Weekend Topic Suggestions
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The Housing Bubble
Examining the home price boom and its effect on owners, lenders, regulators, realtors and the economy as a whole.
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What would REALLY happen if they eliminated or significantly changed the mortgage interest deduction?
This needs to be changed now.
There’s no reason taxpayers should be subsidizing any home loans…. let alone loans up to $1,000,000!!!
The real estate lobby should be deamed illegal & an enemy of the people.
The all-or-nothing mindset is hard to shake. It took 3-4 years before the sheeple realize that it’s possible to “raise taxes” without raising taxes on everybody. It will take another 3-4 years for them to figure out that it’s possible to “eliminate the MID” for some houses and not others or to institute an upper limit, or to understand what “MID will be less than the standard deduction anyway” means.
It’s hard for the sheeple to understand when the industries affected pump out purposeful misinformation with the hopes of stirring up the crowd.
How should the 50 million home owners that have a mortgage and bought with the MID in place be treated…Do they just lose it ?
Yes.
The all-or-nothing mindset is hard to shake
You are 100% correct.
The all-or-nothing mindset is hard to shake
It is. Years and years of “it’s simple” responses to complicated issues does that to the clueless masses.
Or 0%.
As a general proposition, the government needs to keep its paws
out of the housing market *completely*, that includes MID, GSE’s,
and all these crazed one off short term subsidy programs.
Let the free market work!
I agree. In addition, get the government out of being world cop, stop Section 8, stop welfare, only stick to what is constitutional. Over 90% of federal spending is unconstitutional.
It’s naive to think that the mortgage interest deduction (MID) will be entirely eliminated. If the MID is targeted, then I surmise that a more moderate formula would come to pass. My guess is that the MID would still be available for primary owner-occupied homes and capped at the median home value. Whether or not the median home value would be based on national or local median values (think San Francisco vs. Oil City) would have to be worked out.
One idea for discussion: MID only for the primary owner-occupied home up to the Fannie/Freddie $417k max.
Someone here proposed raising the standard deduction as a means to offset the advantage of the MID.
Most other countries, including our culturally similar neighbor to the north, manage to do fine without a MID. Aside from the lobbying of entrenched interests, why is it naive to expect that we could completely eliminate ours? We managed to eliminate the credit card interest deduction in the 1980s.
Well the big difficulty is the fairly large number of people who already have mortgages that they couldn’t afford without the MID. And for the many who can afford it, the price that a prospective purchaser (should they decide to sell or refi) can afford to pay would be lower, lowering the price of the house. A large number of politicians and business people who think that the solution to our economic problems is getting house prices to start going back up, instead of the belief around here that the problem is that house prices rose too high during the bubble. The combination means that eliminating the MID is pretty much a non-starter.
+1, Jim A
“Aside from the lobbying of entrenched interests, why is it naive to expect that we could completely eliminate ours?”
jbunniii- you’ve answered your own question. It is *precisely* because of the entrenched interests and their lobbying efforts that it’s naive to expect (or even hope for) the elimination of the MID.
At the rate the federal government is spending our money, there will be a real fiscal crisis (as opposed to the political theater we’re now witnessing) within the next 10-20 years. At that point it isn’t going to matter what lobbyists have to say on the subject. Any low-hanging fruit like the mortgage interest deduction will be plucked.
I’m sure this will occur in stages: limit the deduction to one house per taxpayer, reduce the amount of interest that can be deducted, perhaps don’t allow it to be excluded from the AMT calculation, etc. But I think it will happen in our lifetimes.
If they eliminated the mortgage interest deduction, one “advantage” of paying mortgages would be eliminated. The monthly payment PITI and maintenance (which varies) would be much higher for those who qualify for a loan. They would have less moolah to spend elsewhere, like on health insurance or day care. Therefore, a huge amount of people would prefer to rent a smaller place for less cost. This would mean less demand for housing. Lower demand would encourage house prices to drop.
Therefore if they eliminated the mortgage interest deduction, house prices would fall.
The mortgage interest deduction is nothing other than social engineering to subsidize housing.
I think it would slow down purchases of the homes that are being paid for w/3-5% down. OTOH, for older folk that put down 40-60+% down in this area where houses are priced lower it won’t be such a big impact unless you’re talking about upper level niche homes. So I’m thinking this would once again put pressure on your entry level price points more than anywhere else.
Of course, I’d like to see it all taken away. I think our taxes $$$$ should go toward helping people or organizations survive and nothing more. Tax dollars shouldn’t go toward supporting any person or industry once the basics are covered.
This was supposed to next under Timmy’s comment on MID.
CarrieAnn,
Tell me where in the US Constitution it says that government’s purpose is to “help” people or organizations survive? Unless you mean by protecting our inalienable individual rights to life, liberty, pursuit of happiness, and property.
Not in the constitution of course, Bill.
I’m talking about kids or others getting a meal instead of starving. I think we do it so we don’t have roving mobs of desperate people that might become numerous to make trouble, the kind of trouble we see crop up in China, the Middle East, etc.
