I’m two days late linking to Paul Krugman’s 5/27/05 NYT column, but it’s one well worth reading. Paul Krugman makes a concise but excellent case for why a collapsing housing bubble will lead to bad economic times ahead. This is a rare case in which Paul Krugman is 99% correct, and he even avoids unnecessary Bush bashing (which he only does when he feels he has something really important to say).
Before I read his column, I was thinking the exact same thing this week, how a huge global recession (maybe even a depression) seems unavoidable. I also believe that the higher housing prices rise before they finally collapse, the worse it will be.
Donald Luskin notes the one weird statement in Krugman’s piece:
the Fed's ability to manage the economy mainly comes from its ability to create booms and busts in the housing market.
I don’t care for Alan Greenspan much either, but implying that the Fed has no power except to create housing booms and busts is certainly a huge overstatement.