Greenspan and the housing market slump MarketWatch First Take – MarketWatch

The former Federal Reserve chairman may not at first blush strike one as the right person to seek out for views on construction, seeing as he neither predicted nor prevented the housing crash. Near the end of 2006, when starts were about three times as high, Greenspan said he suspected that “we are coming to the end of this downtrend.”

He also saw bottoms in 2008 and 2009. So perhaps the best, current news for housing is that the man once called The Oracle isn’t forecasting a bottom anytime soon.

What the former Fed chairman is saying is that the slump in both residential and commercial construction is due to government activism.

Greenspan, who delivered a speech Tuesday defending his recently published academic paper, argues that government activism is what’s at fault. “Having disaggregated the stimulus program, it is really awesome how close the issue of the shortfall in capital investment, quarter by quarter, matches the official data on government deficits,” he said, according to a transcript of his remarks.

He says that a fifth of the pullback in capital investment is due to crowding out by the federal government deficit.

Of course, that’s always been Greenspan’s view, that the market will right itself if you just leave it alone. He says that’s the case of the stock market, and he’s right, if you ignore TARP, the auto bailouts and the Fed’s $2.3 trillion or so worth of quantitative easing.

So maybe Greenspan finally got it right this time, which would suggest that housing will come back just as soon as Washington tackles the deficit, which clearly won’t be tomorrow. Or maybe he’s right for the somewhat related issue that a huge inventory of cheap homes has yet to be absorbed. Or maybe, as most of his previous analysis has been, he’ll be off base again.

You never can tell with The Oracle that’s always right, until he’s wrong.

via marketwatch.com