I’m no fan of the hangers on. The people who milk these systems for a lifetime, for generations. But I am a fan of helping smart, intelligent people who want to rise from the ashes and there are plenty of stories out there of those people. How to seperate the wheat from the chaff? Well I wonder how much our society would be improved if we even bothered.
I’ll be darned if I have to donate a quarter to those beggars on the streets in Tampa. I sometimes get the gumption to roll down my window and tell a bum standing on the divider with a sign that I fly 1800 miles to my job. I sacrificed a lot of living for my career. Get off your butt and work.
What damage to the world economy has / will occur because of this debt limit problem in the USA?
What effects will it have on housing in North America? For example, tightening the belt will slow down Wall Street. Will this affect homeowners thru higher interest rates?
A substantial uptick in unemployment could certainly have a chilling effect on housing demand.
I’m wondering when the talking heads are going to acknowledge that reality. Watching the job websites I’d say the uptick has already begun….the next layer of onion to be unpeeled.
What are the housing market implications of slow growth coupled with a likely near-term reduction in federal expenditures in the wake of the debt ceiling negotiations?
Recovery Still Slow as New Data Show Little Growth
By CATHERINE RAMPELL
Published: July 29, 2011
WASHINGTON — The United States economy has slowed considerably this year from a year ago, according to a report from the Commerce Department released on Friday.
The country’s gross domestic product, a broad measure of the goods and services produced across the economy, grew at an annual rate of 1.3 percent in the second quarter, after having grown at an annual rate of 0.4 percent in the first quarter — a number that itself was revised sharply down from earlier estimates of 1.9 percent. Data revisions going back to 2003 also showed that the 2007-2009 recession was deeper, and the recovery to date weaker, than originally estimated.
“The word for this report is ‘shocking,’ ” said John Ryding, chief economist at RDQ Economics. “With slow growth, higher inflation, and almost no consumer spending growth, it is very tough to find good news.”
…
There certainly is no shortage of gloom in the present U.S. economic outlook.
I still maintain the way out of this without raising taxes is to let housing prices go where the market dictates. Once home prices are sufficiently affordable, the U.S. labor force will adjust as young, capable workers go where their best opportunities lie. So long as housing prices are propped up on an unaffordably high plateau, this autonomous (self-funding) economic stimulus cannot happen.
The Wall Street Journal
ECONOMY
JULY 30, 2011
Economy Losing Its Cushion
By JON HILSENRATH and SARA MURRAY
The resilience of the U.S. economy, which rebounded from wars, terror attacks and a crash in tech stocks in the past quarter century, has been weakened in the aftermath of the housing bust, and shock absorbers that cushioned blows in the past are no longer working.
The government on Friday reported that the economy grew at a rate of just 1.3% in the second quarter, failing to bounce back from knocks earlier in the year. Estimates of first-quarter growth were also revised down to 0.4%. As a result, the pace of economic recovery has been one of the worst since World War II, weaker than all but the short-lived recovery of the early 1980s. That’s particularly bad news as the economy confronts the threat of a default on the nation’s debt.
Among the reasons the economy is so vulnerable: Debt-laden consumers with scant savings are prone to slash spending when their incomes drop. Household confidence is more fragile. Individuals are moving less often to find jobs, making it harder for firms to fill vacancies. And the government, for decades the rescuer of last resort with interest-rate cuts, tax reductions and spending increases, has run out of string.
Economists label the late 1980s, 1990s and early 2000s “The Great Moderation,” a period in which the ups and downs of the economy were muted. That epoch is over. James Stock, a Harvard economist who helped coin that label, says that the volatility of economic output, income and consumption looks more like it did 25 years ago. “In this recession and its aftermath, those smoothing mechanisms, those shock absorbers, clearly have been damaged,” he says.
The U.S. economy has been expanding for two years now, and forecasters had been expecting it to pick up steam in the second half, powered by robust overseas demand, investment at home by cash-rich companies and a renewed willingness of consumers to spend as they reduce their debt burdens. But Friday’s GDP report and the impact of Washington’s debt-ceiling stalemate on consumer and business confidence as well as on financial markets are raising doubts about that outlook.
It could be years before Americans feel that they’ve pared enough debt to start spending readily. Household debt levels, at 112% of annual income, remain high. To get back to a 1990s debt-to-income ratio of 84%, incomes would need to be nearly $4 trillion higher, which is about nine years worth of income growth, according to Credit Suisse estimates.
The U.S. economy was hit hard earlier this year by shocks. The earthquake in Japan disrupted auto production in the U.S. The Middle East turmoil drove up oil prices. U.S. consumer spending, adjusted for inflation, actually fell in April and May, which is unusual.
“We were anticipating that 2011 was going to be a fairly decent year,” says Robert Olson, chairman of Winnebago Industries, the recreational-vehicle maker. “We hit February and it really felt like people flicked a light switch.” Now, Winnebago is holding off on parts and equipment orders to work down a $33 million buildup in inventories.
