HOW I LEARNED TO TRAVEL

Posted on September 13, 2024 by Popular Economics Weekly

A Memoir

By Sherry Keith

How I Learned to Travel, available on Amazon, is more than a travelogue, it’s an adventure story of a life of travel lived to the fullest, with an insatiable curiosity about new peoples and places. And Sherry Keith knows how to tell a story of nail-biting adventures in her travels on all continents in more than 60 countries in her work as a consultant for the World Bank and Professor of Social Science, some with her husband, a Professor of Economics, while raising two children.

She seems to have no fear in working in some of the poorest parts of the Amazon, or jungles of Nicaragua, whether as a consultant or in search of another adventure. I highly recommend it for anyone that loves to travel!

Harlan Russell Green

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Inflation Still in Decline

Posted on September 12, 2024 by Popular Economics Weekly

Popular Economics Weekly

The Consumer Price Index for All Urban Consumers (CPI-U) increased 0.2 percent on a seasonally adjusted basis, the same increase as in July, the U.S. Bureau of Labor Statistics. Over the last 12 months, the all items index increased 2.5 percent before seasonal adjustment,” said the Bureau of Labor Statistics (BLS).

Both the retail Consumer Price Index (CPI) and wholesale Producer Price Index (PPI) iinflation indicators continued to decline in August, which ensures the Fed will keep its promise and begin to cut short-term interest rates next week at its FOMC meeting.

Wholesale PPI prices have declined faster, now down to a 1.8 percent annual rise for raw materials. Retail CPI prices are holding at 2.5 percent annually, mainly because rental rates are still high due to the housing shortage. Gas and home grocery prices continued to decline.

FREDcpi/ppi

The FRED graph compares both indexes, with CPI the dark brown line. The graph shows wholesale PPI inflation (light blue line has been at or below the Fed’s 2 percent target rate several times. Whereas retail CPI prices have been more stubborn, holding at 2.5 percent annually, but plunging sharply from 3.5 percent just this March.

The PPI index actually dropped to zero inflation in June 2023 then rose again. It’s evidence that supply chains have recovered despite the monthly variations, whereas retail inflation is held up by other elements of the supply chain—such as distributors and retail stores adding in their costs and profit margins.

The CPI index for shelter rose 0.5 percent in August and was the main factor in the all items increase. The food index increased 0.1 percent in August, after rising 0.2 percent in July. The index for food away from home rose 0.3 percent over the month, while the index for food at home was unchanged. The energy index fell 0.8 percent over the month, after being unchanged the preceding month.

It’s further evidence of a very soft landing. The all-items CPI was the smallest 12-month increase since February 2021.

So what is next? How will lower interest rates affect the markets going forward?

The Atlanta Fed estimate of Q3 growth was raised to 2.5 percent on September 9, up from 2.1 percent on September 4, mainly from private domestic investment, as higher government spending in infrastructure has kicked in.  

So higher economic growth will mainly be due to even more industrial activity as the cost of borrowing continues to decline. But housing construction is sure to be boosted as well, since construction financing will now be cheaper.

That’s probably why the National Association of Homebuilders (NAHB) reported a surprising rise in new-home sales in July.

Sales rose 10.6% to a 739,000 seasonally adjusted annual rate from “significant upward revisions” in June, according to newly released data from the U.S. Department of Housing and Urban Development and the U.S. Census Bureau. The pace of new home sales is up 5.6% from a year earlier.

And this is before any Fed rate cuts. But mortgage rates have already declined substantially with the 30-year conventional Fannie/Freddie fixed rate now as low as 5.75% for one origination point with the best credit record.

“The Census estimate of new home sales is often volatile and subject to revisions and it is possible that the July estimate for sales will be revised lower next month, said chief economist Robert Dietz. “NAHB is forecasting gradual improvements for the home building sector as the Fed eases monetary policy and mortgage interest rates trend lower.”

