Look, dangit. The source of spending money for a lot of Americans the past decade or so has been the home equity loan. Those loans bought a lot of boats, cars, vacations, vacation homes, college tuitions, kids cars, etc.

As the baby boomers moved into their own houses it caused a building boom. Then their children and finally their grandchildren needed homes of their own. Now that is ending. The boomers are going to start moving out of their homes in the neighborhoods where they lived during their working career for cheaper digs when they retire. The great 30 year demand for housing is over. At the very same time, people were moved into mortgages that they could barely afford with adjustable rates when interest rates were at historical lows. When interest rates finally started to rise, the mortgages adjusted, those mortgages defaulted and it basically destroyed home values JUST when a huge number of homes are due to go on the market as boomers retire.

What we need is a new source of value. A new source of equity. This has traditionally been done by investment in business and industry (before the real estate boom). People took risks and started a business or they invested in successful businesses.

Taking a wad of cash and throwing it into the economy doesn’t create any long term value in and of itself. Simply spending money on stuff doesn’t create any value, or build any equity for the person spending it. They can’t take whatever they buy with a few hundred bucks and refinance it in a few years to buy a new car or send a kid to college.

The only thing that makes sense is to return to basic principles. You need to build equity the old fashioned way. Capital gains. Unless people take any “economic stimulus” cash and invest it in something that promises to grow in value, such a wad of cash thrown into the market will be about like a cup full of gasoline tossed into a campfire. It will blaze for a little bit but once it is burned up, the fire returns to where it was and unless you keep tossing gas in there, eventually goes out. Unless someone takes that money and uses it to plant trees, that fire can’t be kept going.

Residential real estate is finished for about the next 20 to 30 years as the main creator of personal wealth in this country. People need to go back to fundamentals. Invest in a good business with a good product and a good plan. As it grows, the value of your investment grows. This crap of simply sitting around while housing values rise forever is overwith.

crosspatch on November 25, 2008 at 3:16 AM

You can’t take $10 from one part of the economy and put $10 back into a different part of the economy and increase the overall economy. Heck, it would cost you a couple of dollars just to move it. So when government takes $10 they can only put $8 back in. The only way to grow the private sector economy is to leave more money in it … reduce taxes.

You can put paper cash into the economy by doing a few extra printing runs but that devalues the currency by the same amount that you printed up. So then prices go up and people are left exactly where they were before.

The ONLY way to grow the economy is to shrink government. No economy except dirt poor stone age economies ever benefited economically by government growth and only really took off once government stepped aside and let the economy grow. Government can bootstrap things but can not run things in a sustainable fashion … unless you have at least two governments that can compete and people can choose which government they want to belong to.

crosspatch on November 25, 2008 at 11:37 AM