Suppose that in 2000 a friend laid out this hypothetical scenario for you.

a) Over the next five years, real wages will basically not rise.

b) over the next five years, the federal budget would go from a $4.5 trillion 10-year surplus to $2 trillion 10-year deficit.

c) The trade deficit would rise from about 4% of GDP to about 6%.

Then this friend asked you to predict what would happen to mortgage rates and housing prices under this scenario.

Would you have predicted that mortgage rates would rise and housing prices would stagnate? Or would you have predicted that mortgage rates would fall and housing prices would skyrocket?

Be honest now.

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