Wednesday, September 7, 2011

Home refinance to fix Great Depression 2.0

Yesterday's Wall St Journal had a piece on home refinancing. With home mortgage rates in the cellar (4% !!) people could refinance and reduce their monthly mortgage payments. They estimated that refinancing from a 6% mortgage to a 4% mortgage could save the borrower several thousand dollars a year. Not bad.
In the past, consumers have rushed out and spent such savings. The Keynesians see a massive home refinancing creating the demand needed to get the economy growing again. Other, saner, commenters think the consumers would use the windfall savings to pay down credit card debt, or just put it in the bank rather than spending it.
Me, I think American consumers are rational. In these times of layoffs and job losses, the rational thing to do is save the money in case of job loss. Which can happen to anyone, anytime. And the consumers know it.

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