1.2 Million Without Funds And More To Come

Legislation that would have extended unemployment benefits six more months failed to pass today. Now it would have ballooned the deficit $33 billion, but that is a great deal less than we provided to save AIG alone and, this week alone, it would have kept 1.2 million folks from losing benefits (as in probably their sole source of income), with millions more to lose such benefits in months to ocme. That shows where the priorities are, trillions to save Wall Street but let those on the street with mouths to feed figure something else out. Let's just say I am a bit disgusted.

Now I am a big fan of not doing a lot more stimulus and I was always a big fan of wasting less money on Wall Street, but times are desperate and people need to eat. And these are people who have no choice but to spend what little the government gives them on necessities, so they support the economy and a lot of what they are given recycles to benefit others in our economy. Of course those in need will find some other form of relief, probably tied to state programs that are already strapped, so it will still come back to the taxpayers to fund, but at least some folks in Congress were able to beat their chests today and say they are not adding to the deficit. Where was the chest beating when we needed to defeat TARP, where was it when AIG should have been dismantled, where was it when Goldman Sachs was given billions in taxpayer money from the funds we gave to support AIG? While I am not at all pleased with Obama or his performance and decisions to date, this was an issue where I squarely agreed with the Democratic majority. The richest nation on earth should not let people flounder like this and not know how they will take care of their families. I could not fathom waking up tomorrow, unemployed, knowing there is no money in the pipeline. For those in this situation with children, my heart goes out to you. And it is not like these folks are not seeking jobs. The jobs market is terrible right now and the average time to find new employment is at extremes, so you can hardly blame the unemployed for their situation (well, at least most of them). It is a truly sad state of affairs.

http://thehill.com/blogs/healthwatch/politics-elections/105445-senate-dems-fail-to-advance-tax-extenders-bill-for-the-third-time

And think about food banks. They are already stretched to the limit. Their funding is down, those needing food is up and kids are now home for the summer and needing lunch every day. Now they will have millions more foisted upon them to feed at the worst possible time. Beat your chest about that folks.

Disclosures: None.

Shocking!

I just had to add this on real estate this morning. New home sales are at a record low in May after the government stimulus ended, and this was well below the average 19% drop expected from surveyed economists. The drop was 33% to the lowest level - 300,000 homes - since record keeping began in 1963. Of the 79 economist surveyed by Bloomberg, apparently one got it right predicting 300,000. I would like to know his or her name.

http://noir.bloomberg.com/apps/news?pid=20601087&sid=aFryYpgGDKpY&pos=1

Add to that that April's number was revised down 59,000 and months of supply is now up to 8.5 months and you have a fairly ugly scenario.

http://www.calculatedriskblog.com/2010/06/new-home-sales-collapse-to-record-low.html

Let's not forget that mortgage rates are in record low territory, around 4.7-4.8%, so that should inspire sales. With prices down and mortgage rates low folks should be able to afford to buy. My sense is that most first time buyers who could afford to buy have already done so and there are not many families currently being added to that list as unemployment is high and young couples are strapped. So buyers need to come from those now owning homes, but they cannot buy a new home unless they sell their old one and make enough for the down payment on the new one, which is very difficult these days. Accordingly, we just paid if forward big time on home sales with the tax credit and I would not expect much in this area for months to come. Indeed, since the tax credit expiration, new purchase mortgage applications continued to decline this past week, suggesting the numbers for June will be as ugly as May or uglier.

http://www.calculatedriskblog.com/2010/06/mba-mortgage-purchase-applications_23.html

And commercial real estate, which was showing signs of stabilizing is perhaps not as stable as we thought. Architectural billings, which lead commercial RE construction by several months, are down fairly significantly in May. Once again, ugly.

http://www.calculatedriskblog.com/2010/06/aia-architecture-billings-index.html

Disclosures: None

Obama is an Idiot - Confession of a Democrat

Does Austerity Equal Prosperity?