Debt is central to the fragility. The ability to borrow in bad times helped limit the economy’s bumps in the 1990s and early 2000s. Karen Dynan, an economist at the Brookings Institution, a Washington think tank, says that, on average, a $100 short-term hit to incomes only pushed spending down by $5 during that stretch because consumers could borrow to smooth things out. Now, she says, they’re stretched too thin to do that.
“I’m running out of things to cut,” says Pat Sonnek, 50 years old, of Gibbon, Minn. Five years ago, Mr. Sonnek lost his job programming mainframe computers. So he earned an online degree, got into accounting and took cash out of his home to help make ends meet during the transition.
Today he has a $110,000 mortgage to pay off on a home worth less than that and $80,000 in student loans coming due. He is making $36,000 a year as an accountant for a small Internet retailer, less than half the $80,000 he made before. He commutes 55 miles to work every day, which meant rising gas prices “hit pretty hard.” He and his wife, who has a part-time job as a school custodian, have gotten rid of their landline telephone, cable-television service and cut back on fresh fruits and vegetables. If he needed a few thousand dollars now, he says, “I’d have to go begging to friends and family.”
…
“He is making $36,000 a year as an accountant for a small Internet retailer”
Note to self: don’t go into accounting. Expecially at a cost of 80K. The writing on the wall for mainframe computing was apparent to this ex-mainframer in the early 90s. He probably figured he could ride mainframes until he retired.
Commuting 55 miles to work means he is probably working in Minneapolis-St. Paul. He should consider dumping the house in Gibbon and moving closer to work. That would probably mean moving away from the friends he would hope to borrow from in an emergency.
“Today he has a $110,000 mortgage to pay off on a home worth less than that and $80,000 in student loans coming due. He is making $36,000 a year as an accountant for a small Internet retailer, less than half the $80,000 he made before. He commutes 55 miles to work every day, which meant rising gas prices “hit pretty hard.” He and his wife, who has a part-time job as a school custodian, have gotten rid of their landline telephone, cable-television service and cut back on fresh fruits and vegetables.”
Reminds me of the stars in the night sky…dead some time ago, but you can still see the light.
To what extent does the ability of the Tea Party to score political points by holding the line on the debt ceiling stem from widespread ignorance about what the debt ceiling really represents: An opportunity for the Congress to strategically default on previously-assumed obligations.
Debt ceiling is probably not what you think
By Steve Semeraro
Thursday, July 28, 2011 at midnight
Polls show that many Americans want Congress to refuse to raise the debt ceiling. In taking that position, they likely assume that increased borrowing would enable the federal government to find new ways to spend money. After all, when we raise our own debt ceilings – by taking out a mortgage or getting a car loan – we get to buy a new house or a new car. But the federal debt ceiling doesn’t work that way.
Unlike you or me, Congress does not apply for a loan and then decide to spend the money it borrows. Congress has already spent (or promised) to spend that money by passing a budget earlier this year. Now, if it fails to raise the debt ceiling, the government will not be able to make the payments that Congress has already taken on. It would be as if I took delivery of new furniture, promising to pay in six months, but then decided that I didn’t want to raise my debt ceiling, and so I didn’t pay for it.
Now, some argue that the government would not really default because it would still take in enough tax revenue to pay bondholders. But government bondholders are not the only ones that Congress has already agreed to pay. Those who receive Social Security, Medicare and Medicaid have been the focus of much of the discussion. But there many others. For example, if scientists at the Food and Drug Administration are laid off, new drugs cannot be approved. What about air traffic controllers? And then there are the secretaries, janitors and those performing myriad other jobs in every government department throughout the country. These are hardworking people who have done nothing wrong. How could we in good conscience refuse to pay them? And what about the military, including salaries and benefits for soldiers and veterans, including those who suffered horrific injuries fighting for our country? If the debt ceiling is not raised, some of these obligations could not be met.
…
This grand national theatre is being played to the same script that small towns always use during budget talks….If we don’t get more money we will close the firehall and your children will…well somethig awful will happen to your children. We’re serious!
Seattle is cutting bus routes.
I’d like a thread from readers where the money is being spent/invested in your area. Our public television station just announced they were building a new spread downtown. The state is kicking in $5mm since they are renovating an existing building along w/new construction. Marriott just announced they were taking over some downtown buildings and renovating them w/M&T Bank backing. Our schools are still spending money on windows and grounds improvements. We have two hospitals w/new expansions. We have several new commercial retail building going up in our local villages. One is a center of businesses not just single business center. The money is flowing here from somewhere. And it isn’t just for meds, feds and eds.
But when you hear from say Colorado, it seems he’s looking at a totally different reality. I always felt commercial builders/contractors in this area had special ties to Albany and others that make things happen.
Is anyone else seeing this much new commercial construction being approved?
