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And if you just let nominal housing prices fall, the banks get to keep their unearned gains. The homeowners still owe them the full mortgage amount. Some homeo

And if you just let nominal housing prices fall, the banks get to keep their unearned gains. The homeowners still owe them the full mortgage amount. Some homeowners will default and the banks will suffer too. Or we get a huge number of defaults and relive the housing crisis, and then the banks keep the foreclosed homes off the market as they did last time. The reason banks did this is they wanted to pretend bad homes and bad loans were still valuable, in order to use them to satisfy capital reserve requirements. There's a very simple solution to this problem. You are being exploited the same as homeowners because high housing prices result in high rents. Reducing real housing prices will reduce real rents to your benefit. Reducing nominal housing prices is politically and economically intractable, so the alternative to inflation is that you continue to pay high rents. This is simply not true. The housing bubble was manifest in the price vs rent ratio, which skyrocketed. The only way to reduce rents is to produce more housing. If that tanks the price of existing houses, I don't really care. I want real housing costs to come down. Do you have a better idea, that won't be defeated politically by existing homeowners? My mistake, I thought you were discussing whether this is something we should do. I didn't realize you were merely discussing what is politically possible. I don't believe that fixing the US is politically possible. In spite of this being the Flight 93 Election [1], I think the odds that Trump will save us are close to zero. I don't plan to be here for the end. [1] http://www.claremont.org/crb/basicpage/the-flight-93-election/ http://www.claremont.org/crb/basicpage/the-flight-93-electio...

AnthonyMouse 10y ago
> Some homeowners will default and the banks will suffer too. And then we relive the housing crisis. > The reason banks did this is they wanted to pretend bad homes and bad loans were still valuable, in order to use them to satisfy capital reserve requirements. There's a very simple solution to this problem. And what is that? > The only way to reduce rents is to produce more housing. Of course it is. That is the only way to reduce real housing prices in general. But if you propose to tank the nominal prices of existing houses, more people will oppose you than you can defeat. Meanwhile you can produce more housing without existing homeowners fighting you that hard if it means their nominal home prices don't go down. > My mistake, I thought you were discussing whether this is something we should do. I didn't realize you were merely discussing what is politically possible. What we should do is constrained by what is possible. Sometimes you have to swim upstream and convince people to do the hard thing because it really is necessary, but convincing millions of homeowners that they should vote for a policy that will cause them to go underwater on their mortgages is just never going to happen. So we need some way to reduce real housing costs without causing that to happen. Inflation is one way; I'm open to alternatives. > I don't believe that fixing the US is politically possible. It isn't a question of whether it will be fixed, it's a question of how bad things have to get first before people develop the will to fix it.

AnthonyMouse 10y ago

> Some homeowners will default and the banks will suffer too. And then we relive the housing crisis. > The reason banks did this is they wanted to pretend bad homes and bad loans were still valuable, in order to use them to satisfy capital reserve requirements. There's a very simple solution to this problem. And what is that? > The only way to reduce rents is to produce more housing. Of course it is. That is the only way to reduce real housing prices in general. But if you propose to tank the nominal prices of existing houses, more people will oppose you than you can defeat. Meanwhile you can produce more housing without existing homeowners fighting you that hard if it means their nominal home prices don't go down. > My mistake, I thought you were discussing whether this is something we should do. I didn't realize you were merely discussing what is politically possible. What we should do is constrained by what is possible. Sometimes you have to swim upstream and convince people to do the hard thing because it really is necessary, but convincing millions of homeowners that they should vote for a policy that will cause them to go underwater on their mortgages is just never going to happen. So we need some way to reduce real housing costs without causing that to happen. Inflation is one way; I'm open to alternatives. > I don't believe that fixing the US is politically possible. It isn't a question of whether it will be fixed, it's a question of how bad things have to get first before people develop the will to fix it.