The Roots of "Economic Challenge" in One Picture
Paul Kedrosky links to Mary Meeker's (Morgan Stanley) "Economy + Internet Trends" slides (147 total). I thought Slides #5 and #6 above were especially interesting.
Related: Today's WSJ article on Nobel economist Gary Becker:
1. When asked about the sources of the mania in housing prices, the first culprit Gary Becker names is the Fed. Low interest rates, he says, were "partly, maybe mainly, due to the Fed's policy of keeping its interest rates very low during 2002-2004 (see top slide above). When you have low interest rates, any long-lived assets tend to go up in price because they are based upon returns accruing over many years. When interest rates are low you don't discount these returns very much and you get high asset prices."
2. On top of that, Mr. Becker says, there were government policies aimed at "extending the scope of homeownership in the United States to low-credit, low-income families." This was done through "the Community Reinvestment Act in the '70s and then Fannie Mae and Freddie Mac later on" and it put many unqualified borrowers into the mix (see bottom slide above).