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Situation: Not Good
Approximately 11 percent of the civilian work force (including marginally attached workers) is unemployed. About 9% of all mortgage holders are late on their payments. These are probably overlapping sets of individuals; presumably many who lose their jobs or can't find work then can't keep up their house payments.
If these unemployed have to sell their houses, they are selling into a down market where they will obtain little equity from the sale, in all likelihood, or they may find that they cannot obtain a high enough price to pay the mortgage they can't keep up payments on.
The Congress seeks a stimulus package. What is its purpose? What is its ideal shape?
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The ideal stimulus would involve battery clamps, an electric source, and Bush administration officials.
Failing that, something targeted at homeowners who are having problems with their sole residence. Good lenders should expect a buzz cut, bad lenders should expect to be scalped. I'd propose forced adjustment of terms to the prime rate with some sort of stick to discourage borrower from just walking away. There will still be a lot of foreclosures, 30+ % drop in home values and a deepening recession are very bad juju. Roubini called the current conditions 3 years ago, and he is not optimistic.
September 6, 2008 10:01 AM | Reply | Permalink
The Congress seeks a stimulus package.
I hadn't heard anything about this. I know Obama has some sort of pandering notion of sending out some additional tax rebates come June 2009. But the Congress?
Is it true? Has anybody got a link?
September 6, 2008 10:16 AM | Reply | Permalink
We just added $100 billion to the deficit with the last check flurry, and are getting ready to spend billions more, (if not trillions) bailing out the GSEs.
Sadly, leaving individuals to hang will not collapse the economy, unlike letting the GSEs fail. Somebody is going to have to find out what ruining your credit does to future finances. In the end, capping ARM's to just above fixed rates may be the only salve available.
September 6, 2008 10:53 AM | Reply | Permalink
Lets drop the 'partisan BS' after eight years of Republican spin, politics over country, lies, war and incompetence. Bush was for the worst administration in memory. Perhaps Americans are at fault for putting him and his Republican hucksters in office. No country can expect to prosper under such leadership.
September 6, 2008 12:19 PM | Reply | Permalink
shooter says;
Shooter, who are these "lots of people"?
September 6, 2008 4:09 PM | Reply | Permalink
Well, we could start with President Clinton, who in order to guarantee that Wall Street would back his wife's 2000 Senate campaign approved GLBA which repealed Glass-Steagall.
Note: I have no idea why the big phony signed the CFMA in December 2000 -- maybe he'd made a pre-November election promise on that one, too.
September 6, 2008 8:50 PM | Reply | Permalink
Ellen,
and Phil Gramm and his wife, Wendy.
Then again we can go as far back as Reagan.
Reagan came into office with his deregulation mantra and we quickly had the HUD scandal, the Savings and Loan, the Leveraged buyout scam that was no more than a 'stolen car chop shop' writ large, tens of thousands lost their jobs as companies were sold off piecemeal.
Reagan told the sharks; 'Go forth and multiply', and they did. Some are running Fannie Mae and/or Freddie Mac and earning $20 million? per year.
$25/50 Billion to bail out Fannie and Freddie? Peanuts compared to the S&L.
George Bush Sr., New World Order, Phil Gramm, Ivan Boesky, Micahel Milkin, the ENRON gang, Global Crossing, World Com, Adelphia, Tyco, Bush/Cheney, Halliburton/KBR, Blackwater, EXXON's Lee Raymond retirement package $400 million.........
And oh yeah, Clinton's BJ.
The sharks are in the water, thanks Ron.
September 7, 2008 9:09 AM | Reply | Permalink
Maybe some kind of public program, with the government employing people to work on public infrastructure projects?
That would have the added benefit of preventing highway, rail, and other public infrastructure from falling apart, as the ASCE suggests we're in danger of.(see I-85, MN)
Then, it's not a handout!
You'd think someone would have tried something like that in the past.
September 6, 2008 11:34 AM | Reply | Permalink
Assuming you're not being facetious, Kenga, someone did. FDR has been criticized royally, by royalists mostly, for instituting various work programs. I was around then and his 'solutions' may have been economically unsound, but the people they kept alive were very grateful for them.
It has been argued that WWII actually brought us out of the Depression. If so, what the War did was pour tons of federal money into the economy. Maybe a war is the only acceptable justification for injecting huge fed funds into the economy, or maybe there is another acceptable justification. I leave that argument to some expert - who hopefully has a social conscience.
September 6, 2008 12:55 PM | Reply | Permalink
phelicity,
the CCC camps and the WPA brought people back to work, they were then able to purchase the necessities; food, housing, coal, shoes, which were made scarce during the depression. An added benefit was the improvement in people's health.
