Web Letters: The Housing Bubble Pops

Those of us who follow Baker's writing have been watching him predict the onset and subsequent collapse of the housing and credit bubbles for some time. Baker is to be credited for being one of the few economists out there who (a) address the public with any regularity and (b) do so honestly.

Here we go again, into a widespread recession that is going to hugely impact people who merely work for a living, that could have been avoided, if only our economic system, as implemented and managed, did not so exclusively and highly prioritize short-term wealth gains for those already rich, at any cost.

But, then, such talk gets one branded as "socialist"--the concept of moderation in capitalism is apparently indistinguishable from Marxism to some. I am sure Baker continues to have to confront this programmed disposition from the public and the establishment on an ongoing basis. Good for him, and thanks.

Seymour Friendly

Seattle, WA

On an online forum I predicted a recession months ago. My usual prediction is for about a year ahead, give or take. My secret method? Just watch the Fed. When they raise interest rates 200 basis points, two percentage points, a downturn follows. Whether the interest rate increase triggers, or just precedes, the downturn is irrelevant. It follows. In this case I expect a recession, not just a decline. The Fed can screw things up quite well, thank you. And with the assistance of the Bush Administration, I expect this one will be a doozy.

My reasoning on that is partly what's in the article: The housing market is pulling down the economy, and the Administration and Fed will not reduce the value of the dollar. Not yet, anyway.

As a result of which, I am busy dreading the future. On the up side, I just submitted my subscription to The Nation.

Bob Klahn

Sylvania, OH

Let us pause to consider a few things:

First, no one can be "tricked" into purchasing something they cannot afford. You can't trick me into buying a Ferrari. Although America produces a bumper crop of stupid every year, it doesn't take a PhD to understand that a household earning $60,000 a year after-tax cannot afford the mortgage on a $300,000 home (but apparently even PhDs couldn't figure this out). "Rent to own" won't eliminate that basic fact.

Is it really too much to ask that people carefully read the fine print and have a basic grasp of addition and subtraction before making the largest single purchase of their entire lives? Reckless borrowers and lenders are responsible for endangering the economy and making homes unaffordable for the rest of us. The ones going under now deserve their fate.

Second, a lower dollar will help the US export sector, which has become very, very small. But it would also make the cost of almost everything we buy increase. The US is dependent on exports--period. We have no manufacturers that can replace most of this stuff. Remember that great word "stagflation"?

These next few years will certainly be interesting, but those of us who have been warning of things to come for a while won't get to enjoy any of the "I told you so" satisfaction while we see people lose their jobs and communities degrade.

The US exports nothing and imports everything. The government is broke. The citizens are broke. You can't defy economic gravity forever. The reckoning had to come sooner or later.

Nate Gronewold

New York, NY