Sunday, August 21, 2005

Bubbles and Priniting Presses and Unemployment, Oh My!

There is an article over at The Daily Reckoning that summarizes the sorry state we find ourselves in today. I've tried to filter out the author's humorous yet idiosyncratic filler from those parts that are most relevant to the housing bubble:
Kurt Richebächer... says that the bursting of a housing bubble is bad news, from both a theoretical angle and from "Evidence of sharply slowing economic growth" that is "accumulating by the week for Britain and Australia, both belonging to the Anglo-Saxon family of housing bubble economies. Flattened house prices in both countries have drastically curbed home equity withdrawal, essentially with prompt, drastic adverse effects on retail sales." And now everyone is looking at us Americans, because we, too, are one of these selfsame Anglo-Saxon countries that is in the midst (or end) of a gigantic housing bubble that even Alan Greenspan can see (he calls it "froth"), and he is on record as declaring that neither he or any of his friends can ever even SEE a bubble until after it bursts! So this housing bubble must be huge if even Greenspan can see one!

Mike "Mish" Shedlock at the site have taken a look into the future... and say "Massive amounts of announced layoffs in the banking and telecom industries will start kicking in the second half of the year. Eventually, this will spill over and affect housing just as it has in the United Kingdom and Australia. The United Kingdom has just about finished year one of a housing bust, and Australia is well into year two." And China is trying to cool down a housing bubble there, too, which means that they will have a bust.

And the housing bust may be starting here, too. As one piece of evidence, in the newsletter View From Silicon Valley, they write that published reports show that in the local market "y-o-y volume declining faster than y-o-y prices are rising." Oops!

And it is not like we are in for some refreshing little breather from blazing economic growth. Dr. Richebächer calculates that "the U.S. economy's performance was by far its weakest of the whole postwar period. Measured by employment and wage and salary income, it was a disaster. In real terms, average gross weekly earnings are barely higher than in 2000."

And it's not like there is some glorious demand for labor, as Mark Faber can attest. "According to a research paper by the Federal Reserve bank of Boston," he writes, "unemployment is far higher (around 8%) than what the US government's statistics show." And he underscores the type of jobs being created lately by saying, "High paying jobs are being lost while low paying jobs are added."

So... Americans have not had any increase in their aggregate standard of living attributable to income growth. ...Dr. Richebächer [says] "Given minimal employment growth, it turns out that for the American public there never was an economic recovery over the past few years. To increase the family's living standard, higher borrowing was generally required, which was done with abandon."

Paul Craig Roberts, is a former Associate Editor of the Wall Street Journal, former Contributing Editor of National Review, and former Assistant Secretary of the Treasury during the Reagan administration;... he has taken a look at the employment numbers put out by the Bureau of Labor Statistics. Out of 207,000 new jobs that the report said were created, 26,000 of them were government jobs. The rest were in the "domestic service sector" which are food servers, bartenders, health care workers, social services workers, real estate agents, credit intermediation, transportation workers, retail clerks and wholesale trade. He also wryly notes that "There were 7,000 construction jobs, most of which were filled by Mexicans." But Americans exploiting the hell out of people is what we do best, so at least some things never change.

I saw a reprised Financial Intelligence Report on, the one with Sir John Templeton, who founded the Templeton Funds, when he "first warned of these interest rate hikes and the coming housing bust. Templeton, considered to be one of the world's greatest investors, believes real estate prices in some U.S. markets could fall by an astounding 50 percent." Half! And that was a few of years ago!

To show you how intellectually barren the modern "science" of economics is, it is only necessary to read what Glenn D. Rudebusch, who is Senior Vice President and Associate Director of Research at the Federal Reserve Bank of San Francisco, wrote in his essay entitled "Monetary Policy and Asset Price Bubbles". Not once in the entire report does he make mention of the fact that asset bubbles are the result of excessive creation of excess money and credit by the Federal Reserve, which provided the financing for the damn bubble, and without the financing there would be no bubble in the first damned place.... even our brave heroes at the Fed have problems dealing with bubbles, because they want to merely painlessly deflate the bubbles, so as to not cause a drag on the rest of economic activity. Meaning a recession, or depression, or worse.

To this I say... "Hahahahaha!" This is the damned dream of every government in the history of the world! Painlessly expand money and credit, and reap nothing but benefits! Hahahaha! That is why they all tried to do it, and this is why they all failed, too.

[Greenspan:] "As yet, there is no bottom line on the appropriate policy response to asset price bubbles." Well, duh! That's because there ARE no ways to painlessly deflate bubbles, dunce! If there were, every government on the face of the damned planet would be actively creating bubbles with both hands, you freaking moron!

But, since we cannot seem to learn, then we have to pay. Fortunes will be lost and lives will be ruined. That is how bubbles deflate. And it is ugly, and it has profound and lasting consequences.

At we get the depressing news that the Russians, who, not that long ago, were just a bunch of stupid communists, are throwing off that collectivist nightmare, and are now in a position to rightfully get on our case about the unbelievably expensive, pork-laden transportation bill that Congress just passed and Bush signed. As FMNN writes, "A recently published PravdaRU article calls the $286 billion U.S. transportation appropriations bill 'remarkable' and claims the staggering size can only be justified if U.S. leaders are fearful that the country is heading for a Great-Depression-type scenario and have decided to revert to good, old fashioned Keynsian 'pump priming' of the 1930's variety.

"PravdaRU explains it this way, 'When massive unemployment put the USA on the brink of survival during the Great Depression of the 30s, the government started funding the development of the transport infrastructure. Highways, on which the government spent billions and billions of dollars, rescued the entire nation. When Adolf Hitler came to power in 1933, he mobilized thousands of the unemployed to build autobahns, which Germany is proud of still. The road construction gave a very powerful impetus to the revival of the German industry.' "

The article, by guys who were dumb commies not that long ago so their criticism of us stings bitterly, "makes the point that the U.S. economy may be in much worse shape than the American mainstream media has reported, with higher inflation and much higher unemployment than the official figures recognize - 'stagflation' might be an apt description."


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