This is incredible. I mean, seriously, seriously incredible. I don’t recall the last time I came right out and asked for you — my loyal, intelligent, and beautiful readers — to send this information to everyone you know, but this is one of those ra….

The problem is that a huge amount of jobs had been produced by two things. One was a housing boom generated by easy mortgages. The second was people constantly pulling the appreciated equity out of their existing homes through easy “home equity loans”, refinances, and other home equity lines of credit. A lot of cars, boats, vacations, furnishings and home repairs were purchased with home equity. It was a huge source of value to the millions of homeowners and for over a decade, their houses were like oil wells gushing cash.

Home equity was the fuel the kept the economy hot. Trowing money into the fire to keep it going works, but only as long as you keep throwing money into the fire. Government can artificially pump up spending but the minute they cut the spending off the economy stops again unless the spending produces some fundamental improvement that adds value to the economy (and to people) that lasts well after the cash flow has stopped.

They would be better off to do things like emergency temporary elimination or modification of some of the more onerous Sarbanes/Oxley requirements, pulling back the red tape, facilitating loans to businesses to allow them to expand and reduce what is the world’s second highest corporate tax rate that is pushing our companies offshore in order to compete with foreign firms who are not burdened by as much corporate tax. Increasing taxes on corporations simply forces them to flee and instead of a higher percentage of their earnings, we end up with 100% of nothing.

A regulation that would make it illegal for states to have higher minimum wage than the federal minimum would help too. States that have had the greatest increases in minimum wage are seeing the highest increases in unemployment. Higher minimum wage does not generate a better standard of living, it generates higher unemployment.

oh wait…

nevermind

This shows the economy is already recovering or, at least, bottomed out. This should be enough to free up the credit markets and then the BILLIONS of cash is going to start flooding back out.

Skywise on January 21, 2009 at 9:25 PM

Don’t bet on it. There is still plenty of fall left. I predict late 2010 before things turn around.

Most of the “stimulus” will not be spent during the recession at all, but well after it, like around 2011 or so… which just happens to be the year of Obama’s run for re-election, the critical year in which opinions……

Okun was as Keynsian as you can get yet from experience he believed that changes in tax rates were the proper lever for government stimulation. The CBO has just confirmed what Okun knew thirty years ago.

jerryofva on January 21, 2009 at 8:58 PM

Reducing tax rates may stimulate the economy but it won’t stimulate Obama’s voter base — the entitlement crowd –
because they don’t pay income taxes (and the illegal alien voters in his base also don’t pay property taxes, vehicle taxes, etc.). That’s why the proven-to-work mechanism of lowering taxes doesn’t really appeal to Obama as much as the proven-not-to-work massive gov’t spending does.

There’s that word “hope” again.
Get your disappointment over with early, venividivici. The vast majority of (what’s left of) the Republicans in Congress know which way the wind is blowing and have no spine to stand against it. The Party may not be dead, but it’s coughing up blood and not looking at all well.

In SoCal I am sure that is very true.

venividivici on January 21, 2009 at 11:36 PM

I hear ya, the market is slowly beginning to turn around though despite the nitwits in the capitol.

funky chicken on January 22, 2009 at 12:29 AM

I asked my contact at the API that very question a few days ago. Gas prices lag oil prices by a couple weeks and oil hit 48$ three weeks ago it has since fallen. The national average increase in gas was steady at about 20 cents and mirrors that.

Since the economy is cyclical,

This is not the result of any cyclical phenomenon this time. America has been spending more than it takes in for over 30 years. The housing bubble caused the spending of borrowed money. That money can not be paid back. It’s been spent. America will need to go on a diet that will have to last at least 10 years. It will take 10 years of deprivation to balance the books.

The low, low oil price combined with huge excess inventory of manufactured goods will keep inflation down for a while yet.

I am a bit curious why my gasoline costs 20 cents more a gallon now than it did 2 months ago. Does anybody know why?

April 2, 2008
Backgrounder #2121
More Transportation Spending: False Promises of Prosperity and Job Creation

December 16, 2008
Backgrounder #2222
Learning from Japan: Infrastructure Spending Won’t Boost the Economy

Sure, I just mean those houses aren’t in the hands of people who really want to own them, they’re just flipping them, albeit with a longer time horizon than the old flipping model.

If you’re interested, here’s a site that provides good housing story links:

http://seekingalpha.com/tag/housing?source=bigpicdash_more

There are many others, too, of course.

One of my tasks at work is to follow insurance companies’ investment portfolios, so I read about real estate all the time.

That could be true, most of what I have heard has been on the radio, at least the houses are moving and being occupied. That is better than a foreclosed home gathering weeds and hobos.

I have heard it from a few sources that people are taking advantage of the depressed prices to buy now.

To answer your question, yes if I could maintain the payments because it will turn around despite those idiots in Sac’to. I am in NoCal and my area didn’t get hit as hard as some because we didn’t escalate as fast.

Change you can believe in because you failed microecon 101!

juanito gets an A!

As for the shares Lewis bought today, that’s not such a large amount of money for a guy like him. Lewis is Exhibit A of a guy who should by rights have almost no money at all, after what he’s done to Bank of America and Bank of America is trying to do to taxpayers.

http://seekingalpha.com/article/115502-preventing-the-greatest-heist-in-history

I agree even here in Ca. the housing market is slowly turning aroud with the the first positive uptick since ‘04-’05.

goat on January 21, 2009 at 9:33 PM

Maybe where you are. In San Diego it is still tanking. CA made it take longer to foreclose which has just delayed the inevitable. What I have noticed, since I’m shopping the market, is that the nicer homes, the homes people took the time to rehab and that look half decent are coming on the market. People are just too far upside down to stay in the homes. Would you continue to pay on a $474,000 loan when the house is worth $200,000?

California’s terrible economy will distort and deepen the housing market trough. It ain’t over.