Trex: Have you read today’s front page WSJ article on the recent government interventions?
I agree that the financial media outlets are asking for or applauding the current bailouts. The extract below suggests that since falling house prices are the root of the problem, then we need more government intervention to keep prices up. We know that real (inflation-adjusted) house prices can’t go anywhere but down. However, nominal prices may not drop if inflation is high enough, and that can easily be achieved injecting more liquidity into the system, as is already happening.
Is it enough? Probably not. Although it’s hard to know, the downward tug on the overall economy from falling house prices persists. The next step, if one proves necessary, is almost sure to require the explicit use of taxpayer money.
The case for doing more is twofold. One is to cushion the blow to families and communities, even if some are culpable. The other is to disrupt a dangerous downward spiral in which falling prices of houses and mortgage-backed securities lead lenders to pull back, hurting the economy and dragging asset prices down further, and so on.
