PerryChase said:

“I don’t beleive that a 50% drop from the peak in real estate prices necessarily means a deep protracted recession in the general economy.”

I think it does, actually. Real estate doesn’t exist all by its lonesome. It interacts with the broader economy. In some ways it influences the economy, and in other ways it is influenced by the economy.

A 50% drop in value wouldn’t happen all by itself…it would have an effect on the broader economy and it would also be caused by things happening in the broader economy. For example, if interest rates shot up (say, a 30-year mortgage going to 10%) there would be a huge drop in real estate values, but there would be other consequences as well. A lot of jobs in lending and finance would be lost. Business capital spending, which employs a lot of people, would be decimated. Interest-sensitive stocks would be hurt enormously. Millions of people would be “underwater” on their home loans, potentially defaulting, etc.

Think of the last downturn we had in So Cal. Many people (myself included) lost their jobs and struggled to pay the bills.

I am hoping for some sanity in the market, but a 50% drop would be way too harmful for the economy.

PerryChase, I agree that, long term, the best thing for the country would be if the government took a “hands off” approach and let the market determine prices. Since real estate is obviously over-valued, let the market determine fair prices. That would be about 50% lower than current So Cal R/E prices IMHO. It would cause a lot of foreclosures, bankruptcies, bank failures, pension fund losses, unemployment, and probably a stock market crash, but long-term we would become a stronger more balanced globally competitive nation. It would also remove the false sense of entitlement that many people now have as well as the distraction of trying to keep up with the Joneses.

The only problem is that people on this blog tend to be forward thinking/planning/investing types. That is NOT the norm in this country right now for anyone under 60. Most people out there just want as much stuff as they can get beceause they feel they deserve it and will vote people into office that promise to keep the good times rolling. They don’t realize that the “good times” really aren’t that good. Who needs this false sense of affluence and keeping up with the Joneses? I’ve reduced my spending quite a lot in the last few years and I’m actually a lot happier now. I have less to worry about – except, of course, inflation. If this housing downturn doesn’t get this country back on track, then I’m afraid things will get even more out of balance and the eventual correction/depression will be even worse whenever that comes. I would like to think that we are leaving the country in good shape for future generations but, unless we have some sort of major correction, things are just going to keep getting more absurd.

I think a 50% drop probably would cause at least a mild recession, but only time will tell. If the R/E drop is allowed to happen then it would put the economy in a better shape for a strong, balanced, legitimate expansion going forward. Capital would be allocated to where it’s more productive and people’s energies would also be directed to more productive and socially responsible avenues. And, yes, it would help get us back to thinking about each other and family values rather than property values.

I think the greater risk for a depression is that if we DON’T have a large correction of the current imbalances soon, when the correction DOES come it will for sure be the Second Great Depression. I don’t want to see that happen.

jg, I wouldn’t compare JFK’s drug abuse to Rush’s. JFK got hooked on the junk as a way to ease his pain from injuries he received in battle. Rush got hooked on hillbilly heroin, perhaps to deal with pain from his anal cysts, or maybe to deal with the depression he suffers as a closeted homosexual.

CONCHO told us yesterday to “all grow up and stop posting to these stupid threads,” apparently so we could spend more time discussing a subject more important to him:

Rush Limbaugh’s ass.

You tell’em, CONCHO. Keep away from those distractive debate techniques to focus on the main issue you brought up:

Rush Limbaugh’s ass.

You are the first educated, informed adult who’s ever given me information about Rush Limbaugh’s anal cysts. Please keep me up to date on other equally nuanced stories about the rectums of prominent conservatives.