Most Popular Choices
Share on Facebook 19 Printer Friendly Page More Sharing
Exclusive to OpEd News:
OpEdNews Op Eds    H3'ed 4/19/12

The US Housing Bubble and Aftermath: Economist Dean Baker's Account of What Should Have Been Done

By       (Page 1 of 4 pages)   7 comments
Follow Me on Twitter     Message Richard Clark
Become a Fan
  (108 fans)

Alan Greenspan should have led economists to document the potential harm of the bubble, and burst it early, before it could destroy and/or allow the theft of $7 trillion of wealth, and thereby ruin tens of millions of lives.

What happened is straightforward:   we had a huge run-up in house prices that was anomalous.   After 100 years in which nationwide house prices kept even with the overall rate of inflation, house prices began to sharply outpace inflation, beginning in the late 1990s.


By 2002, when the bubble began to form, house prices had already risen by more than 30% in excess of inflation.   By the peak of the bubble in 2006, the median increase in house prices was more than 70% above the rate of inflation.   This was clearly and pronouncedly a bubble, and should have been publicly labeled as such by those in charge of monitoring, regulating and protecting our economy.   But too many people were making big money from it.


Nevertheless, here was a huge problem and a huge danger  


Why?   Because this bubble was clearly driving our economy.   It drove the economy by creating a boom in residential housing construction.   We were building housing at near record pace in the years 2002-2006.   And this in spite of the fact that we had record levels of vacancies even at the beginning of that period, and an aging population that would soon be able to ill afford the purchase of any of this newly created housing.


The other way in which the bubble was driving the economy was through its effect on consumption.   The growing bubble created more than $8 trillion in ephemeral wealth -- in inflated housing values.   Homeowners thought this wealth was real and spent accordingly, many using their home as a kind of ATM machine.   The result was a massive consumption boom.


When the bubble burst, the building boom went bust.   Construction fell to its lowest levels since the 1950s, as the country waited to gradually work off a glut of housing.   As a result, consumption fell back to more normal levels, as people realized that they had lost tens of thousands of dollars of equity in their home.


The combined effect of:

Next Page  1  |  2  |  3  |  4

(Note: You can view every article as one long page if you sign up as an Advocate Member, or higher).

Rate It | View Ratings

Richard Clark Social Media Pages: Facebook page url on login Profile not filled in       Twitter page url on login Profile not filled in       Linkedin page url on login Profile not filled in       Instagram page url on login Profile not filled in

Several years after receiving my M.A. in social science (interdisciplinary studies) I was an instructor at S.F. State University for a year, but then went back to designing automated machinery, and then tech writing, in Silicon Valley. I've (more...)

Go To Commenting
The views expressed herein are the sole responsibility of the author and do not necessarily reflect those of this website or its editors.
Follow Me on Twitter     Writers Guidelines

Contact AuthorContact Author Contact EditorContact Editor Author PageView Authors' Articles
Support OpEdNews

OpEdNews depends upon can't survive without your help.

If you value this article and the work of OpEdNews, please either Donate or Purchase a premium membership.

If you've enjoyed this, sign up for our daily or weekly newsletter to get lots of great progressive content.
Daily Weekly     OpEd News Newsletter
   (Opens new browser window)

Most Popular Articles by this Author:     (View All Most Popular Articles by this Author)

Was Pat Tillman Murdered by an American Sharpshooter to Shut Him up?

New JFK assassination bombshells

Two U.S. presidents implicated by ex-CIA black-ops assassin

The cholesterol - heart disease scam: How the medical-industrial complex is raking in billions at our expense

Four Ticking Time Bombs That Will Soon Ignite a Revolution

The Ultimate Goal of the Bankster-led Political-economic Warfare Being Waged Against Us Is . . . ?

To View Comments or Join the Conversation:

Tell A Friend