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