Greenspan Warns

Greenspan gave a pretty serious warning about the housing bubble yesterday. I believe that he would rather try to talk down house prices than keep raising interest rates. Raising interest rates will certainly pop the bubble eventually, but it will also hurt other parts of the economy that do not need to be slowed. Corporations have been able to borrow pretty cheaply now for at least two years and it would not be good for the economy if higher interest rates caused companies to spend less on hiring and more on financing their debt.

"JACKSON, Wyo. - Federal Reserve Chairman Alan Greenspan on Friday cautioned Americans against thinking the value of their homes and other investments will only go higher, saying "history has not dealt kindly" with such optimism.

Greenspan also said that bloated trade and budget deficits threaten the long-term health of the U.S. economy.

His warnings, made at an economic policy conference, came as the Fed chief and prominent economists pondered his 18 years at the central bank and the legacy he will leave. He is expected to step down in five months."


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