Political solution for a math problem?

[eridani]

http://readersupportednews.org/opinion2/279-82/9935-mortgage-crisis-no-political-solution-to-a-math-problem

There's a reason this is so inadequate to the problem at hand. For the last three years, the policy has been to impose a political solution to a math problem. It hasn't worked. America simply has too much mortgage debt to pay back. Serious economic thinkers across the spectrum, from Democrat Alan Blinder to Republican Martin Feldstein to New York Fed President William Dudley, believe that there is only one solution - writing down the enormous creaking mound of debt. This solution is currently off the table, because writing down these unsustainable debts could cost our fragile banks enormous sums of money and possibly lead to a restructuring of one or more of our major banks. Avoiding this clear policy choice has resulted in our economy falling into a Japan-style "zombie bank" torpor, with debts carried on the books at full value which everyone knows will not be paid back at par.

This crisis of American political economy in the form of excess mortgage debt is preventing a more powerful economic recovery. Three years after Ben Bernanke used the term "green shoots" to describe a recovering economy, job growth hasn't really revived in any meaningful way. In fact, this is by far the worst recovery we've had since the end of World War II. The best way to measure this is not through traditional unemployment indices (which can be gamed), but by asking the question of how many Americans are working as a percentage of the population. In 2007, this was 63 out of 100. Today, it's a full five percentage points lower. The ratio hasn't been this bad since the early 1980s recession, and remember, we're in a recovery. And the labor force participation rate is dropping, which is a long-term bigger crisis.

The housing market's vicious deflationary cycle demands serious policy action to match the scale of the challenge. Dropping housing values lead to foreclosures, which damage housing values, and so on and so forth. According to Zillow, roughly half of homeowners with a mortgage are effectively underwater, which means they owe more on their mortgage than their house is worth. So far, the alphabet soup laden set of programs (HAMP, HARP, Hope for Homeowners) put forward by the Bush and then Obama administration have been failures. And this is because, as the Congressional Oversight Panel noted as far back as March of 2009, the single best predictor of default risk is how much equity homeowners have in a home. Many Americans, though considered homeowners, are essentially "renters with debt" (as housing analyst Josh Rosner put it). And Amherst Securities Laurie Goodman noted that with our current housing trajectory, we can expect up to 10 million more defaulted mortgages over the next decade. These foreclosures impacts housing values, reduce consumer purchases, and costs municipalities money.

[Warpy]

1. Moderate inflation is the only thing that will work

but it can't be like the 1970s hyperinflation which never got translated into hyperinflation of wages. Wages were allowed to fall far behind and soon credit was being substituted for earnings and that's why a lot of people are in the jam they're in, owing mortgages, credit card debt, car loans, school loans, and loans to pay off other loans.

And the only way to lessen the impact of moderate inflation on people who have fixed incomes is to reinstitute the progressive income tax and temporarily remove the cap on OASDI taxes until all the overpayments since the mid 80s have been paid back. Once revenue has been raised, COLAs in social security and state pensions are possible.

The only way out of this is for the government to stand with the economically disenfranchised many against the few who gamed a bad system to become insanely rich and powerful.

Nothing else will work.

[unblock]

3. inflation won't to jack for wages unless we control our economic borders better

if rising american wages just means more importing of goods and exporting of jobs, then inflation won't help the average worker one bit. it will help the average debtor, sure, but not the average worker. of course there's a bit overlap, but really wages going up is the key, and there are many structural challenges to making that happen.

republicans have been quite good at undermining the average worker's bargaining position.

[Warpy]

4. You're making the mistake of thinking things will always be the same

which is exactly the same mistake people who buy at the top of an obvious bubble market make.

What you don't realize is that we've not only been here before, we've been in an even deeper hole and gotten out of it.

The main challenge before us is how to make changes permanent so that the Hamiltonians don't manage to dig up another huckster down the road who will sell people on warmed over mercantilism and wreck the economy again.

[midnight]

2. Since the bail out was suppose to put money into the hands of those on main street, but wasn't...

and the banks have already been bailed out for those underwater mortgages that they bet against in their unscrupulous ponzi scheme, I consider that debt that has already been paid... Now on to ending joblessness. Give every Man and Women who want's a job-a job... The reason these problems are not solved has nothing to do with math... It has everything to do with greed...