US housing policy: an intriguing story to follow

Today, this story has caught my eye, from the FT:

This provides an interesting follow up to my recent piece here, sorry free registration required:

This issue was so important that the IMF dedicated an entire chapter to it in it’s recent World Economic Outlook. They highlighted both the US in the Great Depression and present day Iceland as role models for bold programs to deal with household debt. In so doing, they also drew attention to the shortcomings in this area of the current US Administration.

A key sign of a bold program is the broad take up of principal reduction. This is where the US has failed in this crisis, as Luce points out. Critics of principal reduction point to moral hazard, but in a time of crisis with a depressed economy, this objection just hurts the entire economy.

Thus, Luce has rightly shone the light on a crucial issue. It will be interesting to see how this evolves and hopefully it reminds policymakers that the debt overhang is still holding back the US recovery.


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One response to “US housing policy: an intriguing story to follow

  1. Pingback: The Cubic IS Curve: debt and its implications | globalmacromatters

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