Calculated Risk: The Housing Tax Credit and the Consumer Price Index.
Calculated Risk writes great stuff regarding real estate. Here he makes the case that the first-time buyers tax credit should have a negative effect on CPI (deflationary) and is an inefficient incentive (for taxpayers).
Many writers are suggesting lately, really for quite a while, that almost every action the government has taken to counter the recession has been inefficient and ineffective. For example, Hussman (www.hussmanfunds.com) discusses the similarities between our approach to bank loan losses and that of Japan in the early 90s. Amity Shlaes (www.bloomberg.com) writes about treating home buyers as children. The point is that consumers/investors are more rational than government actors believe and will strive to maximize personal well-being. Thus, the cash for clunkers accelerates car purchases but doesn't lead to a new elevated level of car purchases. The first-time buyer tax credit accelerates home purchases but doesn't lead to a persistent higher level of home buying and, in fact, has a offset in falling rental rates. All of this leads to current economic activity looking great, but as El-Erian writes (www.financialtimes.com) doesn't adjust the level of activity permanently. That leads to "irrational exuberance" to borrow a well-known phrase.
The consequence is short-term improvement in GDP and financial markets performance but the potential for great disappointment 6 months from now when current levels are proven unsustainable.
Calculated Risk writes great stuff regarding real estate. Here he makes the case that the first-time buyers tax credit should have a negative effect on CPI (deflationary) and is an inefficient incentive (for taxpayers).
Many writers are suggesting lately, really for quite a while, that almost every action the government has taken to counter the recession has been inefficient and ineffective. For example, Hussman (www.hussmanfunds.com) discusses the similarities between our approach to bank loan losses and that of Japan in the early 90s. Amity Shlaes (www.bloomberg.com) writes about treating home buyers as children. The point is that consumers/investors are more rational than government actors believe and will strive to maximize personal well-being. Thus, the cash for clunkers accelerates car purchases but doesn't lead to a new elevated level of car purchases. The first-time buyer tax credit accelerates home purchases but doesn't lead to a persistent higher level of home buying and, in fact, has a offset in falling rental rates. All of this leads to current economic activity looking great, but as El-Erian writes (www.financialtimes.com) doesn't adjust the level of activity permanently. That leads to "irrational exuberance" to borrow a well-known phrase.
The consequence is short-term improvement in GDP and financial markets performance but the potential for great disappointment 6 months from now when current levels are proven unsustainable.
