Easy credit and rising home prices are not engines of economic growth
Posted by: in HousingFiled under: International markets, Forecasts, Industry, Employees, Economic data, Housing, Recession
Many economists, analysts, traders and others concur it’s way too soon to assess the impact of this latest, mortgage-related jolt on the stock and bond markets, and on the U.S. and global economies.
There are too many moving parts, and too many unknowns to form meaningful, enduring conclusions. The reason? The financial world order we see this day might not, in fact, be the financial world order we see tomorrow. The Dow was down about 256 points to 11,165 early Monday afternoon.
But there’s one conclusion U.S. investors / citizens can form regarding the U.S. economy, so states an economist: expanding credit and rising home prices, in and of themselves, are not engines of economic growth.
Now, everyone’s recognizing ‘the obvious‘
“We have now entered the age of recognizing the obvious,” economist Richard Felson said. “Almost everyone knew that the booming housing market would slow down as soon as all potential buyers had been tapped and as the American economy slowed. But few foresaw the impact the slowdown would have on mortgage bonds, their owners, and the financial system. We now have to rebuild the American credit market, and global credit market, as well, to a degree. It will be a major task.”
The primary source of all the above, in Felson’s interpretation? Structural problems in the U.S. economy, primarily a lack of jobs, or low job growth, he said.
“For the better part of four years, America went blithely along, confident that the fundamentals of the [U.S.] economy were sound. Yet all the while, job growth and its companion, rising median wages, were inadequate. But they were ignored because corporate earnings were up and home values were rising. But it was a building constructed on quicksand,” Felson stated. “The boom wasn’t sustainable. The [U.S.] economy didn’t have growth engines in place for sustainable growth. “
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