Stuff to be Concerned About.
I am generally an optimistic person but I have more concerns about the state of the economy and especially our ability to make it grow than I have had at any time in the 22 years that I have been in the mortgage business.
What am I concerned about?
1) We still have not recovered from the Great Recession. Neither Keynesian deficit spending nor extremely expansive monetary policy have solved the problem. This was a nasty recession and it is taking longer that usual to recover but there are underlying structural problems. The problems are not merely cyclic.
2) The expanded money supply sits parked at the Fed. Banks still have concerns about lending and business are sitting on so much cash. Business is not deploying their cash because they do not feel that the reward is commensurate with the risk. It makes little sense to build new plants or stores if they don't believe that doing so will increase their net. For July the Industrial Capacity Utilization Rate fell to 77.6%. Why invest when they is so much excess capacity?
3) The Jobs market is still weak. One week's great Initial Jobless Claims does not constitute a recover in jobs. More that half of the new jobs in the latest jobs report were either in retail or beverage and food. Most of the jobs created in the past year are part-time, The spike in part-time jobs is a common after-recession effect but this is lasting longer. After-tax incomes are lower than they were in November 2012.
4) Inability to create jobs means inability to create homebuyers. We may be seeing the housing market soften. The recovery in sales and prices has been driven to a large extent by investors and those bargain prices and extremely low rates are in the rear-view mirror.
5) While the sequester seems to have worked to keep Treasury debt from growing there is very little willingness in Washington to achieve fiscal sustainability. One group which is working on this is run by my friend Jonathan Bydlak. Jonathan is the President of Coalition to Reduce Spending. This is their web site http://www.reducespending.org/. If you believe that we need to reduce government spending please consider asking your representative in Congress to sign this pledge http://reducespending.org/reject-the-debt and return it to Jonathan at firstname.lastname@example.org
6) If you do not favor reducing spending please send me your plan as to how the government is going to pay the Treasury debt of $16.7 and the present value of the underfunding of entitlements which is $77.9 trillion. Make sure that you answer addresses the issue that combined these exceed the total wealth of the entire nation by more than $10 trillion.
7) This is not simply a U.S. problem. The EU has only this week nominally broken out of recession the growth in China and India have decreased.
8) In the U.S. the entitlement issue is not merely about mismanagement of promises but about demographics. It is going to be impossible for a smaller number of workers to support a larger population of Social Security and Medicare recipients.
9) For me, nothing will be rectified until a time when the folks in D.C. realize that their promises cannot possibly be kept. I am not counting on that happening soon.
As you know I have been for years calling for moving the deficit out of the control of politicians Jonathan Bydlak and the Coalition to Reduce Spending are in D.C working on this every day. Consider signing that petition and even donating to the cause of fiscal sanity. Their home page has a "Donate" button.
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