Why Cutting Interest Rates Will Not Help the Housing Market

Dean Calbreath reports:

“A Fed funds cut will not bring back the U.S. housing market,” Wells Fargo economist Eugenio Aleman bluntly said. “What if the housing market remains depressed? Then the markets will ask for another rate cut and another and another and another – and then what?”

The cheap cash that Greenspan and others injected into the world economy after the Asian economic crisis of 1997 helped fuel the stock market bubble of 1999. The cheap cash that Greenspan floated in 2000 helped fuel the real estate bubble. What new bubble will be created if too much cash enters the economy?

“The subprime mess was a bad investment decision from the very beginning and was brought about by having very low interest rates for a very long period of time,” Aleman said. “And the only way to go forward is to flush it out, take the loss and move forward, not bring it back.”

We doubt politicians are going to listen to this sound advice.