Sunday, February 19, 2006

ToTD (8) Ratchet Down

The housing bubble will run out of steam
and eventually burst.
House prices will fall.
However, the end of the housing boom
should not cause serious problems,
because people will still have houses to live in
and they will still like them,
even if they have paid too much for them.
They will still be able to make the payments
even if interest rates rise.
The end of the housing bubble
will only be a problem
if people lose their jobs
and cannot make their payments.
It will then have a ratchet effect
tightening the pressure caused by other problems.

If our dollar weakens,
the Uridashi and the Belgium dentists
will lose interest in New Zealand.
Interest rates will have to remain high
to bring in the money
to fund the mortgages on houses.

As consumption declines,
unemployment will increase.
None of these are very serious in themselves,
but they will ratchet each other down.

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