Another factor in the uptick of home sales is that credit conditions may be loosening for borrowers, reports the Mortgage Bankers Association (MBA).

“Credit availability increased in August, with the conventional credit index reaching its highest level since July 2022. This was driven by increased cash-out refinance and non-QM programs,” said Joel Kan, MBA’s Vice President and Deputy Chief Economist.

Everything is now pointing to a better year ahead with lower interest rates, in other words. But a very large fly in the ointment will be what can happen with the upcoming Presidential election.

Harlan Green © 2024

Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen

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No “Art of the Deal”

Posted on September 11, 2024 by Popular Economics Weekly

Answering Kennedy’s Call

“It’s implicit in a lot of what people write, but it’s never explicit–or, at least, I haven’t seen it. And that is that it’s impossible to keep him focused on any topic, other than his own self-aggrandizement, for more than a few minutes…”

Huffington Post

This is the Donald Trump I first wrote about in The Huffington Post when he had just won the 2016 Presidential election and Tony Schwartz, his first ghost-biographer, described the experience.

Trump’s 2024 Presidential campaign debate with Vice President Kamala Harris just confirmed nothing has changed. He couldn’t complete sentences, much less complete thoughts, during the 90-minute debate with her on ABC.

“President-elect Donald Trump is about to move into the White House,” I wrote then. “This is the man who has become a case-study and textbook model of Narcissism for Psychotherapists. Narcissistic personality disorder (NPD) as defined by Wikipedia, ‘is a long-term pattern of abnormal behavior characterized by exaggerated feelings of self-importance, an excessive need for admiration, and a lack of understanding of others’ feelings.”

“Or a Narcissist can also be defined as one who must believe he cannot do wrong, cannot admit he has ever been wrong or apologized for any of his failings. So it would be helpful to understand President-elect Trump’s failings, in order to understand and perhaps influence (as President Obama says he wants to attempt), just how he might behave as ‘our’ next President.

In fact, that is why Trump doubles down on any who would question him, accusing the accuser of the same misdeeds. Maria Konnikova implied that Trump was a classic Con Artist in her now famous New Yorker article:

“A grifter takes advantage of a person’s confidence for his own specific ends—ends that are often unknowable to the victim and unrelated to the business at hand. He willfully deceives a mark into handing over his trust under false pretenses. He has a plan.”

That must be why Trump maintained during the 2016 campaign that he would convene a special prosecutor to prosecute and jail Hillary Clinton for her “crimes”, when in fact Trump himself has been prosecuted for outright criminal behavior, such as the three Trump University lawsuits that he settled.

Or he accused President Obama of not being born in the US for six years, in the face of overwhelming evidence to the contrary. Was Trump being stupid? No, he was currying favor with the birther movement to gain their support; mainly white male, racist Tea Partiers still fighting the Civil War who wanted to cast doubt on Obama’s legitimacy as the first African American President.

“What ultimately sets con artists apart is their intent,” says Konnikova. “To figure out if someone is a con artist, one needs to ask two questions. First, is their deception knowing, malicious, and directed, ultimately, toward their own personal gain? Second, is the con a means to an end unrelated to the substance of the scheme itself?”

Why does he continue to perpetuate so many cons, when he has broken contracts, filed multiple bankruptcies, and been involved in 4,000 lawsuits at last count–on his way to become the celebrity billionaire? The toll on his supporters–even families–must be devastating to maintain that image of success with overwhelming evidence to the contrary.

A major reason is his very short attention span that has gotten worse with age. It was first described by Tony Schwartz, ghost writer of Trump’s “The Art of The Deal“: “Trump has been written about a thousand ways from Sunday, but this fundamental aspect of who he is doesn’t seem to be fully understood,” Schwartz told Jane Mayer, author of a New Yorker article.

