Perhaps this should be filed in the "be careful what you wish for" category.

"Declining MEW [home mortgage equity withdrawals] is one of the reasons I forecast the trade deficit to decline in '07. And a declining trade deficit also has possible implications for U.S. interest rates; as the trade deficit declines, rates may rise in the U.S. because foreign CBs [Central Banks] will have less to invest in the U.S.. This is why I forecast rates to rise in '07.

And rising rates have negative implications for housing and will probably lead to less MEW. This could lead to a vicious cycle for a short time - less MEW leading to a lower trade deficit, followed by rising rates, follow by less MEW, and repeat."

From the economics blog Calculated Risk

Previous entry: Why your auto parts come from China
Next entry: California's economy = that of France's

Back to Martin's View main page