The international debate that is all the rage is whether austerity or stimulus is the right solution for governments around the world. Certainly to some extent it will depend on the country. In the past couple of years I think it is safe to say that most economically troubled countries around the world chose stimulus. The U.S. did big time, as did the EU, Great Britain and elsewhere. But as the PHIIGS have show, stimulus has its logical limits. And then comes the groveling for support for countries unable to pay or finance their debt at accptable rates and this financial support is followed by arcane austerity measures. And then there are countries not yet in severe debt crunches (at least in terms of financing their debt) deciding what to do. What to do indeed. The following Bloomberg article notes, the debate will likely escalate soon at the upcoming G-20 Conference, with the U.S. at odds with much of Europe:

http://noir.bloomberg.com/apps/news?pid=newsarchive&sid=aCDrh.AWJbC8

So, you might ask, where do I stand - okay I am pretty sure no one asked this but play along for a minute. My take is that John Mauldin, another contributer at Seeking Alpha, has it right.

http://seekingalpha.com/article/210910-be-careful-what-you-wish-for

It is pretty much the Goldilocks approach - not too much and not too little. To date pretty much all countries in trouble have gone with deficit spending and stimulus or support for failing financial institutions. In my book this was overdone and more institutions should have been dismantled. Certainly we should have not supported "too-big-to-fail" institutions taking over other "too-big-to-fail" institutions, but we did and actively asked them to do so. So my preferred plan is already toast and we have to deal with what we have been dealt. Now we have made our bed, so we need to decide what to do with it.

Obama is clearly of the more stimulus school. Some would call this the Keynesian school but I consider this an insult to John Maynard so I will not call it that. I might call it the Krugman school and suspect he would not mind. Either way, stimulus these days is wasted in my opinion. I say this as we are facing a new reality, something I have written about here for a couple of years and something that the folks of PIMCO tout. The world and U.S. economies have spent about a decade living in unsustainable and foolish bubbles that should be popped. They need to go away and we need to return to reality. Reality is a lower level of spending and economic activity. So in my book the stimulus should only be designed to stabilize things, which we have already done. After that, stimulus is not needed other than in spot situations to avoid problems. We do not need to and should not promote false economic activity. A bubble/false economy built on stimulus serves no one. Yet that is what the current Administration is after.

I believe the current Administration has fools - other than Volcker - leading the ship- and if Obama does not wake up and correct the course and fire the idiots he will be a one term President who history will portray as a man with great expectations and potential but no follow through on execution. He made superbly major mistakes on Summers and Geithner and has refused to give up on them. I am a life-long Democrat (among a family of Republicans, so this was no easy course) who voted for Obama but I am switching to Independent and truly regret voting for Obama. He has proven himself an idiot in my book.



I am told by some commenters that my remarks are too general and I should stick to the law, yet others tell me to keep posting. I am posting for the latter, so if I am too general for you, please move on. Between a more than full time job and a 3 and 6 (and a half) year old, I do not get the time I would like to devote to this endeavor and I have always been focused on macro-economic ideas, so if you do not like it, tough.

Real Estate Again

Let me return for now to my choice topic of late - real estate. New stats came out today and economists where surprised - yes surprised - that existing home sales were down. I personally am surprised that they are surprised. Tax incentives ended for those not signing by the end of April, purchase mortgage applications are at a 13 year low and freakin' economists are surprised that existing home sales were down last month. How surprising is that. If you are truly following this stuff - and economists commenting on it should be - there should be no surprises here.

Once again I must refer you to my favorite real estate oriented blog - Calculated Risk. This site reports all the stats the day they come out and has very very relevant commentary that I have found unbiased and not overstated in either direction. I highly recommend it. So today, Calculated Risk had a number of noteworthy posts on real estate, which I am happy to link as follows:

The author believes given current trends that the months of supply number for real estate will undoubtedly go to double digits later this year and I have no reason to disagree: http://www.calculatedriskblog.com/2010/06/how-high-will-existing-home-months-of.html

As the author notes, generally, months of supply over 6 typically leads to price declines and under indicates increasing prices. Right now we are at 8.3 months and could well increase to over 10 or 11 months going forward. Not good.

http://www.calculatedriskblog.com/2010/06/existing-homes-months-of-supply-and.html


http://www.calculatedriskblog.com/2010/06/existing-home-sales-decline-in-may.html

Each of the linked Calculated Risk articles are well worth your time.


Disclosures: None