Friday, December 02, 2005

Ultra-Cheap Credit will Soon be History (Again)

It seems that central banks around the world will act in concert to reduce the flood of excess liquidity that so many house buyers have become addicted to. If this happens, it is sure to destroy the RE bubble. Well, Greenspan did warn people when he said things like:
"This vast increase in the market value of asset claims [stocks, bonds, houses] is in part the indirect result of investors accepting lower compensation for risk. Such an increase in market value is too often viewed by market participants as structural and permanent... But what they perceive as newly abundant liquidity can readily disappear... history has not dealt kindly with the aftermath of protracted periods of low risk premiums."
Some choice quotes:
"Years of super-cheap credit are coming to an end as the world's major central banks begin to act in unison to drain excess cash that many fear could have severe repercussions for economic and price stability."

"As heads of the U.S. Federal Reserve, European Central Bank and Bank of Japan meet in London this weekend with finance ministers and bankers from the Group of Seven economic powers, they are likely to conclude there is still much to do."

"By the middle of next year, all three of these central banks may be withdrawing cash from the global economy -- via higher Fed and ECB interest rates or, in the case of Japan, by ceasing to pump even more cash into the system."

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