In a terse statement from GMU’s Mercatus Center economist Anthony Sanders asserts that the U. S. economy has become numb with respect to fiscal and monetary stimulus:
“This is the aftermath of a credit bubble. Basically, the government relaxes credit (or fails to supervise) and a bubble forms and bursts. As could have been predicted, Fannie Mae and Freddie Mac, the formerly private government-sponsored enterprises, have been effectively nationalized,” Sanders said.
I’m not as convinced about his next couple of sentences:
“Credit has contracted rather severely. This is one reason why the housing market, and the national economy as a whole, have taken so long to recover.”
When the Tulip Mania, ended tulip bulbs never returned to their previous high which in today’s dollar would be in the tens of thousands for a single bulb. What had been pushing the prices ever higher was the expectation that prices would continue to rise which is very much what pushed housing prices up just a few years ago.
Consequently, I would have said that the housing market and national economy as a whole have been seriously distorted by the housing (and credit) bubble, housing prices may not return to their previous highs for decades if ever, and it will take a very long time, indeed, to wring the distortions out of the economy as a whole. The more that we prop up the housing market the long it will take for the economy to recover.“Credit has contracted rather severely. This is one reason why the housing market, and the national economy as a whole, have taken so long to recover.”
Hat tip: Glenn Reynolds