After the Bubble Bursts

The Federal Reserve has been maintaining the housing bubble to keep the economy going, writes Paul Krugman. Once it bursts, however, there won't be anything to replace it with.

1 minute read

May 31, 2005, 2:00 PM PDT

By Michael Dudley

"Although the housing boom has lasted longer than anyone could have imagined, the economy would still be in big trouble if it came to an end. That is, if the hectic pace of home construction were to cool, and consumers were to stop borrowing against their houses, the economy would slow down sharply. If housing prices actually started falling, we'd be looking at a very nasty scene, in which both construction and consumer spending would plunge, pushing the economy right back into recession.

"That's why it's so ominous to see signs that America's housing market, like the stock market at the end of the last decade, is approaching the final, feverish stages of a speculative bubble."

Thanks to Michael Dudley

Read the full story: Running Out of Bubbles

Friday, May 27, 2005 in The New York Times

Housing United States

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