The Coming of the 2nd Great Depression
The difference between a recession and a depression is that in first one you have a job and your neighbor doesn’t. In the second one you don’t have a job.
“The financial erosion will come to an end when the prices of homes and equity in homes stabilize, probably not before.” Alan Greenspan (WSJ, 12/15/07, A1). What Greenspan is talking about here is the deflation of the value of the housing stock in the United States. Does that mean everybody’s house or residential investment property? Yes, because even in Milwaukee, where I live, a major deflation in house prices in other parts of the country will impact the general economy on the area and hit the housing market here. (FYI, prices in Milwaukee are steady though the length of time to sell has stretched substantially).
It won’t get that bad, you say. If the value of housing falls 30%, and in some areas it has already, that will wipe out all the equity the majority that the home owning population has built up to date. Banks will start calling their home equity loans. If you can’t pay up, you are in deep trouble.
That accumulated home equity has been a big engine in the US economy. If it goes away what do you think will happen?
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