US Federal Reserve chief warns of real estate crash

During his appearance before the US Senate on Thursday, September 22nd, Jerome H. Powell, President of the Federal Reserve, called on the US government to provide further corona aid to prevent an impending real estate crash .

Powell’s speech in Washington

At a hearing before the US Senate Banking Committee in Washington, Jerome H. Powell summed up the economic situation in the US with regard to the COVID-19 pandemic, with a focus on the troubled US real estate market.

According to Powell, this needs further corona aid packages, as the US economy would otherwise be overwhelmed by a wave of mortgage defaults and evictions. Powell expressed concerns about a lack of household support beyond the first quarter of this year. “The risk is that they will eventually run out of money and cut their expenses and maybe lose their home or tenancy,” Powell said in his speech, referring to the government’s $ 2.3 trillion aid package made available in March. Powell continued to underline the urgency of the need for action by drawing attention to the risk of an impending collapse of the US real estate market if additional corona aid did not materialize.

US government position on further corona aid packages

It is so far unclear whether further aid funds will actually be distributed to the US population. According to manager magazin, the status quo regarding potential aid packages is characterized by a disagreement within the congress. The clashes between the two political camps would continue and will probably drag on until the US presidential and congressional elections on November 3rd. According to finance and economy, there are disputes about the amount of the sums to be distributed. Nancy Pelosi, chairman of the House of Representatives, was ready to accept an aid package of 2.2 trillion US dollars – 1.2 trillion less than she originally asked for. However, the Democrats are currently opposed to this, as they consider corona aid with a volume of 300 billion US dollars to be sufficient.

Retrospective: World Economic Crisis 2008

Looking at Powell’s speech, a throwback to the global financial crisis in 2007 and 2008 cannot be denied. The bursting of the speculatively inflated real estate bubble on August 9, 2007 led to an enormous rise in interest rates on interbank financial loans and to the subsequent collapse of the major US bank Lehman Brothers. Government debt and equity in many US states had to be raised in order to secure the existence of resident financial service providers, which often led to indebtedness. The consequences also included nationalizations and the closure of many banks.

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