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Spend, Spend, Spend

May 29th, 2013 - 5:38 am

Spending keeps the economy moving, and Americans are doing more of it:

The latest sign emerged Tuesday as the Standard & Poor’s Case-Shiller home price index posted the biggest gains in seven years. Housing prices rose in every one of the 20 cities tracked, continuing a trend that began three months ago. Similar strength has appeared in new and existing home sales and in building permits, as rising home prices are encouraging construction firms to accelerate building and hiring.

The broad-based housing improvements appear to be buoying consumer confidence and spending, countering fears earlier this year that many consumers would pull back in response to government austerity measures.

If Americans are spending more because rising home values are getting them out from under water on the mortgages, that’s fine. But if we’re spending more by going back to using inflated home values as a piggy bank, then we’re right back where we were just before the housing crash. Or if we’re spending more because the Fed’s asset purchases have made us feel richer, floating up on the bubble of an inflated stock market…

…well, that’s a whole ‘nother crash just waiting to happen.

Which is it? No clue.

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All Comments   (3)
All Comments   (3)
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This looks like the effects of inflation to me. Is it inflating housing prices? Sure. Besides, when housing prices fell, they fell too far, because of the lousy economy. They are long overdue to be right-sized. I think this is a correction in a good direction.

My worry is whether or not they have straightened out the ownership of these houses, vis-a-vis the CDO's and CDS's. I expect they are gradually doing so. Banks seem far more willing to foreclose and resell these days, at least in my area. This may also be having an effect.

Of course, it all comes crashing down again, once people see last month's bad economic news for what it is. A big contraction in manufacturing here, the Europeans' problems, and China's problems all bode very ill. I see it all as very fragile. We shall see.

I just remember how the Great Depression went. Every time there was the start of a recovery, FDR stepped in and screwed it up. This is a weak recovery, and thus, very fragile.
1 year ago
1 year ago Link To Comment
As one of the greatest pols of all times, one of Nancy's boys, said: We don't have a spending problem, we have a pay-for problem.

To normal people, he meant we can't pay.
1 year ago
1 year ago Link To Comment
Isn't the more interesting question whether the Fed governors have a clue?

Many have postulated that one goal of QE has been to reinflate the (residential) housing market, precisely for wealth-effect created consumption. Given the data you cite, will the Fed declare victory and withdraw? When? Won't the markets act in anticipation of that and won't the Fed anticipate the market's anticipation?

Again, do the Fed governors have a clue?
1 year ago
1 year ago Link To Comment
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