How housing affects your daily expenses
What is offsetting the housing slump is spending by business on technology to make its operations more efficient and lower costs. But the resiliency of the U.S. economy in the face of the housing bubble is amazing. It is a testament to the Federal Reserve for doing such a good job at dealing with a difficult situation.
But for every action, there is a reaction. The Fed has flooded the economy with money, and this has depressed the value of the U.S. dollar. This boosts inflation.
Inflation is no longer well-anchored, to use [Federal Reserve Chairman Ben S.] Bernanke's term. This is going to be felt much more today than it was in the 1970s, partly because of how companies interact with their employees. In the 1970s, companies were willing to pay their employees a few percentage points more to beat inflation. But today in the era of downsizing and outsourcing, this has not happened.