Former 22nd. Labor Secretary under President Clinton, Robert Reich has strong opinions on this subject. Mr. Reich is a graduate of Harvard, Oxford and Yale which add quite a lot of credibility to his views. He believes that the Fed's rescue plan will not work, because the average consumer is too heavily indebted to increase, or even sustain, spending in this recessionary environment, regardless of the easing of monetary policy.
In inflation adjusted terms, the median wage today is below what it was in 1999. A man in his 30s earns 12% less than someone his age did 35 years ago.
Reich believes that American consumers are deeply in debt, their homes are losing value and their pay checks are shrinking.
According to Reich: "These bailouts won't work because the Street's big banks are still sitting on what may be another three to four hundred billion dollars of bad debt. The rest of the world economy, through the magic of securitization, may be sitting on another few hundred billion. And because no one knows precisely how much or where this bad debt is, the risk premium is even higher, which is why credit markets will remain more or less frozen.
We won't be out of this mess until the speculative bubble that was created when the Fed cut slashed interest rates six years ago fully pops. For that to happen, Wall Street will have to face its real losses and write off another several hundred billion. And home owners across America will have to face their losses and watch the value of their houses drop another 10 percent, about to where they were before the bubble.
The Fed bailing out the big banks is like someone with a helium tank blowing more air into a leaky balloon. It only postpones the inevitable, which is that the balloon will lose its air and float back to earth. For markets to work again, speculative bubbles have to burst, one way or another."
Reich believes that there is a 20% chance of a Depression. San Diego California real estate agents
Wow, i didn’t know those facts about the median wage today being below what it was in 1999. A man in his 30s earns 12% less than someone his age did 35 years ago?? I’m starting to worry about our economy for sure now. This guy has a lot of credibility!
-Sarah
California Bail Services
Wall Street will have to face its real losses and write off another several hundred billion??? Home owners will have to face their losses and watch the value of their houses drop another 10 percent???? This guy is nuts. The fed knows what they’re doing. Everything will be fine.
–Ryan
SD County Real Estate Agents
I’m not so sure, but if the average consumer is too indebted even to sustain spending, changing the monetary policy may do nothing at all.
-Karen
San Diego County Brokers
Tough times in real estate may change the San Diego conventional wisdom that you can never lose in real estate.
Elizabeth
TJ Mexico Dental
I think people’s expectations of multiple digit appreciation each year in real estate is now proven to be a total fallacy. We’re going down, and its happening FAST. please can we just pop this bubble and move back up!?!?
Kristina
California Attorneys
Homeowners should be prepared to ride out the current fluctuation, reduce spending and prepare for a bubble pop because in the long run values should continue to escalate.
Shawn
SD CA Lasers