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Tuesday, September 23, 2008

Credit Where Credit Is Due

No one else in Congress said anything like this in 2003:

"Despite the long-term damage to the economy inflicted by the government's interference in the housing market, the government's policy of diverting capital to other uses creates a short-term boom in housing. Like all artificially-created bubbles, the boom in housing prices cannot last forever. When housing prices fall, homeowners will experience difficulty as their equity is wiped out. Furthermore, the holders of the mortgage debt will also have a loss. These losses will be greater than they would have otherwise been had government policy not actively encouraged over-investment in housing. Perhaps the Federal Reserve can stave off the day of reckoning by purchasing GSE debt and pumping liquidity into the housing market, but this cannot hold off the inevitable drop in the housing market forever. In fact, postponing the necessary, but painful market corrections will only deepen the inevitable fall. The more people invested in the market, the greater the effects across the economy when the bubble bursts."

-- Ron Paul, hat tip to Jim Quinn.

4 comments:

  1. Hey, Gene, I have a question. I first wondered this when I read Jim Quinn's column, and now I wonder again: What did Dr. Paul mean by this?:

    "...the government's policy of diverting capital to other uses creates a short-term boom in housing."

    Since I don't really know anything about this at all, I would have guessed that the State artificially diverting capital into housing would create a short-term boom in housing. Why does diverting capital to "other uses" create a housing boom? And why not a...clothing or electronics or Austrian economics book boom?

    Second: what exactly were these government policies that steered capital to "other uses" and what were the other uses?

    Thanks,
    John

    ReplyDelete
  2. Jim McElroy3:50 PM

    I think it should have read "from other uses."

    ReplyDelete
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