Ever Get that Sinking Feeling

The November 24^th Los Angeles Times reports that home prices have begun to crawl ever-so-slightly up this September: “The Standard & Poor's/Case-Shiller index increased 0.3% from the prior month on a seasonally adjusted basis, after a 1.1% rise in August. The index fell 9.4% from September 2008 and marked the narrowest year-over-year decline since the end of 2007.” Whew! I’d be jumping up and down, screaming for joy, if not for the headline in the Wall Street Journal the same day: “1 in 4 Borrowers Under Water.” The lead paragraph on page one puts it like this: “The proportion of U.S. home-owners who owe more on their mortgages that the properties are worth has swelled to about 23%, threatening the prospects for a sustained housing recovery.” Argh!

The New York Times (Nov. 24^th) looked at the same Case-Shiller data and observed, taking the government’s first-time homebuyer tax credit into consideration and the seasonal nature of real estate sales, “That hope is giving way to pessimism. The housing market traditionally slows during the winter. This year, it will have to confront an abundance of inventory, high unemployment, devastated household balance sheets and an economy that remains wobbly… Instead of housing having a slow ‘V’-shaped recovery, [Maureen Maitland, vice president for index services at Standard & Poor’s] speculated, it might instead look more like a ‘W,’ as the price lows plumbed last spring are tested again this winter.”

I’m having this visualization problem about the “recovery.” I’m seeing the stock market rise based on cost-cutting (mostly getting rid of workers, the folks you need in the economy to start spending again to effect a genuine recovery)… and the fact that the market is apparently better place to keep your money as the falling dollar makes low-yield debt instruments particularly unattractive. I am looking for the other numbers that suggest growth and recovery. Unemployment is soaring and unlikely to correct anytime soon. Economists’ explanation: employment is a trailing economic indicator, and it can take years.

Sorry, economists, I’m not buying the “same-old, same-old.” You are not making any room for a societal paradigm shift, one in which a country, embroiled in expensive military conflicts abroad, borrows itself silly while lowering it future core competencies by hacking away at educational funding, just as other countries, particularly China, are providing the most basic and effective competition to our country in decades. You don’t take into account a crumbling infrastructure that has suffered from “deferred maintenance” for decades and city and state governments that have just plain run out of money. You only point to the stock market and try and convince the American people that this one “leading economic” indicator is enough. Heck, the stock market itself doesn’t believe you, economists, because they trade up and down based on the latest news.

The Wall Street Journal goes on, noting: “Nearly 10.7 million households had negative equity in the homes in the third quarter… These so-called underwater mortgages pose a roadblock to a housing recovery because the properties are more likely to fall into bank foreclosure and get dumped into an already saturated market.” But wait, there’s more. The Federal Reserve, while clinging to the existing near-zero fed rate, is beginning to send signals that rates are going to rise, not only because higher rates are necessary to attract foreign buyers of U.S. debt instruments (to fund our deficit), but because the Fed believes that cheap money available to the big financial institutions has fueled “excessive risk-taking.”

The Federal Reserve report also predicts unemployment rates well over 9 percent through 2010 and beyond: “It paints a grim picture. Top Fed officials expect the unemployment rate to remain in the 6.8 to 7.5 percent range at the end of 2012 and said it could take ‘about five or six years’ from now for economic activity to return to normal. The jobless rate was 10.2 percent in October.” November 25^th Washington Post.

On November 24^th, the FDIC – the agency charged with protecting (“insuring”) consumer deposits in federally insured banks – reported that it had a negative balance (the first since 1992) of $8.2 billion in the third quarter. They added that the nation’s 8,100 banks remain in fragile condition and that the number of banks (“problem banks”) in imminent danger of failure grew from 416 to 552 due primarily to credit card defaults, continued failures in residential mortgages and collapsing commercial real estate loans.

Are you with me, America? Is the emperor still naked, while economists are busy giving glowing fashion reviews, or am I missing something? Between Santa Claus and the Easter Bunny, I am torn at whom to believe. And I’d like to see someone begin to address the grassroots issues that seem to be ignored in any meaningful stimulus or re-ignition of our economy. The big boys have hog-slopped at the trough long enough… move over and let us piglets in!

I’m Peter Dekom, and I approve this message.