Good criticism

Good criticism. However, your post has too many interconnected ideas, and I don't think the message comes through. I see the takehome as follows: During the bubble, both increased building and increases in leveraging were fueling demand. After the crash, neither was contributing to demand. The demand (in the short term) needs to be replaced and BigG is a good candidate to do so through stimulus. This message gets muddled with fixing the housing market (a separate issue). Re-inflating the bubble and return to leveraging houses at bubble prices is a fool's errand. However, allowing the housing market to clear would be helpful for a variety of reasons. In terms of demand, Distribution of wealth and income matters and it matters a lot. Your statement, "However we would have also destroyed the wealth of the mortgage holders. Let's assume that they just spend 2 cents on the dollar of their wealth" misses part of the equation. Paying down debt = savings. Thus, underwater homeowners are in a "forced-savings" program. Forgiveness would relieve the forced savings which is far greater than the demand from the mortgage holders. If, in fact, Uncle Sam is the mortgage holder (as some propose) then we get an increase in BigG spending today with higher revenues in the future when the economy recovers. The article you criticize makes a muddle (as most popular articles do) of the rationale for clearing the housing market, but there are good reasons to do so that are not enumerated. Of course, clearing the housing market is independent of the need for more stimulus. But one form of stimulus could both clear the housing market and increase private demand. Certainly other forms of stimulus would be welcome and are a good idea. - bakho