Is Housing Bottoming Out?

On the surface, it looks like it:


My main caveat here is that the United States is — for many reasons including geopolitics, demographics energy, monetary policy, etc — in a completely new historical period, so it is plausible that we are moving toward a new normal.

The persons-per-household numbers have remained low, even in spite of the house price slump, suggesting there is no latent surge in demand waiting to burst forth and pick up prices:


Most worryingly, prices have kept falling even in spite of the fact that there is very little building:


So while prices are falling to historic lows it is difficult to say where demand will come from. Certainly —and wrongheadedly, because America is relatively underpopulated — America does not appear willing to liberalise immigration laws. In nominal terms, house prices somewhat stabilised due to the post-2008 money printing operations. But in terms of purchasing power (i.e. in ounces of gold, barrels of oil, calories of food) there does not seem to be much reason to believe house prices will be rising any time soon.


Bubbling Up

We’re getting dangerously close to a head and shoulders pattern in both manufacturing output, and the S&P500:

What does this graph tell us? Well in the last ten years we have seen little net gain in either. Each of the two slowdowns has been preceded by a blowout top in the S&P. This is symptomatic of excessive credit creation in the financial sector. The resultant credit crunches coming out of these bubbles would seem to have dampened industrial production. Is that a result of the credit bubble damaging the economy? No; the aftermath of a bubble (so long as it is not accompanied by war, and riots, and famine — in other words, the explicit destruction of capital stock) does not necessarily damage anything other than lending and confidence.

Was it a case then that industrial production — which climbed significantly in the preceding decade — got ahead of itself, and that we were simply producing more than we could consume? It would seem so, and that would certainly explain why the exuberant first attempt to reinflate the bubble failed, and we were drawn into a slump. This brings my thoughts back to this:

Who needs 5 TVs? Well, nobody, and that is the level of consumptive, home-equity-fuelled demand that we were (and are) trying to sustain (and expand upon). For the record, I have 2 TVs, which in itself is probably excessive, especially considering that I rarely watch them.

Then again, there are millions of people in America who need healthcare who aren’t getting it, mostly because (for whatever reason) they can’t afford it. There are homeless kids whose parents have taken to eating rats. Surely that kind of demand would be more sustainable than another speculative stock bubble, another boom in consumption fuelled by home equity, and more TVs, McMansions, iThingies and vacations for urbanites and exurbanites?

I suppose it is that logic that leads well-meaning liberal politicians down the avenues of reflation: economic stimulus, as well as condoning the Fed’s money printing escapades. The problem is that the money always seems to end up in more speculative equity bubbles. I have shown empirically that the more money America has printed (both in terms of expanding the monetary base as well as in terms of fractional credit creation), the more unequal America has become.

This graph highlights the real outcome of all the Obama-Bush-Bernanke economic interventionism:

Corporate profits bounced back right away, while unemployment and underemployment are just as high as when the contraction “finished”. I have made a habit while writing this blog of badmouthing John Maynard Keynes, but at least under a genuinely Keynesian scheme the unemployed people are given jobs (albeit on borrowed money, and albeit not necessarily productive ones) and the unemployment rate falls. All we get today is platitudes about the unemployment rate being sticky; more hopium, more promises that if we just wait long enough and hope hard enough things will get better.

So all that the Obama-Bush-Bernanke interventionism has really produced is more slush for the corporatocracy. It’s just corporate socialism hidden behind a facade of pithy egalitarianism. There is no recovery, only superficial reflation bubbling over a stew of hurt.

And — like most head and shoulders patterns — this third top is even more unsustainable than the last two.

Want proof?

Credit creation has continued to expand above and beyond the productive capacity of the economy. That is a bubble, if ever I saw one.

So what next? Well — like most head and shoulder patterns — the final “shoulder” tends to be followed by a crash. Now, I recognise we are not dealing with an equity, so the crash may not be in terms of price level. It may be geopolitical, or inflationary, or ecological, or some black swan. It may be this year (moderately unlikely, but plausible) or sometime down the line. Who knows?

