EconomicCrisis.US

US home prices have sunk below levels seen during the “Great Recession,” according to data revealed Tuesday, sparking renewed pessimism about a key pillar of the spluttering economic recovery.

Unless you are selling a house in Washington or buying one in Minnesota there is little cause to celebrate the state of the US housing sector.

Despite ultra-low borrowing rates, experts say a steady flow of repossessed homes onto the market, tighter bank lending rules and high unemployment have kept prices at rock bottom.
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Falling home prices may threaten the economic recovery.

Home prices have been falling in many markets for several months. The most recent data from Case-Shiller show that home prices declined in every one of the 20 cities included in their index—except Detroit.

This will very likely mean that consumer spending will contract, perhaps resulting in a much more sluggish economy and more unemployment.

The connection between falling home prices and consumer spending is abundantly clear. Just last month, Karl Case, Robert Shiller and John Quigley published a study that looked at housing markets and consumption over 31 years. They found that “variations in housing market wealth have important effects on consumption.” (And, yes, the first two authors are the “Case-Shiller” guys.)
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The Independent Evaluation Office (IEO) found major IMF lapses in judgement before the financial crisis, including the promotion of “light-touch regulation”, casting doubt on the Fund’s ability to contribute to taming global finance. As the banking crisis has been transformed into crises of public finance, and while the financial sector returns to business as usual, the IMF has grown increasingly vocal about the insufficient attention being paid to regulation and reform. Analysts ask if we should be looking elsewhere.

The IEO report IMF performance in the run up to the financial and economic crisis, released in early February, covered the work of the Fund from 2004 through 2007. It found that “the IMF’s ability to correctly identify the mounting risks was hindered by a high degree of groupthink, intellectual capture, a general mindset that a major financial crisis in large advanced economies was unlikely, and inadequate analytical approaches. Weak internal governance, lack of incentives to work across units and raise contrarian views, and a review process that did not ‘connect the dots’ or ensure follow-up also played an important role, while political constraints may have also had some impact.”
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Why does the US insist on the newest round of quantitative easing? What influence will the Federal Reserve printing money have on the world economy? I believe this policy only represents the needs of the US itself rather than those of developed countries.

A series of self-help measures adopted by the US are likely to lead to another round of financial crisis, so the international community must have an institutional arrangement to constrain US monetary policy.

The US has started to print money and implement a quantitative easing policy, due to its desire to restructure the US economy. About 70 percent of US economic growth depends on domestic demand, the core of which is driven by consumer credit.
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