Tuesday, May 31, 2011

The Deflation Death Spiral

As Paul Krugman has warned us so many times, we are now entering a liquidity trap and an economist's greatest fear is being realized, the Christian Science Monitor points out. As home prices continue to decline, potential buyers put off purchases because they believe that by waiting they will get an even better deal. Home sales and the ancillary business activity that goes along with them, real estate, construction, furniture sales, landscaping all go into decline. The Minneapolis Star-Tribune weighs in on the local situation. We saw the boom. Now we're seeing the inevitable painful bust that follows. Just as government entities have no power to repeal the laws of physics, the feds cannot arbitrarily repeal those of economics. Misguided federal policies have created ongoing crises in major segments of the American economy, not only in housing and home ownership, but also in health care, finance and banking, and employment. How bad do things have to get before the citizens realize that crony capitalism and rent seeking are the problems, not free markets?

No comments: