"It is easy to confuse what is with what ought to be, especially when what is has worked out in your favor."
- Tyrion Lannister
"Lannister. Baratheon. Stark. Tyrell. They're all just spokes on a wheel. This one's on top, then that's ones on top and on and on it spins, crushing those on the ground. I'm not going to stop the wheel. I'm going to break the wheel."
- Daenerys Targaryen
"The Lord of Light wants his enemies burned. The Drowned God wants them drowned. Why are all the gods such vicious cunts? Where's the God of Tits and Wine?"
- Tyrion Lannister
"The common people pray for rain, healthy children, and a summer that never ends. It is no matter to them if the high lords play their game of thrones, so long as they are left in peace. They never are."
- Jorah Mormont
"These bad people are what I'm good at. Out talking them. Out thinking them."
- Tyrion Lannister
"What happened? I think fundamentals were trumped by mechanics and, to a lesser extent, by demographics."
- Michael Barone
"If you want to know what God thinks of money, just look at the people he gave it to."
- Dorothy Parker
Friday, August 24, 2012
Housing Recovery: It's Better Than the NYT Thinks by Dean Baker
Housing's Slim Recovery by NYTimes editorial
Update: Baker again:
Housing Sales Are Back to Trend
Both the NYT and USA Today have convinced themselves that house sales are well below their trend level, with the latter telling us that a 5.5 million annual sales rate of existing homes considered healthy. In fact, we are pretty much back to trend levels of sales. In the mid-90s before the bubble began to distort the market, sales averaged about 3.5 million a year. A simple adjustment for the 15 percent population growth over this period would imply an annual sales rate of 4 million existing homes. That is somewhat below the current 4.5 million sales rate.
The gap between the current sales rate and the trend more than makes up for the continued weakness in new home sales. So, what are these folks talking about?
Thursday, August 23, 2012
Wednesday, August 22, 2012
Tuesday, August 21, 2012
Cautious Moves on Foreclosures Haunting Obama by Binyamin Appelbaum
Is Bad Housing Policy Really the Key to the Recession? by Yglesias
Yglesias links to:
Still Getting the Housing Bubble Wrong by Baker
Suppose we had instantly written off all underwater mortgages, would that have kept construction going? That's hard to see, since the enormous oversupply of homes would still be there.
Would that have sustained house prices? It's hard to see how or why, the problem is that the bubble had raised prices far above any level that could be justified by the fundamentals of the housing market. House prices today are pretty much in line with their long-term trend as we can see from the real Case-Shiller house prices index.If house prices are basically right, why should we expect more consumption than we are now seeing. In fact, consumption remains unusually high, not low, relative to disposable income as shown below. (Adjusted disposable income has to do with the statistical discrepancy for those nerds out there.)
If consumption isn't low, then what is the story of how rescuing underwater homeowners would have saved the economy? There are some economists who argue that the consumption of underwater homeowners has a hugely disproportionate impact on the economy. That seems a bit hard to imagine.
Let's try some simple numbers. The total amount of underwater equity is estimated at around $700 billion. Suppose that we wiped that out tomorrow. If our underwater homeowners spent 15 percent of their equity each year, more than twice as large as the wealth effect more generally, this new equity would generate $105 billion a year in additional consumption, about 0.7 percent of GDP. That's helpful, but not close to enough to get us back to full employment.
Furthermore, this impact is probably not even realistic. Let imagine someone with a median home, worth roughly $180k. We'll give $60,000 a year in income, roughly 20 percent more than the overall median. (Homeowners have higher income on average.)
Let's assume that they are 25 percent underwater, which means that they have a mortgage of $225,000. We now wipe that out, in effect giving them $45,000 of additional equity. If they spend 15 percent of this equity, it would translate into $6,750 a yearin additional consumption. Did this family earning $60,000 a year have $6,750 in annual savings that they now can divert to consumption since we set their mortgage above water? That seems unlikely. Perhaps they will borrow to support additional consumption, but how much and for how long? On average, people do have to save over their working lifetime if we expect them to have anything other than their Social Security in retirement. (Paying down a mortgage counts as savings.)
The story is even more dramatic if we give them a loan to value ratio of 150 percent. Then their mortgage is $270,000 and they are $90,000 underwater. if we write that one off and expect them to spend 15 percent of their new equity it comes to $13,500 a year. That doesn't seem very likely.
In short, the story of underwater homeowners holding up the recovery doesn't hold water. It is a tragedy for homeowners facing the loss of their homes and foreclosures can devastate communities, but it is not the story of the recession.
The simple story is that we need a new source of demand to fill the gap left by the collapse of the housing bubble. In the short term that can only be the government. In the longer term it will have to be trade, which means a reduction in the trade deficit. That means first and foremost getting the value of the dollar down, but macho politicians in Washington don't talk about a lower valued dollar. The folks on Wall Street don't like it.
I'm still not clear on the debate. DeLong seems to be saying if housing recovered as it has in past recoveries overall demand would be much better. Baker seems to be saying that the recent housing bust recession was different from normal recessions. Are there any historical analogies. The Great Depression?
Obama should have fired Bernanke a long time ago by John Cassidy
Advised by Treasury Secretary Tim Geithner, who had worked closely with Bernanke, Obama ended up giving Bernanke another four years. With the markets and the economy still fragile, it seemed the sensible thing to do. In retrospect, it looks like a mistake. By putting Bernanke in charge for the run-up to the 2012 election, Obama jeopardized the recovery and put at risk his own reelection prospects. As the economy has sputtered badly over the past six months, the Fed chairman has failed to do anything about it. Even today he continues to equivocate. Looking back, Obama should have canned Bernanke when he had the chance.
The key evidence is that Bernanke is hardly the only member of the Federal Reserve's Open Market Committee who Obama has appointed, and none of his appointees are calling for monetary expansion. Instead the strongest voices at the Fed for expansionary policy are regional bank presidents—Charles Evans of Chicago has been the champion, followed by Eric Rosengren of Boston and John Williams of San Francisco.
Sunday, August 19, 2012
MATTHEW YGLESIAS (2010): WHY WE SHOULD FEAR THAT PAUL RYAN TALKS TO JOHN COCHRANE…
Matthew Yglesias (2010):
Paul Ryan's Monetary Economics: Paul Ryan says that “monetary policy was always my first love” but he doesn’t seem to know very much about it: “There is nothing more insidious that a government can do to its people than to debase its currency,” Ryan said. Just as harmful, Ryan warns, is that the proliferation of newly printed dollars inevitably unleashes inflation and throws the economy out of kilter in other ways. “Inflation is a killer of wealth. It wipes out the middle class. It eviscerates the standard of living for people who have retired or are living on fixed incomes,” he said. “Name me a nation in history that has prospered by devaluing its currency.” [...]
So to sum up, right now inflation is running lower than it was in the 1990s and 2000s. What’s more, in the 1990s and 2000s it was running lower than it was in the 1980s. And what the Fed is trying to do is to bring inflation back not to the levels of the Ronald Reagan Era, but to the rate we enjoyed in the 1990s and 2000s. Maybe Ryan’s a madman rather than a hypocrite…
Joe Smith said... "Ryan was sharing $350.00 bottles of wine with Cochrane and a hedge fund manager."