The Post told readers that "this downturn is the result of a profound financial crisis that has caused lending to dry up." This is really incredible. The country has lost more than $5 trillion in housing wealth because of the collapse of a housing bubble and the Post still isn't talking about the bubble. The Post's most frequently cited expert on the housing market during the boom years was David Lereah, the chief economist for the National Association of Realtors and the author of the 2005 best seller, Why the Housing Boom Will Not Bust and How You Can Profit From It. As a result, Post readers would have seen almost no warnings about the bubble and were not surprised when the housing market began to plunge in 2006. In addition to leading to a fall in residential construction of more than 50 percent (3 percent of GDP), the loss of $5 trillion in housing wealth would be expected to lead to a fall in annual consumption of between $250 billion and $350 billion (1.7-2.3 percent of GDP). This is the primary cause of the downturn. It is remarkable that the Post still hasn't noticed either the bubble or the impact that its collapse has had on the economy.
--Dean Baker
