Dan Froomkin of Nieman Watchdog writes Monday about the lack of coverage about declining home prices.
“This is due to what Baker and other economists call the ‘wealth effect.’ It reflects the fact that when you are feeling rich, you tend to spend more, and when you are feeling poor, you tend to spend less. So, Baker says, for every $1 of housing wealth lost, consumption can be expected to go down 5 to 7 cents.
“What that means is that another trillion-dollar loss in housing wealth — something that could easily happen by next fall — translates to $50 billion to $70 billion less consumption; sort of an anti-stimulus.
“That, in turn, simply adds to the unemployment problem. And when you realize that you can’t stabilize the housing market without people being gainfully employed, you see the vicious cycle we’re in.”
Read more here.
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