When will The Government Bubble Pop?
December 8, 2009 · Filed Under Uncategorized
Looking back, most investors now understand that over-investment in housing was in large part caused by the Federal Reserve. The central bank under Alan Greenspan cut interest rates way too low, kept rates there way too long and–when it finally got around to lifting them–did it way too slowly.
When monetary policy is overly loose, bad things inevitably happen, usually related to mal-investment in a particular sector or across several sectors. Eventually, investment in those areas is pushed too far and will not generate enough cash flow to cover growing debt. Bust follows boom, investment (justifiably) dries up and the system goes through a painful correction.
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