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Wednesday, August 20, 2008

In Great Plains, boom continues, but residents remember that what goes up must come down

"Interest rate cuts and stimulus checks are helping ease the pain" in Sun Belt states and others hit hard by foreclosures, "but in the area stretching from the oilfields of Texas north to the Dakotas, where the economy is holding up fairly well, those government actions may prove unnecessary -- and even contribute to new bubbles," reports Neil Irwin of The Washington Post.

In the Great Plains, "The housing market is holding up just fine, the banks are making plenty of loans, and employers keep adding jobs," Irwin reports. "Retail spending in the middle of the country was strong even before the $600 tax rebates this spring, and low interest rates and a tax provision in the economic stimulus bill are helping to goose already booming sales of farm equipment and pickup trucks. The price of farmland in Nebraska has doubled in the past three years, primarily reflecting the boom in commodity prices. The increase also reflects the impact of rate cuts by the Federal Reserve that enabled buyers to bid up land with borrowed money. But if crop prices drop toward historical norms, it could mean sharp decreases in land prices that would devastate some farmers."

Irwin writes from Blair, Neb., where the mayor is Jim Realph, who worked in the farm credit system in the 1980s. "The biggest risk is the interest rates. If they swing up higher, it makes it much harder for a farmer to keep paying the debt," he said. "Things just don't go up forever. I don't know when this will end, or whether it will be bad when it does, but this will go the other way." (Read more)

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