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View Diary: They Are the 1% - A Really Scary Follow Up (95 comments)

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  •  Actually . . . (5+ / 0-)

    . . . I mostly agree with this.  I've been arguing for a long time whenever I hear a news report about falling house prices being "disappointing" that this isn't really an appropriate way to look at it; falling home prices mean more people who might be looking to buy a home now have access to one.  As with any asset, the movement in price is only good if it more accurately reflects underlying economic factors like sustainable demand, available supply, etc.

    The reason, though, sustained decrease in housing prices matters in the long run mostly is because a decrease in home prices works a drastic reduction in the nation's wealth; people tend to spend more and have more economic demand if they think they are wealthy.  One of the big reasons demand fell off the face of the planet after the housing market began crashing is because suddenly the people who thought they had a tidy investment saved up realized that they didn't - falling house prices took away a significant section of their net worth.

    A decrease in aggregate national assets also decreases available collateral to support loans.  We already have a debt overhang in the private sector, but we can't overlook the fact that a decrease in loans works a direct decrease in the money supply, which also has a recessionary effect.

    All of this has kind of a snowball effect that conspires to dampen economic growth.  I suppose that falling house prices don't necessarily mean bad things for the economy, but only if we can count on the Fed and the gov't to engage in expansionary monetary and fiscal policy.

    Unfortunately, nothing we've seen from either the Fed or the gov't gives me any reason to believe they'd be capable of doing something like that.

    Politics is the neverending story we tell ourselves about who we are as a people.

    by swellsman on Mon Oct 10, 2011 at 07:15:45 AM PDT

    [ Parent ]

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