Wasik: Housing's "Poverty Effect" Fouls Up American Recovery

John F. Wasik has been writing a Bloomberg column for a while. Several weeks back he was interviewed by Jim Puplava on the Financial Sense Newshour, talking about his new book, The Cul-de-Sac Syndrome: Turning Around the Unsustainable American Dream.

Wasik's new Bloomberg piece points out that the loss of $7 trillion in household wealth is an albatross around the neck of the economy.

He explains that Americans are avoiding credit and saving their cash. They're increasingly using vehicles such as government-insured CDs, money-market funds, and highly-rated short-term corporate and municipal bonds.

Yet the U.S. government still doesn’t get the big picture and indirectly discourages savings, which can ultimately create a pool of capital for lending, infrastructure improvements and small business lending.

U.S. savings and non-municipal bond interest are still taxed as ordinary income at the highest personal rates.

What’s wrong with this policy? You can’t have a healthy economy without a wealth effect. In lieu of easily tapped credit, people won’t spend freely unless they have a cash -- or employment -- cushion.

Since we can’t depend on real estate as a prime wealth creator -- especially in an age of deleveraging -- Congress needs to promote tax-free savings and rebuilding home equity if it wants a meaningful economic rebound. Otherwise the poverty effect will continue to foul up the recovery.

Strikes me as all true. The late Bob Novak would tell students to always love their country, but never trust their government. Good advice -- regardless which part is in power. Pay no attention to politicos scheming ways to get consumers leading the economy. Work, save, invest and stay out of debt.

Comments

[Jamie]

check out steve keen's speech over at global economic analysis if you want to know about debt and healthy economies - frankly unbelievable some of the stats being rolled out
http://globaleconomicanalysis.blogspot.com/2009/08/global-debt-bubble-causes-and-solutions.html

[John]

@Jamie: Thanks for the link, I'll be sure to check it out when I get the chance.

[Daniel M. Ryan]

Jim Puplava's show has always been good for author inteviews. He's a well-read man.

[John]

@Daniel: Yes, and check out Eric King of King World News. He some interesting interviews, including some with Jim Puplava himself. If you like Financial Sense, you'll like these as well.