Do Economists Know That Inversion of What Seems To Need To Be Done Often Solves Problems?

Y. B. Karasik,
Thoughts Guiding Systems Corp.,
Ottawa, Canada.
e-mail:karasik@sympatico.ca

The Federal Reserve continues to do things which seem to be reasonable in the current situation: drop rates, inundate financial markets with money, etc. But for some reason it seems to not work. Given these circumstances any inventor would try the opposite. Because he knows that inversion is a powerful tool of problems solving when a direct approach fails. But economists cannot rely on heuristics. They need to adopt a founded decision. That is why I embarked on finding a reasonable motivation for applying inversion. My thoughts can be boiled down to the following.

At the heart of the current crisis lies housing bubble and the subsequent collapse of the real-estate market. Hence, the recipe of pulling economy out of the current crisis can be gleaned from analyzing who was buying houses in the recent years. They were not people that saved $100,000 or $200,000, $300,000 or even more. They could not afford to throw all their savings at houses which prices exceeded their savings despite they needed them. They were also prudent enough to not buy these houses by taking loans which nobody is able to repay. Only people that saved NOTHING were buying in recent years because they had nothing to lose and because they knew that the state always helps those who has nothing.

So, the solution to the current problems is to raise interest rates to 10% or 15% and let home prices drop 50-80%. Let all these cunning beggars who bought millionaires' houses go where they belong to.

People that have savings and need to buy a house but refrained from doing so due to the crazy real-estate market conditions of the recent years will start buying as soon as prices drop to the sane levels. And this will pull economy out of its current troubles because there are sufficiently many such people and because they will be buying on cash, which is the best oil for the machine called economy.