Hold onto your seats.

Is it Racist to Attack Obama?

Ta-Nehisi Coates insinuates that there is racism in the claim that Obama is a Food Stamp President:

When a professor of history calls Barack Obama a “Food Stamp President,” it isn’t a mistake to be remedied through clarification; it is a statement of aggression. And when a crowd of his admirers cheer him on, they are neither deluded, nor in need of forgiveness, nor absolution, nor acting against their interest. Racism is their interest.

First, I don’t doubt that cynical Machiavellians like Gingrich will pander to racism to advance their agenda. But the problem is, the claim is true. There is no great distortion here.

The compelling factor is raw empirical data:

For good measure, here’s black unemployment (in red) — contrasted with total unemployment (in blue) — under Obama:

Not only have lots of people ended up on the bread line under Obama, but a disproportionately high number of these have been black.

Now, we can blame Bush, and Bernanke, and Greenspan, and Geithner, and bad luck too. Who or what is most to blame is a matter open for debate. But the raw claim that he is a Food Stamp President is empirically accurate.

Now that’s not to say that I like, or generally agree with the originator of the claim, Newt Gingrich. I have written before that I believe Newt Gingrich is an appalling Presidential choice, for a variety of reasons.

But disdain for Gingrich, or Romney, or Paul, or Santorum, is not a good reason to blindly support Obama, or to deodorise his record. A while back I wrote adamantly that Obama was engaged in class warfare, but not the class warfare Romney accuses him of. I accuse him of class warfare against the poor through military overspending that takes resources away from the poor, and destroys them in the theatres of war.

Here’s a full breakdown of Federal spending in Obama’s first year in office:

Current Military
$965 billion:
• Military Personnel $129 billion
• Operation & Maint. $241 billion
• Procurement $143 billion
• Research & Dev. $79 billion
• Construction $15 billion
• Family Housing $3 billion
• DoD misc. $4 billion
• Retired Pay $70 billion
• DoE nuclear weapons $17 billion
• NASA (50%) $9 billion
• International Security $9 billion
• Homeland Security (military) $35 billion
• State Dept. (partial) $6 billion
• other military (non-DoD) $5 billion
• “Global War on Terror” $200 billion

Past Military
$484 billion:
• Veterans’ Benefits $94 billion
• Interest on national debt (80%) created by military spending, $390 billion

Human Resources
$789 billion:
• Health/Human Services
• Soc. Sec. Administration
• Education Dept.
• Food/Nutrition programs
• Housing & Urban Dev.
• Labor Dept.
• other human resources.

General Government
$304 billion:
• Interest on debt (20%)
• Treasury
• Government personnel
• Justice Dept.
• State Dept.
• Homeland Security (15%)
• International Affairs
• NASA (50%)
• Judicial
• Legislative
• other general govt.

Physical Resources
$117 billion:
• Agriculture
• Interior
• Transportation
• Homeland Security (15%)
• Commerce
• Energy (non-military)
• Environmental Protection
• Nat. Science Fdtn.
• Army Corps Engineers
• Fed. Comm. Commission
• Other physical resources

The reality here is that a majority of nondiscretionary federal spending is going toward permanent warfare, “global security“, the military industrial complex, guns, bombs and death. Beyond that, money spent is often frittered away on crony capitalism, bridges to nowhere, and Washington’s largesse. That is an epic transfer of wealth from ordinary Americans. But not only that, it is significantly weakening America — every gun built, every bomb dropped, every phoney war created is money, time, effort and skills wasted that could instead have been spent on creating infrastructure, starting enterprises, investing in new equipment, building schools, developing technology, opening factories, or hiring workers.

Then there is the drug war  that Obama has continued, which has today led to more black men being incarcerated than there were slaves in 1850.

Obama supporters would do well to look at the facts, instead of churning out allegations of “racism” as the fire burning beneath opposition to his Presidency.