Maybe Blue Skye was right when he said upstate suffered their bottom in the 90s when everyone else was booming and now we’re on the way up? Not sure that feels right. I still think in the end no area will escape the overall reality when credit freezes up again. Sounds like our leaders are just still spending and lining pockets while it’s flowing.
Here in metro Denver the new light-rail line connecting downtown Denver to the Jefferson County municipal complex is nearing completion. The line to the airport is scheduled to open in 2018.
The new IKEA opened on Wednesday to much hoo-ha. This is in an area already nearly built-out with retail and commercial office space, near I-25 and C-470. Throughout much of the metro, strip retail is peppered with vacancies.
and from those of us still on Ohio….
The widening of I-75 from Cincinnati to Dayton recently started up the next phase (another 6 miles), the rebuild and expansion of the highest bridge in Ohio (on I-71 just north of Cincy) just started and should take a few years. New smaller commercial stores (tire stores, auto dealers, chain restaurants) continue to open up here. Cassinos in Ohio’s biggest cities are about ready to break ground following the lifting of ban on such establishments. Cincinnati has a huge project under construction along the river, but it seems to get stalled for political reasons a lot.
Expansion in the Cincy/Dayton corridor has slowed from its torrid pace a few years ago, but road projects, commercial buildings, and houses are still going up.
Wow! I’m surprised to read about the casinos. I thought in general most gambling establishments were experiencing troughs in revenue.
An Ikea is a “destination”, at least at first, where you can wander around in the “maze” layout that more or less makes you walk through the whole store, play with the merchandise and have an affordable Swedish meatball lunch… not sure it will do anything for nearby stores other than to pull in their customers.
And you’ve got to appreciate a store where you can check your child.
People have teased me about my IKEA addiction. It’s NOT the most durable stuff in the world, but for the most part it’s reasonably priced and well thought out.
I agree. I am an IKEA fan, although I also own a high end leather sofa and chair and I also love Copenhagen furniture.
Carrie…. it’s all public money funneled to private entities through the public/private partnership scams. Look no further than the “Global Foundry” scam in Malta, NY.
Taxpayers are on the hook for all this kick the can down the road nonsense. It’s unsustainable.
On my stomping grounds, an old warehouse-thing was empty for about 10 years. A local said it had been a sort roller-rink for kids. After a year of renovations, it opened as an Asian supermarket last month.
An old Italian restaurant was half-torn down and renovated into a high-end pizza bistro.
A store for kids bedrooms just opened next to the futon store.
A 1-800 mattress store exanded from a strip mall into its own building.
A one-story business building used to hold a Wachovia and a small piano store. When Wells Fargo bought Wachovia, they kicked out the piano store and are expanding into the space. After a little renovation they’ll turn rip down the Wachovia sign and raise the Wells Fargo flag.
An old car dealership sat vacant for 5-6 years. There are signs out front that they are hiring and making it into a dealership for Mini.
An old standalone Anthropologie store went down 5 years ago. The local Marlo furniture has a huge store, but they are moving the “tile kitchen bath” portion to the old Anthopologie.
A cramped Whole Foods (used to be the old-school granola version) was in a high-end strip shopping center for decades, it seems. They finally moved down the road to larger and more yuppity digs. The old space was snapped up and is being renovated into a Fresh Market, which is almost the same thing.
This is all private sector.
Preach it on the private sector ventures!
A bit of hot gossip from Tucson: One of our town’s hottest nightclubs, Plush, is opening up in St. Louis.
Well, they’ve been trying to.
Turns out that Plush is rehabbing an old building, and it’s turned into one of those places of endless surprises. As in, surprise, there’s this to do. And that. And the other thing.
Needless to say, Plush St. Louis won’t be opening anytime soon.
I appreciate the mention, but it must have been somebody else who said that. Western NY started going down when the Welland Canal opened and except for masking by the credit expansion, it hasn’t begun to recover.
Blue Skye- When did the Welland Canal open?
For the rest of you, the Welland Canal is in Ontario, Canada just west of the Niagara River. The canal connects Lake Erie to Lake Ontario so freighters no longer pass through Western New York to get to the ocean and the East Coast markets.
Didja know that you can drive (or bicycle) beneath the Welland Canal?
I’ve pedaled the underpass, and I dunno about you, but having a canal above me seems a bit creepy. I was glad to get out from under it.
The one time I remember crossing the Welland Canal I drove my car across a drawbridge. That was back in 1983.
Did you do the whole NY canal system, AZSlim? My husband and I are considering one of those bike rides in the next few years. Just need a place to park the youngin’s while we’re out there. Although now they’re almost old/strong enough to do it w/us if only they thought that sounded cool.
It might have been CincyDad. My apologies to both for the confusion.
Thanks for all who reported in. So it sounds like there is still lending going on out there although maybe not quite the burst of activity we’re seeing here. I think what I’m seeing is so shocking because we’re really not that big of a town next to not that big of a city. The entire greater Syracuse region w/all it’s burbs is only about 100k people and dropping. So it’s all taking place in a very tight geographic area.