Many illiterate people also learned to read and write in the CCC camps.
Anyhow, I think these programs were a very big asset in getting us out of the depression.
We were lucky, my father, a WW 1 vet, was working for the Penna RR, so we got by, barely, but most of my friends were destitute. My parents used to feed a few of the local kids when we had enough.
Its when I reflect that I see it was when FDR came along that things started to slowly get better.
September 6, 2008 4:59 PM | Reply | Permalink
The idea that WWII got us out of the depression has become conventional wisdom, but that doesn't make it true.
The Republicans repeat this line because (A) they've spent the last 60+ years trying to un-do every progressive policy FDR instituted, and (B) they've become the War Party.
Progressives should not tell the story this way. The policy choices FDR made, primarily, pulled us out of the great depression. Progressive economic policies work, and that is the true lesson of the post depression recovery.
So kenga is right on the mark. And I believe, unfortunately, that things will get much worse before they get better, and we very well may have to return to ideas like the WPA and the CCC to pull ourselves out.
Shooter's statement (above) that "leaving individuals to hang will not collapse the economy" is not quite correct (unless one wants to quibble over the exact definition of "collapse"). We're facing a HUGE number of individual financial emergencies. Eventually all consumers will stop consuming, and that will put the overall economy in a very bad funk for a long, long time.
-- ARG
September 6, 2008 7:59 PM | Reply | Permalink
You might want to spend a bit of time explaining how the Recession of 1937 fits into your scheme of things.
September 6, 2008 8:18 PM | Reply | Permalink
Ellen says,
Ellen, FDR was elected in 1933, isn't going from a 1933 Depression to a 1937 Recession a step forward?
note: I'm neither an Economist nor an Historian.
September 7, 2008 9:15 AM | Reply | Permalink
Ellen, thanks for the link you posted. My interpretation of the '37 recession is that it was merely a blip in the recovery. Just look at the employment graph (in the link you posted).
That '37 recession certainly doesn't support the notion that we need a war to get out of a serious economic downturn.
I'm not questioning that WWII had an effect in terms of the US's economic condition. It did. I'm just saying that the idea that "we need a war" to get out of every recession (or the next depression) is not really supported by the facts.
And, worse than that, it's dangerous for this idea to be generally accepted by the casually informed masses, as it appears to be.
I think one could make a pretty good case that the latest wars have helped PUT us in the economic box we're currently in -- they are not the only cause, but they have made matters much worse.
So if one were to propose that "we need a good war" to get us out of the depression we're headed into in the next few years, I would disagree strongly. I think that would be exactly the wrong thing.
We need a war-level domestic effort and committment. But we do not need another war.
-- ARG
September 7, 2008 11:14 PM | Reply | Permalink
ARG,
What you say. Ellen can be reasoned with even if she is some kind of contrarian nutcase -- maybe libertarian.
Thanks for the help with airgun177 at Lawyers, Troopergate, and Questions, but decapitating seven sled dogs was also fun. airgun177 has one of those thought-repellent baseball caps so facts often bounce off.
September 8, 2008 10:03 AM | Reply | Permalink
ARG,
I think Dean sponsored (?) a study that showed excessive military spending increased inflation and decreased GNP long term for the obvious reasons.
September 9, 2008 3:33 AM | Reply | Permalink
Ellen,
I'm restraining myself from an ancient SNL line, but did you look at the graph you cited? Jane, you .... nooo, abend, abend! Look at the employment figures, Jane you .... Roosevelt, incresed employment from 33-37. In 1938, an eyeball LSF on prior date indicates about a 3 million or 8% employment deficit. BUT the data does not include population growth so unemployment and consequent misery would be worse. I'm not paid enough to be precise, but a professional would compensate for population.
Jane, ..., are you saying the 37-38 blip cancels how many years?
September 9, 2008 3:21 AM | Reply | Permalink
Re: The Republicans repeat this line because (A) they've spent the last 60+ years trying to un-do every progressive policy FDR instituted, and (B) they've become the War Party.
Awkwardly for the GOP, WWII involves government spending and government control of the economy of a scale generally not seen outside true Socialist economies. The WWII argument is absolutely not an argument for laissez faire. (However there is a grain of truths in it: by taking two million men out of the civilian labor force WWII solved the unemployment crisis of the 30s.)
September 6, 2008 10:01 PM | Reply | Permalink
I don't know where your figure of 2 million men taken "out of the civilian labor force" during WWII comes from.
I'd say the figure is closer to 15 million than it is to 2 million.
September 7, 2008 3:14 AM | Reply | Permalink
Ellen,
you're right 15 to 16 million.
