Real Estate Home Values – Will the Proposed Goverment Plans Stop the Slide?

Former 22nd. Labor Secretary under President Clinton, Robert Reich has strong opinions on this subject. Mr. Reich is a graduate of Harvard, Oxford and Yale which add quite a lot of credibility to his views. He believes that the Fed's rescue plan will not work, because the average consumer is too heavily indebted to increase, or even sustain, spending in this recessionary environment, regardless of the easing of monetary policy.

In inflation adjusted terms, the median wage today is below what it was in 1999. A man in his 30s earns 12% less than someone his age did 35 years ago.

Reich believes that American consumers are deeply in debt, their homes are losing value and their pay checks are shrinking.

According to Reich: "These bailouts won't work because the Street's big banks are still sitting on what may be another three to four hundred billion dollars of bad debt. The rest of the world economy, through the magic of securitization, may be sitting on another few hundred billion. And because no one knows precisely how much or where this bad debt is, the risk premium is even higher, which is why credit markets will remain more or less frozen.

We won't be out of this mess until the speculative bubble that was created when the Fed cut slashed interest rates six years ago fully pops. For that to happen, Wall Street will have to face its real losses and write off another several hundred billion. And home owners across America will have to face their losses and watch the value of their houses drop another 10 percent, about to where they were before the bubble.

The Fed bailing out the big banks is like someone with a helium tank blowing more air into a leaky balloon. It only postpones the inevitable, which is that the balloon will lose its air and float back to earth. For markets to work again, speculative bubbles have to burst, one way or another."

Reich believes that there is a 20% chance of a Depression.                                            San Diego California real estate agents