Do the debt ceiling negotiators in Congress recognize the risk that the outcome of their deliberations may tip the economy back into (a worse) recession?
And do they care?
WRAPUP 4-Weak US growth raises worry, debt fight poses risk
Fri Jul 29, 2011 10:08am EDT
* Second-quarter growth rises at 1.3 percent rate
* 1st-quarter GDP cut to 0.4 pct growth rate from 1.9 pct
* Consumer spending barely rises, weakest in two years
* Debt ceiling standoff could spell recession: analysts (Adds details, updates markets)
The question is, would a second Great Depression and a huge cut in public benefits for people today be the worst scenario?
Or would we be better off if it occured and this was followed by a gradual recovery?
The alternative may be those under 55 later having it as bad or worse than anybody would have it now if the collapse occurs, with higher debt levels.
“The question is, would a second Great Depression and a huge cut in public benefits for people today be the worst scenario?”
Worst for whom?
“The alternative may be those under 55 later having it as bad or worse than anybody would have it now if the collapse occurs, with higher debt levels.”
Those under 55 will be much better off if most of those older than 55 die during this second Great Depression. Then the following generations can support them in the style that they deserve. /snark off
“Or would we be better off if it occured and this was followed by a gradual recovery?”
What makes you think the recovery would happen here and not in China?
I think it is their objective. Crash the economy and lay the blame on the Democrats.
Exactly. Except they are so blatantly, transparently stupid in their approach that no reasonable person would fall for it.
Obama will rightfully point to this moment as when the Republicans tried to kill the economic recovery in order to gain a leg up in the 2012 presidential race. It ain’t gonna fly with the voters…
Is the second dip in the double-dip recession already underway?
Ten Signs The Double-Dip Recession Has Begun
Posted: July 29, 2011 at 9:17 am
Today’s news on GDP shows the double dip has arrived–an expansion of only 1.3% and consumer spending up .1% in the second quarter. Astonishingly low by any account. The debt ceiling trouble and lack of a longer term resolution to the deficit will make it worse.
The US has entered a second recession. It may not be as bad as the first. Economists say that the Great Recession began in December 2007 and lasted until July 2009. That may be the way that the economy was seen through the eyes of experts, but many Americans do not believe that the 2008-2009 downturn ever ended. A Gallup poll released in April found that 29% of those queried thought the economy was in a “depression” and 26% said that the original recession had persisted into 2011.
…
The US has entered a second recession.
Well, it’s about time. I was getting bored with the first recession.
Are flippers still in business ? A co-worker’s spouse flips homes for a living and is finding it harder and harder to make a buck, but he still is in business.
Co-worker claims all realtors are liars, always uses a lawyer.
will this flipping business ever end ? or is this the new RE market?
The weekend thread should be on the debt ceiling. Any other issue can be discussed any weekend, but this is zero hour for this issue, for by Tuesday we may start to see the beginnings of fallout, if any, so its last call for placing your bets (and making your arguments).
Predicted housing market impact of the debt ceiling showdown:
FASTER, HARDER CRASH DEAD AHEAD!
I can’t believe that my HBB brothers and sisters are buying into this debt ceiling soap opera. It’s contrived. Every last soundbite.
Hot War/Cold War/Currency War. We will win the currency war too.
Oh stop it. We need the circus.
Seriously. The real topic should be who is placing bets on what day/hour the magical compromise that no one likes, solves no problems, and will be used by both sides come election time will be passed.
This is exactly what should be discussed in the weekend thread. You are assuming just because I want to discuss it, you know my view of it. Discussion is supposed to air views.
IAT
Do any professional economists agree that a balanced budget amendment is the right recipe at the moment for U.S. economic recovery?
Not to suggest this really matters, as the Tea Party freshmen clearly have a superior understanding of what is best for the U.S. economy.
Has The Tea Party Taken Over the GOP?
Tea Party Refuses to Fall in Line
By Tierney Sneed
Posted: July 29, 2011
The stalemate over the debt ceiling reached a critical point late Thursday night when House Speaker John Boehner had to withdraw his bill to raise the debt ceiling. The bill was the second version of a plan submitted by Boehner to address the national deficit while raising the debt ceiling in two parts. The first version of the bill needed revision after the Congressional Budget Office found the it cut only $850 billion over 10 years and only $1 billion in 2012—embarrassingly lower than Democratic Senate Majority Leader Harry Reid’s bill and far lower than the expectations of his party.
The second version of the bill cut $22 billion in spending next year, and required that a commission find another $1.8 trillion in cuts over the next 10 years. Boehner spent much of Thursday pushing for enough GOP votes to pass the bill—delaying the vote, bringing in representatives in for close door meetings, and even ordering pizza as talks extended into the night. [Read more about the deficit and national debt.]
However, around 10:30 p.m. Boehner was reportedly still five to 12 GOP votes short of passing the bill and withdrew it from the floor.
