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The Credit Crisis Financial Stocks Short Journal
- Thread starter Daal
- Start date
I enjoyed David Goldman's latest essay. I found one paragraph especially interesting and in direct rebuttal to those who think housing will be fine from here because the rate of building has fallen below the rate of family creation. Apparently, there are no more families of four or more now than there were 40 years ago. Trouble is, there are more than double the amount of housing units w/3 or more bedrooms. We've got too much housing.
http://blog.atimes.net/?p=1493
Why the Dog Wonât Hunt
June 16th, 2010
By David Goldman
Todayâs report of a 10% drop in housing starts (and the biggest one-month drop in single-family housing starts since 1991) is another nail in the coffin of the recovery narrative. Consumer spending is down, housing starts hit an air pocket as soon as the first-time-buyer tax credit expired, and state and municipal governments lay off perhaps 500,000 workers this year.
The US is immired in what Nobel Laureate Edmund Phelps calls a âstructural slump.â Since the collapse of the tech boom ten years ago, the US has suffered a deficit of innovation and innovation. A flood of foreign savings craftily channeled into derivatives by the financial industry disguised the problem until 2007.
Now the proportion of 65-year-olds in the US economy will rise from 19% today to 25% in 2020, an increase comparable to the great Japanese retirement wave during the lost decade of the 1990s. And these retirees are massively short of retirement savings. The Americans with the most wealth and the greatest discretionary spending power, those in the 45-to-55-year age bracket, should be saving massively.
And they are invested in the wrong sort of assetsâmainly large lot single family housing. When Richard Nixon was president, the US had 25 million families with two parens and two or more children. It has about the same number of such families today. But in 1968 the US had only 35 million housing units with three or more bedrooms; now it has about 75 million. Americans bought more house than they needed because it seemed like a good investment. Government tax credits and loan renegotiations have disguised the underlying hemmorrhage in the housing market. As Laurie Goodman of Amherst Securities documented, delaying foreclosures and distress sales reduced the proportion of distressed sales in the mix and lifted the average home price in the major indices. But the problem is only postponed, not solved. The encouraging data of a couple of months ago are turning into the miserable data of today.
This is not a business cycle, but an inflection point in the life cycle of Americans. Economists still think in terms of Keynesâ short-run model, rather than the life-cycle model elaborated by Milton Friedman and his successors. The main problem with America is that it is aging. The second problem is that it distorted the economic mix in order to absorb the savings of the world, pouring Chinese capital into the housing market.
The US needs to innovate, manufacture, and export. There are some signs of life in the manufacturing sector but the sector is too small to move the economy as a whole.
What would it take to get the US economy moving? Forget more pump-priming. Deficits now are perceived as the problem rather than the solution. Reuven Brenner, a prominent economist at McGill University, and I have been arguing that the US requires
1) A currency stabilization agreement with China and other prospective US customers to help expand Americaâs export market overseas, and
2) Elimination of all taxes on capital income in order to encourage more risk-taking and savings, and
3) Family-friendly tax policies to turn around the long-term demographic decay.
All the US economy got was the fiscal equivalent of a shot of meth from the Obama administration. Now itâs wearing off.
http://blog.atimes.net/?p=1493
Why the Dog Wonât Hunt
June 16th, 2010
By David Goldman
Todayâs report of a 10% drop in housing starts (and the biggest one-month drop in single-family housing starts since 1991) is another nail in the coffin of the recovery narrative. Consumer spending is down, housing starts hit an air pocket as soon as the first-time-buyer tax credit expired, and state and municipal governments lay off perhaps 500,000 workers this year.
The US is immired in what Nobel Laureate Edmund Phelps calls a âstructural slump.â Since the collapse of the tech boom ten years ago, the US has suffered a deficit of innovation and innovation. A flood of foreign savings craftily channeled into derivatives by the financial industry disguised the problem until 2007.
Now the proportion of 65-year-olds in the US economy will rise from 19% today to 25% in 2020, an increase comparable to the great Japanese retirement wave during the lost decade of the 1990s. And these retirees are massively short of retirement savings. The Americans with the most wealth and the greatest discretionary spending power, those in the 45-to-55-year age bracket, should be saving massively.
And they are invested in the wrong sort of assetsâmainly large lot single family housing. When Richard Nixon was president, the US had 25 million families with two parens and two or more children. It has about the same number of such families today. But in 1968 the US had only 35 million housing units with three or more bedrooms; now it has about 75 million. Americans bought more house than they needed because it seemed like a good investment. Government tax credits and loan renegotiations have disguised the underlying hemmorrhage in the housing market. As Laurie Goodman of Amherst Securities documented, delaying foreclosures and distress sales reduced the proportion of distressed sales in the mix and lifted the average home price in the major indices. But the problem is only postponed, not solved. The encouraging data of a couple of months ago are turning into the miserable data of today.
