Until the Housing Market Rebounds, the Economy is Ruined

Many analysts believe that no amount of money, (the $700 billion bailout) will reverse the deterioration of the economy until the housing market rebounds, according to The Washington Post.

Our current economic crisis is littered with signs of an impending Armageddon. Unemployment is at levels that have not been seen in five years, consumer spending is flaccid and commodity prices are falling. Many economists fear that the United States is falling into a self-perpetuating cycle of tight credit, limited spending and burgeoning unemployment which will lead to – at the very least - another year of lethargy in the economy.

Questions within the financial system have ballooned, as Congress’ $700 billion bailout failed to address the problems of the average American citizen, and subsequently failed.

"We don't have to rescue Wall Street, but we do have to get credit markets open. You can't run private enterprise economies without credit. Nothing will work without that," said Thomas Ferguson, a professor at the University of Massachusetts at Boston.

Yesterday the government piled on more bad news as consumer spending was up less than 0.1 percent in August, the worst consumer spending since February.

Further wreaking havoc on the economy is the strain many small businesses are feeling as it becomes more expensive for them to borrow money. Many analysts believe tightened credit will further increase the chaos on Wall Street.

Three waves of financial problems have pummeled the financial system, leading us to our current state. Two waves have already crashed, and one is still surging toward us. The first wave led to a record number of home foreclosures; the second led to the annihilation of financial institutions and the third will affect well-off individuals as their housing values recede. The economic catastrophe stems from the housing market, and there will be no improvement until it bottoms out and is able to rebound.

Source The Washington Post:

Congress's rejection yesterday of a $700 billion bailout for the nation's teetering financial system made such questions even more urgent. Lawmakers have to find an answer. … Bart Dzivi, a northern California lawyer representing financial institutions, said the financial system's problems will soon wash up on Main Street in a major way. It might take some time, he said, because the change is coming in waves. The first wave forced record numbers of homes into foreclosure; the second took down major financial institutions. The third wave, Dzivi said, will affect the well-off as their housing values decline. "They're not going to buy that second Mercedes," he said. "They won't take that vacation to Hawaii."

Unless the above article is already copyrighted, this article is licensed under a Creative Commons Attribution-No Derivative Works 3.0 United States License, EIC grants permission to use this article in whole or in part provided attribution is given, preferably in the form of a link back to EconomyInCrisis.org.

MORE OF TODAY'S NEWS | Comment on this Article | Read Comments

Donate Today