“The reason that all of this financial repression—-and its corollary punishment of investors and savers—-did not spur a housing boom is, in a word, that the US economy is not a giant bathtub.” Pushing On A String: The Fed’s Spectacular Failure To Stimulate Housing | David Stockman’s Contra Corner

The reason that all of this financial repression—-and its corollary punishment of investors and savers—-did not spur a housing boom is, in a word, that the US economy is not a giant bathtub. The Keynesian model says pour “demand” into the housing market through what amounts to cheap, subsidized interest rates (from the hides of savers) and, presto, activity rates will soar.

Moreover, this is an all seasons formula. It doesn’t matter, apparently, where you stand in terms of prior history and borrower and lender balance sheet conditions; or what constraints might arise from structural factors such as household formation rates and the condition of the housing stock and its current utilization and occupancy rates. Just pour in the demand stimulus until the housing bathtub is full to the brim.

via Pushing On A String: The Fed’s Spectacular Failure To Stimulate Housing | David Stockman’s Contra Corner.

Leave a Reply

This site uses Akismet to reduce spam. Learn how your comment data is processed.