My reading of the present situation is largely pessimistic despite potential for strong sustained economic and business development growth outside of real estate markets.
Things seem bad, but they are really much worse than bad. The problem is that the downswing is not a correction but a consequence of doing nothing that really corrects a deep underlying problem. The underlying problem is that of overvalued assets, property, and debt. What caused the problem was excessive growth in the real estate Market unsupported by the growth in real incomes. Now real incomes have fallen further and further away from the real estate costs and imputed values which means an even greater unsupported overhang and the real possibility of major collapse leading to even further distancing of real incomes from supportable real estate values.
What policy makers have not done is link real incomes in America and Britain to supportable real estate values over the longer term. The forces of recession are increasing more than ever as money value illusion creates a larger and larger disjoint!
To resolve the issues it us important that policy makers create the bridge between real incomes and the real value of property that these real incomes must support.
Banks will need to lock in their losses rather than pretend they do not exist. Governments need to provide a bridge to banks in order to do this. If there is no lock in or no government support associated with a lock in, there will be a real reduction in growth, an explosion of debt, and an implosion of bank balance sheets.
I see no efforts to lock in consumers of real estate to property vales and real incomes. Instead banks are propping up real estate values artificially. This will not produce a long term solution because of stop go economic swings that will result over the longer term as economies swing in and out of financial crises several times over the next two decades associated with political and social forces, as governments fail to produce stable economic environments for growth!
My earlier blogs indicated what I think needs to be done to correct the imbalance between excessive real estate expansion and slow growth in real average personal incomes.
