US Economy

[a_majoor]

A look at how credit driven economies falter and fail:

http://voxday.blogspot.ca/2014/07/why-home-buyers-arent-buying.html

Why home buyers aren't buying

Back in June 2009, I introduced a concept I called the Limits of Demand, which pointed out that the Austrian Business Cycle did not revolve around a shift in capital vs consumer goods, but rather the "finite limit to the maximum consumable quantity of every consumer good available". I stated: "Once the artificially enhanced demand limits are reached, or even worse, consumers cannot afford to service their debt on the goods they previously purchased, the boom will come to a hard and fast end." As Neil Cavuto's lamentation for the housing market suggests, we appear to have finally reached those demand limits, as the six-year stagnation in L1 also indicates:

You can now nab a 30-year fixed mortgage for under 4%. That’s the second week in a row, by the way, that rates have been so low. As of this writing, the numbers tick slightly, but the range remains remarkably low – 3.96% to 4.08%. In either extreme, extremely weird, and stunning when you consider we are supposedly in the latter stage of a recovery.

Usually at this point in an economic turnaround, things are rocking, and interest rates are jumping. But we all know the economy isn’t rocking. And as a result, interest rates are not jumping. What’s weird is those rates are dropping, which usually presages something bad happening.

Then again, this hasn’t been your father’s recovery, has it? Even with absurdly-low interest rates for what’s been years now, it’s hard to make the case they’ve triggered any kind of housing boom. Sales of new single-family homes fell 4.9% through the first six months of the year. They were down 8.1% in June. So let’s just say the trend is not the housing industry’s friend.

Economists and real estate experts offer a variety of reasons for this mortgage malaise. Some argue it’s still pretty tough to qualify for a loan, and bankers aren’t making it any easier, demanding more upfront money from borrowers to avoid any of the problems they encountered post-meltdown.

But it’s been more than six years now, and some very sharp numbers crunchers are getting worried. Even bankers who are lending tell me they aren’t seeing a lot of customers lining up. “Caution is the word,” said one. “They just seem very tentative, even skeptical.”
Cavuto says that history "suggests one of two things eventually happens during such periods: either the prices come down or the demand picks up." This chart I made to explain the Limits of Demand shows that prices will not only come down, but come down further than the experts are presently anticipating.


The credit-driven demand for housing has pushed up prices along the S curve, far beyond where the homebuyers' natural demand (based upon what they could afford without the credit expansion) intersected it. When the credit contraction begins, unless the supply somehow contracts, the demand for housing can be expected to fall from the point where the Dcredit curve intersects the S curve to the point on the original D curve. Where that is in practical terms, I do not know, but a rough guess would be a two-thirds collapse in home prices. And it is this collapse that will spur the economy-wide deflation that I have been predicting for the last six years.

Remember, while we haven't seen deflation, we also haven't seen the predicted inflation, let alone hyperinflation, either. That is because the Fed's desperate attempts to hold up the housing market to protect the banks has led to a six-year period of credit disinflation and the subsequent six-year "mortgage malaise".

That is the core problem with credit money. Central banks can print more paper, but they cannot print more credit-worthy borrowers. And with the median net wealth of Americans down by one-third in the last decade, few Americans can afford to borrow the money required to pay the credit-inflated housing prices even at these historically low interest rates. This should be patently obvious, especially in light of how "35.1 percent of people with credit records had been reported to collections for debt that averaged $5,178."

When even cheery, optimistic cheerleaders such as Cavuto start using phrases like "we are supposedly in the latter stage of a recovery", it should be readily apparent that there has been no recovery at all. As I have been pointing out for more than five years now, this is an economic contraction at least one order of magnitude bigger than the Great Depression. Focusing on GDP and CPI and U3 statistics is rather like trying to measure the precise size of the waves on the beach as a tsunami looms offshore.

 

[a_majoor]

Raising the white flag on the "War on Poverty". President Johnson’s quoted goal may not be what he actually had in mind (evidently there is another quote attributed to him about these programs: "I'll have them n*****s voting Democratic for the next two hundred years"), but it is certainly possible to go that route by emphasizing different approaches than cash payments and other handouts. Even within the construct of the welfare state, there are huge economies to be had; having 80 separate welfare programs (outside of Social Security, Medicare or Unemployment Insurance) suggests an incredible amount of overlap, duplication and waste. As Instapundit notes "We spent $22 Trillion and I didn't even get the T shirt"

http://dailysignal.com/2014/09/16/war-poverty-colossal-flop/?utm_source=facebook&utm_medium=social

The War on Poverty Has Been a Colossal Flop
Robert Rector / September 16, 2014 / 0 comments 1868 0

Today, the U.S. Census Bureau will release its annual report on poverty. This report is noteworthy because this year marks the 50th anniversary of President Lyndon Johnson’s launch of the War on Poverty. Liberals claim that the War on Poverty has failed because we didn’t spend enough money. Their answer is just to spend more. But the facts show otherwise.

