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This was written on 2/7/11

In a link below this one, I note that Bernanke eventually, later last year, announced a major bond purchase program - in an effort to get the economy going again. 

I don't think that actually had all that much effect - but what I do think had an effect was that people at Christmastime were so tired of all the gloom that they decided to celebrate while they could, i.e., in terms of the Christmas season, and so Christmas sales were way up. 

The net result was a pick-up in the economy - and everyone promptly started jumping on that as the beginning of a real recovery. 

The problem is that there are two things still massively in the way of a major recovery - the real estate problem and the national debt problem. 

I discuss the national debt at a separate link on this website - and I also discuss the real estate problem at a separate link, the real estate problem also being ongoing, not going away (because there simply aren't enough buyers anymore - everyone only needs one residence). 

In fact, the real estate problem is so ongoing that Fed Chairman Bernanke has been remarking about it repeatedly in speeches and testimony in recent times, including in a speech just last Thursday, in which he said, "In contrast, in the housing sector, the overhang of vacant and foreclosed homes continues to weigh heavily on both home prices and residential construction." 

The reason why the real estate problem is so important (not that Bernanke ever says this because if he would, confidence would immediately tank) is because since about 65% of Americans "own" a home - most of them with a mortgage - and that home is their primary asset in most cases, and Americans tend to move more frequently than other nationalities do, they are not going to take too kindly to the situation of the real estate market being down in the dumps.  Most homeowners did not notice it last spring because of the federal housing tax credit - which kept the market going until April 30, mostly by way of first-time home-buyers (most demand was for the first-time tax credit, not for the trade-up tax credit), buyers who I think were too young to have been participants in the previous housing boom (of the mid-2000's) - but when the housing tax credit ended, demand immediately went way down.  There will not be another tax credit this year - because the previous one was already too expensive (the Congressmen themselves said so at the time) - so this spring, the people will notice.  I think that last spring, by the time most people would have noticed by about mid-May that demand for housing was way down again, they were mostly focused on summer in the meantime and had not noticed that demand had, in fact, gone way down again right after the tax credit expired, contrary to the expectations of the law makers who had specifically stated in late 2009, when the previous temporary tax credit expired, that they were extending it, despite the cost, because they felt it imperative to "support the real estate market until the normal seasonal demand kicks in in the spring."  I knew that the normal seasonal demand would not kick in again - because the real estate market had run out of buyers, overall - and that is exactly what happened, demand went way down as soon as the tax credit expired and has pretty much remained down ever since (but see an added comment below). 

Bernanke also commented in his update speech about the national debt - and basically said that if something is not done about it really soon, the country is in deep trouble (I think it is in deep trouble anyway - we are past the point of no return, see my link "A comment about the national debt" and my link "Government spending is included in the economic growth numbers").  I have my responses to his speech posted at a separate link, "A look at Bernanke's update speech," a few links down on this website. 

A note added in the spring of 2011 - the real estate market did crash, in terms of demand, immediately in the wake of the expiration of the government tax incentive.  But by a few months ago, demand had returned to above the level that existed last spring during the tax incentive.  So people are now asking why home prices are not going up, in fact, why are they still going down?  The answer is simple - because demand would have to go up to the level of the previous boom times of the mid-2000's, given the current level of excess inventories of housing, before prices could actually start going up again.  I did not foresee that demand would come up as much as it has in recent months - but my prediction is actually about prices, not demand, and I knew that there was no way demand could get high enough again to actually start causing prices to go up again.  So prices are still falling - even in the spring.  In past economic recoveries, the effects of immigration have helped to stabilize the housing market, eventually enough so that house prices could start rising again.  This time, the economy is far too weak for immigration to play much of a role. 

The simple reality is that because there was a big real estate boom (in the mid-2000's) and, by definition, everyone only needs one place to live, we would have to go back to the conditions of the boom in terms of demand to have prices go back up again.  As noted at my link about a real estate recovery, the market went deep into the sub-prime borrowers before it collapsed.  Millions of homeowners have since been foreclosed upon and had their credit ratings trashed in the process, which means they will not be able to buy a home for years.  And the economy is so weak, as I have known for a long time it would be at this point in the big picture, that there is no way immigration is even going to come close to making up the difference.  So there is simply no way home prices are going to come back up significantly, and certainly not enough to eliminate the credit crunch, which happened in the first place because too many homes went down too much in price in an environment of too many mortgages being defaulted on.  The defaults, by the way, continue.