Housing Market Slowing, It’s Bush’s Fault
No matter how you slice it, the US economy is slowing down as a cursory examination of the housing market will show. Democrats are going to look at the news of the slower than expected home sales as an indication of how Republicans are bad for the economy.
More alarm bells for the stumbling housing market rang Thursday, as a government report on new home sales showed a bigger-than-expected drop in sales, along with a continued rise in unsold homes and a further weakening of prices in the closely watched sector. (snip)
The pace of new home sales is now down 21.6 percent from year-earlier levels, with every region of the country showing double-digit percentage declines compared to July 2005.
No doubt Howard Dean will attribute the slower sales to President Bush’s failed economic policies. But slower home sales are more of an indication of how high interest rates are than anything else. Current Federal Reserve Chairman Ben Bernanke has shown a willingness to raise interest rates about a quarter percentage point per month for the last two years. As the interest rates have risen, people have to pay more to buy their home. Eventually the rate is to the point where people have had enough and they stop buying houses until the interest rate declines. The only problem is that the housing market is a good reflection of the rest of the economy. When the housing market starts to slide usually, the rest of the economy follows.
The US economy is like a huge locomotive with a series of brakes. When the interest rate is raised as it was two years ago, the effects of the change may not be seen for a while. Our engineer (Fed Chairman) sets a brake, and another, and another. When the engineer notices the train is slowing, he starts releasing brakes. The problem is that the train is already slowing down and there are still other brakes set. The train will still continue to slow until enough brakes are removed for the train to start speeding up again. The US economy is huge, so huge it takes a series of interest rate hikes to slow the economy down. Our engineer, Bernanke, has set the brakes without waiting long enough to see what the effect is. Sometimes raising the rate a quarter point may not be felt until six months have gone by. So raising the rate steadily for two straight years is overkill. Bernanke needs to slow down and take his time. The US economy is too cumbersome for quick fixes. But don’t expect the Democrats to understand this. All they know is that a slowing economy is George Bush’s fault. Then again, don’t they blame him for everything that goes awry.
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