem_Walayat
10.UK House Prices Boom - Top Quick Cheap Tips to Help Sell Your Home - Nadeem_Walayat
Last 5 days
Why Emotional Discipline is Key to Trading Success - 21st Aug 14
Getting the Most Value from Your “Geriatric Cruiser” - 21st Aug 14
Mafia Boss Claims Stocks A Bubble, Buy Physical Gold and Silver - 21st Aug 14
Outrage! On The Beheading of Our Media Brother James Foley - 21st Aug 14
Stock Market Crash a Historical Pattern? - 21st Aug 14
The Black Box Economy - 21st Aug 14
The Bond Market is taking Advantage of Janet Yellen`s Dovishness - 21st Aug 14
Meet Your Investment Manager - 21st Aug 14
Gold and Silver Trading Alert as U.S. Dollar Soars to New Highs - 21st Aug 14
President Obama Strongest Statement Yet on Israel Gaza War - 20th Aug 14
Peak Gold? Russia To Surpass Australia As World No 2 Gold Producer - 20th Aug 14
AI, Robotics, and the Future of Jobs - 20th Aug 14
Stock Market Investors What's Your Exit? - 20th Aug 14
The Gold War - Thinker, Trader, Holder, Why? - 20th Aug 14
Ukraine Interest Rates Soars to 17.5% As External Debt Cannot be Repaid - 20th Aug 14
Rising Interest Rates and The End of Stimuland - 20th Aug 14
Inflation Watch: $245,000 to Raise a Child in United States - 20th Aug 14
Inside the Stunning Deal That Put Apple and IBM on the Same Side - 20th Aug 14
The US Gold in Fort Knox is Secure, Gone, or Irrelevant? - 19th Aug 14
Bitcoin Price On The Brink of a Possible Reversal - 19th Aug 14
Why Tesla Stock Price Will Double in the Next 12 Months - 19th Aug 14
Europe's Economic Malaise: The New Normal? - 19th Aug 14
The Coming U.S. Economic Collapse Will Trigger a Revolution - 19th Aug 14
Market Bubbles, Bubbles Everywhere - 19th Aug 14
This is Your Economic Recovery With and Without Drugs - 19th Aug 14
Stock Market Strong Start to Jackson Hole Week - 19th Aug 14
Iraq, Ukraine - Oh, What A Tangled Mess We Weave - 19th Aug 14
How to Apply Moving Averages as a Trading Tool - Video - 18th Aug 14
Why Short Stock Traders Are Losing Money This Week - 18th Aug 14
Stock Market Rally May be Complete - 18th Aug 14
Why Chinese Citizens Invest In Gold - 18th Aug 14
Palladium Reaches 13-Year High Over $900 oz as Gold Trading Volumes Surge 66% - 18th Aug 14
Understand and Profit from Surging European Volatility - 18th Aug 14
No Escape from The Dollar as The Currency Standard - 18th Aug 14
Stock Market New Highs Less Certain - 18th Aug 14
German Stock Market DAX About To Drop - 18th Aug 14
Stay on Board - Stock Market Big Picture - 18th Aug 14
Europe Economy Is Tanking, QE Is Coming - 18th Aug 14
Are You Ready for The Greatest Technology Revolution Yet? - 17th Aug 14
Why King Coal is Bigger than Oil or Gas - 17th Aug 14
U.S. Empire of Death and Lies - 17th Aug 14
Ukraine - Whose Spin Are We Caught Up In Here? - 17th Aug 14
Time Decay And No Escape For Abenomics - 17th Aug 14
India BSE SENSEX The Party Is Over In Bombay - 17th Aug 14
Stock Market Uptrend Looks Underway - 17th Aug 14
The Key Role Of Conspiracy Theory In Dumbing Down Society - 17th Aug 14
The Federal Reserve in Denial Mode - Bond Market Explained - 17th Aug 14
Stock Market Ukraine-Triggered Volatility, But a Flat Finish - 16th Aug 14
Stock Market Investors Conditioned To Catch The Falling Knife - 16th Aug 14
Decline And Fall Of The CO2 Crisis - 16th Aug 14

