Obama's big stimulus plan to pump money into the economy through the hands of consumers will not save the economy. Period. By putting a few thousand dollars in the hands of consumers, it will stimulate a few quarters of commercial solvency for stores and consumer goods manufacturers, but it will not halt the economic freefall.
The economic freefall is caused by the decline in housing prices and the concomitant liquidation of homeowner's wealth. Period. The freefalling home prices are simply destroying wealth. About $5trillion of homeowner wealth destroyed, so far. More: so many mortgaged homeowners are facing mortgages costing more than the value of their properties, they are going to walk and rent, abandoning their worthless houses to the banks and home loan agencies. The homeownership rate will drop down to less than 50 per cent. What does that mean? It means that the New Deal social compact (government sponsored and guaranteed home ownership as the basis for private, non-socialist, consumer economy) will be destroyed and dead. Dead as a door nail. Kaput.
There is one bottom and only one bottom that is visible, right now, to the economic meltdown, if nothing is done to halt the decline in housing prices. That bottom is the shambles of the US when all consumer owned economic wealth has evaporated, when the overwhelming mass of American households have no assets at all. Period. They will be unable to buy anything beyond rent, food, and clothes.
Want to stop the freefall in housing prices? Simple. Have Congress instruct the FHA to guarantee mortgages above $250thousand. Raise the insurance limit to mortgages worth $750,000 and $1million for credit worthy mortgage holders. Do that, and housing prices will stop falling the next day.
But we are running out of time. If we hit true bottom and the economy is destroyed, it will take a generation to rebuild it.
Recent Comments