We are still in terrible trouble

Economically speaking. I'll try and make it simple.

I want to buy a house. I buy a house for $200,000 in 2006. My Bank (MB) loans me money. Bank expects to get $200,000 from me plus interest over the next 15-30 years, I expect to get a house.

But that was in 2006 when prices were inflated. My neighbor's house just sold for $125,000. For there not to be an adverse affect on the economy, I must never sell my house.

Think about it. My house is worth $75,000 less than it was before. If I sell my house after I've paid for it, I lose $75,000 over the course of my lifetime. That's $75,000 that has been removed from the economy. I gave the money to the bank, I never got it back.

If I sell the house before, I still owe the bank $75,000. Same thing - except now the bank was expecting the $75,000. So now it has trouble running its business.

What if, nationwide, the value of houses fell by over a trillion dollars? Oops... So all that money that was flying around, that the stock market was using, that we were spending, what if a trillion dollars was removed in 3 years. A lot of it was based on the estimated value of houses. But there were loans, pensions, retirement accounts, investments, savings accounts, and checking accounts basing their balance sheets on the inflated values of those houses.

We haven't replaced this money, so don't think things are getting better anytime soon. That is why I don't believe the economy will get better any time soon.



One other thing. I keep hearing about how unemployment is a "lagging indicator," meaning the economy starts to improve before the unemployment rate starts to go down from its peak. At some point the growing unemployment rate starts to feed on itself. People that lose jobs can't pay for their house, more financial duress, more people lose their jobs...