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Existing homes sales did some cliff diving of their own from December to January.   This is classic deflation psychology at work: “Honey, let’s wait 6 months to buy the house.”  6 months later: “Hmmm, prices are still falling.  Why don’t we wait it out another 6 months?”

This is why the government must extinguish the fire.  Deflation is as much a function of psychology as a function of money.  You can pump all the money you want into a system, but until you give consumers the confidence to spend it you’re just pushing on a string….