“It’s implicit in a lot of what people write, but it’s never explicit–or, at least, I haven’t seen it. And that is that it’s impossible to keep him focused on any topic, other than his own self-aggrandizement, for more than a few minutes, and even then . . . If he had to be briefed on a crisis in the Situation Room, it’s impossible to imagine him paying attention over a long period of time,” said Schwartz

We can now know the reason for his admiration of Vladimir Putin, for instance, who Trump has been wanting to cultivate since his 1980 Miss Universe contest held in Moscow. It was really an attempt to buy a Moscow luxury hotel. He had to turn to Russian oligarchs and Mafia figures to fund many of his real estate ventures that conventional banks wouldn’t touch. How’s that for a classic conflict-of-interest as President?

He was quoted once upon a time in a New York Times interview that he believed “Presidents cannot have a conflict of interest,” even though it is blatantly unconstitutional under the emolument clause that prohibits gifts or favors from foreign governments or individuals.

Is it possible that he even conned the majority of SCOTUS justices into ruling that presidents are immune from prosecution for almost any activity while president?

So it’s good news that he couldn’t con Vice President Harris, a former prosecutor and Attorney General, that he is above the law.

Harlan Green © 2024

Harlan Green on Twitter: https://twitter.com/HarlanGreen

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Who Killed America’s Middle Class?

Posted on September 10, 2024 by Popular Economics Weekly

Financial FAQs

A report from the Pew Research Center found that, for the first time since the 1970s, families defined as “middle income” are in a minority in the US – squeezed from both ends by an enlarged poverty-stricken group below them, and an enriched group above them.

Vice President Harris announced in her Convention acceptance speech that a major part of her presidency will be devoted to bring back the middle class.

“Building up the middle class will be a defining goal of my presidency,” she said. “I strongly believe when the middle class is strong, America is strong.”

It’s becoming clear that our Middle Class–the midsection of U.S. earners and consumers–has shrunk alarmingly. And this is the main reason for the political polarization today that in the words of journalist Christopher Hedges, has driven the Republican Party “insane”

Our society has become so polarized that Donald Trump needed the support of the Ku Klux Klan, white nationalists, and Vladimir Putin to become President. Whereas it has been such middle class values of probity, honesty and science, first satirized in Moliere’s Le Bourgeois gentilhomme, (The Middle Class Gentleman), that has been the stabilizing influence in American politics since WWII.

The main difference between poverty and middle class, and between middle class and the wealthiest, noted one researcher, “is belief in, and planning for, moving up as a working assumption.” A report from the Pew Research Center found that, for the first time since the 1970s, families defined as “middle income” are actually in a minority in the US – squeezed from both ends by an enlarged poverty-stricken group below them, and an enriched group above them.

Graph: Fortune Magazine

This graph shows the shrinkage of those defined as middle class from 1979 to 2014 — from 38.8 percent (gray line) to 32.09 percent (blue line), according to the Pew study. The shrinkage reads like a textbook example of the future that French economist Thomas Piketty predicts for the world in his 2014 best-selling, Capital in the Twenty-First Century. In 1971, there were 80 million households in the US defined as middle income – compared with a combined 52 million in the groups above and below. Now, there are 120 million middle-class families, but 121 million rich and poor – “A demographic shift that could signal a tipping point,” says Pew.

So who or what is at fault for the result; record income inequality last reached in 1929 that led to the Great Depression? We can fault President Reagan, who was first to break the unions with his firing of all federally employed Air Traffic Controllers that belonged to PATCO, the traffic controller’s union.

Or, conservatives’ espousal of the Reagan motto, “government is the problem,” which caused the massive downsizing of government regulation, as well as the ensuing de-regulation of whole industries, such as the airlines, telecommunications, and financial markets.

But the truth was that Democrats were also implicated — in fact, from the Presidency of Bill Clinton. For it was President Clinton who veered so far to the right in his 1966 reelection campaign that he preempted the Republican platform by continuing to deregulate the financial markets with the repeal of the Glass-Steagall Act that separated FDIC depositor-insured banking from higher risk investment banking, financed the addition of 100,000 more police to combat the drug epidemic, and downsized poverty programs with welfare reforms that required welfare recipients to take low-paying menial jobs to receive even a limited amount of financial support.

