Mortgage Interest Deduction Tax Loophole Cause of Past and Current U.S. Housing Catastrophe
January 29, 2010 by Editor · Leave a Comment
Many Americans are suddenly seeing their economic fantasy evaporate before their eyes as 2010 begins. www.bullionbullscanada.com; By: Jeff Nielson; Words: 609
In further edited excerpts from his original article* Nielson goes on to say:
A plethora of news items, both new and recent, completely shatter any pretense that the U.S. economy is “growing”. The latest, bomb-shell headlines are that U.S. residential rental vacancies are at their highest level in 30 years. Simultaneously, U.S. shopping mall vacancies just set an all-time record. Meanwhile, foreclosures/defaults in both markets continue along near/at all-time record highs – and there are over 20 million empty homes in the U.S.
With respect to the residential market, there are only two, possible explanations for these catastrophic numbers. Either the supply has been built-up to such grossly excessive levels that there simply aren’t nearly enough people to occupy these residences (ever) or their wealth/income levels have collapsed to a point where much of the U.S. population simply can no longer afford shelter.
The U.S. tax deduction for mortgage interest is unique among major, industrialized economies and, like every tax-loophole, this distorts economic activity by causing excessive levels of home-ownership, relative to the size of the population and/or the level of wealth of the American people.
Many Americans may bristle at me describing U.S. home-ownership as excessive but the reality of the situation is that this massive, housing tax-loophole is one of the prime culprits for the current, catastrophic over-supply of housing in the U.S..
To be sure, there are many other contributing factors – excessively low U.S. interest rates, the abolition of lending standards, and the abolition of regulation were also horrible mistakes. However, since all three of those previous mistakes were undertaken through orders from Wall Street, the real cause of the current, U.S. housing catastrophe was Wall Street’s scheme to fleece the world out of trillions of dollars through marketing “toxic” mortgage products, and Ponzi-scheme derivatives – based upon the U.S. housing bubble.
While it was inevitable that such a premeditated hijacking of the U.S. economy would end in disaster, it is the mortgage-interest deduction which has magnified the amplitude of this disaster, considerably. Yes, encouraging high levels of home-ownership is a lofty ideal. However, as Americans (and the rest of the world) can now see, there is nothing desirable about having tens of millions of grossly, over-leveraged homeowners.
Indeed, one must assume that Wall Street chose the U.S. housing sector as the vehicle for its scheme not only to make out like bandits while they were pumping-up this bubble, but because they will net an even greater long-term haul through throwing tens of millions of American families onto the streets, and confiscating their homes. If the mortgage-interest deduction had not created so many over-leveraged homeowners (even before the housing sector became so extremely over-valued), Wall Street may have very well simply relied upon creating another equities-bubble to further its evil schemes.
A lesson to be learned (assuming anyone in the U.S. government is trying to learn from these mistakes) is that if you choose to distort your economy by channeling vast amounts of wealth into a particular sector (via an enormous tax-loophole) that such a sector must be much more vigorously regulated than other sectors of the economy – precisely to prevent an “economic distortion” from becoming an “economic bubble”.
We can now all see where the combination of a huge distortion, and no regulation leads.
* http://www.bullionbullscanada.com/index.php?option=com_content&view=article&id=7213:here-comes-the-double-dip-recession&catid=47:us-commentary&Itemid=132
Editor’s Note: The above article consists of edited excerpts from the original for the sake of brevity, clarity and to ensure a fast and easy read. The author’s views and conclusions are unaltered. (editor@MunKnee.com)
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