Harsh words for the Federal Reserve

Dean Baker writes:

The country is now seeing the beginnings of an unprecedented drop in housing prices. House prices in many formerly hot markets, like Las Vegas, San Diego, and Miami, are now falling at double-digit annual rates. Prices are also falling in many other cities, although at a somewhat less rapid pace. For the first time since the depression the country will be seeing nominal declines in house prices nationwide.

He not only foresees recession, but sees it as an extension of the stock market crash-induced recession of 2001. He argues that the Fed pushed a housing bubble to keep the economy going through that recession, leading to the present problems.

But that’s not the end of it. Nor are widespread concerns that, as Baker writes, “homeowners can no longer use their homes as ATMs when there is no equity against which to borrow.”

“Florida Democrat” writes in response:

The crash isn’t confined to just housing foreclosures but the soon to be crashing employment numbers. Many of the employees in construction are not qualified for other jobs. Over the last few years with the pace of construction these employees have received fairly high wages for their education levels. There will be no alternative employment available that will pay those same wages. Even if the employment numbers don’t crash than these employees will assuredly be working for other employers (Wal-Mart) at significantly lower wages.

Um. Good point.

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