Habitat for Inhumanity

May 25th, 2015

The idea was logical enough.

Reduce interest rates, making housing more affordable, which would produce a recovery in the housing market.  The housing market was at the heart of the financial crisis, so bringing the housing market back to health would, presumably, bring the economy back to health.

That conclusion was sound, too.  Housing is a leading economic indicator, so a recovering housing market should mean a recovering economy.

But in economics, as in life, things don’t always go as planned.  The housing market still hasn’t recovered.  And, while low interest rates may have given housing prices a boost, they have not increased home ownership.Home Ownership

In addition, government programs have only made matters worse, while costing taxpayers a bundle.

As Lance Roberts noted on his Street Talk blog, “trillions of dollars have been directly focused at the housing markets including HAMP, HARP, mortgage write-downs, delayed foreclosures, government backed settlements of ‘fraud-closure’ issues, debt forgiveness and direct buying of mortgage bonds by the Fed to drive refinancing and purchase rates lower.”

Yet, as the chart shows, the net result has been that the home ownership rate has dropped to where it was in 1980.

Why did government help” fail would-be homeowners?  Read the rest of this entry »

Bet You Can’t Count to a Quadrillion

May 18th, 2015

When someone uses “quadrillion” in a headline, you know you’re in for a bit of an alarmist rant. We’re talking 1,000,000,000,000,000, which, stated another way, is a thousand million million.  Or a million billion.  Or a thousand trillion.

Stated in dollars, that’s more than the debt racked up by the federal government since President Obama took office.  Way more.  It’s even way more than the Federal Reserve Board spent buying bonds when it was in QE mode. Chart 1

So when Bill Holter of Global Research wrote an article with the headline, “Derivatives are a $1 Quadrillion ‘Ticking Time Bomb,’ ” it caught our attention.

So did the series of charts he included, which showed movements in the government bond market that were double-black-diamond steep, even without moguls.

We’re talking government bonds here, not junk bonds, not commodities, not emerging market stocks.  Government bonds are Nebraska – flat and predictable.  During volatile times, they’re the bunny slope, not a double-black diamond.

So what’s up with the volatility?

Read the rest of this entry »

Brady Plot Puts U.S. Economy on Verge of Deflation

May 11th, 2015

The Federal Reserve Board – which may be the smartest deliberative body on the face of this earth – bought more than $3.5 trillion in bonds in an effort to raise the inflation rate to 2%.

It failed.  In fact, the inflation rate is lower now than it was before the bond buying began.RED CARPET AT THE MET COSTUME INSTITUTE GALA 2011

Why that is so now seems pretty obvious.  It’s Tom Brady’s fault.  We don’t know that for a fact, of course.  How can we prove it?  But, as attorney Tom Wells might put it, it’s “more probable than not.”

The hunky quarterback of The New England Patriots likely involved his wife, former supermodel Gisele Bündchen, since she’s retired now and has nothing better to do.

To again borrow the words of Wells, Brady was “at least generally aware” of the Federal Reserve Board’s attempts to increase the rate of inflation to 2% … and so he set out to thwart that attempt.  (We’re not sure how being “generally aware” differs from being “aware,” or why it needs to be modified by “at least,” but it sounds pretty ominous.)

Read the rest of this entry »

How Low Can You Go?

May 5th, 2015

The weather has done it again.

The U.S. Bureau of Labor Statistics last week reported annualized growth of a piddling 0.2% for the first quarter of 2015.  The culprit, of course, is not bad policy, but bad weather, if you believe the Federal Reserve Board.

Last year the economy would have boomed during the first quarter, no doubt, if not for the “polar vortex,” but instead it shrunk by more than 2% (experts use the oxymoron “negative growth”).  The same people who believe that will likely believe that the U.S. economy would have boomed during the first quarter of 2015 if not for the dreadful winter.

At least no one’s using the term “polar vortex” to describe the non-stop snowfall that hit much of America this past winter.  And this year’s first quarter growth is multiples better than last year’s first quarter mini-recession.

Winter may be over, but the economy remains cooled.  The Fed is likely hoping for monsoons, tidal waves and earthquakes over the next few quarters to rationalize yet more non-growth in an economy that falls short of Fed projections.  Per the chart below, the Fed has been overly optimistic about economic growth for each of the past four years – and that streak is likely to continue this year, given first quarter performance. Fed Growth Predictions

Fed predictions for the future continue to be rose-colored, but not as rosy as they were previously, based on the Fed policy statement issued last week.

“Federal Reserve policy makers said some of the headwinds holding back the U.S. will probably fade and give way to ‘moderate’ growth,” Bloomberg reported.  Maybe the Fed considers 0.3% annualized growth to be “moderate,” since it would be a 50% improvement over the first quarter.

Read the rest of this entry »

Is This Any Way to Run a Country?

April 27th, 2015

For as long as any of us has been alive, America has had a better way.

Our free market economy, complemented by the freedoms documented in our Bill of Rights, have combined to make America the envy of the world.  Our economic strength has also translated into an ability to spread freedom in other parts of the world.  Based on the strength of our principles, our economy, our people and our leadership, America won the Cold War without firing a shot.

But what’s happening today? Obama

Growth is taking place at a glacial place, debt is out of control, incomes are down and unemployment has been chronically high.