The Republicans, as Chris Hedges said, were driven politically insane. They no longer had those bread and butter issues (such as law and order, smaller government) that were once their own, which led to formation of the Tea Party, and a new political civil war declared on Big Government ruled by the northern elites. It was our 150 year-old Civil War taking a new form—red states vs. blue states—but with almost the same mix of combatants.

Even more significant is the record income and wealth inequality since 1979 that has resulted; a more partisan and unequal electorate fearing further losses in their status as Americans.

Vice President Harris has said building up the middle class again is one of her priorities. So let us hope a majority of Americans realize this as well in November; that our prosperity and stability rest on a middle class that hasn’t given up hope for a better future.

Harlan Green © 2024

Harlan Green on Twitter: https://twitter.com/HarlanGreen

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Antonin Scalia’s White, Male Legacy

Posted on September 9, 2024 by Popular Economics Weekly

Answering Kennedy’s Call

Supreme Court Justice Antonin Scalia’s passing is a shock to die-hard conservatives for good reason. He was the bastion and spokesperson of the originalist interpretation of the Constitution, which meant any law had to divine the original intentions of the founding white male fathers of our nation.

AK-47

The two students and two teachers at Appalachee High School were killed by a 14-year old student with an AR-15 assault rifle has brought back the debate on the causes of such gun violence than kills more than 30,000 Americans every year.

Wednesday’s mass shooting marked the 45th school shooting of 2024 and the deadliest US school shooting since the March 2023 massacre at The Covenant School in Nashville,” said CNN.

Military-style assault rifles had been banned for 10 years during the Clinton administration, but the Republican-led Bush administration didn’t renew the ban. Why? One man, SCOTUS Justice Antonin Scalia, was almost solely responsible for the Supreme Court ruling that legalized assault rifles for use by common citizens.

I wrote about it in Huffington Post at the time of Scalia’s death in 2016.

“Supreme Court Justice Antonin Scalia’s passing is a shock to die-hard conservatives for good reason. He was the bastion and spokesperson of the originalist interpretation of the Constitution, which meant any law had to divine the original intentions of the slave-owning, landowning, founding white male fathers of our nation, which excluded women and non-landowning males (and slaves, of course) from representation.”

So that meant turning the clock back at least one century to a time when the white male patriarchy still ruled, which was a much less democratic time. Scalia’s most noted opinion was to expand Second Amendment gun owners’ rights, which ‘protected’ every citizen’s right to own a gun almost without restriction, because he convinced the majority of SCOTUS that the Second Amendment right to bear arms also protected an individual’s right of self-defense.

The result has been record gun sales and gun deaths (30,000+ per year), as well as mass shootings, and no limit to the purchase of military-style assault rifles with unlimited magazines. Another little-noted result was the higher incidence of gun violence in households with guns, according to the Law Center to Prevent Gun Violence.

In fact, “Research published in the New England Journal of Medicine found that living in a home where guns are kept increased an individual’s risk of death by homicide by between 40 and 170 percent,” said the Law Center. “Another study published in the American Journal of Epidemiology similarly found that “persons with guns in the home were at greater risk of dying from a homicide in the home than those without guns in the home.”

This study determined that the presence of guns in the home increased an individual’s risk of death by homicide by 90 percent.

Whereas other developed countries without that Second Amendment ‘right’, such as Australia, do not allow the purchase of a gun for self-defense to be a sufficient reason for owning such a weapon. And Australia has not had a single incidence of mass shootings since 1996 and the passing of its gun control legislation.

Does it make sense for anyone to own a military-style assault rifle for self-defense when it was manufactured for wartime? The definition of the word, assault, means just that. It was made to assault an enemy during wartime. What purpose could it have in a home, even as a semi-automatic—where children live?

