Speaking at the Fed’s annual meeting in Jackson Hole, Wyo., Chairman Ben Bernanke discussed the role of the housing market in the recession — and our recovery there from.
“Historically,” he said, “recessions have typically sowed the seeds of their own recoveries as reduced spending on investment, housing, and consumer durables generates pent-up demand.” That demand leads to more production and hiring, and the economic engine gets back on track.
Slowing the process this time, he said, was the fact that it came along with “a very deep slump in the housing market and a historic financial crisis.”
(That came from unregulated lenders gave untold amounts of money to undeserving buyers who were unable to pay, while unrestrained analysts gave glowing reviews to unworthy securities, undermining the financial system, leaving banks under stress and homeowners underwater.)
While “the housing sector has been a significant driver of recovery from most recessions in the United States,” Bernanke said, in this case “an overhang of distressed and foreclosed properties, tight credit conditions for builders and potential homebuyers, and ongoing concerns by both potential borrowers and lenders about continued house price declines” has kept the housing sector weak, the flow of credit slow, and the recovery from getting into gear.
But while we might be suffering short-term ripples, “Over the medium term, housing activity will stabilize and begin to grow again, if for no other reason than that ongoing population growth and household formation will ultimately demand it,” he said.
Bernanke also pointed out that the U.S. still doesn’t have any kind of long-term fiscal plan — something to deal with things like taxes, the highest health-care costs in the world, Medicare, Social Security, the monstrous defense budget, and so on.
“To allow the economy to grow at its full potential, policymakers must work to promote macroeconomic and financial stability; adopt effective tax, trade, and regulatory policies; foster the development of a skilled workforce; encourage productive investment, both private and public; and provide appropriate support for research and development and for the adoption of new technologies.”