I was reading the narafa/merlin housing bubble from earlier before and I think narafa is pretty dead on with his scenario #2....
People are mortgaged up the wazoo nowadays which is fueling all this consumer spending...I think if the fed did have long term rates up to 7% the destruction of wealth would ruin the economy for years (decades?) to come. If rates did go that high, a great number of the adjustable rate mortgages would default (because I feel, borrowers don't understand the concept of how it works, just that they're getting a great low rate now). Aside from the huge destruction of wealth, the "respect" that the fed has gained throughout the Greenspan era would be wiped out by a long term feeling of resentment by homeowners everywhere (who control a large portion of wealth).
People are mortgaged up the wazoo nowadays which is fueling all this consumer spending...I think if the fed did have long term rates up to 7% the destruction of wealth would ruin the economy for years (decades?) to come. If rates did go that high, a great number of the adjustable rate mortgages would default (because I feel, borrowers don't understand the concept of how it works, just that they're getting a great low rate now). Aside from the huge destruction of wealth, the "respect" that the fed has gained throughout the Greenspan era would be wiped out by a long term feeling of resentment by homeowners everywhere (who control a large portion of wealth).