Thomas Palley described connection between trade deficit and mortgage crunch. (see The Subprime - Trade Deficit Connection)
Actually, trade deficit could be traced well back. Take example of China, the deficit 'rose twenty-fold, from $6.2 billion to $124 billion.' (see Negative Impact of U.S. Trade Deficit with China) Others argue that the number is misleading. (see US-China trade deficit overstated) So, the deficit is not the culprit.
The perpetrator is probably Fed's expansive monetary policy and investors' appetite. Ironically, one bubble leads to another. The dot com bubble at the end of 1990s (see Dot-com bubble - Wikipedia, the free encyclopedia) forced investors to find another venue, while the Fed worried about recession. As a result, we witnessed low interest rate for a extended period, with fashioned debt financing options.
Is there any similarity between the two bubble?
Yes, it's the exuberant binge. Almost everybody put due diligence aside and savor another sunny day. They feed each other with deception, falsehood, and magnified snow job.
What we have now?
And
[while the job loss does not seems to affect other sectors. (see Bifurcated Job Growth)]
Actually, trade deficit could be traced well back. Take example of China, the deficit 'rose twenty-fold, from $6.2 billion to $124 billion.' (see Negative Impact of U.S. Trade Deficit with China) Others argue that the number is misleading. (see US-China trade deficit overstated) So, the deficit is not the culprit.
The perpetrator is probably Fed's expansive monetary policy and investors' appetite. Ironically, one bubble leads to another. The dot com bubble at the end of 1990s (see Dot-com bubble - Wikipedia, the free encyclopedia) forced investors to find another venue, while the Fed worried about recession. As a result, we witnessed low interest rate for a extended period, with fashioned debt financing options.
The Fed’s “easy money” policy succeeded in avoiding a relapse into recession, but it came at the price of a housing bubble and a twisted expansion. The hallmarks of this twisted expansion were house price inflation, a construction boom, explosive growth of non-traditional subprime mortgages, a debt-financed consumer spending binge, and yet larger trade deficits. (Trade Deficit Connection)
Is there any similarity between the two bubble?
A combination of rapidly increasing stock prices, individual speculation in stocks, and widely available venture capital created an exuberant environment in which many of these businesses dismissed standard business models, focusing on increasing market share at the expense of the bottom line. The bursting of the dot-com bubble marked the beginning of a relatively mild yet rather lengthy early 2000s recession in the developed world. (Dot-com bubble - Wikipedia, the free encyclopedia)
Yes, it's the exuberant binge. Almost everybody put due diligence aside and savor another sunny day. They feed each other with deception, falsehood, and magnified snow job.
What we have now?
The large number of the bad loans alarmed mortgage analysts who follow the company. Several said the Countrywide report showed that housing market conditions were unraveling at an unexpectedly rapid pace. (Defaults Rise at Mortgage Lender - washingtonpost.com)
And
The pace of job losses in mortgage lending slowed in December, as some companies shifted workers to other areas of financial services, but the losses may pick up again in the new year as the U.S. housing market continues to weaken and credit remains tight. (More job cuts expected in mortgage banking - Boston.com)
[while the job loss does not seems to affect other sectors. (see Bifurcated Job Growth)]
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