Return to Zero Gain

One can always state correctly that whatever Arnold Kling finally gets into publication should be studied, this short article being one; where he proposes ‘messy’ structure in mortgage lending, much like banks attempted late in the 20th Century with devaluation and purchase of failed banks by successful banks. I do not know whether Arnold is right in his assumption, believing there will always be crisis under recessionary conditions in the greater economy. Arnold assumes much the same, but believes that financial coverage for failed institutions can be organized under such conditions, which I do not. Arnold might better turn his efforts to design rescue of Credit provision under those recessionary conditions, rather than support for financial avenues. I might suggest a 3% mortgage contribution to a national fund, managed by the Fed, with further Fed involvement in such Crises prohibited beyond loans from such a fund. This obviously would inhibit mortgage provision, and would naturally lead to individual savings for a Down Payment of major level. Here is probably the only salvation to recurrent financial crises.

Home prices are still down across the board, though some areas are showing some improvement. I have always stated I believed that Home prices had to revert to 2004 Pricing, having first stated such in late 2007. This was only Statement of my belief that there was a balloon in the Housing market. I will now be a little more explicit, and suggest that the Housing sector has been the venue by which the inflationary balloon of the Bush Tax Cuts has been vented; a troubling element factor for Homeowners, who are destined to pay for the Bush exuberance through their own loss of value; Business having escaped the guillotine, except for loss of easy credit. It was telling that Ian Shepherdson would relate loss of housing equity to the GDP of China, basically a Statement that Business avoided undue hazard from the fiscal policy of the Bush years, while Consumers and Consumption were stuck with the bill.

I will finish this effort with a portrayal of the Consumption schedules as they have altered under Recession. The material is self-explanatory; people are buying the cheaper, greater-value, product under greater difficulty in financing Consumption. It is telling that Sellers must provide higher value than they can recover, so that their Profit margins are less, simply to maintain a viable generation of business income. It is exactly this loss of Profit which may be the most difficult to recoup in future performance, as Consumers through their own Consumption patterns reset what Profit margins they are willing to fund. As stated in the previous paragraph, Business avoided the bullet; but Consumers will not allow permanent evasion with overlarge Profits going to Business structure. I would bet We are back in single-digit Profit levels for Business as experienced under the Worker protection of the 1960s. Does this tell Us something? lgl