The resistance to Boehner’s bill in the Republican-controlled House came from the Tea Party wing of the party, including many of the 87 freshman Republicans. Some even doubt the necessity of raising the debt ceiling at all. Those Republicans who refused to support it said Thursday’s bill had not gone far enough in addressing their demand to cut spending and reduce the size of the government. Thus, Friday, Boehner seemed to cave to their demands yet again, presenting a third version of the bill in the morning. The newest revision was the inclusion of a provision requiring that Congress pass a Balanced Budget Amendment before the debt ceiling could be raised again. Prior versions of Boehner’s bill required only that both chambers vote on the amendment. The legislation presented Friday was a two part bill in requiring the balanced budget amendment be passed before the debt ceiling is raised (a move the Sen. John McCain called “foolish”).
…
House of Representatives
Balanced Budget Amendment Appeases House Conservatives, Dismays Analysts
By Sharon Kehnemui
Published July 29, 2011 | FoxNews.com
House Speaker John Boehner on Friday straddled the hurdle he needed to get his debt-reduction proposal passed, sweetening the pot for Tea Party Republicans with the pledge of a vote on a Balanced Budget Amendment.
But getting conservative Republicans on board is the easy part.
“You cannot have a scenario here where you tell — where you say we have to amend the Constitution or default on America’s obligations,” White House Press Secretary Jay Carney said Friday. “This is not what the American people want.”
A Balanced Budget Amendment to the U.S. Constitution has been debated for years, and while several Democrats currently in Congress have previously said over the years they would support it, the reality is a much harder slog.
“This Balanced Budget Amendment is a totally bad idea,” said David Gans, director of human rights, civil rights and citizenship program at the Constitutional Accountability Center.
Gans said Tea Party Republicans who love to cite the Founding Fathers to explain their principles have disregarded the fact that the Framers envisioned situations where the nation would occasionally need to borrow money, and that authority was deliberately included in the Constitution.
“The first powers that Congress gets in the Constitution are lay and collect taxes and pay the debts … and second is borrow money on the credit of the United States,” Gans said. “I think that cuts sharply against the idea that the Balanced Budget Amendment is something that we should sort of write into stone so it’s not fixable … If there’s some sort of emergency we’re sort of hamstrung.”
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I used to regularly question whether there was a macroeconomic budget constraint. It now has become apparent that there is, and that it can assume a number of different forms.
The debt ceiling crisis
Running out of money
Jul 29th 2011, 8:45 by Buttonwood
…
In the past, countries could run out of money in various ways. First, in a system backed by gold (or in the case of Argentina, a currency board), governments are constrained in their ability to create money. They need reserves, either physical (in the case of bullion) or foreign exchange. That requires the country to keep its trade in balance over an extended period. To maintain that trade balance, the government may have to constrain the choices of its citizens, as Britain did with post-war rationing.
Second, as we are now seeing in the euro-zone, countries can adopt an outside currency, and give up the money creation power. They still have the ability to borrow money, of course, but if they are perceived to abuse that right, financing becomes too expensive. Such is the case with Greece which has run out of money and depends on subsidised loans from its neighbours.
Third, a government could so abuse its money-creating power that hyperinflation sets in and the currency no longer becomes acceptable for commerce. Zimbabwe is the most recent example.
The US seems to be creating a fourth route, in the form of political resistance to the money creation process. Concerns about the long-term direction of US government finances are quite understandable; entitlements and interest are set to absorb the whole budget by 2025. But the debt ceiling needs to be raised to pay for policies that Congress has already voted for and approved. The answer, surely, is to campaign on the issue of restricting entitlements and win control of all branches of government on that platform in 2012.
From a historian’s point of view, what is fascinating is that these problems are re-emerging after 40 years of a shift to fiat money, a change that seemed to remove all constraints on money creation. I have argued before that this shift drove most of the developments of the last 40 years from the rise of the finance sector to asset bubbles, and that the 2007/2008 crisis was a watershed moment (like the 1930s and 1970s) from which a new system will emerge. I assumed it would take a decade or so for the ramifications to work through, but the US Congress seems determined to accelerate the process.
“The US seems to be creating a fourth route, in the form of political resistance to the money creation process.”
Perhaps the memory of the late 1970s is still fresh in Americans’ minds, when the Fed used the printing press to wipe out the retirement savings of a generation of elderly citizens on fixed-income pensions.
Some topics :
1) Is it possible to reduce govt by off-shoring (not sub-contracting) doc services/ engineering / social services etc. as this could be done very easily since govt work is typically set to a procedure without deviation.
2) Are the municipal bankruptcies coming?
3) will there be change in the thinking in terms of salaries for top govt officials (based on the work they are doing) and CEO / top officers salaries? Down the line if the revenues start shrinking how can a CEO justify 400X avg. worker salary?
All good topics I’d love to see hbb tackle.
Will Tea Party intransigence serve to save the Nation from its debt woes, or will it push an already-bad economic situation to the point of no return?
Time will tell.
Tea Party’s last stand?
