US staring at double-dip recession as calls for higher interest rates grow

[EV_Ares]

By slashing interest rates in the face of rising price pressures, has the world's most important central bank sowed the seeds of a new inflationary era? It's an alarming idea, but one gaining currency all the time.

Since the sub-prime crisis broke last summer, America's Federal Reserve has dropped rates by 325 basis points - all the way down to 2 per cent. But looser money, along with sky-high oil and food prices, has cranked up US inflation, which now stands at 3.9 per cent.

In real terms, American borrowing costs are firmly in negative territory. No wonder the markets are wondering if Ben Bernanke, Fed chairman, has made a grave error.

A growing band of analysts has been arguing the Fed should have handled the credit crisis in the same way as the European Central Bank - injecting liquidity into gummed up money markets, rather than lowering rates. Last week, such criticism got much louder.

The US is now suffering from the aftershock of the irresponsible policies of Alan Greenspan. By keeping rates too low for too long following the terrorist attacks of 2001 and the dotcom crash, Bernanke's iconic predecessor may have pleased his political masters, but he also pumped up America's gigantic real estate bubble.

It gets worse; rest of article @ link: http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2008/06/01/ccliam101.xml

[nadinbrzezinski]

1. Choice section

Amid an excess supply of unsold newly built homes, that bubble is now bursting. Fresh figures show that during the first quarter, the highly respected Case-Shiller national house price index fell, on an annual basis, by 14.1 per cent. Believe it or not, that's a steeper decline than during the Great Depression of the early 1930s.

***************

Hold it, haven't some of us been saying this?

[magellan]

2. Mm hm.

Great Depression II coming up.

It's hard to sell newly built homes when so many already occupied ones are being repossessed. In our zip code just outside Orlando there are over 400 homes in pre-foreclosure, 43 on auction and 43 bank-owned. And the trend in house value is down, down, down. This is not a good time to be buying a house in my area.

Things aren't bleak everywhere. But it's bad in enough places that the entire economy will continue to worsen and we will all suffer.

edit: lost word, spelling error

[nadinbrzezinski]

3. And the Cassandra's have it

I hate to be right on this one

[nashville_brook]

5. in my area outside of Orlando there's class-action lawsuits -- Lee Vista bombing range Villas.

just to add insult to injury. and still they build!

[magellan]

6. You live there or near there??

Holy cow. Every time hubby and I see that on the local news we shake our heads...and wonder if we might one day soon be able to afford a house there. He grew up in Hull where they're STILL unearthing bombs dropped by the Germans during WWII, so this doesn't faze him. Also, we don't have children who would attend that school!

[nashville_brook]

7. we're not in Lee Vista... thank god... but...

we're in Cypress Springs kinda close (across the 417) -- and the fiancé drives thru Lee Vista on the way to work everyday. It's a shame for a lot of reasons, but the development is actually pretty -- so, if you were so inclined now would be the time to look into it (or soon after the lawsuits). I'd say you could do a short sale very easy (buying for less than is owed).

[magellan]

8. I'm glad to hear that

The people who live there have my sympathy. There's just no excuse for the property not to have been checked properly before building on it. It's a wonder the construction crews didn't accidentally detonate something when digging.

[sharesunited]

4. An idea gaining currency. Good one.