The Bell

Arlington, VT: Early Spring by the Battenkill 4/24/11

Back in the days when I regularly read The New York Observer, I looked forward to Nicholas von Hoffman’s columns.  His were essays marked by style, passion and intelligence.

While looking for something else, I found a quotation from a column von Hoffman wrote more than five years ago when the housing bubble was still expanding.  When people say, no one foresaw the bubble’s burst or its effects, they’re wrong.  Others, besides Paul Krugman, did.

Here is von Hoffman in November 2005:

 It is possible that a level real-estate market could trigger a major recession, which will, in its turn, bring real-estate prices further down later on.  Doom or no doom depends on whether or not American prosperity turns on a continuously rising real-estate market.  Retiring Federal Reserve chairman Alan Greenspan has recently published some numbers suggesting it does.  He says that the practice of “cashing out” — that is, refinancing the house every couple of years as its value increases — has given consumers a huge unearned income stream.  His figures tell him that refinancing and home-equity mortgages constitute no less than 7 percent of American disposable income.  In money, that’s an infusion of $600 billion a year, or twice the size of George Bush’s tax cuts.  For that gigantic sum to vanish, real-estate prices don’t have to collapse; all they have to do is stay the same.  If they stay the same, consumer spending shrivels.  Add onto that the rise in the cost of fuel and the continuing flat or slight decline in the line on the graph indicating personal income and voila!  Recession.

 Source:  Nicholas von Hoffman, “Watch The Housing Market, and Fear For Your Country!” New York Observer, November 7, 2005, p. 4.