Double-dip in housing? (1 Viewer)

[phattonez]

International Monetary Fund Warns of Housing Double-Dip Risk « HousingWire

While IMF expects US gross domestic product (GDP) growth of 3.25% in 2010 and 3% in 2011, unemployment is projected to remain above 9%.

IMF warned in a statement that "the backlog of foreclosures and high levels of negative equity, combined with elevated unemployment, pose risks of a double dip in housing."

Come on, who didn't see this coming? Everyone knew this would happen once the new housing tax credit expired.

 

[imagep]

Sure. I may be wrong, but I am under the impression that housing sales were below normal, even WITH the housing tax credit, so naturally after the credit expired housing sales stayed poor and even dropped.

It's like our government is claiming they are trying to jump start our economic car by putting on jumper cables and then saying "see it is working" when they then turn on the headlights. They they take the jumper cables off and wonder why the car wont start. The temporary fix to a symptom of the problem (headlights that didnt work) does absolutely nothing to fix the root cause of the greater problem (consumer and business confidence in our economy).

I really dont think that if republicans take over congress in November that they will do a better job that the democrats at fixing our problems, but I do hope that the change in congress will improve consumer and business confidence.

 

[Lord Tammerlain]

Sure. I may be wrong, but I am under the impression that housing sales were below normal, even WITH the housing tax credit, so naturally after the credit expired housing sales stayed poor and even dropped.

It's like our government is claiming they are trying to jump start our economic car by putting on jumper cables and then saying "see it is working" when they then turn on the headlights. They they take the jumper cables off and wonder why the car wont start. The temporary fix to a symptom of the problem (headlights that didnt work) does absolutely nothing to fix the root cause of the greater problem (consumer and business confidence in our economy).

I really dont think that if republicans take over congress in November that they will do a better job that the democrats at fixing our problems, but I do hope that the change in congress will improve consumer and business confidence.

Business or consumer confidence is generally meaningless at this point in the economic cycle. Everyone in the US and most of the developed world has to much debt, and most consumers are in the process of paying it down, or defaulting on it. This means economic contraction is going to occur to whether or not people are confident or not.

There are a few ways to handle this type of situation, I will list two

Quick, deep and very painfull, but with a faster eventual recovery. This is where you let the business's fail, the banks fail and people declare bankruptcy. The economic contraction is deep, and job loss's are steep along with the number of business's shutting down. When the bad debt is worked through economic expansion can occur again, and it would typically be a strong expansion. Typically Hong Kong has gone through this type of contraction

Slow, shallow but of moderate pain, with a very slow and weak recovery. This is where you protect the people and the companies from going bankrupt. The job loss's are high, but no where near as high as method one. However the recovery in the job market takes a long time, and any expansion is quite weak as the bad debts still are on the books and will take years to pay off. Japan has been following this method for the last 15 years or so

 

[imagep]

Business or consumer confidence is generally meaningless at this point in the economic cycle. Everyone in the US and most of the developed world has to much debt, and most consumers are in the process of paying it down, or defaulting on it. This means economic contraction is going to occur to whether or not people are confident or not.

There are a few ways to handle this type of situation, I will list two

Quick, deep and very painfull, but with a faster eventual recovery. This is where you let the business's fail, the banks fail and people declare bankruptcy. The economic contraction is deep, and job loss's are steep along with the number of business's shutting down. When the bad debt is worked through economic expansion can occur again, and it would typically be a strong expansion. Typically Hong Kong has gone through this type of contraction

Slow, shallow but of moderate pain, with a very slow and weak recovery. This is where you protect the people and the companies from going bankrupt. The job loss's are high, but no where near as high as method one. However the recovery in the job market takes a long time, and any expansion is quite weak as the bad debts still are on the books and will take years to pay off. Japan has been following this method for the last 15 years or so

OK, I could see that. Let me list another one:

Rapid economic recovery, vast decreases in unemployment rate (to the point of us being overemployed), huge government spending but very focused, amazingly high tax rates on the rich to pay for it all so that any increase in government debt is minimal, and 100 fold increases in the incomes of the entrepreneurs that more than cover the additional taxation that they have to pay.

Rather than pointing to a different country with a different culture, I can point to this scenario within US history. About the great depression Herbert Hoover took a very conservative approach to handling our economy, and his approach failed. Then FDR took the opposite approach as he should have (why continue a failed policy) and it also failed - until WW 2, at which time the spend spend spend approach, even if by that point in history it was not intended to create a better economy, did pull us out of the depression. The "new deal" did not actually end with WW2, it was just shifted to the war effort and drastically expanded.

