For about 20 years now, I've been warning people that the continuing rise in home values was unsustainable - and bad for the economy. I can't stress this enough: Shelter is shelter, and not an investment. Speculating in residential real estate on the basis of constantly-increasing equity is a relatively recent development that drives a lot of bad economic and social consequences. (Don't even get me started on what a very bad idea it is to use property taxes to fund school systems.)
Using houses as ATM distorted many things in the economy, not the least of which was the parallel stagnation in wages. Think about this: since the 70s, we've seen a steady rise in women working outside the home, a rise in property values, and a monstrous increase in personal debt.
Yet wages never kept pace with any of that. (In fact, those of us who still have jobs are now working harder for less money than we earned in the 1970s.) But with a working spouse bringing in additional income and home equity loans, we could convince ourselves that increasing equity was the same as earning more.
It also kept things calm on the domestic political front, because we bought the illusion that the economy was rewarding us. (Which is one of the reasons why otherwise conservative Republicans were always so supportive of women going to work. It helped keep wages low.)
Even though I see great amounts of psychic pain in the transition, I believe that deflated housing prices are an ultimate good. Housing simply shouldn't cost this much when we aren't earning enough to pay for them; we shouldn't have to take out equity loans to get by.
Which is why I'd recommend that you read Jesse's entire article. He points out that the bulk of Obama's bailout funds and the thrust of his policies is aimed not at bailing out underwater mortgages for drowning homeowners, but to reinflate the value of the bad housing assets.
In other words, to continue the class war on behalf of the bankers.
...in view of the rising and well-subsidized efforts of Harold Ford and his fellow Corporate Democrats, the actual “bipartisan” aim seems to be to provide political cover for cutting spending on labor and on social services. Obama already has sent up trial balloons about needing to address the Social Security and Medicare deficits, as if they should not be financed out of the general budget by taxpayers including the higher brackets (presently exempted from FICA paycheck withholding).
Traditionally, running deficits is supposed to help pull economies out of recession. But today, spending money on public services is deemed “bad,” because it may be “inflationary” – that is, threatening to raise wages. Talk of cutting deficits thus is class-war talk – on behalf of the FIRE sector.
The economy needs deficit spending to avoid unemployment and poverty, to increase social spending to deal with the present economic shrinkage, and to maintain their capital infrastructure. The federal government also needs to increase revenue sharing with states forced to slash their budgets in response to falling tax revenue and rising unemployment insurance.
But the deficits that the Bush-Obama administration have run are nothing like the familiar old Keynesian-style deficits to help the economy recover. Running up public debt to pay Wall Street in the hope that much of this credit will be lent out to inflate asset prices is deemed good. This belief will form the context for Wednesday’s State of the Union speech. So we are brought back to the idea of economic recovery and just what is to be recovered.
Financial lobbyists are hoping to get the government to fill the gap in domestic demand below full-employment levels by providing bank credit. When governments spend money to help increase economic activity, this does not help the banks sell more interest bearing debt. Wall Street’s golden age occurred under Bill Clinton, whose budget surplus was more than offset by an explosion of commercial bank lending.
The pro-financial mass media reiterate that deficits are inflationary and bankrupt economies. The reality is that Keynesian-style deficits raise wage levels relative to the price of property (the cost of obtaining housing, and of buying stocks and bonds to yield a retirement income). The aim of running a “Wall Street deficit” is just the reverse: It is to re-inflate property prices relative to wages.
Go read the whole thing.