As long as you ignore the short shrift he provides in his analysis of the current state of the U.S. housing market, Paul Krugman has an above average (for him) op-ed in Friday’s edition of the NY Times, headlined, “The Stimulus Tragedy.”
The Stimulus TragedyHe then discusses the positive aspects of the administration’s stimulus program, and segues into the fiasco which, for purposes of discussion, I label as the austerity movement that swept Europe, first. (More about this in a minute.)
New York Times (Op-Ed)
Friday, February 21st, 2014
Five years have passed since President Obama signed the American Recovery and Reinvestment Act — the “stimulus” — into law. With the passage of time, it has become clear that the act did a vast amount of good. It helped end the economy’s plunge; it created or saved millions of jobs; it left behind an important legacy of public and private investment.
It was also a political disaster. And the consequences of that political disaster — the perception that stimulus failed — have haunted economic policy ever since…
Krugman then glosses over the (first) U.S. housing bubble and the current state of that market, spinning it with barely a mention in a three-sentence paragraph…
…There’s no mystery about why: America was coping with the legacy of a giant housing bubble. Even now, housing has only partly recovered, while consumers are still held back by the huge debts they ran up during the bubble years. And the stimulus was both too small and too short-lived to overcome that dire legacy….Stop.
No, Professor. In many local markets around the country we’re already well into yet another housing bubble. And, in large part, this one was created by our government throwing U.S. homeowners (equity in one’s home is/was the primary asset of the U.S. middle class; the primary asset of the investor class [the top 10%] is securities) under the bus, in favor of yet more giveaways to the investor class.
Adding more insults to even greater middle class economic injuries, the folks on Capitol Hill, with the blessing of then-Treasury Secretary Tim Geithner, raided the $50 billion bailout set-aside for mortgage mitigation for Main Street, to the point where—as of today per ProPublica—just a pathetic $6.05 billion of those funds have been spent.
I’ve published other posts on this subject over the past few months (this is from October 31st, 2013)…
…As I noted in a post here on September 18th, after our economy crashed in 2008, our government set aside $50 billion to aid distressed homeowners via the originally-established homeowner/mortgage bailout programs that were implemented that year and in 2009.Just over five years after our economy crashed and burned, we now have a brand-spanking new housing bubble, as I’ve recently pointed out that Wolf Richter’s just reminded us. Thursday, he highlighted another angle to this story--something else which, frankly, should upset the hell out of any self-respecting, non-corporatist Democrat--and it’s this…
That amount was then quietly scaled back in Congress to $29.93 billion.
As of today, since 2008, our government has spent a paltry $6.05 billion to aid homeowners with mortgage modifications. Here's a link to more from ProPublica supporting these shameful statistics…
Housing Bubble II: What’s Ruining Home Sales? Not The Weather!The problem with the National Association of Home Builders’ (HAHB) spin is that, as San Francisco-based Richter points out, “…housing starts also plummeted 17% in the West, including on the populous West Coast where the weather has been gorgeous.”
Thursday, February 20th, 2014 1:26AM PST
Broadside after broadside. Applications for mortgages to buy a home, not to refinance one, dropped 6% for the week, to the lowest level since September 2011, 17% below the same week last year, the Mortgage Bankers Association reported on Wednesday. Not a one-week debacle: they’ve declined sharply year-over-year since fall. Blame the weather?
Then the Census Bureau reported that in January single-family housing starts, an indicator for housing construction, plunged 15.9% and multifamily production 16.3% from December. Overall they were 2% below prior year – “due largely to unusually severe weather,” explained soothingly the National Association of Home Builders (NAHB)…
On top of this, the NAHB’s confidence index “…‘outright cratered’… In January, it was a lofty 56 (above 50 shows positive sentiment). In February, it dropped 10 points – its largest monthly dive ever – to 46. The NAHB blames the “unusually severe weather conditions across much of the nation” that led to a drop-off in buyer traffic.”
