The Housing Bubble

A ‘bubble’ was created when people decided to go into debt and bid up housing prices because they expected to sell and make money.  As Fed Chairman from 2001-2005, Allen Greenspan helped create the housing bubble by cutting interest rates and expanding credit.  This created a false market and ultimately led to the global crisis of 2008, as house prices doubled between 1997 and 2006.

By dropping the rates to 0% and easing credit, existing policy could create another bubble.  After years of spending too much and saving very little, Americans are finally acting much more responsibly.  The Fed Policy of QE2 (Quantitative Easing) attempts to jump start the economy by encouraging people to spend more.  It doesn’t make sense to improve the economy by asking consumers to stop saving and start spending while the government issues more debt.  In other words, we are fighting a crisis caused by excessive debt by encouraging excessive debt.