Will Lower Interest Rates Jumpstart Housing? (CHART OF THE DAY)

08/05/2010 11:59 am ET | Updated May 25, 2011

Siding with Washington Post's's Ezra Klein, on his blog, Paul Krugman wants to clear the air about the comparisons being made between the economic tenures of Reagan and Obama.

Both Klein and Krugman take issue with an argument by Dan Mitchell of the Cato Institute, which essentially says: Reaganomics ended a recession, and Obamanomics hasn't.

Krugman argues that a major cause of the '81-82 recession was the "sky-high" interest rates used to battle inflation during Paul Volcker's tenure: Fed data shows federal funds rates during this time hovering around 12-16%.

Once Volcker cut these rates to a single digit, outlined in RED below, the housing market (BLUE) kicked right back up. In other words, Kurgman notes, it was interest rate moves, not Reagan's economics, that drove a recovery in housing in 1980s.

As the FOMC prepares for its next quarterly meeting on August 10th, Bernanke and his board of governors may face pressure to lower interest rates even further to stimulate a languishing housing market. But with the Federal funds rate currently at 0.19%, is that Fed tool basically irrelevant, too?

The graph below charts housing upstarts against 30-year mortgage rates, with shades of grey highlighting periods of recession.

Chart Of The Day

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