Productivity Bubble

The US Federal reserve recently outed as villain of the Dot com bomb and the recent credit crisis is shifting blame for the housing collapse. It hired one of its own to do provide academic cover for itself. The result is hilarious! Former Fed member James Kahn's paper puts the blame for the housing bubble squarely on the shoulders of the hard-working more productive American people. With bubbles popping everywhere Mr. Khan attempts to con you into believing a productivity bubble caused the housing crisis.

Lax lending standards alone did not bring about the housing bubble, according to a study by the New York Federal Reserve, challenging the widely held view of the origins of the collapse in home prices.

The study released on Thursday argues that swings in labor productivity played a significant role in the rapid growth and subsequent steep drop in house prices.

Consumers thought that because they were working harder starting in the mid-1990s, their paychecks would follow suit, encouraging them to pay high prices for housing, the study found.

Obviously any scapegoat will do. Yes American workers were more productive beginning in the mid-1990s, but the bubble was inflated by loose monetary policy at the Fed and lax lending standards fueled by executive management's greed. The well-known scam was to frontload the profits back load the expenses and offload the losses to the next guy.

Lenders have lending standards to protect them from making bad loans. But somehow the lenders were forced to make the bad loans to stupid people making more money than they deserved and applying for loans to buy houses they couldn't afford. Oh okay I get it now.

The optimism continued until 2007, when evidence of a slowdown in productivity helped quash the rosy view and with it the housing boom.

Angelo Mozzilo I had you wrong all along.

Understanding the link between productivity -- output per hour of work -- and house prices could help inform policy decisions, said James Kahn, the study's author.

"The current housing crisis stemmed in large measure from a change in economic fundamentals and was only exacerbated by credit market conditions," Kahn, a professor of economics at Yeshiva University wrote in the Federal Reserve Bank of New York's Current Issues in Economics and Finance journal.

"Indeed, what appear in retrospect to be relatively lax credit conditions in the early part of this decade may have emerged in part because of then-justifiable, although ultimately misplaced, optimism about income growth," he said.

Better understanding of what was behind the current housing crisis could help policymakers gauge the impact that credit market interventions have on the housing market, Kahn said.

Let me help you understand. The Fed inflated the money supply, whose affect on worker productivity is debatable, but whose affect on home prices is not. But it wasn't until the credit bubble burst in July 2007 when everybody realized that every body was broke that home prices crashed. Understand? Bozo!

Understanding the link between you and the Federal Reserve would be much more informative.

The link between productivity and the housing downturn could also offer insight into when house prices will stop falling.

If productivity growth reverts to the higher rates seen between 1996 to 2004 and between 1947 to 1972, the model used by the study suggests that housing prices will bottom out and begin growing again faster than overall inflation.

James, decouple from the fantasy that increase productivity caused the housing bubble, it's stupid. Also you are putting the cart before the horse. If housing prices bottom, then productivity growth will revert to higher rates. Finally stop lying, it makes you sound stupid.

And even if productivity growth remains slow, the model would imply that housing price declines will ease. But it also suggests that prices could continue to fall modestly on an inflation-adjusted basis, as they did in the 1980s and 1990s, Kahn said.

Dumb Dumb! I just told you productivity growth will remain slow until housing prices bottom. Prices will continue to fall until the government stops trying to prop them up, along with every aling and failing bank with rotten paper riding on the mortgages. Your Fed created so much of its own paper that a potted plant could get a mortgage, that's the model that fits.

Kahn was a vice president at the New York Fed at the time the article was written.

Meaning that the Fed had to stay in-house to find someone to say with a straight face that too much productivity created the housing bubble. I am not surprised.