Lifted from comments
Lifted from comments on the housing situation by Spencer…Housing vs. Household formation. Of course the point also being…what is going to be the source of growth for US citizens?
kharris comments and adds another contributing factor on the housing market:
…Banks already have pretty nearly all the housing assets they care to have, thank you very much. If banks don’t want more housing assets, then they won’t lend much money against houses. That reluctance to lend is going to keep effective housing demand down, even if demographics are favorable.
And herein lies the problem. Housing demographics are responding to labor market conditions, and financial conditions. Each needs to improve, and the failure of either to improve limits improvement in the other. We traditionally rely on housing to lead recoveries, and there are self-reinforcing limitations on housing right now. Rather than overall growth responding to housing, this time housing needs overall growth. That means we need some other source of growth to lead.
In response to that situation, one party says “cut taxes and regulation and (mumble, mumble, mumble), and then the economy will be great and all our problems will be gone.” The other party says “the best we can do is go small and pretend it’s enough.” There is no alternative source of growth in either of those.
Hint: Taxpayers own the banks that own the houses.
Have to agree with kharris on this. I see two options.
1. let the market muddle through and suffer 5 – 10 years of misery
2. get government and banks together, make a plan and swallow the bitter castor oil of wide spread mortgage restructuring
Think #1 is most likely.
On the radio this morning the news said the fed is thinking of lowering long term rates to help spur spending.
I know it’s all they have, but really, do we want to rebuild the economy on a model of debt which just keeps the financial industry primary to the producer aspect of the economy instead of in service to the producer economy?
Just like the fact that we have lost vast amounts of hard capital via off shoring and thus can not just throw the switch as if the factory has only been in storage, the primary part of all this is dehydrated: the middle class. Which is why we are reading about the hourglss strategy of marketing.
Someone at the Fed needs to speak up and note that there is nothing of substance the Fed can do.
Of course in the same report it was noted the repubs are against the fed lowering long term rates because “it will hurt the economy even more”. This one an can not reason out. Anyone else?
Daniel Becker,
“Someone at the Fed needs to speak up and note that there is nothing of substance the Fed can do.” Not sure I agree. The Fed seems to have found ways to break its usual rules. As I noted on another thread, if you give someone $X in Treasuries for an asset that is nominally priced at $X but which has no market and which would sell for something close to zero, you have just given that someone $X. The Fed found a way to do that for banks. My bet is that if the Fed found a way to hand every American $1,000, most of it would get spent and some of the slack aggregate demand might get taken up.
Yes, I agree if the concept of giving money direct to the citizens was even possible of materializing in the Fed’s brain.
US Economic Data Site. Over 100,000 economic series.
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http://www.econoside.com/
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http://www.econoside.com/index.php?idr=19
Maybe the problem is that all the suggestions concerning how to “fix the ecinimy” amount to little more than a band-aid to fix a sliced aorta. Well maybe the Republican plan is more like simply diverting the flow of blood from the whole body to a finger or two.
We need demand. Demand requires a financially healthy working class. A working class requires jobs and better pay. Increasing jobs (with decent pay levels) means decreasing global out sourcing and rapacious trading partners. Better pay (for wage workers) requires slightly less profitabillity and less largess in executive pay. This relates closely to the out sopurcing/rapacious trade partner problems. Trade is it. Trade has always been it, throughout history. Imbalanced trade is what causes wars. Trade is the only real solution to a problem that starts with demand, or the lack of it.
I too have been following ideas on how to get this economy rolling over the past year or so, and there have been many that have prompted me to think “that might help a little, but not a lot.” Obama’s recent jobs act contains several such small-impact measures (a continuation of his approach). I suppose in theory enough bandaids might stop the bleeding, but I’m not convinced.
The exception is Schakowsky’s recent proposal to create two million new jobs because I would think that creating that many new domestic customers for businesses would have a big effect on economic growth and that it would be a self-sustaining dynamic. But economists have been slow and reluctant to push for such a solution and I’ve been somewhat puzzled by this. Some seem to imagine that they need to factor into their advice their brilliant political analysis–after all, they’re real bright and many have served in government and therefore are political experts. Some somehow think that a “compromise” is an input rather than an output in political decisionmaking–maybe they think they are Obama mimics or believe that varnished advice is the most useful advice. Some perhaps are subtly influenced by their own political philosophies, or by their dislike of taxes on their incomes, or some other factor that is just human nature. Or maybe I’m just wrong on the technical merits because I am not an expert like Mankiw or Greenspan and Cohen.