I think he could have said; by taking 2 million people out of the civilian work force who were unemployed and put them to work in the CCC camps and the WPA he solved the unemployment problem of the 30s?
September 7, 2008 11:58 AM | Reply | Permalink
The WPA and the CCC did not solve the unemployment crisis of the 30s. They functioned on far too small a scale. They did a lot of good-- I am not debating that-- they gave a lot of hopeless people hope, and put money in their pockets, and some of their projects were worthwhile in and of themselves. But they had almost no effect on the larger economy and job growth was stuck on flat.
The WWII draft changed that: it actually created a labor shortage at the same time war orders created an upsurge in demand.
September 7, 2008 5:47 PM | Reply | Permalink
Also awkward for the GOP, but in an excruciating way, is the tax rates. From what I've seen, the top marginal rate topped out at 90+% around the end of the war.
September 8, 2008 5:50 PM | Reply | Permalink
I would push this issue farther out. Don't constrain yourself to a historic interpretation where you must defend FDR's record as if it represented the finest and best of socialist and progressive thought. It is and was far from that. Given the full spectrum of available remedies, it is clear that even if what FDR did had limited success (and I would say that it had limited success in a literal sense - that it helped a great deal but didn't solve the problem) it is probably true that a different set of interventionist, progressive policies would have been completely effective, doing much better than the war.
Given the cornucopia of academic talent that exists today, coupled with a much better understanding of economic issues and advances in computing, socialist and progressive type solutions can be very effective. Those that endorse free market solutions in this era are usually only heard because of the vast stores of wealth behind their voices, not because of the merit of their ideas.
Sadly, politicians on the left generally do not make very good interventionist policies, and FDRs actions are an illustration of this as well. It is silly to reject mixed markets as a result of such "botched tests" but of course some people try to make the new deal seem better than it was, and at the same time argue against its effectiveness. In this case, gracing such individuals even with a response is giving them more than they deserve, as it is clear they lack any sort of proper education, let alone the ethical clarity from which truth springs.
September 9, 2008 1:54 AM | Reply | Permalink
Kenga,
The analysis from the Levy Institute showed that an increase in spending, as opposed to tax cuts or rebates, had a slightly better affect. Alas, this simply softens the landing. The sad truth is that there is no magic way out of these messes and the sadder truth is that some folks think that everyone that is negatively affected is somehow to blame for their fate.
However, your point is on the mark in a fundamental way.
September 6, 2008 9:02 PM | Reply | Permalink
The tip of the economic iceberg keeps getting bigger. Record foreclosures, unemployment and bankruptcies all paint a very grim picture. Now we hear the Feds will step in prop up Fannie Mae and Freddie Mac at the potential cost to taxpayers of hundreds of billions of dollars - added to the $490 billion budget defict this year and trillions in long term debt the GOP has already run up. I love my country and my children, and it pains me to think of the future possibilities our political leadership has thrown away.
I think there are two big lessons here: Active government oversight is necessary to enforce basic ethics in big business and financal markets, and the nation needs an economic plan that focuses on job creation instead of investor returns. The GOP unfortunately has proven it can do neither.
September 6, 2008 11:39 AM | Reply | Permalink
And Democrats will likely do no better. History is often the result of disparate threads coming together in ways impossible to predict. In this case we have the result of investors seeking safety after the .com bubble, lowered interest rates to stave off recession, exacerbated by 9/11, the repeal of Glass/Steagal, and elimination of tax deductions save the mortgage exemption.
Government is complicit in most of this, demonstrably rendering them the last place to seek relief. My recommendation to you is to save cash. As in the Great Depression, a dollar will buy much more than it does now.
Also, government can't create jobs in the scale needed, the best it can do is create an environment where job creation is encouraged. Unfortunately competing with labor in the third world will take years to balance out.
September 6, 2008 11:59 AM | Reply | Permalink
Re: As in the Great Depression, a dollar will buy much more than it does now.
That was then, this is now. And while energy prices may be sliding down, not much else is and inflation remains high. Saving cash right now is not a good idea: a year from, now your dollar may be worth eighty cents.
This isn't back to the 30s, it's more like back to the (late) 70s with both a stagnant economy and nasty, energy-led inflation.
September 6, 2008 12:10 PM | Reply | Permalink
I can't believe I'm agreeing with ; however --
If a $500,000 house sells for $400,000, a $28,000 car for $25,000, or a $28 share of GE for $18 while gasoline is up to $4/gal. and steak to $11/lb., do we have inflation or deflation?
