Vicious Cycle

Coming soon: you can use your $8,000 new-home tax credit to make a down payment on your new home.

We’re now several years into a credit crisis caused by people buying homes they couldn’t really afford. And the response? Creating a new incentive to buy more homes — and to borrow money to do it. There is no way this will end up moving prices to an appropriate level, and no way it’s going to make the finance and housing industries change their behavior.

In fact, the main result is to make things even worse: in the past, the government just made borrowing cheaper (through the income tax deduction, which made interest cheaper than other kinds of interest, and through Fannie and Freddie, which made mortgage loans easier loans to make). With this new law, they’ve gone from making promises to just plain writing checks.

You can’t really take this much farther without making it even more absurd. In the future, we’re going to have to raise taxes (on everything except real estate, apparently). Or huge deficits will lead to rampant inflation (making dollar bills worth less than wallpaper — also a boon to the housing industry, incidentally).