Economics Housing Crisis

In the mid 1990s, the public witnessed many aspects of the financial world rearranged from the top down with the repeal of Glass- Steagall Act and pro-housing legislation was instituted which mandated lower lending standards for major GSEs like Fannie Mae, and Freddie Mac. These incidents played a crucial role in the bubble without a doubt but there is one thing that which finally hit the switch. The entity which we now refer to as the Federal Reserve Bank. This quasi-private bank would proceed to make the price of the most valuable commodity in the market magically cheaper.

With the expansionist policies of the Reserve banks during the 1990 to 2000, a 10 year period, there was a rate of expansion of about 7.1% or in other words it doubled every 10 years. This expansion of credit cycles afflicted numbers and signals within our market which led all people to believe that there was a much larger amount of wealth in the country than actually existed. If you take from the lessons in price controls, the understanding is that when prices are lowered by command or legislation the supply of the product runs out before people can be incentivized to produce more. When the price of money at a future date rises, it essentially demonstrates that consumption is at its height. This means that the funds which would be captured by long term production are not existent. Thereby demonstrating that it is not profitable to construct higher stages of the economy.

Because at any given time labor is a finite resource, the signals to produce as well as consume are stretching the market. When the interest rates are lowered, prices increase especially when the loans are focused on asset prices. With programs like the National Homeownership Strategy and others the supposed increase in wealth was in housing prices. Keep in mind that the spending is all coming from the assumed savings in a market and only further incentivize greater deficits backed by something which never existed in the first place.

This becomes especially obvious when it is realized that the only thing the supposed increase in housing prices represented was increased demand. Goods were not created and made cheaper by abundance, they were made cheaper by telling everyone we made bricks we never did make. Yet all these deficits are made in consumer goods from the many people who otherwise would not have bought all of these goods from existing business.

At the same time the low interest rates incentivized expansion of new business resulting in very high material and labor prices or a “stretch in the market”. All these are small factors pushing people to further spend what they do not have.
What is left  are structures and entities which are not profitable in their current state. Thus it is a magnificent waste of resources. Not only this but all those who are now in debt are evidence of the lack of capital we have to expand the economy so we are in more trouble than we would have ever been in had we never initiated the boom. Plus all of the capital we spent and did not have will raise the prices of commodities and by this route be repaid.