July housing sales numbers—down 27% from the month before--sentshudders through government, businesses and the investor world. Itwas more evidence of a slowing recovery. Buyers pulled back withoutthe expired federal tax credit incentive. Fears increased thathousing values and sales may sag further, possibly setting off thedreaded double dip. Meanwhile, mortgage rates stand at all timelows and home prices have already dropped 30-40% in many places. Sowhat does this all really mean?

Government leaders (Obama, Geitner, Bernanke) will continue tocheerlead and try jawboning confidence. Politicians may criticizeeach other and throw around blame—“the country is going in thewrong direction under so and so (Obama, Geitner, Bernanke")—butnobody gets elected saying America is starting to fall behind andmay not bounce back for a long time. Economists for big financialinstitutions don’t keep their jobs by turning excessively negativeabout U.S. prospects either—that’s bad for business. Soexplanations for the extended housing malaise range from highunemployment levels—people fear they may lose their job so put offbuying when they otherwise can; and lenders have been toostringent, cutting off people who could otherwise buy; to peoplefear that values will go down even more so they are holding offwhen they otherwise would be back in the market. Therationalizations go on--once the employment picture improves andlenders loosen up, we’ll be back, fears will dissipate, andeverything will be okay.

And you know if employment improves and wages track up that willcertainly help, and if lenders loosened up that would too. But employment prospects look reasonably bleak—the economy isn’tcreating enough jobs and loose credit standards helped get us intothis mess. Wages for most Americans have been stagnant to down formore than a decade. Maybe lenders have over-corrected somewhat, butdo we really want Fannie and Freddie to throw more good taxpayermoney after bad?