So my colleague Brian Lawler wants to downplay the impact of a falling housing market on the U.S. economy. Has he not noticed the negative savings rate? A large chunk of the reason why the country as a whole spent more than it earned was because of the ease with which people could tap into the value of their homes for cash. If the housing market continues to cool, that hurts more than just homebuilders like DR Horton
Then there's the amazing resilience of American businesses that Brian pointed to as further evidence that the economy was firing on all cylinders. If:
- prices stayed relatively stable,
- the cost of oil (and related items, like transportation) skyrocketed, and
- profits increased
& as Brian mentioned, then that means other costs had to have been reduced -- somewhere. The benefits cuts at places such as Qwest Communications
While easy home equity money may have helped smooth the pain of those cuts, that spigot has been shut off. Unfortunately, the only sustainable option in the face of lowered compensation is belt-tightening. The U.S. consumer is tapped out and has no place left to turn to keep the party going. Any real economic strength will likely be found overseas.
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