Is the US Economy Headed for a 'Perfect Storm'?

Widespread home re-financing, miniscule personal savings, huge trade deficits, and a falling dollar are all signs that the economy is heading towards an unprecedented crisis.

1 minute read

May 10, 2005, 10:00 AM PDT

By Michael Dudley


"The United States weathered a sharp decline in the stock market just a few years ago, in large part because of the housing market's strength. But a sharp rise in interest rates would literally hit home. For new home buyers, or for people with adjustable rate mortgages, 200 extra basis points of interest on a $400,000 mortgage would represent $8,000 a year in extra payments. If mortgage rates were to rise sharply, housing prices would level off and perhaps do the unthinkable: fall.

"Suddenly, the mechanisms that have allowed consumers to keep the economy afloat - the ability to realize profits from selling homes, to refinance mortgages at lower rates and to borrow cheaply against home equity - would be broken. In the absence of sharply rising wages, that $8,000 in extra interest would be $8,000 less to spend at Home Depot, or at the Cheesecake Factory, or at Disney World."

Thanks to Michael Dudley

Monday, May 9, 2005 in The New York Times

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