Fewer than three years ago the American real estate market was at an all time high; the median home cost—$245,000—had not fallen in nominal or real dollars since 1991 and low average mortgage rates—around 6%—meant homeownership was possible for many first-time buyers whose comparatively low salaries made longer term mortgages necessary.

For the 70% of Americans who owned a home, increasing home values meant increased wealth—theoretically at least—and yet the average home equity of 46% meant Americans were actually owning a smaller percentage of their houses than ever.  Moreover, the median income of $44,000 meant Americans were also earning less, in comparison to the price of a home, than ever; for those who hadn’t yet achieved it, the American dream was on life support.

Click to continue reading “How Foreclosure is Bringing Back the American Dream”

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In 1919, John Maynard Keynes hypothesized that the free-market economy was fundamentally unstable—that rises in unemployment and drops in aggregate demand would not tend to self correct, but rather to self-magnify.  In 1936, in The General Theory of Employment, Interest, and Money, Mr. Keynes outlined how a government’s central bank could stabilize the economy, thereby avoiding the damaging boom-bust cycles of the late 19th and early 20th centuries.

Sixty-six years later American economist and Nobel-laureate, Joseph Stiglitz, attacked then chief-economist at the International Monetary Fund (IMF), Kenneth Rogoff, for participating in the economics of President Hoover—insisting that developing countries maintain balanced budgets, and therefore high overnight interest rates, in the face of recession.  Mr. Rogoff argued that while lowering national interest rates in emerging economies during economic depressions would stimulate demand, it would also drive deficit spending, which could easily cause investors to lose confidence in the immature currencies leading to unabated inflation.  Mr. Stiglitz, like Mr. Keynes before him, maintained that counter-cyclical monetary policies—namely lowering interest rates during periods of recession and raising them during periods growth—were necessary to protect economies from the downward spiral of depression.

Click to continue reading “Mr. Keynes Finds a New Home: The exportation of American economic policy”

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