[quote=Nor-LA-SD-GUY2]While I do agree the real issue is too much debt,
Yet lower home prices will not solve the above….[/quote]
We have already tried creating ‘wealth’ by inflating asset prices, turbocharged with leverage. This is what we specialized in until 2008. This creates nothing of any real value. It merely transfers real wealth from one group to another. Real wealth is created when we actually manufacture things, or provide services, that other people want enough to make trades for.
Inflation is just a way to subsidize those who bet on paper-shuffling as a way to make their living. Since it is a zero-sum game, others who are actually creating wealth are made to pay for these inflation subsidies.
What is the real solution to our macro-economic problems? Is it re-starting the game of becoming rich through leveraged asset speculation, as Bernanke has been attempting? That certainly suits Wall Street, and many others who want to live off financial gambling. Or is the solution to be found in reducing our trade deficit and increasing domestic demand?
It probably isn’t possible to increase domestic demand enough until we lower the trade deficit and re-distribute domestic income. Wealthy people save a high fraction of their incomes, so when we allow high concentrations of national income accrue to the wealthiest few %, there’s not enough spending to keep everyone employed. A trade deficit does the same thing, allowing too much domestic demand leak into employment for foreign workers, not Americans. Applying a 50% tax on capital gains, and to the highest income bracket, and reducing social security taxes by the total dollar amount of the resulting increase in taxes, would stimulate demand. So would applying a tax on imports from countries that hold their currency value well below its natural purchasing power, thereby encouraging US businesses to supplant the imports.
We keep reaching for false easy solutions, when the real solution is waiting. Yes, it doesn’t involve getting paid (through ultimate capital appreciation) to buy homes, or other obviously unsustainable dreams. But just dealing with reality isn’t that hard an alternative. We’ve just become hopelessly lazy as a nation.
