Alan Greenspan told an audience in Canada on Friday that it was global integration, not easy monetary policy, that fueled the housing boom of the last decade. I don’t think that the boom came from a 1 per cent Fed funds rate or from the Fed’s easing. It came from the collapse of the Berlin Wall, the former Fed Chief said. The openness of markets and availability of cheap labor led to disinflation and lower inflation risk which in turn resulted in a drop in real interest rates and equity-risk premiums. As a result, he said, the real market value of assets increased faster than GDP. As for where we are in the corrective cycle, Greenspan said he thought the worst may be behind us.
Greenspan: Housing Boom Due to Global Intergration [FT.com]