September 6, 2008 1:34 PM | Reply | Permalink
Houses have gone down in value-- but only after climbing into lower geosynchonic orbit. Housing prices are still well about their historic norm, when compared to median income, and it's not obvious that they will return to that norm, let alone fall below it.
Energy prices have eased off, but gasoline remains higher than it was a year ago (let alone five years ago). Other commodities have come down too, but are still not back to their historic averages.
As yet there is no evidence that food costs, or healthcare costs, or much of anything else is declining in price, with the exception of some new technology items where falling prices are usually the rule.
The government's response to the current economy has been to dump money into it. Hence the low dollar-- and this usually fuels inflation, not deflation.
Some liberals have a fixation on the Great Depression and sometimes seem to yearn for a repeat-- perhaps because the Depression did produce a good political environment for progressive change. However that was a long time ago now, an the world has changed too much for history to repeat: we are no more likely to have another Great Depression than we are to see a repeat of the American Civil War-- or the English Civil War, or the barbarian invasions that sunk Rome.
I'd put my bets on inflation/stagflation being the curse of the next few years, especially if that political horror ticket singing "Let's do the Bush years again!" is elected. (Though I don't see Obama as an economic miracle workers either.)
September 6, 2008 2:57 PM | Reply | Permalink
JonF said:
Gee, you're right.
I wonder how it is that the price of a barrel of oil has dropped so much recently and with no new drilling?
September 6, 2008 5:06 PM | Reply | Permalink
Shooter, please just shoot yourself in the foot.
September 7, 2008 1:39 AM | Reply | Permalink
And Democrats will likely do no better. History is often the result of disparate threads coming together in ways impossible to predict. In this case we have the result of investors seeking safety after the .com bubble, lowered interest rates to stave off recession, exacerbated by 9/11, the repeal of Glass/Steagal, and elimination of tax deductions save the mortgage exemption.
Government is complicit in most of this, demonstrably rendering them the last place to seek relief. My recommendation to you is to save cash. As in the Great Depression, a dollar will buy much more than it does now.
Also, government can't create jobs in the scale needed, the best it can do is create an environment where job creation is encouraged. Unfortunately competing with labor in the third world will take years to balance out.
September 6, 2008 12:10 PM | Reply | Permalink
Hmmm, the ideal stimulus... it needs to come from the banks, not the government. We need to regulate credit so that people can safely delever without a lot of pain. Bank lenders have made a ton of money, they can afford to have the terms of their home and consumer loans rewritten by the government. They'll make out better than they will if people go under. That's why Hillary's moratorium on foreclosures made a lot of sense. If the foreclosures are hurting people and the economy (and they are) then the government should simply put a stop to them.
September 6, 2008 12:56 PM | Reply | Permalink
11%? Newest figures show 6.1% unemployment (of those looking for work). Of these over 5.5% have been unemployed for the last year so we can assume they have already lost their home or they don't own one anyway. This shows us an increase of .6% in unemployment. There are just over 300,000,000 Americans. 50% of our nation is under the age of 18 and not breadwinners who support a home. 60% of American Families do own their own home. 80% of the homeowners are married to a spouse who works, this means an increase of 27,000 homes on the market in which there is no-one person to make a house payment. If one where to assume that 30% of Americans have their home paid for the number shrinks to 18,900 homes that may face foreclosure. According to the last census there are 18,443 towns in the USA. So we basically have an increase of 1 more house on the market per town. Not much of an impact.
September 6, 2008 3:14 PM | Reply | Permalink
11%? Newest figures show 6.1% unemployment (of those looking for work). Of these over 5.5% have been unemployed for the last year so we can assume they have already lost their home or they don't own one anyway. This shows us an increase of .6% in unemployment. There are just over 300,000,000 Americans. 50% of our nation is under the age of 18 and not breadwinners who support a home. 60% of American Families do own their own home. 80% of the homeowners are married to a spouse who works, this means an increase of 27,000 homes on the market in which there is no-one person to make a house payment. If one where to assume that 30% of Americans have their home paid for the number shrinks to 18,900 homes that may face foreclosure. According to the last census there are 18,443 towns in the USA. So we basically have an increase of 1 more house on the market per town. Not much of an impact.
September 6, 2008 3:14 PM | Reply | Permalink
So -- why do Bush and Paulson think it's necessary to bail out Fannie and Freddie?
Side note: 26% (not 50%) of Americans are under 18 years of age.
September 6, 2008 8:25 PM | Reply | Permalink
Ellen,
thanks for that correction, I thought the 50% number was rather high. Maybe the rest of the numbers are askew too, there are no sources mentioned
September 7, 2008 9:35 AM | Reply | Permalink