This is not a business cycle, but an inflection point in the life cycle of Americans. Economists still think in terms of Keynesâ short-run model, rather than the life-cycle model elaborated by Milton Friedman and his successors. The main problem with America is that it is aging. The second problem is that it distorted the economic mix in order to absorb the savings of the world, pouring Chinese capital into the housing market.
The US needs to innovate, manufacture, and export. There are some signs of life in the manufacturing sector but the sector is too small to move the economy as a whole.
What would it take to get the US economy moving? Forget more pump-priming. Deficits now are perceived as the problem rather than the solution. Reuven Brenner, a prominent economist at McGill University, and I have been arguing that the US requires
1) A currency stabilization agreement with China and other prospective US customers to help expand Americaâs export market overseas, and
2) Elimination of all taxes on capital income in order to encourage more risk-taking and savings, and
3) Family-friendly tax policies to turn around the long-term demographic decay.
All the US economy got was the fiscal equivalent of a shot of meth from the Obama administration. Now itâs wearing off.
obama announcing that ken fine will distribute claims for bp, how much of the 20 billion will disappear in administration costs.... reminds me of a joke, a bunch of people are waiting outside heavens gate,. st pete comes out ,apologizes about a plumbing problem,and asks if there are any plumbers in the crowd,3 raise there hands,the 1st guy says 250,the 2nd,a polish fellow, says 5 for the valve and 60 in labor, the 3rd says 1065 dollars, pete ,astonished asks why so much, the 3rd plumber replies,i'm union ,500 for you,500 for me and 65 for the pole
UK Tax to hit US banks
http://www.cnbc.com/id/37740778
"Analysts say the tax will be a negative factor when US banks report results for the April-June period next month, reducing earnings per share at Citi, JPMorgan and BofA by 10 per cent or more."
Ackman might not have taken that into consideration, with record deficits the best case scenario for the banks is limited since the government would quickly go after them. Hurting expectancy
http://www.cnbc.com/id/37740778
"Analysts say the tax will be a negative factor when US banks report results for the April-June period next month, reducing earnings per share at Citi, JPMorgan and BofA by 10 per cent or more."
Ackman might not have taken that into consideration, with record deficits the best case scenario for the banks is limited since the government would quickly go after them. Hurting expectancy
Hugh Hendry and Richard Koo might want to revise their view that QE 'never worked' 'is innefective' respectively
http://research.stlouisfed.org/publications/mt/20100701/mtpub.pdf
US output soared from 1933 to 1937, employment did as well, even though the levels were still bad the rate of change was excellent. And its the rate of change that digs you out of a hole. Fiscal stimulus as measured by the budget deficit wasnt that big. Less than 5% of GDP
http://www.nationalpriorities.org/Federal Deficits and Surpluses
http://research.stlouisfed.org/publications/mt/20100701/mtpub.pdf
US output soared from 1933 to 1937, employment did as well, even though the levels were still bad the rate of change was excellent. And its the rate of change that digs you out of a hole. Fiscal stimulus as measured by the budget deficit wasnt that big. Less than 5% of GDP
http://www.nationalpriorities.org/Federal Deficits and Surpluses
Yes, that is a big myth of the Great Depression - that it was one long brutal economic downturn. In fact, the worst was over around the time shortly after FDR took office. Economic growth was quite strong and stocks did just fine up until the 1937 recession.
Yes, the UE remained quite high during the entire decade of the 30s, but that's because it started coming down from 25%! You don't go from 25% UE to 5% UE without first stopping at 20%, 15%, 10% ... Up until 1937, the UE gradually improved.
Of course Hendry, Koo, and others have a point when they say that QE and other stimulus measures don't work by pointing to 1937 - as soon as some of these measures began to be withdrawn, the economy nosedived. They also have a point by pointing to Japan.
Yes, the UE remained quite high during the entire decade of the 30s, but that's because it started coming down from 25%! You don't go from 25% UE to 5% UE without first stopping at 20%, 15%, 10% ... Up until 1937, the UE gradually improved.
Of course Hendry, Koo, and others have a point when they say that QE and other stimulus measures don't work by pointing to 1937 - as soon as some of these measures began to be withdrawn, the economy nosedived. They also have a point by pointing to Japan.