A&L Enterprises Tech Line

I read “False Profits” by Dean Baker a few days ago.  The subtitle of the book is “Recovering from the Bubble Economy” – which pretty much sums up what the book is about.   The author has some interesting opinions about what happened with the economy – and some issues he has with the economic leadership at the time.

One of the key points of the book is that the heart of the economic crisis was not derivatives, exotic loans, etc – but a housing bubble.  Real Estate simply became overvalued and when it fell it caused a ripple of consequences to the economy.  Not only was the wealth generated and lost by the housing itself – but it fed a lot of consumption in the economy that was also lost.

The heart of the problem is that no type of asset will endlessly go up – at some point it goes down.  Stocks go up and down – even if over a long time period they go up.  Housing has gone up and down over time – but the general trajectory is up.  Gold, other metals, even bonds, go up and down in value.  To assume anything will forever keep increasing signficantly is just denying reality.  But our society seemed to buy into it - as it was making us money and driving the economy.

Another interesting point the author made was how this affected the baby boomer generation –  in terms of their readiness for retirement.  I can’t back it up but he says that baby boomers that don’t own a house are actually in better shape than those who do – that too many baby boomers made their house their primary wealth vehicle – not retirement funds, stocks, bonds, etc. View full article »