Housing skips a beat

So now that the $8K tax credit to buy a home ended in April, it seems that housing prices are still facing a deflationary environment. All the tax credit did was put off the inevitable to a later date. Housing inventory continues to climb and housing starts are falling again. This is clearly bad news but not surprising for those of us that advocate the Austrian economic perspective. Attempting to prop up housing prices with short-term government aggregate demand is a losing battle. My opinion is that housing has a long way to go before it hits bottom; it may take years before it all washes out and prices stabilize. The federal government has tried everything to prop up prices--tax credits, mortgage refinance programs, and even having Fannie Mae soaking up billions of underwater loans to no avail. Unfortunately, it seems that we are going to learn the hard way that artificially propping up prices solves nothing in the long run.

Enjoy the decline!

This is a sobering projection but it is right on target with what I have been saying so far about the "stimulus" package:

Deep cutbacks by state governments such as California have all but obliterated the effect of the nearly $800 billion federal stimulus enacted last year, she said at a luncheon sponsored by the center-left New America Foundation.

Tyson said the current "jobs gap" between the number of jobs the economy is producing and full employment is about 11 million. Even if job growth surged to 350,000 a month, it would take four years to get the unemployment rate to where it was before the recession began in December 2007, she said.

If job growth is at a more modest 200,000 a month, it would take 11 years.

"When you look at the forecasts, you've got to go to 2015 before unemployment falls back to the 5 percent to 6 percent range" where it was before the recession began, Tyson said. The slowdown in Europe, a key destination for U.S. exports, makes things worse, she added.

Administration officials have indicated that Tyson is under close consideration to replace Office of Management and Budget Director Peter Orsag, who announced his departure Monday.

With the current economic policy that this administration is advocating, I simply don't see matters getting better any time soon. More federal spending, more short-term tax credits aimed at some industry to boost demand, and more threats of regulation and higher taxes will not spur the economy to a strong expansion.

Liberal economic plan is working to perfection...

From USA Today we find out that government payouts are now larger than private paychecks:

Paychecks from private business shrank to their smallest share of personal income in U.S. history during the first quarter of this year, a USA TODAY analysis of government data finds.

At the same time, government-provided benefits — from Social Security, unemployment insurance, food stamps and other programs — rose to a record high during the first three months of 2010.

Those records reflect a long-term trend accelerated by the recession and the federal stimulus program to counteract the downturn. The result is a major shift in the source of personal income from private wages to government programs.

The trend is not sustainable, says University of Michigan economist Donald Grimes. Reason: The federal government depends on private wages to generate income taxes to pay for its ever-more-expensive programs. Government-generated income is taxed at lower rates or not at all, he says. "This is really important," Grimes says.

The recession has erased 8 million private jobs. Even before the downturn, private wages were eroding because of the substitution of health and pension benefits for taxable salaries.

The Bureau of Economic Analysis reports that individuals received income from all sources — wages, investments, food stamps, etc. — at a $12.2 trillion annual rate in the first quarter.

This is a worrisome trend that I don't see curtailing anytime soon with the wretched policies coming out of Washington.

The Median CPI and Bees explained!

This is a fun video explaining median CPI.

HT: Carpe Diem

Economics in one lesson

Henry Hazlitt can be heard reading a passage from his classic book; it is still very relevant today.

Links for today

1) My weekly guest post over at The Bobo Files is now posted. Subject: Obama and his Big Labor friends are getting snuggly by the day.

2) The Independent Bloghorn has excellent economic analysis from STRATFOR, an international affairs organization, on China that is worth your time.

3) Just Politics has very interesting comments on unemployment benefits.

The Fannie Mae monster needs to burn more cash

OK, hang on to your hat's, dear friends. The vacuum cleaner known as Fannie Mae is about to swallow gobs of taxpayer dollars again---$15 billion worth of it:

Fannie Mae needs another $15.3 billion in federal assistance, bringing its total to more than $75 billion. And worse, the mortgage finance company warned that its losses will continue this year.

The rescue of District-based Fannie Mae and sister company Freddie Mac is turning out to be one of the most expensive after-effects of the financial meltdown. The new request means the total bill for the duo will top $126 billion.

And the pain isn't over. Fannie warned Friday that it will need even more money from the Treasury, as unemployment remains high and millions of Americans lose their homes through foreclosure.

Fannie Mae reported Friday that it lost $74.4 billion, or $13.11 a share, last year, including $2.5 billion in dividends paid to the government. That compares with a loss of $59.8 billion, or $24.04 a share, a year earlier.

Fannie Mae, which was seized by federal regulators in September 2008, has racked up losses totaling $136.8 billion over the past three years.

The WaPo article fails to mention that Fannie Mae debt is NOT added to the federal budget. So it is essentially "off the books." Anyone that is following the financial crisis in Greece knows how dangerous and dishonest it is to have massive government debt hidden away from public view.

BTW, remember how Barney Frank defended Fannie Mae? Now, he wants to eliminate Fannie and Freddie. Incredible.

Let the bad investments die already

From the Mercury News:

LAS VEGAS — President Obama unveiled a $1.5 billion program to aid the states hardest hit by the foreclosure crisis, a small but targeted effort to address a housing problem that continues to resist government solutions.

The program, which administration officials called an "innovation fund," is modest in size and reach and comes as the administration's chief foreclosure-prevention program faces criticism for not doing more to help borrowers.

Speaking to the Las Vegas Chamber of Commerce, Obama said the program would allow states to find new ways to help struggling homeowners. "That means that here in Nevada, we're going to be able to prevent some foreclosures that otherwise would have happened," he said Friday afternoon. "The goal is to target communities at the center of the crisis and to empower local agencies that know these communities best."