To fund this incredible government spending, tax rates on the rich went up to 94%, yet our economy prospered. The top tax rate has been steadily falling since 1944. If lower taxes on the rich somehow created a good economy, we should be seeing the best economy that we have ever had, and the lowest unemployment rates. But we are not, so that myth is busted. This historical observation alone pretty much debunks the argument that higher taxes on the rich hurts our economy.

The historically proved facts are that that government spending, when large enough and focused enough, with minimal fraud and corruption, can fill in the gap where the private side fails, and higher taxes on the rich can support that spending without harming economic growth.

Far right ideology, on the surface it seems logical enough, but in reality, it has historically failed. The practical view is an "optimization" between far right and far left ideologies. This type of practicality can only be conceived of by a "radical moderate".

 

[phattonez]

The job loss's are high, but no where near as high as method one. However the recovery in the job market takes a long time, and any expansion is quite weak as the bad debts still are on the books and will take years to pay off. Japan has been following this method for the last 15 years or so

I generally agreed with what you said, but I thought this part was strange. What evidence do you have to show that doing nothing leads to higher unemployment than doing something?

Also, Japan has been following this method, yet they still have not rebounded for those 15 years.

 

[phattonez]

Rather than pointing to a different country with a different culture, I can point to this scenario within US history. About the great depression Herbert Hoover took a very conservative approach to handling our economy, and his approach failed.

He did not take a conservative approach. Hoover was a huge interventionist. Just read the introduction to his Wikipedia article. He was not a supporter of free markets, to say the least.

Then FDR took the opposite approach as he should have (why continue a failed policy) and it also failed - until WW 2, at which time the spend spend spend approach, even if by that point in history it was not intended to create a better economy, did pull us out of the depression. The "new deal" did not actually end with WW2, it was just shifted to the war effort and drastically expanded.

Actually incorrect on both points. FDR ran on doing the opposite of Hoover, which means if he kept his promises he would have intervened far less in the economy than Hoover. He actually continued Hoover's programs and added some. Also, WWII did not pull us out of the depression, because if you think about it, it still sucked during the war even though we had GDP growth (due to government spending which really isn't valuable to consumers, showing a flaw in using GDP as a measure of wealth). Instead, we finally pulled out of the depression when regulations were relaxed once WWII ended.

To fund this incredible government spending, tax rates on the rich went up to 94%, yet our economy prospered. The top tax rate has been steadily falling since 1944. If lower taxes on the rich somehow created a good economy, we should be seeing the best economy that we have ever had, and the lowest unemployment rates. But we are not, so that myth is busted. This historical observation alone pretty much debunks the argument that higher taxes on the rich hurts our economy.

It is not busted because income tax rate was not the only variable to change over the time period. Other variables could easily account for higher unemployment rates, in fact, I can think of some very important ones: welfare, minimum wage, social security, unemployment benefits, medicaid, etc.

The historically proved facts are that that government spending, when large enough and focused enough, with minimal fraud and corruption, can fill in the gap where the private side fails, and higher taxes on the rich can support that spending without harming economic growth.

See the 1970s as a counterexample.

Far right ideology, on the surface it seems logical enough, but in reality, it has historically failed. The practical view is an "optimization" between far right and far left ideologies. This type of practicality can only be conceived of by a "radical moderate".

Far right ideology does fail, they are interventionists as well. To see the success of liberal economic policy (i.e. libertarianism), merely look to the recession of 1920-1921 and Christina Rommer's report detailing that stablization has not really been acheived with greater economic controls that came about in the early 20th century. The new economics has largely failed. We're no less stable than we were in the 19th century, yet total growth is not nearly as spectacular now as it was then.

 

[Lord Tammerlain]

I generally agreed with what you said, but I thought this part was strange. What evidence do you have to show that doing nothing leads to higher unemployment than doing something?

Also, Japan has been following this method, yet they still have not rebounded for those 15 years.

With doing nothing more business's would fail, in a short period of time, business's that would have survived the slow protracted contraction will fail in this one.

So for the period of time in the fast and painfull contract the absolute number of people who would be unemployed would be higher then any period of time during the slow one. That said the total number of lost labour hours due to unemployment (labour hours that would have occured if the people who were unemployed were working instead) may and very well could be higher with the slow protracted method. One of the goals of the slow protracted method would be to keep unemployment figures down, maintaining social stability. It leads to inefficiencies in the economy over the long term as resources are kept in otherwise uneconomic areas

 

[phattonez]

But is there any historical evidence? I know that it's hard to come by, but I don't know that unemployment ever got as high as what it is now and especially during the Depression before we started intervening in downturns. If that's true, and it is also true that we are no less stable, then we gain nothing with the slow method.

