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Oct 22 / Jonathan

The Washington Post STILL Has Not Noticed the $8 Trillion Housing Bubble

Let’s say it one more time, shall we? Not that it’ll do any good…

The Washington Post Still Has Not Noticed the $8 Trillion Housing Bubble

News apparently takes a long time to reach downtown Washington, D.C. That is the only conclusion that Washington Post readers can have after seeing the paper attribute the economic downturn to: “the ways the subprime mortgage crisis that began in 2007 would ripple through the economy.”

Of course the downturn was not due to subprime mortgage crisis, it was due to the collapse of a housing bubble. Residential construction would not have been cut by more than 50 percent if the issue was just the subprime crisis. It fell by 50 percent because the bubble led to enormous overbuilding of housing.

Similarly the saving rate has risen by more than 6 percentage points, leading to falloff in annual consumption of more than $600 billion. This is not the result of the subprime crisis. This is the result of the loss of $6 trillion in housing bubble wealth, along with the loss of $6 trillion in stock market wealth which was supported by housing bubble driven growth.

The subprime crisis was a triggering event. Had there not been an enormous housing bubble in the process of bursting the subprime crisis would have had little macroeconomic consequence. This news may at some point reach the Post. 

Dean Baker

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