Tag Archives: ARRA

Mortgage Bubble Started Crisis, Isn’t Getting Better

Last year the economy crashed.  Now, the stimulus has stimulated, the Federal Reserve has eased, Geihtner has.. well done whatever he does, and Obama has spoken (certainly that should have fixed everything).  So how did we hit 9.8% unemployment since the stimulus was an emergency action that would keep unemployment from going over 8%, pumping massive amounts of liquidity into the economy should have loosened credit, little Timmy G. and Obama bought GM, AIG and Chrysler and they helped everyone buy a new car that wanted one?  It must be that G.W. Bush must still be affecting the economy from his ranch in Texas…

Today, the Mortgage Bankers Association published it’s index of applications.  The measure of home mortgage applications dropped 14% last week.  When broken-down, the measurement of refinancing applications decreased 17% and new home purchases declined 7.6%.  When combined with  yesterday’s less-than-stellar housing starts report, it’s apparent that between TARP, ARRA (stimulus), the Fed, government buyouts, the first-time buyers credit, and a truck-load of printed money.. the housing crisis is still glaring us in the face.

The trouble isn’t that the government isn’t doing enough – thankfully.  The trouble is that due to too much federal meddling, we never let the bubble fully burst.  Economies go through boom-and-bust cycles.  Even socialist countries deal with economic cycles that go up and down.  By propping up a bursting housing market we end up with artificially high housing prices and no one that can afford them.  Mortgage rates can’t get any lower and demand still isn’t there.  If you have too many goods (houses) being chased by too few dollars… that’s deflationary to that market.   Our dollar is weakening due to the government’s reckless printing.

A Yahoo! Finance article states that economists expect home sales prices to decline more than 11% by June of 2010.  That’s fairly rapid and could trigger the second half of a double-dip recession when combined with the commercial loan crisis about to hit the financial industry.

So now those few dollars chasing mortgages aren’t worth as much (notice your gas prices the last seven days or so – welcome to inflation).  The Fed has kept rates near zero so now they can only go up – and they are.  All this means those houses have got to get cheaper to get sold.  Meaning destroyed wealth for millions of Americans as their house values plummet.  The housing bubble will certainly bust and the more the government props it up, the worse that crash will be.

America Goes Protectionist, Echos 1930’s Era Actions

cargo shipStill thickly in the middle of the biggest economic catastrophe since the great depression, American policy makers are making anti-free trade decisions that are eerily similar to the protectionist moves made during the depression.

The A.R.R.A. (stimulus bill), has provisions in it that only allow the money to be spent on “manufactured goods” that are made in America.  While a welcome gift to the American steel industry and steelworkers union, reaction from foreign trading partners much colder.  American companies now face the proposition of being blocked from bidding on contracts in other countries.  Canada and the EU have raised extreme objections to the move and are considering two counter-measures.  First, they have petitioned the World Trade Organization, which is largely for show, but also allows them to take the second action – putting tariffs on American goods going into their countries.  By petitioning the W.T.O., those countries are not vulnerable to claims from the U.S. that they are engaging in unprovoked anti-trade actions.

Caterpillar Tractor is undertaking an effort to be involved with major projects in China.  Due to the recent placement of a tariff (tax on imported goods) on Chinese tires, the American heavy equipment manufacturer may find it much tougher to sell it’s machines in the rapidly-growing Chinese economy.  China has already filed a grievance with the W.T.O. and is now moving to place counter-tariffs on American imports of chickens and auto parts.

Highly-controversial agricultural subsidies have existed for decades.  Some farm subsidies are actually larger than the cost of the product itself.  The U.N. found in 2001 that the U.S. subsidy on a pound of cotton was more than 52 cents per pound.  It costs just above 20 cents per pound to grow cotton in some countries outside the U.S.

Mercantilist policies are also being applied to our neighbors to the south.  Restrictions on Mexican trucks on U.S. highways are making it more expensive for Mexican manufacturers to put their goods on American shelves.  While not a direct tariff, it has the same effect.  How long will it be before American goods are less welcome in Mexico?

Protectionism was a major factor in turning the 1929 recession into the great depression.  It was the leading factor into making the U.S. depression up to 5 years longer than in most other nations in the world during that period.  By taking the same steps, making the same mistakes, and being naive of history, we could be inviting the next great depression.