Saturday, October 04, 2008

For bailout to work, housing market needs to mend


What we're seeing is a simultaneous bursting of the real estate bubble with contraction of the money supply. On the latter, see, for example:

The two processes are mutually-reinforcing. Yes, a vicious cycle. This is a DEFLATIONARY crisis.

The crux of the solution is monetary stimulus: expansion of the money supply--along with re-regulation of the finance industry.

The US has been here before, with the Great Crash of 1929 and the onset of the Great Depression. It took a few years for the Federal Government to get the right economists, the right laws, and the right approach in place.

This time, I think the (New) New Deal can be put into place much more quickly. Perhaps right after Inauguration Day in January.

Read the Article at HuffingtonPost

1 comment:

Will Belegon said...


I agree. My greatest concern with the "Bailout" is that it doesn't seem focused on the longer, harder path that I think will actually work and that I feel the problem should be attacked from the bottom up, not the top down.

I honestly had not thought about the current situation in deflationary terms, something which seems like a V-8 moment now that you have brought it up.