... the largest drop occurred in the sub-index for the West, including the West Coast where most of the West’s construction takes place, a region that was cursed with more sunny weather instead of much needed rain: home builder confidence plunged 14 points!Sales to “…first-time home buyers – the crux of the housing market – dropped to just 27% of all purchases in December, from 28% in November, from 30% in December 2012, and from the 30-year average of 40%."
...First-time buyers have been pushed out not by bad weather but by higher home prices, higher mortgage rates, and a flood of cash buyers – 62.5% of all buyers in Florida – many of whom are investors...Richter then proceeds to rip through a lengthy array of sales/price statistics to underscore the greater reality: “…homes once again [are] beyond the reach of many hardworking Americans."
And, who’s creating this new bubble? Well, it’s the investor class, of course!
We’ve now arrived at a point where, “In 29 of the largest counties where 20% of the population of the 325 counties in the study live, the monthly cost of owning a home now exceeds the costs of renting an equivalent home. Despite gravity-defying rents!"
Richter mentioned this trend, again on Thursday, as I had also noted in his crosspost published here on February 4th.
…first-time buyers, in addition to the price having moved beyond their reach, are struggling with a particularly tough handicap: ballooning student loans. Total student loan balances have quadrupled since 2003. An immense burden on the fragile shoulders of young people. They’re already having trouble servicing their student loan debt, with delinquency rates spiraling elegantly out of control.Again, for emphasis: The CEO of the Mortgage Bankers Association has just stated that student debt is undermining the lower and middle sectors of the housing market.
“This is a huge issue for us,” admitted Mortgage Bankers Association CEO David H. Stevens. “Student debt trumps all other consumer debt. It’s going to have an extraordinary dampening effect on young peoples’ ability to borrow for a home, and that’s going to impact the housing market and the economy at large.”
(From Wednesday, here at DKos: Wolf Richter: “The Young Subprime Debt-Slave Generation.”)
So, aside from overlooking this “little” problem with student loans, as well as how that’s also having an extremely adverse effect upon the housing market—the veritable financial backbone of the middle class—and the economic recovery on Main Street, in general, Krugman’s fairly spot-on in Friday’s NY Times. Especially, when he closes out his column, as follows…
…There’s a long-running debate over whether the Obama administration could have gotten more [financial stimulus from Capitol Hill]. The administration compounded the damage with excessively optimistic forecasts, based on the false premise that the economy would quickly bounce back once confidence in the financial system was restored…Krugman, at least in part, is referring to the administration’s spin regarding our “Recovery Summer” from 2010. (You know, when we were all being told, time and time again, that ongoing, unacceptably high levels of unemployment were “just a lagging indicator in an economic recovery.”)
His final sentences today…
…But that’s all water under the bridge. The important point is that U.S. fiscal policy went completely in the wrong direction after 2010. With the stimulus perceived as a failure, job creation almost disappeared from inside-the-Beltway discourse, replaced with obsessive concern over budget deficits. Government spending, which had been temporarily boosted both by the Recovery Act and by safety-net programs like food stamps and unemployment benefits, began falling, with public investment hit worst. And this anti-stimulus has destroyed millions of jobs.(bold type is diarist’s emphasis)
In other words, the overall narrative of the stimulus is tragic. A policy initiative that was good but not good enough ended up being seen as a failure, and set the stage for an immensely destructive wrong turn.
No, Professor Krugman. Just ask any recent college graduate or young person attempting to enter the job market and/or settle down and raise a family if this is “…water under the bridge.” For far too many young adults there is no “bridge.” They’re losing sleep at night because they’re drowning in debt and living in a world where the American Dream has morphed into the American Nightmare.
It did NOT have to be this way.
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If you'd like more in-depth info regarding what's happening with the latest U.S. housing bubble, be sure to checkout Kossack gjohnsit's excellent post, linked here: "What's wrong with housing today: A visual guide."
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