 

[MaggieD]

WWII did not pull us out of the depression, because if you think about it, it still sucked during the war even though we had GDP growth (due to government spending which really isn't valuable to consumers, showing a flaw in using GDP as a measure of wealth). Instead, we finally pulled out of the depression when regulations were relaxed once WWII ended.

Many experts would disagree with you. Here's one:

In the late 1930s, the Great Depression was weakening, but many Americans were still poverty stricken. Americans watched as German forces became more powerful and took over neighboring countries. With the invasion of Poland, World War II erupted in Europe. The suffering American economy was given a boost when the fighting countries needed supplies and looked to America to make them. After Pearl Harbor was bombed on December 7, 1941, America entered the war. The U.S. enlisted more than 10 million men and women into the military. Since so many were fighting in the war, it was left for those left at home to work in the factories to make supplies for the war effort. The desperate need for soldiers, pilots, and workers to make ammunition, weaponry, and air/sea craft all contributed to the end of the Great Depression. The economy of America skyrocketed and was on the road to restoration.

Southern Illinois University The Great Depression - End of the Depression

 

[phattonez]

But did the standard of living improve during the war? Doubtful, hence I mentioned the flaw in GDP and the idea that during the war we were still in the depression.

 

[MaggieD]

I don't argue that, Phattonez. My comment was in response to your assertion that WWII did not lift us from economic depression. One might argue that, in the best of times SINCE WWII, our standard of living has declined.

 

[phattonez]

Are you saying that standard of living has decreased since the 40s? Sorry, I didn't see the real direction of your post so I'm kind of confused.

 

[MaggieD]

I don't know what's confusing, respectfully, Phattonez. I directed my original post to your assertion that WWII did not lift the US from The Great Depression.

As to my offhand statement that one could argue our standard of living has NOT improved since WWII, I give you families needing double incomes to survive, children growing up without the benefit of a stay-at-home parent, and an insatiable desire for material things. There are those who say, and I'm one of them, that these things do not represent an improvement in our standard of living.

 

[phattonez]

I don't know what's confusing, respectfully, Phattonez. I directed my original post to your assertion that WWII did not lift the US from The Great Depression.

And in that case I disagreed. There were wage controls and rationing during WWII, which is why I say that the war did not lift us out of the depression. GDP improved only because government spending went through the roof because of the war. But personal satisfaction, I'd venture to say that it decreased during the war. Only after the war once regulations were relaxed did we finally see a boom.

As to my offhand statement that one could argue our standard of living has NOT improved since WWII, I give you families needing double incomes to survive, children growing up without the benefit of a stay-at-home parent, and an insatiable desire for material things. There are those who say, and I'm one of them, that these things do not represent an improvement in our standard of living.

But you can't ignore what we've gained either. Refridgerators, TV's, DVDs, bigger houses, better cars, better phones, etc. I'll give you this though, to determine whether or not we have improved is impossible to prove because any comparison is necessarily based on the personal values that we place on goods. However, I'd also say that if you wanted to live the life of a 1950s stereotypical white family, you could do it. Just buy an old refridgerator, old car, get rid of your computer, get an old TV, get rid of the microwave, get a small house, etc. In this respect, because you can choose either, I'd say that we've improved, because back then it was not possible to have a modern life, but in this modern life we can still choose the old life.

 

[MaggieD]

I'd say that we've improved, because back then it was not possible to have a modern life, but in this modern life we can still choose the old life.

I can't argue with that, Phattonez.

I'd argue with your description, though. Just buy a refrigerator...not one that "romances" the food in it; just buy a washer/dryer...not one that " romances" the clothes in it; just get a sensible-sized big screen, and don't buy a new one when the technology gets tweaked; don't need an OLD car, just a sensible one...and freakin' pay it off. We live in a world that demands consumerism to fuel our economy. And people just march in lockstep wanting/feeling entitled to lifestyles they can't support.

I see couples buying trophy houses that suck 40-45% of their monthly income. See them finance their extravagant lifestyles with 29% credit cards. Never knowing what it's like to live without car and credit card payments. Young woman has a baby and has to go back to work in 4 weeks 'cause she and her husband can't afford to live on one paycheck. And they're only one or two paychecks from bankruptcy. It's sad, really, because while they have a choice, they don't know any different.

I do love your sentence I quoted above. Very insightful.

 

[phattonez]

I don't know if our modern economy demands that excessive consumerism, people have just been duped into believing that lie. People have forgotten that the point of an economy is satisfaction, whether that satisfaction is in helping the poor or having a nice house. However, people have deluded themselves into thinking that all of their investments will be winners and that the government will help them if they're wrong. It's self-destructive and we haven't learned the errors yet.