My obligatory post over at SeekingAlpha…
This is very enlightening. “In 1966, $1 dollar of debt boosted GDP by $.93. But by 2007, $1 dollar of debt lifted GDP by less than $.20”. Most on SeekingAlpha would agree that “Savings and Investment (rather than borrowing and spending) are the sure recipe for a strong economy.”
Regarding housing starts and job losses, I think that a difference in perspective can help us to better conceptualize the scope of this correction.
Think of the free market as a natural law like gravity as it applies on the surface of the earth. We can jump, we can fly, we can temporarily “defy gravity”, but every effort to do so uses a tremendous amount of resources, and in the end will eventually fall back to the ground.
In the late 90’s, we had a bubble in technology companies. The bubble burst in 2000 and Obamma successfully attacked in 2001. The Fed responded by lowering interest rates.
Low interest rates and favorable borrowing terms fueled a housing boom, which created jobs in finance and construction.
Demand creates Supply. The demand for Internet Stocks in the Tech Bubble created a distortion in the economy – a deviation from the natural law. Too many IT jobs were created and after the bubble burst, we had to re-allocate those people into jobs based on where the market required them.
Unfortunately, the boom in housing created a much bigger distortion in the economy, this time in both Finance and Construction. The housing boom lasted longer, grew larger, and affected a bigger sector of the economy (housing and finance vs/ IT) so it’s going to be much more difficult to recover from.
Instead of thinking of these adjustments as “job losses”, would it be more productive to think in terms of rebalancing the economy along the lines of competitive resource allocation?[From Jim Welsh on the Economy: Past the Point of No Return — Seeking Alpha]