Right Thinking From The Left Coast
Reality is merely an illusion, albeit a very persistent one. - Albert Einstein

Tuesday, August 24, 2010

Darkness Warshed Over the Markets; There Was No Bottom


Existing-home sales were sharply lower in July following expiration of the home buyer tax credit but home prices continued to gain, according to the National Association of Realtors®.

Existing-home sales1, which are completed transactions that include single-family, townhomes, condominiums and co-ops, dropped 27.2 percent to a seasonally adjusted annual rate of 3.83 million units in July from a downwardly revised 5.26 million in June, and are 25.5 percent below the 5.14 million-unit level in July 2009.

Sales are at the lowest level since the total existing-home sales series launched in 1999, and single family sales – accounting for the bulk of transactions – are at the lowest level since May of 1995.

OK, not so eeek.  What has happened here is that the latest government housing stimulus program—the home buyer tax credit—expired.  So we went from the insane market in the tax credit regime back to a sane market.  It’s exactly like Cash for Clunkers—the program moved sales around rather than generating new ones.  Net economic benefit?  Minimal at best.

Yesterday, I got into a conservation with an Australian on the Gold Coast, who asked me if the American recession was really as bad as they say.  Australia’s recession has been comparatively minor.  Other countries, like Germany, are already booming sans stimulus.  So why is America lagging?

If you’ll put with my armchair economics, I think there are numerous reasons why the “Summer of Recovery” has been a dud.  A “stimulus” that poured money into political projects rather than broad economic gains.  The successive shocks of healthcare reform and financial reform—shocks that are still being felt as we find out what’s in those laws and various regulatory agencies have their say. I also think that much of the problem is structural—badly run industries like the automotive have been propped up for a long time, creating an ossified part of the economy.  For educated people, the unemployment rate is actually quite low.  It’s the less-educated Americans who are hurting the most because they are heavily employed in the government-pestered industries like steel and cars.  And our massive debt is making investment money pour into government bonds rather than industry stocks.

However, the biggest reason our economy is being slow to recover, in my opinion, is that we were at the epicenter with our housing market implosion. Much of the wealth the last decade supposedly generated was in housing.  It takes time to retrench the economy—think of us as experiencing a really giant hangover.  The problem is that the bullshit like mortgage adjustments and homebuyer tax credits have simply dragged out the pain.  They’ve been the hair of the dog in this economic hangover.  Thankfully, some of this is going away (although the Republicans, especially Isakson, are supporters of the homebuyer tax credit).

In the comments on Alex’s post below, I noted that while one might argue that the Iraq War didn’t cause the debt (although it certainly helped), you can’t consider it in a vacuum.  It’s the combination of various fiscal policies that were ruinous.  So it is true, even more so, of Obama and the economy.  A number of Obama’s decisions could be defended in a vacuum (although they were still wrong).  For example, Obama defended the auto bailout by saying we couldn’t let such a big industry collapse during a recession.  I didn’t agree, but at least it’s an argument.  And on it’s own, the auto bailout wouldn’t have hurt our economy that badly.  But it’s the combination of all these things that has kept the economy moribund.

Now that the housing sector shows signs of finally being allowed to unravel, now that the stimulus is winding down, now that further shocks to healthcare and finance may be behind us, it’s possible the economy could pick up.  This is especially true if the GOP retakes Congress and our businesses can relax knowing that sweet sweet gridlock has returned.

A few months ago, the Administration begin their “Summer of Recovery” campaign.  They thought the economy was going to bounce back and were prepared to claim full credit for it.  Now that it hasn’t happened, they are reverting back to to the “it’s Bush’s fault” line.  But Obama owns this economy now.  Every major decision affecting it has been his.  I suppose they’ll now fall back on the “it would be worse” line.  But I don’t see the American people biting.

Posted by Hal_10000 on 08/24/10 at 02:28 PM in Politics   Law, & Economics  • (0) TrackbacksPermalink
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