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I’m a big fan of the two shows This American Life did with Pro Publica regarding the Giant Pit of Money. Shoving interest rates down for so long meant that bond yields were nada. A historically unprecedented amount of money went looking for higher returns. Match that with poorly doc’d CDOs and you’ve got a setup for the biggest balloon since the tulips.
I was out purchasing in 2005 and deeply frustrated by competing in that market. I feel sorry for many, but I also got screwed in a different way. All that easy money meant that I had to pay a lot more for a house than in a reasonable market. We put down a bit over 10% and have a 15 year fixed mortgage. Even given a decline in values (we’re probably down about 10% in Alexandria, VA), we have solid equity in our home.
Personally, I’m in favor of terminating the mortgage interest deduction. I doubt that it’s done much for its purported aim, increasing home ownership. If you look at ownership rates internationally (I’m not on the SCOTUS, so I’m allowed to do this), you’ll some interesting results.
Australia – 69%
UK – 69%
US – 68%
Canada – 67%
NZ – 65%
Take a look at my not so random selection. Home ownership rates are comparable in the UK and English speaking former colonies. The desire for home ownership is a cultural matter, independent of a mortgage interest deduction.
But wait! One argues that it makes home ownership more affordable. No it doesn’t. Historically, the calculation has been based on income. If the government subsidizes mortgage payments, then housing prices will simply rise to compensate.
As an interim measure, I would suggest a housing tax credit of up to 20% with a limit of the median price of a home multiplied by the average interest rate . No second homes either. Sunset it by 1% per year until the damn thing disappears around 2030.
There is quite a lot in the news about the Euro crisis. I’m skeptical of claims that a Euro implosion would be disastrous for the U.S. economy. First off, Greece being ejected from the Euro doesn’t mean the end of the Euro. Just that Greece was brought in with an overvalued currency and with the full knowledge that the books were cooked. The U.K. was ejected from the Euro’s predecessor 20 years ago. That event propelled a dramatic economic recovery from disastrous interventions to stabilize its currency. It’s also the primary reason Labor was in government from 1997 to 2011. Even with larger knock on effects, the Euro zone is not a significant growth market for U.S. exports and an economic slow down might have a knock-on effect for materials prices. The U.S. performance this year tracked fairly well with oil. I’m likely wrong about this, but I don’t see this as our greatest challenge.
The most interesting piece that I read was a graphic in today’s Post illustrating U.S. exports to Europe. As I expected, exports to the southern tier countries aren’t that great. I expected the bigger EU countries (U.K., France, Germany) to make up the lion’s share. The shocker to me is that the largest market for us is Benelux (Belgium, Netherlands, Luxembourg), accounting for roughly $55B of U.S. exports per year, well ahead of the U.K. at $42B. One might quibble with me combining the three countries, but our Benelux exports rival those to Germany and France combined ($58B). For the record, here’s the top 10.
Incidentally, there is only one country that shows zero imports or exports to the U.S.–Yemen. Unless you included postal bombs.