Credit & Debt: The Global Bubble

When no less an authority than the International Monetary Fund weighs in on the U.S. housing bubble, you know things are going to shit:

Still, the IMF warned that inflationary pressures, high oil prices and a possible abrupt slowdown in the U.S. economy could restrain global growth. "This strong central forecast is surrounded by more uncertainty than usual, with risks tilted to the downside," Rajan said. "The forecasted (U.S.) housing slowdown is well and truly here," he said. "Indeed, rising inventories of unsold houses suggest things will get worse before they get better." Last month, the
Commerce Department reported that sales of new homes dropped 4.3 percent while the inventory of unsold homes climbed to a record high.

I disagree with the IMF's assertion that another rate hike is needed. As I have said many times before, what the people need are higher wages and better social safety cushions so that they don't max out their entire savings and credit just for basic needs. Better financial education wouldn't suck either.

If the Fed raises rates again, we might very well reach the proverbial tipping point and go over the edge into recession. The news of increased foreclosures should be more than enough reason to tilt the balance away from overleveraged consumers as it is.

This is also a pointed reminder of how central we are to the world economy, and how mistakes we make will have repercussions far beyond our shores. Americans are notoriously myopic about the world outside our window, and we can harm other nations with debt burdens just as badly as we can with bullets and bombs.

Posted at September 14, 2006 02:20 PM

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When no less an authority than the International Monetary Fund weighs in on the U.S. housing bubble, you know things are going to shit: Still, the IMF warned that inflationary pressures, high oil prices and a possible abrupt slowdown in the U.S. economy could restrain global growth. "This strong central forecast is surrounded by more uncertainty than usual, with risks tilted to the downside," Rajan said. "The forecasted (U.S.) housing slowdown is well and truly here," he said. "Indeed, rising inventories of unsold houses suggest things will get worse before they get better." Last month, the Commerce Department reported that sales of new homes dropped 4.3 percent while the inventory of unsold homes climbed to a record high. I disagree with the IMF's assertion that another rate hike is needed. As I have said many times before, what the people need are higher wages and better social safety cushions so that they don't max out their entire savings and credit just for basic needs. Better financial education wouldn't suck either. If the Fed raises rates again, we might very well reach the proverbial tipping point and go over the edge into recession. The news of increased foreclosures should be more than enough reason to tilt the balance away from overleveraged consumers as it is. This is also a pointed reminder of how central we are to the world economy, and how mistakes we make will have repercussions far beyond our shores. Americans are notoriously myopic about the world outside our window, and we can harm other nations with debt burdens just as badly as we can with bullets and bombs.