It is simply stunning that 44 states are facing shortfalls either for this fiscal year, or will come up short in 2010 or 2011. This puts virtually the entire country in a difficult financial situation. It is hard to understand how the media feels that the federal government is somehow better able to get money from people than states. The federal government’s largest income source is the federal income tax; yet this is income from employees in those same states were fiscal problems are running deep. The government is also going to have a challenging time taxing someone with no job right?
Homeownership: Is a High Homeownership Rate Good Policy? No. Examining 3 Cycles of Homeownership Data over 100 years and Implications for the Economy.
The current housing crisis has left us with an opportunity to examine the driving issue behind a high homeownership rate. Is it really worth it to push for an economic policy that champions a high homeownership rate? The problem with blanket statements is they usually play into herd mentality and feed into group think. One of the statements we have lived with for the past decade is “everyone should own their own home.” Such statements mask a three decade long housing bubble and also don’t research the basis for economic sustainability.
Fiscal Stimulus: Does Government Investment help the Economy. Examining the Impact of Monetary and Fiscal Stimulus.
The economic difficulties facing our country have for the first time, made the Federal Reserve and U.S. Treasury seem powerless in regards to starting the economic engine once again. For nearly 100 years, the school of thought was that monetary policy was the driving force for everything. If inflation was picking up, all you needed to do was raise rates and it would slow the economy down. If the economy started slowing down dramatically like we are currently facing, all you needed to do was lower rates to add liquidity into the system.
Employment Situation: 2.5 million jobs lost in 2008. 524,000 Jobs Lost in December, Unemployment Surges to 7.2%. Broader Measure of unemployment at 13.5%.
The unemployment situation continues to weaken. The BLS reported 524,000 lost jobs in December and also revised the November numbers up to 584,000. As we have been saying for some time, this now makes 2008 the year of worst job losses since World War II.
Today the ADP National Employment Report stated that private sector jobs fell by a much larger than expected 693,000 in December. This report stunned on the downside and is a prelude to the Bureau of Labor and Statistics report which comes out on Friday. The market also suffered its worst one day since early December. We’ve been on a relatively stable rally from the November 15 bottom yet 2009 will once again show us that there is much more market volatility floating in the economy. Much of the volatility will come from the stimulus plan and also, the liquidity floating in the system.
Monetary Policy: Monetary Policy Slamming on Breaks. What do you do when banks don’t want to lend? Become the consumer. Government getting ready to spend to stimulate the economy.
Monetary policy is a delicate game of cat and mouse. You raise rates, you lower rates, or you jawbone a little and normally, the markets respond to the Fed like a conditioned hamster looking for a piece of food. Yet the Fed has lost this power. What happens when the public gets a look behind the curtain and realizes there never was any sort of wizard? What happens is extreme market volatility unlike anything we have seen in nearly a century. Now maybe at this point with consumers closing up their wallets, not buying cars, putting away the American Express credit card, and finally deciding to exercise restraint, flooding the system with credit may be counterproductive.
10 FDIC Charts and Graphs Highlighting Bank Problems: FDIC Analysis Examining 2009 Future of over 8,000 Banks Insured by the FDIC.
With all the problems occurring in the banking system, it is rather astonishing that so few have failed in 2008. At least that is the perception being put out there for us to digest. Yet the failure of one IndyMac or Washington Mutual is the equivalent of 100 smaller bank failures all at once.