Harlan Green © 2024

Harlan Green on Twitter: https://twitter.com/HarlanGreen

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Economy Has Landed–Part II

Posted on September 6, 2024 by Popular Economics Weekly

Popular Economics Weekly

Fed Chairman Powell finally admitted the U.S. economy has made a soft landing at this year’s Jackson Hole Federal Reserve Conference. “The labor market is no longer overheated, and conditions are now less tight than those that prevailed before the pandemic,” he said in his speech. 

FREDunemployment

It’s a very soft landing. The unemployment rate dropped back to 4.2 percent from 4.3 percent in July and just 142,000 nonfarm payroll jobs were created in August. U.S. job gains in July were also lowered to 89,000 from 114,000, and in June revised down to 118,000 from 179,000.

The Fed is now playing catchup in the opposite direction. They waited too long to begin to restrict credit when the inflation rate first shot up in 2020 and perhaps waited too long to cut interest rates, since the downward momentum of lower job creation has begun.

This doesn’t mean a looming recession, however. It’s possible that third quarter economic growth will remain positive. Most estimates for Q3 growth are in the 2 percent range, down from the 3 percent Q2 GDP growth rate.

The Atlanta Fed estimate of Q3 growth said, “The GDPNow model estimate for real GDP growth (seasonally adjusted annual rate) in the third quarter of 2024 is 2.1 percent on September 4, up from 2.0 percent on September 3,” because consumer spending has slowed but there was an increase in domestic investment.

The New York Fed’s ‘Nowcast’ growth estimate for Q3 is 2.6%.

The Fed’s tools to ‘brake’ inflation have always been crude since they must look in the rearview mirror for data to buttress their policies. They must convince the financial markets as well as the public that their moves are credible with data that measures past months to spot trends—mainly consumer spending and employment.

Better news is that the so-called yield curve (the relation of 2-year bond yields to 10-year bond yields) is no longer inverted. The 2-year bond yield has plunged to 3.67% and 10-year bond yield is 3.87% at this writing.

It has been a credible recession indicator when yields are inverted because banks can’t lend at a lower rate than their cost of money.

The yield curve is steepening again, in other words, because conditions are looking better for investors so that longer-term yields are higher than short-term bond yields, which is where they should be in more normal times.

Consumers must now adjust as well—and save a bit more for any future uncertainties. But they are still solvent and fully employed. And the fact that the Fed is now poised to loosen the credit tourniquet that has stifled growth in many sectors (such as housing and manufacturing) should mean several years of rising prosperity for most Americans.

Harlan Green © 2024

Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen

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Why No Recession?

Posted on September 4, 2024 by Popular Economics Weekly

Financial FAQs

I said last month we know why the US economy is still growing. Consumers keep spending, and the unemployment rate, though rising, is just 4.2 percent. The second revision of second quarter economic growth confirms this as well, jumping from 2.4 to a 3.0 percent growth rate.

But the downward revision of -818,000 nonfarm payroll jobs by the BLS from March 2023 to March 2024 showed not as many jobs were created as originally estimated, and it has begun to panic the financial markets.

And if consumers don’t keep spending where they spend the most—leisure and healthcare—what will keep US from a recession? It’s government spending via Bidenomics, President Biden’s legislation to modernize the economy. We should ignore the protests from conservatives of too much government spending and too much public debt for the moment. It’s what is keeping us at full employment.

Paul Krugman opined earlier in the year on the particulars of President Biden’s ‘New’ New Deal legislation, which is investing as much in the US economy as Roosevelt’s New Deal.

“The fact, however, is that Biden has put in place a very ambitious agenda — major enhancements of Obamacare, student debt relief, big infrastructure spending, large-scale promotion of semiconductors and green energy that have led to a surge in manufacturing investment.”