Since its beginning, U.S. taxpayers have spent $22 trillion on Johnson’s War on Poverty (in constant 2012 dollars). Adjusting for inflation, that’s three times more than was spent on all military wars since the American Revolution.

One third of the U.S. population received aid from at least one welfare program at an average cost of $9,000 per recipient in 2013.

The federal government currently runs more than 80 means-tested welfare programs. These programs provide cash, food, housing and medical care to low-income Americans. Federal and state spending on these programs last year was $943 billion. (These figures do not include Social Security, Medicare, or Unemployment Insurance.)

Over 100 million people, about one third of the U.S. population, received aid from at least one welfare program at an average cost of $9,000 per recipient in 2013. If converted into cash, current means-tested spending is five times the amount needed to eliminate all poverty in the U.S.

rectorchart

But today the Census will almost certainly proclaim that around 14 percent of Americans are still poor. The present poverty rate is almost exactly the same as it was in 1967 a few years after the War on Poverty started. Census data actually shows that poverty has gotten worse over the last 40 years.

How is this possible? How can the taxpayers spend $22 trillion on welfare while poverty gets worse?

The typical family that Census identifies as poor has air conditioning, cable or satellite TV, and a computer in its home.

The answer is it isn’t possible.  Census counts a family as poor if its income falls below specified thresholds. But in counting family “income,” Census ignores nearly the entire $943 billion welfare state.

For most Americans, the word “poverty” means significant material deprivation, an inability to provide a family with adequate nutritious food, reasonable shelter and clothing. But only a small portion of the more than 40 million people labelled as poor by Census fit that description.

The media frequently associate the idea of poverty with being homeless. But less than two percent of the poor are homeless.  Only one in ten live in mobile homes. The typical house or apartment of the poor is in good repair and uncrowded; it is actually larger than the average dwelling of non-poor French, Germans or English.

According to government surveys, the typical family that Census identifies as poor has air conditioning, cable or satellite TV, and a computer in his home. Forty percent have a wide screen HDTV and another 40 percent have internet access. Three quarters of the poor own a car and roughly a third have two or more cars. (These numbers are not the result of the current bad economy pushing middle class families into poverty; instead, they reflect a steady improvement in living conditions among the poor for many decades.)

The intake of protein, vitamins and minerals by poor children is virtually identical with upper middle class kids. According to surveys by the U.S. Department of Agriculture, the overwhelming majority of poor people report they were not hungry even for a single day during the prior year.

We can be grateful that the living standards of all Americans, including the poor, have risen in the past half century, but the War on Poverty has not succeeded according to Johnson’s original goal. Johnson’s aim was not to prop up living standards by making more and more people dependent on an ever larger welfare state. Instead, Johnson sought to increase self-sufficiency, the ability of a family to support itself out of poverty without dependence on welfare aid. Johnson asserted that the War on Poverty would actually shrink the welfare rolls and transform the poor from “taxeaters” into “taxpayers.”

Judged by that standard, the War on Poverty has been a colossal flop. The welfare state has undermined self-sufficiency by discouraging work and penalizing marriage. When the War on Poverty began seven percent of children were born outside marriage. Today, 42 percent of children are. By eroding marriage, the welfare state has made many Americans less capable of self-support than they were when the War on Poverty began.

President Obama plans to spend $13 trillion dollars on means-tested welfare over the next decade. Most of this spending will flow through traditional welfare programs that discourage the keys to self-sufficiency: work and marriage.

Rather than doubling down on the mistakes of the past, we should restructure the welfare state around Johnson’s original goal: increasing Americans capacity for self-support. Welfare should no longer be a one way hand out; able-bodied recipients of cash, food and housing should be required to work or prepare for work as condition of receiving aid. Welfare’s penalties against marriage should be reduced. By returning to the original vision of aiding the poor to aid themselves, we can begin, in Johnson’s words, to “replace their despair with opportunity.”