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Well friends, when it comes to the consumer who is, after all, nearly 70% of the economy it is and has always been about housing. Our culture prizes home ownership. Has since WWII and continues to do so. Tax policy promotes it. So when the value of our home is unstable, when it is under attack, we tend to circle the wagons. When we do that and stop spending 70% of the economy shrinks. This can happen literally overnight. When we don’t buy there is no need to manufacture, import whatever. Jobs are thusly lost. When jobs are lost the lowest rung of the economic ladder is the first to get hurt. They are the “sub-prime” borrowers. That caused the mortgage derivatives fiasco and the ensuing financial meltdown. Was Wall Street to blame? Sure, the derivatives idea was a bit fast and lose but it was based on the American Ideal that housing is very stable. It was actually Congress, who is now railing at Wall Street that actually encouraged the weird and risky packaging of mortgages as a method to make financing available to the lowest income, least credit worthy amongst us.
The good news after all these billions down the rat hole of big banks and uncompetitive car companies is that housing sales (or rather re-sales) are picking up a bit. They have been above last years numbers for two months in a row. This may be because of the $8,000 tax credit for first time buyers or it may be because the owners of re-sale houses have less invested by dint of long term ownership and can be more aggressive in setting selling prices that the market recognizes as appropriate. New construction has not had the same uptick likely due to the higher costs involved in new land development, materials and labor. Home builders are struggling to price as aggressively because they can’t afford such large mark downs. For example, the 20 year old home that the owner paid $240,000 for may be properly priced today at $499,000 while a similar sized home may cost the builder $550,000 to construct and should sell for $689,000 in order for him to make a normal profit. Aggressive builders may be willing to mark it down to $600,000 if it is already build and in inventory. That is still $100,000 more than the re-sale for essentially the same house. Makes it tough on builders, carpenters, plumbers, electricians, etc. It is a real drag on the economy. I started by saying the good news is that re-sale homes are above last year and that is good. It shows that there are people who are willing to take some risk. There are people who can be motivated by low prices and low interest rates. Had the government actually accomplished the repair of the housing fiasco in a timely manner maybe we wouldn’t have had the bank and auto debacle in the first place. Maybe instead of $8,000 for first time home buyers we should have a % of the purchase price of new homes to level the playing field and put those hard working trades people back to work. Then they can buy new trucks and their families can spend at the mall and pretty soon things will get back to normal without anymore government interference.
Afghanistan isn’t going well. Iraq is still a quagmire. The Russians are smiling not because they are in favor of the Taliban, but they tried to control Afghanistan for years and years and couldn’t succeed. They are chuckling at our temerity and wondering how will we get out of this one. We keep starting things we can’t and won’t finish. We keep sending young people into hostilities without the resolve to win and without the willingness to support them with unquestioning support. We want them to play by the rules when they face an enemy who doesn’t have any rules. Soon they we will repeat the chants of the 1960’s, “Hell no, we won’t go”. And then we will have a real problem.
Speaking of a problem, the Healthcare plan, love it or hate it, isn’t going to do one thing for the economy in the short term. I think the long term effects remain to be seen. I’m not optimistic but time will tell if I am right or wrong. I wish Congress would stick to the knitting and fix what is broken before getting all worked up about something new.
Speaking of something new, it comes apparently as a big surprise that Iran has been less than truthful about its nuclear program. A second enrichment operation deep underground presumably keep a secret to keep it safe from the Israeli’s. Former President Jimmie Carter and his former security advisor Zbigniew Brzezinski have stated that the Israeli’s have to have our permission to cross Iraqi no fly air space to reach Iran and that we should deny it. Brzezinski even went so far as to say if they enter it without permission we should stop them. Politically, the US firing on an Israeli air force mission is as unlikely as the US not defending Israel by selling them weapons systems. Practically, it might be a smart thing just to prevent complete destabilization of the region. This question could be moot IF the Russians and Chinese were to agree to enforce the anti proliferation treaty to which they, the USA and Iran are signatories. Sanctions of real significance could bring down the current regime in Iran. A new regime, supported by Russia, USA and China could be a very productive player in the region regardless of its religious ideology. The USA may have to learn the lesson that different doesn’t mean wrong. Of course Jimmie Carter allowed the Iranian revolutionaries overthrow the Shah
And capture our Embassy, holding 53 Americans hostage for 444 days causing the death of 8 American Servicemen in a failed rescue mission (and one unfortunate Iranian civilian). The hostages were released just minutes before Ronald Reagan was sworn in as President.
We missed the golden opportunity then, when we had justification to attack, the overrunning of an Embassy is considered an attack, an act of War. Now we lack moral authority. We cannot attack them without seeming the aggressor who will attack anyone who isn’t living our way. It worries our neighbors and our allies. Rightly so.
I think the president and congress should focus their attention on the economy so that we are again a strong nation prepared for whatever may come our way.
