Happy Days Are Here Again…

Consumer confidence is at its highest level since February 2008.

Housing prices in 20 major cities jumped 10.9% in the past year, the biggest annual increase since April 2006.

We know the deficit is looking much, much better than expected, as recovery brings more revenue to the government.

So for 2014, the GOP is left trying to sabotage Obamacare and trying to milk all the mileage they can out of the Benghazi, IRS, and reporter (AP/Fox’s James Rosen) “scandals.”  I remain unconvinced that any of these is really a true scandal.

Our Lost Generation

From “In Shovels, A Remedy For Jobs And Growth,” Eduardo Porter, NYT:

“At the end of last year, according to the nonpartisan Congressional Budget Office, the economy was still about 5.5 percent smaller than it would have been had it avoided the recession and kept growing along its long-term potential path, making full use of the workers and equipment currently sitting idle. … By the time we recover to our potential — which the C.B.O. expects will take until 2017 — the Great Recession set off by the implosion of the housing bubble more than five years ago will have cost us nearly half of one year’s entire economic production:  about $7.5 trillion.

“We will be paying the price for years.  The slump is hindering capital investment, stunting the careers of college graduates and encouraging workers to drop out of the labor force….”  Emphasis added.

Every time I hear some Republican apoplectic about the debt we’re placing on our kids and the high taxes they will have to pay, I think of my own Millenial son who does not have a job commensurate with his education and is not on the career path he should be.  I believe his earnings and achievements will be adversely affected for the rest of his life.  I’m sure he would much, much rather pay higher taxes down the road on an income higher than what now seems in store for him.  It’s not just the loss of money that’s so sad, it’s the loss of career satisfaction as well.

This Is What a Recovery Looks Like

When housing collapses, it doesn’t really matter whether Democrats or Republicans are in charge, the economy is going to be awful until that powerful sector recovers.  I believe Keynesian measures hasten that day, but hard times are inevitable.

Housing is finally coming back — rather than being a drag on the economy, a drain on GDP,  it’s now beginning to perform its engine function.  It thinks it can, it thinks it can…

That’s why we see Home Depot announce that they are adding 10,000 jobs for the spring season.

As housing goes, so goes the nation.

Besides literal green shoots this spring, I expect many more figurative ones.

March Will Come In Like a Lion, But Won’t Go Out Like a Lamb

This could be a true bounce-back year for the economy, with the recovery really gathering steam.  Housing, which has been such a drag on GDP for six years, is finally expected to add to GDP, by about 1%.  Just as a downturn feeds on itself and takes us spiraling down, a definitive upturn would feed on itself and lift us up higher and faster.  More consumer spending leading to more jobs, leading to more consumer spending and even more jobs.

But…

The sequester looms on March 1, with the GOP saying they won’t raise taxes and will accept only spending cuts, and the Dems saying there must be a combination of cuts and taxes.   Without an agreement, the automatic cuts will start draining billions of dollars a month from our economy.

And by the end of March, government funding under the continuing budget resolution will run out, and we face the possibility of a government shut down.

So we could quickly and needlessly slide back into recession.

It is ironic that as the private sector comes back, the government-hating GOP may use government power to depress the functioning of the free market and give the “invisible hand” a vicious slap.

But they believe they have to destroy our economy in order to save it.

 

 

 

 

Maybe We Should Abolish the Fed…

Just kidding!  But they really did miss the Great Recession.

From “Most Fed Officials Saw Economy Weathering Subprime Crisis,” Craig Torres, Bloomberg:

“Federal Reserve officials in August 2007 saw the beginnings of the crisis in subprime mortgages and concluded that the U. S. economy would be able to withstand it, even as some Fed members warned that it could trigger a downturn, transcripts from their 2007 meetings show.

“‘Well-capitalized banks and opportunistic investors will come in and fill the gap, restoring credit flows to non-financial businesses and to the vast majority of households that can service their debts,’ Donald Kohn, then vice chairman of the board, said in Aug. 2007….

“The transcripts show the committee’s slow grasp of the enormity of contagion that was to spread throughout global markets as a result of billions of dollars in low-quality housing assets that had been securitized into bonds and sold to banks and investors worldwide.  Several FOMC participants such as then-San Francisco Fed President Janet Yellen sounded alarms in the first half of 2007.  Still, the FOMC…showed reluctance to alter policy until August.

“‘The odds are that the market will stabilize,’ [Ben] Bernanke told the committee in Aug. 2007….

“[O]n June 27028, Yellen said the biggest risk to economic growth was housing, which she called the ‘600-pound gorilla in the room.'”  Emphasis added.