FREDmanfacturing

It has led to a very big jump in Manufacturing investment, for starters, that is creating more high-paying jobs—800,000 manufacturing jobs to date. Although overall manufacturing activity has been shrinking per the latest surveys—even with investments in the construction of new Manufacturing facilities having soared from $78 billion in 2020 to $237 billion this July—it should means better days ahead for the manufacturing sector.

This is important because July’s BLS Job Openings and Labor Turnover Survey (JOLTS) report shows a weakening labor market. The number of job openings dropped to 7.7 million from its high of 11 million openings in 2022 as the economy rushed to recover from the COVID-19 pandemic. (That’s still a lot of jobs looking for workers.)

The number of job openings decreased in health care and social assistance (-187,000); state and local government, excluding education (-101,000); and transportation, warehousing, and utilities (-88,000). Job openings increased in professional and business services (+178,000) and in federal government (+28,000).

BLS.gov

This is further evidence that growth will continue and perhaps keep consumers shopping for bargains, which is why inflation and rising prices should no longer be a problem, even as the Fed begins to cut interest rates this month.

Consumer confidence is rising again as well, which should help sustain the rally, as consumers seem to be worrying less about their job, per the Conference Board survey, even though personal savings have declined to dangerous lows.

“The Conference Board Consumer Confidence Index® rose in August to 103.3 (1985=100), from an upwardly revised 101.9 in July. The Present Situation Index—based on consumers’ assessment of current business and labor market conditions—improved to 134.4 from 133.1 in July.”

So we still depend on consumers to carry most of the load to sustain the strong growth, but government has to give a hand to keep them “in the game,” as I’ve been saying.

We will know more come Friday’s unemployment report.

Harlan Green © 2024

Harlan Green on Twitter: https://twitter.com/HarlanGreen

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Consumers Barely Solvent

Posted on August 30, 2024 by Popular Economics Weekly

Financial FAQs

I said last month we know why the US economy is still growing. Consumers have kept spending. The second revision of second quarter economic growth confirmed this when Gross Domestic Product growth jumped from 2.4 to 3.0 percent!

BEA.gov

“Real gross domestic product (GDP) increased at an annual rate of 3.0 percent in the second quarter of 2024, according to the “second” estimate. In the first quarter, real GDP increased 1.4 percent.”

This is huge, but the question remains just how much longer consumers can ‘stay in the game’ before their chips run out, to parrot a well-known remark Roosevelt’s Fed Chairman Marriner Eccles made in testimony during the Great Depression.

Consumer spending was revised up to a 2.9% rate from the initial estimate of a 2.3% gain in the report. Whereas spending was up 1.5% in the first three months of the year, and such activity accounts for two-thirds of US economic activity these days. So, it’s extremely important to track how long they can continue to spend, as well as save.

Consumer confidence is rising again, which should help sustain the rally, as consumers seem to be worrying less about their job, per the Conference Board, even though personal savings have declined to dangerous lows.

“The Conference Board Consumer Confidence Index® rose in August to 103.3 (1985=100), from an upwardly revised 101.9 in July. The Present Situation Index—based on consumers’ assessment of current business and labor market conditions—improved to 134.4 from 133.1 in July.”

That’s a small improvement, but far below the 120 to 130 pt. index range prior to the pandemic. It says consumers are still shaking off the effects of the pandemic, for starters.

One reason for their uncertainty is household incomes have fluctuated wildly for decades due to the various recessions. Household income growth plunged to -0.1% at the beginning of the COVID-19 pandemic and was only back up to its +5% pre-pandemic highs in 2022, the last year it was calculated.

Household incomes have barely kept up with inflation, in other words, never able to get ahead of the longer term 2% average inflation rate that has prevailed since the Great Recession.

This in fact highlights the dangers consumers face going forward. They continue to borrow heavily, even with historic high interest rates, to ‘stay in the game’ to maintain their current lifestyles.

