June 8, 2014

The Potential For Untimely Reversal Of The Economy

Readers suggested a topic on the economy. “Economy getting better?”

A reply, “How long will it take for DOW to hit 20,000,000?”

One said, “Meanwhile in 2013, another 2 million Americans joined the ranks of the not working.”

And finally, “Is there any way to end ,or at least mitigate, the regulatory capture of the federal government? It’s totally understandable that when leaders of companies are appointed to high level cabinet posts, that they’ll try to advantage their friends, who will then advantage them. Time in DC is a time to make connections and build relationships, and is very brief. Geithner is a prime example, stating he wouldn’t go into industry, then promptly doing so. He’s a person just like you and me, he’s got bills to pay, mouths to feed. Leaving hundreds of millions of dollars on the table would be absurd.”

“FCC: Tom Wheeler, Cabinet: Jack Lew, Henry Paulson, Fed: Stanley Fisher, CFTC: Blythe Masters, Federal Reserve Banks: Many industry leaders. Even Jamie Dimon was on the NY Fed board of directors. This sort of thing seems like it is tailor made to lead to, and reinforce, regulatory capture.”

From Politico. “Starting with Robert Rubin – a former Citi CEO – three of the last four Treasury secretaries under Democratic presidents have had Citigroup affiliations before or after their Treasury service. (The fourth was offered, but declined, Citigroup’s CEO position.)”

The Enid News in Oklahoma. “For the third year in a row, Enid will go without a Parade of Homes. Local homebuilders have passed again on the annual spectacle, citing a simple reason: ‘Nobody’s got any excess inventory, quite honestly. It’s selling so fast,’ said David Ritchie, who recently broke ground on Chisholm Creek Village.”

“Despite the bullish housing market, developers haven’t put out the cash to feed it. Developers had their reasons, though. In a study released last year, industry professionals said they weren’t building in Enid for three reasons: High costs of construction, a feeling that community leaders did not prioritize housing and, in the study’s own words, ‘An existential concern, or even outright fear, about the potential for untimely reversal of the local economy.’”

From CNBC. “The one constituency housing needs most is the one struggling the hardest in the jobs market. Employment among those age 25-34 fell in May to 75.3 percent; this compares to pre-recession rates of 78 to 80 percent employment, according to the Bureau of Labor Statistics. First-time homebuyers have been markedly absent from the housing recovery. In April they accounted for just 29 percent of existing homebuyers, according to the National Association of Realtors. Historically, their share hovers around 40 percent.”

“Even those who are employed are finding themselves more financially strapped than previous generations. Non-homeowners consistently cite financial instability as a contributing factor for not buying a home, regardless of household income, according to a recent survey by RateWatch, a financial data company owned by TheStreet.”

“‘It’s understandable that someone making less than $25,000 a year doesn’t feel like they can afford a home, but it’s shocking that someone who makes over $150,000 a year feels equally poor,’ noted Debra Borchardt, markets analyst for TheStreet. ‘Higher home prices could be a good reason why, with homes hitting record high prices and inventories hitting a low.’”

The Fiscal Times. “In their new book House of Debt, Amir Sufi of the University of Chicago and Atif Mian of Princeton point out that consumer purchases dropped sharply well before the September 2008 Lehman bankruptcy, and most deeply in places where home prices fell the most. They found that steeper declines in net worth — many homeowners were completely wiped out by falling home prices — led to far sharper reductions in consumer spending, and bigger job losses.”

“The normal channels of fiscal and monetary policy have difficulty dealing with highly leveraged household balance sheets. House of Debt correlates these features of recessions, and really targets debt as the core problem, arguing that it needs to be restructured during crises and prevented during better times.”

“‘The primary reason we wrote the book was because we believed this narrow banking view became the central focus of policy,’ Sufi said. However, he argues, the idea of recapitalizing banks so they can resume lending falls apart upon scrutiny. ‘If you walk through it, we just think it doesn’t make sense. How can an economy with so much debt need more lending?’”

Bits Bucket for June 8, 2014

Post off-topic ideas, links, and Craigslist finds here.