Wednesday, April 30, 2008

U.S. wealth in free fall

The Financial Times notes that housing prices are still falling.

In reference to an earlier post, this bodes ill for the U.S. since the vast majority of wealth in here is linked to home ownership and the equity therein.

When equity dries up then wealth is disappearing. Without wealth, people cannot borrow, since they have nothing to pledge as collateral. Without borrowing, the economy slows down even further.

For months now, I've noted that the U.S. economy needs a steep correction. In my opinion, the stock market needs to lose about 1000 - 2000 points to reflect the needed correction.

Once that occurs, then we can begin building again properly.

Stop-gap measures, like rebate checks and temporary tax cuts, will not fix this problem. Fundamental change must occur in the form of significant infrastructure spending to update our economy and provide job and wage stability.

Volatility does little to calm the situation and gimmicky fixes, like those proposed by the Republicans will not reduce pain for the long term.

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