John Dizard's column in today's Financial Times touches on something long troubling many, including me.
Namely, that much of government policy here in the US is geared towards preventing overvalued real estate assets from falling to their true values.
And, as Dizard rightly points out, this is a criticism of the current and former presidential administrations.
Part of the piece:
Essentially, by never taking economically justified writedowns, the US economy will be jellied into low growth, like 1990s Japan but with junkier cars and without the fresh sushi.
As a liquidationist banker puts it: “Without recognising the losses and writing off the bad loans, you will not get price discovery. So prospective new capital will not find out what the property is worth, and, therefore, not be attracted to get the real estate market going again.”
It is not just faceless foreigners and insurance executives who will lose out. The US will not get new construction jobs, mobility for its workforce and companies, or tax revenues from new activity. But those are all invisible opportunity costs. The visible losses would be here and now.
Dizard's columns in the FT are always worth checking out. You'll want to read the whole thing if you subscribe to FT.com.
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