I think you and WT know that I’m not against deflation. Productivity improvements across an economy can cause deflation. That’s a good thing. We’re told that deflation is a bad thing, but the history of deflation in the US allowed resets of price levels to their proper market level as bubbles released their malevolence across the economy. Growth slows, goes heavily negative, cash holders and the prudent start snatching up bargains and the economy restarts.
Today we have permanent contract debt. The FED’s tools are very clumsy and limited. It’s like driving in the back seat using string tied to the steering wheel and a cane to push the accelerator and break. But, the FED isn’t alone in the car. There’s a driver called Fiscal Policy and it has two brains - the President and the Congress. They always grab the wheel and push the accelerator because that’s what politicians do.
Worse still, different parts of the economy are in different stages of the business cycle and those can be affected by local, county, and state level fiscal policies. It’s a mess. Much more resetting of debt needed to take place, particularly in RE. Many more banks needed to be taken over and/or closed, but they needed to be replaced by new banks. Capital is the life blood of an economy and it comes in the form of cash (or equivalents) and loans.
Focusing on people “underwater” is like just using your rear sight to hit a target. A majority of homes still cannot generate enough wealth to invite a sale and a purchase of a replacement home. Those people are trapped, despite no longer being “underwater”. The cost of selling and then buying new keeps them in place. Exacerbating a labor market skills mismatch. People struggle to move to where jobs are.
Toss in Democratcare and, as I believe WT has commented recently, you have permanently altered the labor market in the United States. It is a major driver of PT work. Worse, Obama and Co. are trying to play smart by reducing the number of hours considered for insurance eligible work. It used to be that FT was 40 hours plus. Now IIRC it is 29.5, but since Obama is writing the rules on the fly it could be as low as 25 hours. This will simply create less work by driving part timers under the threshold.
It’s a mess when government interferes in the market. I don’t see how they’ll ever withdraw, although I have an idea it could happen via applying Wickard v. Filburn to local, county and state laws that interfere with interstate commerce. I mean if wheat grown for personal consumption affects IC, then what government reg doesn’t? It could form a mean weapon... if only I could get standing.
That’s my two cents.
Wickard for reference: http://en.wikipedia.org/wiki/Wickard_v._Filburn
Some how this is sounding like a converstion we've already gone through though I may be confused here, but most people's history shows pricing resets from deflation coming with an enormous destruction of wealth and unspeakable human suffering. There are many folks on these threads that don't see it, and everyone has all the facts available on line to see for themselves. My experience in sharing what we all got is that when someone falls in love w/ deflation they fall madly and deeply.
Wickard for reference: http://en.wikipedia.org/wiki/Wickard_v._Filburn
The Court decided that Filburn's wheat growing activities reduced the amount of wheat he would buy for chicken feed on the open market, and because wheat was traded nationally, Filburn's production of more wheat than he was allotted was affecting interstate commerce. Thus, Filburn's production could be regulated by the federal government.
Truly amazing! That logic could be applied without any logical limit; a couple wanting to have one child could be told that the amount of children they have affects the amount of food and clothing they'd need to buy on the open market...