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Jon Talton

Analysis and commentary on economic news, trends and issues, with an emphasis on Seattle and the Northwest.

October 11, 2010 at 10:00 AM

Nail guns into the housing coffin; wealth inequality, and a dollar mystery

The week begins with Wall Street trying to hold onto the Dow’s 11,000 mark and the hangover from the freeze in foreclosures because of sloppy/fraudulent paperwork. Nearly every economic event has winners and losers, so those facing the loss of their property have gained time, perhaps a great deal of it. On the other side, the housing downturn will be even more prolonged, with consequences fanning out across the economy.

As I’ve written before, the old housing boom is not coming back. The foreclosure freeze just puts a glacier atop the other forces that will prevent it.

With the house no longer a piggy bank, wages stagnant and most Americans not partaking in the trading in world capital markets, what’s an average Joe or Jill to do? Move to Sweden, according to a provocative piece in the Baseline Scenario. It looks at the actual historic high in wealth inequality, measured against what Americans estimate the disparity to be, and what they consider to be an ideal distribution.

Beyond this, I begin the week wondering if Washington is consciously trying to keep the dollar weak if not outright devalue it? The dollar has been falling amid talk of quantitative easing by the Federal Reserve (read: printing more money). A weak dollar is said to help American exports, and it might be a shot across China’s bow in the currency dispute. Having said that, it’s important to note that the dollar is still above the euro and is hardly being used as a managed currency as is done by Beijing.

Policy-makers beware: Even a weaker America still enjoys the world’s reserve currency, a credit card with a nearly limitless balance. Too much weakening would invite an exodus from dollar-based assets. It also makes those assets held by Americans (your savings, for example) worth less. It invites more of the bad policy in which China is engaging. And, as former Labor Secretary Robert Reich points out, it does nothing to help average American workers or create jobs.

Today’s Econ Haiku:

Too late to the game?

Or a breakthrough in smart phones?

Hello, Microsoft

Comments | More in Dollar, Housing, Income/living standards, International economy, Jobs/Unemployment

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