Archive for May, 2015

Habitat for Inhumanity

Monday, 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?  (more…)

Bet You Can’t Count to a Quadrillion

Monday, 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?

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

Monday, 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.)

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How Low Can You Go?

Tuesday, 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.

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