Free Instant Analysis

Free Instant Technical Analysis


Market Oracle FREE Newsletter

The Biggest lie in Stock Market History Revealed

Don't Blame the Market for Housing Bubble and Crash

Housing-Market / US Housing Apr 10, 2007 - 10:17 AM GMT

By: Dr_Ron_Paul

Housing-Market The U.S. housing market, long considered vulnerable by many economists, is now on the verge of suffering a serious collapse in many regions. Commodities guru and hedge fund manager Jim Rogers warns that real estate in expensive bubble areas will drop 40 or 50%. Mainstream media outlets like the New York Times are reporting breathlessly about the possibility of widespread defaults on subprime mortgages.


When the bubble finally bursts completely, millions of Americans will be looking for someone to blame. Look for Congress to hold hearings into subprime lending practices and "predatory" mortgages. We'll hear a lot of grandstanding about how unscrupulous lenders took advantage of poor people, and how rampant speculation caused real estate markets around the country to overheat. It will be reminiscent of the Enron hearings, and the message will be explicitly or implicitly the same: free-market capitalism, left unchecked, leads to greed, fraud, and unethical if not illegal business practices.

But capitalism is not to blame for the housing bubble, the Federal Reserve is. Specifically, Fed intervention in the economy-- through the manipulation of interest rates and the creation of money-- caused the artificial boom in mortgage lending.

The Fed has roughly tripled the amount of dollars and credit in circulation just since 1990. Housing prices have risen dramatically not because of simple supply and demand, but because the Fed literally created demand by making the cost of borrowing money artificially cheap. When credit is cheap, individuals tend to borrow too much and spend recklessly.

This is not to say that all banks, lenders, and Wall Street firms are blameless. Many of them are politically connected, and benefited directly from the Fed's easy money policies. And some lenders did make fraudulent or unethical loans. But every cent they loaned was first created by the Fed.

The actions of lenders are directly attributable to the policies of the Fed: when credit is cheap, why not loan money more recklessly to individuals who normally would not qualify? Even with higher default rates, lenders could make huge profits simply through volume. Subprime lending is a symptom of the housing bubble, not the cause of it.

Fed credit also distorts mortgage lending through Fannie Mae and Freddie Mac, two government schemes created by Congress supposedly to help poor people. Fannie and Freddie enjoy an implicit guarantee of a bailout by the federal government if their loans default, and thus are insulated from market forces. This insulation spurred investors to make funds available to Fannie and Freddie that otherwise would have been invested in other securities or more productive endeavors, thereby fueling the housing boom.

The Federal Reserve provides the mother's milk for the booms and busts wrongly associated with a mythical "business cycle." Imagine a Brinks truck driving down a busy street with the doors wide open, and money flying out everywhere, and you'll have a pretty good analogy for Fed policies over the last two decades. Unless and until we get the Federal Reserve out of the business of creating money at will and setting interest rates, we will remain vulnerable to market bubbles and painful corrections. If housing prices plummet and millions of Americans find themselves owing more than their homes are worth, the blame lies squarely with Alan Greenspan and Ben Bernanke.

Dr. Ron Paul
Project Freedom

Congressman Ron Paul of Texas enjoys a national reputation as the premier advocate for liberty in politics today. Dr. Paul is the leading spokesman in Washington for limited constitutional government, low taxes, free markets, and a return to sound monetary policies based on commodity-backed currency. He is known among both his colleagues in Congress and his constituents for his consistent voting record in the House of Representatives: Dr. Paul never votes for legislation unless the proposed measure is expressly authorized by the Constitution. In the words of former Treasury Secretary William Simon, Dr. Paul is the "one exception to the Gang of 535" on Capitol Hill.


© 2005-2014 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

Free Report - Financial Markets 2014