NRO’s eye on debt and deficits . . . by Kevin D. Williamson.

Can-Kicking toward the Double Dip


The Federal Reserve made no move to tighten up the loosey-goosey money supply today, keeping the rate at 0.0-0.25 percent. Fed-watchers don’t expect any tightening until the second half of 2011. That’s a lot of cheap money for a long, long time.

But the Fed may have its eye on some other rough news today: Housing is nearly back in meltdown mode. New home sales dropped nearly 33 percent in the new report, down to an annualized rate of 300,000 – the lowest number on record since Commerce starting tracking the figure in the early 1960s. Housing is headed for a double dip; is the rest of the economy?

Uncle Sam has done everything in his power to keep the housing market mobile, from endless support for Fannie and Freddie to that silly $8,000 first-time buyers’ tax credit, which only served to front-load some marginal sales, producing a spike in sales that only makes the fall-off look that much more steep. Housing still has a good long ways to fall before prices get back to their historic trendline. Sir John Templeton, predicting the housing crash back in 2000, offered this advice: “After home prices go down to one-tenth of the highest price homeowners paid, then buy.”

Problem is, Uncle Sam already bought, and the Fed has a lot of mortgage-backed stuff on the balance sheet. Investors have always wondered which way the government will go, but now the government is an investor, and a big one. We’d probably be better off if Washington would just let housing hit bottom, but you can be sure that the Obama administration will go red in tooth and claw fighting to keep whatever’s left of the real-estate bubble inflated, borrowing our way out of stagnation. Where have I heard that idea before?

Tags: Housing , Monetary Policy


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