Walks a fine line with debt gambit
Hillary Chabot
Saturday, July 30, 2011 - Updated 45 minutes ago
Hard-bargaining Congressional Tea Party Republicans are rolling the dice in a high-stakes gamble — holding fast to their balanced budget vows in a daring debt-ceiling showdown that could gain them major clout in the next election or cost them big-time if they are blamed for a government shutdown or an economic crash, experts said yesterday.
“They’re walking a tricky tightrope between satisfying the voters who elected them and doing what’s best for the federal government,” said GOP consultant Michael Dennehy, noting that many Republicans with strong Tea Party support promised to reduce the nation’s debt when they were elected last year. “The people who elected them last year want certain safeguards in place.”
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I’m thinking there is a potential silver lining to the partisan wrangling over the debt ceiling, which is that the housing market is likely to crash faster than ever over the next twelve or so months. Any fool can see that a worsening economic downturn is a logical consequence of the fear the Tea Party terrorist tactics have inspired, and a downward consequence in confidence and willingness to make large-scale investments, such as home purchases, are a likely impact.
Thank you, Tea Party, for undermining efforts to prop up housing prices on a permanently unaffordable plateau!
I just don’t foresee higher mortgage rates in the cards. But a rise in defaults and foreclosures when the unemployment rate rises from an already high level, I do foresee.
I also doubt many prospective home buyers will be sufficiently stupid to assume higher mortgage rates will not result in lower home prices.
The Associated Press
Homeowners have reasons to be concerned as the debt ceiling debate drags on
By Candice Choi
Associated Press / July 30, 2011
NEW YORK - Homeowners have a lot at stake in the political showdown over the country’s debt ceiling.
One of the major concerns for many is the fate of a valued tax break. The benefit, which allows taxpayers to deduct their mortgage interest payments, is used by 35 million households.
Now lawmakers have proposed limiting the deduction as part of an agreement to raise the government’s borrowing limit to avoid a default after the Aug. 2 deadline. But that isn’t the only concern for homeowners and prospective buyers as the negotiations heat up in Washington.
Even if lawmakers strike a deal by next week’s deadline, there’s still a chance the government’s credit rating could be downgraded. That raises the prospect of higher mortgage rates, meaning those who’ve been holding tight for home prices to fall further may feel that time is running out to take advantage of low rates.
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Been seeing more and more news stories about “all cash buyers” and how more people are becoming renters as the percentage of home-owners decreases.
So is there a grand scheme for that top 1% or top 10% to own all the property and the rest of the country to rent from them?
There’s always been a lot of talk on HBB about people buying houses they couldn’t afford and how more people should just rent, but at what point to we become a feudal society?
It’s fine if the 1%ers own all the property and rent to the rest of us, so long as they don’t get too overzealous with the bulldozer action. It would also help to start enforcing the Sherman Antitrust Act, to make sure that, say, Megabank, Inc does not exercise too much pricing power in the rental market.
Sans monopoly pricing, there are plenty of homes to be rented out to keep rental rates at nice, low, affordable levels for the indefinite future.
I’ve posted this before but I’ll just repost my historian relative says in Syracuse the banks did own many SFHs turned rentals during the Great Depression. She loves to tell stories of her childhood and one that comes up a lot is how her parents missed the boat when they were offered their rented home for $5k. They hesitated partially because her mother is described as someone who enjoyed moving every few years as a way to clean the slate. The next year the home was sold to someone else for $6k. I’ll have to check w/her to see if she remembers what year that was. I’ve seen the homes she grew up in and there was virtually no land included.
I expect Syracuse probably did quite well during the war with all its defense and manufacturing industries. Not sure the numbers would spike like that after our current crisis.
Letting America get taken over by Tea Party thugs is going to cost us dearly. Our decline from leader of the free world is likely to go remarkably quickly from here on out.
That Aug. 2 Deadline? It May Be Impossible, Veteran Lawmakers Say
By JACKIE CALMES
Published: July 29, 2011
WASHINGTON — Here is advice from veterans of past budget battles in Congress that went to the brink: This time, be afraid. Be very afraid.
The seemingly unbridgeable impasse between the two parties as the deadline for raising the nation’s debt limit approaches has Tom Daschle losing sleep, as he never did when he was a Senate Democratic leader in the mid-1990s and Congressional Republicans forced government shutdowns rather than compromise on spending cuts.
“That was nothing compared to this. That was a shutdown of the government; this could be, really, a shutdown of the entire economy,” Mr. Daschle said. “You can’t be too hyperbolic about the ramifications of all this.”
Democrats and Republicans with legislative experience agree that even if both sides decided Saturday to raise the $14.3 trillion borrowing ceiling and to reduce future annual deficits, it would be extremely difficult for the compromise measure to wend its way through Congress before Tuesday’s deadline, given Congressional legislative procedures.
But such a bipartisan deal seemed virtually impossible on Friday, as House Republicans approved their bill and dug in deeper against compromise with President Obama.
