In general, most people would agree that the housing collapse of 2008/2009 was a negative event in U.S. history. A combination of misinformed regulations from Washington D.C., low interest rates, poor underwriting standards that allowed for, among other things, the idiotic "cash out" mortgage, and an insatiable demand for securitizations drove one of the biggest asset bubbles in history which almost brought down the entire global financial system.
But, at least one person, namely New York Fed President Bill Dudley, thinks that a repeat of the 2008 mortgage crisis is exactly the cure for America's stagnant retail sales. Speaking at the National Retail Federation's annual convention in New York, which was undoubtedly full of perplexed retailers wondering why their store traffic remained so weak amid Obama's stunning "economic recovery", Dudley intimated that the cure for weak retail sales was a return to 2006 practices in which debt thirsty Americans repeatedly withdrew every dollar of equity in their homes to fund their trips to the mall.
“The good news is that, while the current expansion is quite old in chronological terms, it is still relatively young in terms of the health of household finances,” Dudley said in a speech to the National Retail Federation.
“Whatever the timing, a return to a reasonable pattern of home equity extraction would be a positive development for retailers, and would provide a boost to economic growth,” Dudley said.
Homeowners may have overlearned the lessons from the housing boom and bust, the New York Fed President said.
Even though home values have risen over 40% since 2012, housing debt has stayed virtually flat, he said.
“The previous behavior of using housing debt to finance other kinds of consumption seems to have completely disappeared,” and people are leaving the wealth generated by rising home prices “locked up” in their homes, he said.
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