EconomicCrisis.US

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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It finally happened. Last week, one of the big bond rating agencies, Standard and Poor’s, put a “negative” watch on U.S. government debt. This is the first time the good old US of A isn’t AAA-rated with a “stable” outlook.

How long can we spend $1.40 for every $1 we bring in? According to S&P, the chickens will come home to roost as early as 2013 if Washington doesn’t start getting our nation’s finances in order.

The credit watchdogs are rightfully worried the right and the left won’t come to an agreement to reduce deficits until it’s too late, resulting in a possible downgrade of our actual bond rating, from AAA to AA, and not just a downgrade in the “outlook.”
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I wrote in a previous article how America’s disastrous embrace of free trade is ultimately based on a false theory of how the global economy works: the so-called Theory of Comparative Advantage. This is what economists, from the government on down, believe in. This matters.

But I didn’t explain why the theory is wrong — which it is. Understanding its flaws is the price of admission to serious criticism of free trade, so it’s well worth getting a grasp on them. Economic theory can be a tough chew, but it’s worth the effort, if only to gain the intellectual confidence not to be intimidated by the so-called experts. So… let’s take a look at some of that machinery behind the wizard’s curtain, shall we?
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As the financial crisis of 2008-2009 slowly passes into history, the first round of autopsies is beginning, with congressional committees looking for culprits, and everyone from business leaders to economists to the proverbial man on the street grappling with answers as to what precisely caused the meltdown. It is now almost cliché to speak of how the so-called “Great Recession” nearly brought down the global financial system—how it was the worst crisis since the Great Depression and how the world has changed dramatically as a result. Clichés can be compact truisms, but in this case, what’s most striking about the world isn’t how much things have changed as a result of the crisis but how little.
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