Quantitative Easing Home Equity An Alternative Economic Management Tool

Kees De Koning ()

MPRA Paper from University Library of Munich, Germany

Abstract: Home equity levels play a key role in the economic experiences of countries. The example of the U.S. situation is very informative. In 2005, the home equity level stood at $14.4 trillion. U.S. government expenditure in the same year was $4.4 trillion. As a consequence of the Great Recession, the combined home equity levels dropped to $8.2 trillion by Q1 2012. This was a not inconsequential loss for many homeowners. By Q3 2020 the level of home equity had risen to $20.4 trillion. The total U.S. home value level rose to $31.2 trillion by Q3 2020. One may compare this to 2020 GDP of $20.924 trillion and more importantly to the share of GDP that flowed to the U.S. government (Federal, State and Local) in 2020 of an estimated amount of $ 7.63 trillion. In 2020, the total home values in the U.S. were just more than 4 times the combined income level of the U.S. Federal, State and Local governments! Even taking away the outstanding housing debt level of $10.2 trillion, the $20.9 trillion home equity level still represents a multiple of 2.74 times of the combined U.S. government tax level in 2020. There are at least three methods to stimulate an economy: 1. Monetary policy is executed by lowering the short-term interest rates so that savers are encouraged to spend more and borrowers can afford to borrow slightly more than at a higher interest rate level. 2. Fiscal policy works in that a government can borrow more in order to spend above its tax income level. This implies that a debt is created that in future years need to be paid back by all households. 3. There is a potential third option: the Home Equity Policy. A government can encourage home equity to be used on a temporary basis to stimulate the economy. “Re-savings” can be made out of future income levels. The beauty of this system is that it is an individual household’s decision and the benefits of more spending go directly to the household that participates in the scheme. The replenishment of the home equity savings level is totally to the benefit of the individual household. The aim of all three methods is the same: increase demand levels and lower unemployment levels without accelerating inflation levels. Why method three might prove to be the most effective is explained in this paper.

Keywords: U.S.Home Equity; Great Recession. Economic management tools; U.S. Government debt levels (search for similar items in EconPapers)
JEL-codes: D1 D11 D14 D5 D53 D7 E2 E21 E24 E5 E58 (search for similar items in EconPapers)
Date: 2021-03-09
New Economics Papers: this item is included in nep-mac
References: Add references at CitEc
Citations:

Downloads: (external link)
https://mpra.ub.uni-muenchen.de/106528/1/MPRA_paper_106528.pdf original version (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:106528

Access Statistics for this paper

More papers in MPRA Paper from University Library of Munich, Germany Ludwigstraße 33, D-80539 Munich, Germany. Contact information at EDIRC.
Bibliographic data for series maintained by Joachim Winter ().