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:
â€œThis 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,â€ Sanders said.
I’m not as convinced about his next couple of sentences:
â€œCredit 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.â€
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.â€œCredit 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.â€
Hat tip: Glenn Reynolds