Obama made the same promise at a town hall meeting earlier in the day, telling about 1,700 people in Henderson, a suburb near Las Vegas, that "government has a responsibility to help deal with this problem."

VH: Here we go again. The Federal government riding the white horse over the hill to "help" out distressed homeowners. So instead of letting these bad investments go quickly to bankruptcy and clearing out the housing market, we have a vain attempt to prop up a market that shows very little signs of improvement. I don't see how this helps people who, after this small injection of public funds, will most likely lose their homes because they can't find a job or the value of their homes are much lower than what they are shelling out each month in mortgage payments. The irony in all this is that it was the Federal government that led all of these poor people down this path of destruction by implementing all sorts of "affordable housing" incentives. If the Feds want affordable housing now and they want a quick recovery of the housing market, why not let prices drop to their equilibrium? Instead, we get more public funds thrown at lost causes.

Print your own money!

From MSN Money:

Last year, two Detroit tavern owners were sitting at the bar, sampling their beverages and bemoaning the local economy -- no one in the city had cash, and when they did, they spent it in the suburbs. Then the pair hit on a solution: Print their own money.

It is, after all, perfectly legal for anyone to issue currency, as long as it doesn't look too much like a U.S. dollar. Thus was born the Detroit cheer, a local scrip accepted by a handful of city businesses, including a pizzeria, an electrician and a doggy day care center.

Residents can also exchange it at a few area bars for greenbacks, but the cheer is vastly more colorful. It features a chiseled, naked Greco-Roman superhero (the Spirit of Detroit) towering Godzilla-like over the city skyline, cupping a tiny family in one hand and a sunburst representing God in the other. He's a lot more fun than George Washington.

And Detroit isn't the only city sporting its own currency. Since the market tanked nearly 18 months ago, there's been an interest in local scrips not seen since the Great Depression.

VH: I find it interesting that this is another example of people having coordinated to create and use a viable currency without an over arching government authority. It's not the first time that this has happened and it won't be the last. Also, this all really says something about the general distrust of the Dollar and our governments profligate spending habit---people are really spooked and with good reason.

Size Does Matter

The Center for Freedom and Prosperity Foundation's new video presents real-world data and research showing that the burden of government spending is far too high – not only in the United States (where the Bush-Obama policies have increased the federal budget by more than 100 percent), but also in other nations where government budgets sometimes consume more than one-half of an economy's output.

The Optimum Size of Government

From the Center for Freedom and Prosperity:

A new study by economists with the Institute for Market Economics (IME) in Sofia, Bulgaria, using the latest OECD data, finds that the government sectors in OECD (developed countries) are too large relative to their private sectors to maximize economic growth. Economists have long known that the government sector can be too small or too large to maximize economic growth, job creation, and the social welfare of its citizens. Governments that do not adequately protect the people and their property and the rule of law may be too small, while governments whose size and inefficiencies cause a misallocation of resources are too large.

Over the last several decades, economists have tried to determine and quantify the optimum size of government (recognizing that not all governments and societies are the same). Most studies have shown the optimum size of government is between 12% and 30% of GDP. The new IME study, entitled The Optimum Size of Government, finds (using standard methodology) the government sector should be no larger than 25% (and perhaps considerably smaller) to maximize GDP growth. All major governments, including the U.S., Germany, U.K., France, and Italy greatly exceed that level. The average government sector for the OECD countries now exceeds 41% of GDP.

The Coming Storm

You know its coming and it will not be pretty: Get ready for inflation and higher interest rates.

An Ode To Cheap Kiwi's

A kiwi costs 33 cents
Simply because no one prevents
Another farm or New York store
From entering and selling more.

In contrast apples may be dear,
For reasons that will soon be clear:
Picking them’s below our station,
To lower costs we need migration.

Bananas have a different story,
Seedless magic, breeder’s glory,
Cheap to harvest and to ship,
Who cares if workers get paid zip?

Read the whole poem here

Why did Rothbard so love Turgot?

Anne-Robert-Jacques Turgot (1727–1781) understood government regulation better than some modern day economists.

Ron Paul vs. Bernanke

Watch as Ron Paul poses some very incisive questions and comments to Ben Bernanke during a recent congressional hearing. Also notice how Bernanke, a very intelligent and learned man, simply does not understand that he is part of a government bureaucracy that is slowly dragging the American economy into the hands of big government power.

Don't Turn America Into Another France

A simple plea from a pretty French economist.

China vs USA: A Visual Comparison

Data from the CIA World Factbook.

Dan Mitchell's Makes His Case For Tax Haven's on Capitol Hill -- Part 1 & 2

"The only way competition is harmful is if you're a monopolist or an oligarchist and you don't like when there are competitors that are threatening your secure little position in life."--Dan Mitchell.

Government Intervention, Regulatory Policy, and the Financial Crisis

When you hear the populist pabulum that deregulation was the prime cause of our financial crisis, take a pause and note that it is in a politician’s best interest to regulate industries because it places power and influence in his or her grasp. The opportunity for power coupled with a public outcry to "do something" is too great to resist.

Also, have you noticed that all the banks that have over-leveraged themselves are also the most highly regulated?

Mankiw vs. Krugman

Speaking of Greg Mankiw, it looks like Mankiw has thrown down the gauntlet: He wants to make a wager with liberal economist Paul Krugman on just how much the economy will grow (or how not) under the auspices of Obama's economic plan. Liberals love to back up their economic arguments with Krugman's critique of free-market capitalism; they figure that his recent Nobel Prize lends plenty of weight to their economic policies. But I always point out that Krugman's Nobel Prize winning work was in international trade and not macro-economics: He's basically a Keynesian when it comes to macro-economics. And there is far too much empirical and historical evidence that shows that Keynesianism doesn't provide the robust growth that our country needs to maintain our standard of living. I would love for Krugman to take Mankiw's bet.