The definition of insanity is doing the same thing over and over again but to expect a different result. With that in mind, our economic policymakers are clearly off their rocker.
They reduce interest rates. It does nothing. So they cut again and again. They indebt future generations to 'stimulate' the economy. It does nothing. So they stimulate again, and again.
Nothing that central bankers or politicians have done since the financial crisis began in 2008, has fundamentally changed economic conditions. Yet they keep applying the same remedies, drawn from the same old economic playbook.
The false idea which guides their decisions is that we can all grow wealthy by borrowing and consuming, instead of by producing and saving. People have been sold this lie for more than a generation. It is embedded in social DNA.
In our current economic system, you are rewarded for going into debt with all sorts of tax deductions. Save money, on the other hand, and you are punished through taxation and inflation.
The incentives are bass ackwords; it's no wonder Americans have over-borrowed and overspent given that the system is so blatantly slanted to reward this behavior.
Housing is one of the most interesting examples of distorted incentives: tax policy in the US encourages people to take out huge mortgages, and governments end up with a moral imperative to ensure home prices continue rising.
Am I the only one that finds this crazy? You'd think people would want housing costs to stay low and affordable, not rise. I don’t hear anyone getting excited about the price of healthcare going up? I don't have a parade when the price of food goes up in the grocery store. Gas prices rise and all hell breaks loose.
Why should housing be any different?
For the vast majority of people in the US a house isn't wealth, it's an expense. And wishing for this expense to increase is crazy and destructive. Yet the bureaucrats keep trying to figure out ways to 'prop up the housing market' and distort prices, often through policy that is very unfriendly to homeowners.
The Federal Reserve keeps ratcheting down long-term interest rates and scooping up mortgage bonds in an attempt to re-inflate home prices.
If our government and policy makers can’t admit we have a problem, we are long long way from fixing it.