[quote=The-Shoveler]OK I will take a stab at it knowing full well I am about to be flamed.
If they raise interest rates without wage inflation then the housing market will crash followed by state and city bankruptcies one after the other because their main source of revenue is property tax.
This will cause a lot of other economic issue etc…
A lot of people I think fail to put two and two together and think housing crash existed in some sort of vacuum.[/quote]
If mortgage rates went to 10% overnight, that might happen. But they won’t. Since the Volker days, the Fed is pretty quick to the trigger when there’s real heat in the economy. But we won’t see those 50 and 75 basis point moves without that heat.
I agree that wage inflation is more important that any price index. If we actually hit the Fed target of 6.5% unemployment, there will be some wage inflation to go with it. Though I don’t expect to see it by a year from now.
I’m not sure if you’re only referring to CA with regards to the municipal bankruptcies, other states have much better flexibility. If I remember correctly, we had a housing crash, and we didn’t have a rash of municipal bankruptcies. I think there were 3 in California, one having nothing to do with the housing crash. And maybe 5 across the rest of the country.
