[WS:] True, but he argues it by referring to consumer spending increase, which I find moot. Many argue that the problem is structural, and that debt driven consumer spending was only a temporary fix that eventually run out of steam, so from that pov I do not see how stopping a decline in home values can reverse this, unless we have another bubble. Had he argued that stopping the decline is a right thing to do, say, out of compassion for people losing their homes, that would have been a more convincing argument, imo, at least logically.
Wojtek
On Thu, Oct 13, 2011 at 8:09 PM, Jordan Hayes <jmhayes at j-o-r-d-a-n.com> wrote:
> Wojtek asks:
>
>> When people are forced to pay mortgages on which they
>> are currently defaulting, they will have no money left
>> for other spending, no?
>
> There's a longer-term question here: how do we stop people from getting
> there in the first place? As housing values continue to decline, more
> people consider default. It's turtles all the way down. It's already the
> case that they should have done something a while ago when the problem was
> smaller, but his point is to stop the decline.
>
> So it's not so much how to get the people who are already in default to
> spend again; it's more about how to keep it from getting worse. The trend
> is that as housing values drop, people feel less comfortable with their
> spending and get defensive. The impact is not just on those underwater;
> it's on everyone who owns a house! That's a much bigger number.
>
>> One can also argue that defaulting on mortgage frees up
>> resources for consumer spending. Am I missing anything?
>
> Yes: if 5% default, that frees up 5% of some
> value-weighted-average-insert-math-here; it also depresses the other 95%'s
> spending, likely by more than is gained by having the 5% default.
>
> Anyway, I think it's a dumb idea; my idea posted here last week is better
> :-)
>
> /jordan
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