I noticed this post at Calculated Risk regarding mortgage equity withdrawals, or MEW’s, on Monday, and I’ve been meaning to link to it. If you click through there’s a nice bar graph that really illustrates just how much money is being yanked out of the economy. Here it is in words:
Equity extraction was close to $700 billion per year in 2004, 2005 and 2006, before declining to $471 billion last year and will probably be less than $100 billion in 2008.
The post goes on to sort through what this might mean, and I’ll leave those technical details to the trained economists.
But as we keep hearing how consumers used home equity to finance not just lifestyles but in many cases simply to stay afloat through health and job crises, it’s hard not to conclude there’s going to be a continuing ripple effect throughout the economy.
This would seem to add to already intense deflationary pressures, both from the housing bubble collapse and recession-related job loss. As the ripples spread nothing short of a massive government intervention to help fuel demand (as opposed to repeatedly injecting cash into failing corporations) would seem to be worthy of discussion.
Paulson is already pivoting toward nationalization of banks, so who knows? By Halloween we may be looking at the new Treasury Department Works Progress Administration.