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Liberty Whistle Telegraphs Greenspan Concerns

Liberty Whistle Telegraphs Greenspan Concerns


Dan Spillane - Citizens for Corporate Accountability("CCA")
www.libertywhistle.us

-Both concerns raised previously in CCA reports have been since raised as major by Fed Chairman Greenspan

-First comprehensive evidence of housing "bubble": debt, inventories, prices paid for materials

(SEATTLE) 03/03/04 - Federal Reserve Chairman Alan Greenspan has raised two important issues in recent testimony, both of which were recently focus items raised by Citizens for Corporate Accountability. These areas are profoundly important to the economic well-being of the US.

One issue, of foreign banks taking on record levels of US debt--and potential danger to markets--was commented on specifically by CCA on 02/17/04 (see " Japan Reserves on Edge", below). In the CCA article, it was stated that the magnitude of these expenditures was notable, and very dangerous (1). Subsequently, Mr. Greenspan explicitly acknowledged that very same risk two weeks later–he described the purchases as "awesome…[which] will eventually cease"--thus, bringing the risk of upward pressure on interest rates (see "Greenspan Warns on Asian Bank Buying", Reuters, 03/02/04).

Another issue, related directly to the danger of US mortgage growth, was reported on by CCA as an issue on 01/06/04 (described as a part of "hole"; see " Hole found", below). This issue was subsequently emphasized by Greenspan on February 24, 2004, with respect to the major holders of mortgage debt; in his testimony, Greenspan wisely recommends "Limiting the debt of Fannie and Freddie" (2).

In fact, since the 02/24 testimony, where Greenspan suggested overheating in mortgage financing, further unambiguous evidence of overheating has emerged, including an increase in inventories of unsold homes several months in a row, and evidence that inflation pressures have emerged strongly as a result of overbuilding--and pressures compete with (and threaten recovery of) other domestic industries which rely on certain resources (3).

Clearly, Mr. Greenspan's warning about Fannie and Freddie, coupled with recent economic data, are the first concrete proof of a so-called "housing bubble." Legislation to relieve this problem, as well as a rise in interest rates independent of other factors, is likely.

### Footnotes ###

(1) "Japan has been buying US dollar assets to offset currency effects due to problems in the US economy, at a rate never before seen. This has been holding up US credit, deficit, housing, and stock markets, and keeping US interest rates low", CCA

(2) http://www.federalreserve.gov - testimony.

(3) Increasing inventories, falling sales, see http://www.btmna.com/reports

"Materials costs have risen in recent weeks, notably for lumber, drywall, and steel. Many builders, however, have managed to offset rising materials costs by raising their own prices. Several contacts reported shortages of subcontractors in certain specialized trades." beigebook/2004/20040303/4.htm


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