BEA.gov

Their personal savings rate has just plunged from 3.4 percent to 2.9 percent, according to the BEA. It was lower only once since 1960—to 1.4 percent in July 2005 during the housing bubble and runup to the Great Recession.

Is there any reason to believe things will improve for the majority, when the Fed does cut interest rates? There have been recommendations, such as the child tax credit that both parties want to reinstitute; also lowering taxes on middle incomes and raising it for corporations and the wealthiest; as well as taxing the earnings of hedge fund managers managing $trillions in public monies.

Let us see if more of the economic pie will be distributed to those that have no savings left. Otherwise, we already know what happens when consumers can no longer stay in the game and their chips run out.

Harlan Green © 2024

Harlan Green on Twitter: https://twitter.com/HarlanGreen

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When Will Housing Recover–Part II

Posted on August 27, 2024 by Popular Economics Weekly

The Mortgage Corner

Federal Reserve Chair Powell has said the Fed is about to cut interest rates, so I’ve been wondering if the housing industry can come out of its self-made recession?

One good sign is that existing-home sales ticked up for the first time in July, after falling steadily since the recent annual rate high of 4.4 million in February 2024.

The NAR said, “Total existing-home sales[1] – completed transactions that include single-family homes, townhomes, condominiums and co-ops – ascended 1.3% from June to a seasonally adjusted annual rate of 3.95 million in July.” (But) Year-over-year, sales fell 2.5% (down from 4.05 million in July 2023), so that’s not much of an improvement.

This could be the beginning of an upward trend in overall sales, but the question now is not so much about mortgage rates, which will help sales and affordability, but an adequate housing supply to get sales back to the 4-5 million sales that prevailed in decades past and kept a much higher supply of for sale housing on the market.

Cutting interest rates is a start but the building industry for various reasons has been reluctant to build enough new homes for decades—ever since the Great Recession of 2008-09 and busted housing bubble.

This is just one of the ways Americans have been paying for the excesses of the Great Recession since then. The housing shortage may be its most pernicious result.

Calculated Risk

Calculated Risk’s graph of existing sales portrays the damage done by the Great Recession (middle gray bar in graph). Sales had reached a 7 million annual rate in 2005 at the height of the housing bubble, then plunged to 4 million units during the Great Recession and slowly rose to more than 5 million units annually until the COVID-19 pandemic.

More than one million excess units were built during the bubble, as Greenspan’s Federal Reserve attempted to goose sales any way they could to stimulate slowing economic growth while the Bush administration was fighting the Iraq and Afghanistan wars on terror.

The housing supply should be improving in anticipation of the Fed’s rate cuts that would bring down the cost of everything that goes into building new homes.

Sales of newly built homes in the U.S. just increased 10.6% in July to an annual rate of 739,000, up from a revised 668,000 in the prior month, the Commerce Department reported Friday. It was the highest sales rate in more than one year.

For-sale inventories have also edged up some 40 percent this year, as existing homeowners now see a chance to either move to a smaller unit, or into a retirement home now that mortgage rates are declining..

We still have a housing shortage of somewhere between 1-3 million residential dwellings, including owner-occupied and rental units, without considering housing for the homeless.

Another culprit of the housing shortage has been lenders that have become more conservative since the housing bubble. A credit score of 680 was acceptable to Fannie and Freddie for their best conventional mortgage rates prior to the Great Recession, whereas it is above 720 today, which means fewer home buyers are eligible for good loans.

It is really the Fed’s job to require banks to ease their credit standards in this case. Its inaction has only made matters worse for homebuyers (and therefore renters) with the housing shortage.

Now that Chairman Powell just announced that rate cuts are in the works—probably to begin at the Fed’s September FOMC meeting—they should use some of the other tools within their powers—such as requiring more affordable loan programs for entry-level homebuyers, as well as easing banks’ credit standards.