It turns out that housing was more like an entire wildlife preserve filled with gorillas…

 

A Very Strong Housing Report

The latest S & P/ Case Schiller property values index shows a very strong 4.3% rise in home values between October 2011 and October 2012.  This was more than economists had expected.

The housing sector finally is helping the overall economy, rather than draining it.

The increase reflects record-low mortgage rates; low inventory; increased consumer confidence that the economy is improving; and a growing  population, many of whom would have bought in the last few years if we’d had a decent economy.

 

Green Shoots!

Housing prices were up 4.6% in August compared to prices in August 2011.  This is the biggest increase in six years.

A housing rebound is essential to an economic rebound, they are inextricably linked.  This is very encouraging news.

I hope the Prez mentions this at the debate.  You can be sure that if prices had dropped 4.6%, Mittens would mention it.

You Ask the Wrong Question, You Get the Wrong Answer

From Paul Krugman* today:  “By the way, in saying that our prolonged slump was predictable, I’m  not saying that it was necessary.  We could and should have greatly reduced the pain by combining aggressive fiscal and monetary policies with effective relief for highly indebted homeowners:  the fact that we didn’t reflects a combination of timidity on the part of both the Obama administration and the Federal Reserve, and scorched-earth opposition on the part of the G. O. P.”

This brings us back to Rick Santelli on February 21, 2009, when he famously asked, “Do we really want to subsidize the losers’ mortgages?  This is America!  How many of you people want to pay for your neighbor’s mortgage that has an extra bathroom and can’t pay their bills?”

The answer to that was a resounding “Hell, no!” and the start of the Tea Party,  but Santelli asked the wrong question.  He should have asked “How many of you people want to lose 30, 40, 50% of the value of your homes?  How many of you people want to lose your jobs because of the worst economic meltdown since the Great Depression?  How many of you people want to then lose your homes because, just like your neighbor now, you won’t be able to pay your bills?”

The truth is that because we got so obsessed with “moral hazard,” so determined not to coddle those damn “losers,” we all became losers.  If we’d loved our neighbor a little more, we would have all been better off.  Instead of lifting them up, we dragged ourselves down.

With all our politicians who constantly quote the Bible at us, where was Mike Huckabee or Michele Bachmann or Rick Santorum reminding the self-righteously righteous that the rain falls equally on the good and the bad?

* “The Optimism Cure,” NYT

A Trick Question

The GOP is asking that old Reagan question, “Are you better off now than you were four years ago?”  From their perspective, it’s a rhetorical question that they answer for all of us in the negative.  But really, it’s a trick question.

A lot of people who were employed when the economy imploded four years ago have since lost their jobs and remain unemployed or under-employed.  A lot of people who had a nice house in the suburbs have since lost that house and are living in an apartment.  A lot of people have lost savings and pensions and health insurance.

But those losses became inevitable when the economy imploded during the 2008 campaign.  They may not have all happened yet when President Obama took office, but they were baked into the cake (or crap sandwich).  He didn’t cause those losses, and they could well have been worse.  We were damn close to another Depression, damn close.

Obama “won” an economy in free fall, with hundreds of thousands of jobs being lost each month and GDP declining sharply and scarily.  The economy has been producing, not losing, jobs, for several years now, and the modest change in GDP  is far from spectacular, but at least it is positive, not negative.

When Obama took over, we didn’t know where bottom was or how long it would take to get there.  We have hit bottom and are starting to come back up.  Americans are buying houses again, Americans are shopping and going to restaurants.

Just as President Obama didn’t cause the losses we are still grappling with, neither did Mitt Romney or Paul Ryan cause the widening gap in both wealth and income that has been the last thirty years, and especially in the last decade.  But their policies will widen that gap, not shrink it.

A vibrant middle class made this country great — economically, politically, and militarily.  If the middle class declines, so will the country.  They are in a symbiotic relationship.

The relevant question is, “Under which leader will the middle class be stronger four years from now?”  That’s not a trick question, and it’s not a tough one either.

Green Shoot Alert!

From “Housing Passes a Milestone,” David Wessel, WSJ:

“Nearly seven years after the housing bubble burst, most indexes of house prices are bending up.

“Economists aren’t always right, but on this at least they agree:  A new Wall Street Journal survey of forecasters found 44 believe the housing market has reached its bottom; only three don’t.

“For some time, housing has been one of the biggest causes of economic weakness.  It has now — barely — moved to the plus side.

“From here on, housing is unlikely to drag the U. S. economy down further.  It will instead reflect the strength or weakness of the overall economy:  The more jobs, the more confident Americans are about keeping their jobs, the more they are willing to buy houses.”  Italics in original.