“Compared with the average postwar recovery, the economy in the past six years has created 12.1 million fewer jobs and $6,175 less income on average for every man, woman and child in the country,” former U.S. Senator Phil Gramm wrote last week in The Wall Street Journal.  “Had this recovery been as strong as previous postwar recoveries, some 1.6 million more Americans would have been lifted out of poverty and middle-income families would have a stunning $11,629 more annual income. At the present rate of growth in per capita GDP, it will take another 31 years for this recovery to match the per capita income growth already achieved at this point in previous postwar recoveries.” Read the rest of this entry »

QE 4, 5, 6, 7, 8, 9, 10 …

April 20th, 2015

Why didn’t we think of this?

For years, we’ve been criticizing the Federal Reserve Board for buying too many bonds, keeping interest rates too low, boring us with talk about “macroprudential supervision” and doing precious little to actually help the economy.Fed Pyramid

We’ve also been critical of the federal government, state governments, municipal governments, foreign governments, U.S. consumers and U.S. corporations for carrying too much debt.

But, until now, we failed to put the two together.  The Fed loves to print money.  Governments love to spend it.  So maybe the problem isn’t that the Fed has been printing too much money – the problem is that the Fed hasn’t been printing enough money to keep up with government spending.

The Global Slant blog suggested that the Fed initiate a fourth round of quantitative easing (QE 4) and print enough money to pay off the federal debt (as well as the writer’s debt).  But why stop there? Read the rest of this entry »

Why Worry About Climate Change When You’re $18 Trillion in Debt?

April 13th, 2015

Which crisis scares you more – climate change or our growing debt?

Climate change certainly receives a lot more attention in the media and a lot more attention from politicians, even if they’ve done little about it.

Last week, as one small example, President Obama said in an interview that his push to address climate change was influenced by an asthma attack his daughter Malia had when she was a four-year-old.  Asthma is a medical condition that has no connection to climate change.  It would be as logical to suggest that climate change cured her asthma, since she no longer has it and the climate has continued to deteriorate since she was four. National Debt and Interest 1 Wallace

We’re not suggesting that climate change doesn’t merit serious attention, but even if it’s as big a deal as environmental activists would have us believe, the U.S. is going to have little impact unless China, India and other ozone-busters get on board, too.

Debt, though, which President Obama and most members of Congress rarely talk about, just keeps rolling along.  Read the rest of this entry »

Appearance vs. Reality

April 6th, 2015

Maybe if the good news about the U.S. economy gets repeated often enough, appearance will become reality.

We’re not there yet.

The official word from the U.S. Bureau of Labor Statistics is that the unemployment rate has been cut nearly in half, from a double-digit 10% in October 2009 to just 5.5% today.  As the chart shows, unemployment has been steadily falling and, given today’s improving economy it should continue to fall.  So all is good, right?

Appearance

Appearance

 

Not really.  Even CNBC, which is not exactly an anti-government media outlet, has caught on that the U-3 rate is bogus.

CNBC wrote that, “A number of economists look past the ‘main’ unemployment rate to a different figure the Bureau of Labor Statistics calls ‘U-6,’ which it defines as ‘total unemployed, plus all marginally attached workers plus total employed part time for economic reasons, as a percent of all civilian labor force plus all marginally attached workers.’ ”

In other words, the U-6 rate is what any sane individual would consider to be the real unemployment rate.

Read the rest of this entry »

Bubble Busters

March 30th, 2015

“I had a stick of CareFree gum, but it didn’t work. I felt pretty good while I was blowing that bubble, but as soon as the gum lost its flavor, I was back to pondering my mortality.”                                                                                                                                                                             Mitch Hedberg

When the news about U.S. markets and the U.S. economy is depressing, I usually read about Europe and feel better about the U.S.

I spent a lot of time reading about Europe this week, but it didn’t do much good – even with Greece continuing to defy logic by pretending that it’s OK to live off of someone else’s money.

The problem is that easy money policy is not so easy anymore.  It never did prop up the U.S. economy, in spite of Keynesian enthusiasm, but at least it created the illusion of economic health by propping up the stock market.  Now, it’s unable to do even that. burst-your-bubble

U.S. markets fell throughout the week, but especially on Wednesday, which saw declines of more than 2% in the Nasdaq and Russell 2000. The Dow dropped nearly 300 points, or 1.6%, while the S&P 500 finished the day about 1.5% lower.  The New York composite stock exchange is now back to where it was last July and the S&P 500 is approaching November levels.

And there’s likely to be more trouble ahead, as a 4% drop in the biotech and semiconductor sectors showed a “classic parabolic reversal,” according to Peter Boockvar, chief market analyst at the Lindsey Group.  A parabolic reversal is a technical indicator that signals a change in an asset’s momentum.

Read the rest of this entry »

No Animals Harmed in Drafting Fed Policy Statement

March 23rd, 2015

Thousands of years ago, Roman soothsayers would visit the oracles and interpret the entrails of slaughtered animals.  We haven’t advanced much since then.

Fortunately, no animals are slaughtered today, but many brain cells seem to die in the reading and interpretation of policy statements of the Federal Open Market Committee.  Like the soothsayers of old, today’s economists, journalists and pundits interpret the news and report it as fact – even though they generally haven’t a clue about what’s being said.  We’re not even sure the FOMC has a clue about what’s being said. Animal

The policy statements themselves are an anachronism.  In today’s world, most news is immediate.  By the time a newsworthy event ends, it’s been tweeted, blogged and reported on by anyone and everyone who is interested.

Yet the Fed issues policy statements on its Federal Open Market Committee meetings two months after the meetings take place.  Apparently, it takes the FOMC that long to agree on language that says nothing and can be interpreted however the reader would like it to be interpreted.

Many well-paid experts make a living off of these interpretations.  They will tell you, with certainty, that the Fed will definitely maybe raise interest rates sometime this year – or maybe next year – but they’re just guessing.

Read the rest of this entry »