Any possibility of avoiding an economy-shaking default seemed to rest on hopes of a so-far nonexistent compromise in the Senate — between the majority leader, Harry Reid, Democrat of Nevada, and the Republican minority leader, Senator Mitch McConnell of Kentucky — that could pass by Tuesday and then be sent to the House.
That would force Speaker John A. Boehner to decide at the 11th hour whether to hold a House vote on a bill that would not get many Republican votes, forcing him to rely on Democrats and perhaps further weaken his leadership, or to risk blame for an economic crisis.
“He’s going to have to pass it with Democratic votes. That’s going to be a tough decision, but he doesn’t have any choice at that point, particularly if the markets are reacting,” said Tom Davis, a former House Republican leader from Virginia. “That’s the position they’ve got themselves in.”
But, he added: “The stakes are much higher here. If interest rates start spiking up, it’s going to cost us a lot more than anything you could save. They’re playing brinkmanship with our credit rating. That’s not very smart.”
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Are the Treasury Secretary’s scary pronouncements on the debt ceiling merely a political ploy to get his way?
POLITICS
JUNE 29, 2011, 8:13 P.M. ET
GOP Senators Brush Aside Geithner’s Debt Ceiling Warnings
By ANDREW ACKERMAN and JEFFREY SPARSHOTT
WASHINGTON—Key Senate Republicans on Wednesday brushed aside fresh warnings from U.S. Treasury Secretary Timothy Geithner that Congress must increase the U.S. borrowing cap before an Aug. 2 deadline.
Mr. Geithner, in two letters to lawmakers, shot down Republican claims that the U.S. can continue to meet its debt obligations after Aug. 2 even if a debt ceiling deal isn’t reached. He also criticized a Republican proposal for the government to develop a contingency budget plan that could be used if the debt cap isn’t raised.
Mr. Geithner said one Republican proposal is “unwise, unworkable, unacceptably risky, and unfair to the American people.” A second Treasury letter labeled another plan “neither feasible nor responsible.” The unusually harsh critiques were in response to earlier letters from GOP lawmakers.
Republicans said they weren’t swayed by Mr. Geithner’s arguments. “We’re not going to default even if there is no debt-ceiling increase,” Sen. Tom Coburn (R., Okla.) said in an interview. “The fact is we’ve got to cut spending and we’ve got to cut it now.”
Mr. Coburn said Mr. Geithner’s claims are “politically motivated” and that the Treasury secretary should act to assure markets that the U.S.’s debt-service obligations will be met regardless of whether the debt cap is raised.
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Will Geithner still go even if the debt ceiling is not increased?
Darrell Delamaide’s Political Capital Archives
July 6, 2011, 1:01 p.m. EDT
Geithner can go or stay … the damage is done
Commentary: Potential successors indicate no change in policy
By Darrell Delamaide
WASHINGTON (MarketWatch) — Though he has sort of denied it, Treasury Secretary Timothy Geithner is reportedly looking to jump ship once the debt-ceiling issue is resolved. We should be so lucky.
Geithner is one of the principal architects of an economic policy that has left President Barack Obama vulnerable on that issue going into his re-election campaign. In other words, Geithner is one of the big reasons unemployment is still so high, the economy is still so sluggish, and housing is still a huge problem.
Of course, he didn’t do it alone. He had lots of help — notably from former chief economic adviser Larry Summers, who has retreated into the groves of academe to attempt some rehabilitation of his tarnished reputation.
It was Geithner who wanted to bail out the banks without holding anyone at those institutions accountable. It was Geithner who blocked any meaningful financial reform and who has by all accounts undermined the effort to install Elizabeth Warren as head of the Consumer Financial Protection Bureau (though obviously he has lots of help on that score from Republican lawmakers).
It was Geithner who failed totally in finding an effective way to maneuver out of the housing crisis. And it was this Treasury secretary who pushed the administration into conceding to the Republicans that the federal government must undertake massive spending cuts even as the economy struggles to recover.
Geithner grew up a Republican and changed his political affiliation to independent out of political expediency when he was a Treasury official in the Clinton administration. But he has been a Trojan horse for Republican sentiments as a top policy maker in the Obama administration.
He was third choice to take the helm of the New York Federal Reserve, according to a Bloomberg News story, and was one of the key regulators who allowed unsustainable risk to build up in the U.S. banking system.
Now Geithner is ready to claim his reward for sparing the big banks and their executives and will no doubt land a cushy job on Wall Street with one of those vague titles like vice chairman for international and a very handsome compensation package.
Good riddance. The problem is that Obama has shown such a profound lack of understanding of economic issues and has consistently fallen prey to such bad advice from Geithner, Summers and other Clinton retreads that there’s little hope that Geithner’s departure will lead to any substantial improvement.
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I can’t imagine that any replacement would be any different. I have no expectation of anyone like a Hoenig or Fisher (2 Fed Res bank Presidents who express fear of digging the debt hole deeper) to be tapped.