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Greenspan Calls Housing Boom An Imbalance

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JACKSON HOLE, Wyo. (AFX) -- In his sharpest words to date about rising home

prices, Fed chief Alan Greenspan described the housing boom as an economic

imbalance that could end badly for the economy.

In prepared remarks to the Jackson Hole Fed policy conference, Greenspan

said high home prices were due in part to low risk premiums demanded by

investors. Such increases in asset values "are too often viewed by market

participants as structural and permanent."

"History has not dealt kindly with the aftermath of protracted periods of

low risk premiums."

Greenspan warned asset values could fall if investors grow cautious and

demand higher interest rates. "What they perceive as newly abundant liquidity

can readily disappear," Greenspan said.

"Any onset of increased investor caution elevates risk premiums and, as a

consequence, lowers asset values and promotes the liquidation of the debt that

supported higher prices," Greenspan said.

Greenspan said the flexibility of the economy is the most important policy

asset in handling any shocks from a fall in asset values.

He expressed optimism that the adjustments could be made gradually and a

recession could be avoided.

"If we can maintain an adequate degree of flexibility, some of America's

economic imbalances, most notably the large current account deficit and the

housing boom, can be rectified by adjustments in prices, interest rates, and

exchange rates rather than through more-wrenching changes in output, incomes,

and employment," Greenspan said.

Protectionism and the large U.S. fiscal deficit threaten flexibility, he

said.

The Fed chairman, who is scheduled to leave his position by the end of

January, said central bank forecasts and monetary policy are becoming

increasingly driven by changes in asset prices, such as equities, bonds and real

estate.

This story was supplied by MarketWatch. For further information see

www.marketwatch.com.

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low risk premium = money for nothing ?

"Greenspan warned asset values could fall if investors grow cautious and

demand higher interest rates"

i assume when he talks about investors wanting higher interest rates he means the people who acually buy the houses ie the banks and building societies.

can someone clarify that.

Edited by privatefraser

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"Any onset of increased investor caution elevates risk premiums and, as a

consequence, lowers asset values and promotes the liquidation of the debt that

supported higher prices," Greenspan said."

could someone translate that into plain english,

looks like greenspan is deliberately using obfuscation when the ideas behind the language is very simple.

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"Any onset of increased investor caution elevates risk premiums and, as a

consequence, lowers asset values and promotes the liquidation of the debt that

supported higher prices," Greenspan said."

could someone translate that into plain english,

looks like greenspan is deliberately using obfuscation when the ideas behind the language is very simple.

To take housing as an example:

"If buyers are cautious they demand more for their money. As a result prices drop, and buyers need to borrow less to make the purchase. Those who borrowed heavily to drive the prices to the initial high level may suffer negative equity, and their creditors may have to write off the debt".

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To take housing as an example:

"If buyers are cautious they demand more for their money. As a result prices drop, and buyers need to borrow less to make the purchase. Those who borrowed heavily to drive the prices to the initial high level may suffer negative equity, and their creditors may have to write off the debt".

Quite a statement when translated into plain English!

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Guest Riser
"Any onset of increased investor caution elevates risk premiums and, as a

consequence, lowers asset values and promotes the liquidation of the debt that

supported higher prices," Greenspan said."

could someone translate that into plain english,

looks like greenspan is deliberately using obfuscation when the ideas behind the language is very simple.

I'll have a go:

"Any onset of increased investor caution elevates risk premiums" - If investors start to lose confidence in the wider economy and start to believe that asset (house) prices will not continue to rise as they have done in the past they may be more cautious about investing (buying a house)

"and, as a consequence, lowers asset values" Investors will offer lower and lower prices to offest the increasing risk of buying into a falling market. The faster prices are falling the less the proportion of asking price they will offer in order to offset the risk.

"and promotes the liquidation of the debt that supported higher prices," Owners of assets (houses) will try to liquidate their debt (sell and pay off their mortgage) and bank their profits possibly renting until the time is right to buy again.

Edited by Riser

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Greenspan warned asset values could fall if investors grow cautious and

demand higher interest rates. "What they perceive as newly abundant liquidity

can readily disappear," Greenspan said.

Give that man an O-Level.

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strong words from a moderate man....be warned.

I think big gay al is in the process of trying to talk the market down.good.

better that than nobody listening and sh1t hitting fan in one big dollop.

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  • 335 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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