“The time has come for policy to adjust. The direction of travel is clear,” Powell said in his speech to the central bank’s summer retreat in Jackson Hole.

Let’s see if Powell means what he says and the Fed really wants to help cure the housing shortage.

Harlan Green © 2024

Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen

Posted in Consumers, COVID-19, Economy, Housing, housing market, Weekly Financial News | Leave a comment

Equality Is Good for Everyone!

Posted on August 26, 2024 by Popular Economics Weekly

Answering Kennedy’s Call

Vice Presidential candidate Kamala Harris made a promise at this year’s Democratic Convention. She would create programs that give every American the opportunity to better themselves.

“I see an America where we hold fast to the fearless belief that built our nation and inspired the world. That here, in this country, anything is possible. That nothing is out of reach. An America where we care for one another, look out for one another and recognize that we have so much more in common than what separates us. That none of us — none of us has to fail for all of us to succeed.”

Equal opportunity hasn’t been available to many Americans, even though it is part of the American Dream—America is the land of opportunity that is taught in schools and heard by immigrants.

Why? Because it is also part of a larger truism that not all Americans have accepted: Equality Is good for everyone. It should be self-evident, a statement of common sense. The more equality of opportunity among us, the more we can better ourselves, become more productive citizens, which in turn increases our national wealth (and lowers budget deficits).

It was certainly the dream of immigrants, such as my mother, a British citizen born in Jamaica.

But there are times, such as today, when many Americans don’t believe it is possible, which is why we are living in another Gilded Age with the worst income inequality of the developed world. It is on a par with developing countries in Africa and has been the major cause of recessions, including the Great Recession.

Many have bought the counter narrative by those that don’t like equality, the privileged few at the top of the income ladder who want us to believe they are the most qualified to create greater wealth for the rest of us.

This Gilded Age was formed from supply-side, trickle-down economic policies, because enough Americans believed it, believed government was the problem and cutting taxes the solution, believed that equality is not good for everyone because we live in a zero-sum world with limited resources. What is given to one must be taken from another.

The conservative position espoused by 1970s Economist Arthur Okun, for instance, was that greater equality meant less market efficiencies to produce and so fewer incentives for greater wealth, since leveling the playing field meant leveling out the opportunity for large profits. 

But that has never been the case. There has always been copious evidence that the opposite is true; that overly large profits have led to diminished household wealth.

One can measure inequality with such as the CIA’s World Factbook that ranks inequality among nations. Those with the greatest equality also have less violence, greater freedoms, greater health, and guaranteed vacations!

Richard Wilkinson’s TEDx lecture and book with Kate Pickett, “The Spirit Level” is one of the best studies of the dire effects of income inequality on the quality of life. The most important factor, and a sign of dire consequences when inequality has approached the level of the Great Depression, are the US violent crime and incarceration rates, which Wilkinson discusses at length. The U.S. is by far the most violent country in the world—worse than any other developed country with the highest incarceration rates.

Efforts to reverse such inequality have begun on the local levels, even if congressional conservatives have blocked raising the miniscule national minimum wage of $7.25 per hour.

I wrote in 2011 that the state of Massachusetts was the first to raise their minimum wage to $10 per hour, California is raising it to $8.25 over 2 years, with New Jersey and other states to follow. It was the beginning of a return to greater equality that has continued.

And there is an increasing awareness of the income disparities, such as the fact that corporate CEOs now earn more than 300 times the income of their employees, and certain hedge fund managers have reported an annual income of $1 billion.

The Center for American Progress launched the Washington Center For Equitable Growth, which aims to deepen the economic critique of inequality. It was set up by Berkeley economist Emmanuel Saez, among others, who is known with his partner Thomas Piketty as the first economists to historically research the history of income distribution over the past 100 years.

The mission statement of the Center explains why it is needed:

“New research suggests that growing inequality in the United States may have broad social and economic effects — by reducing stable demand for goods and services, dampening entrepreneurialism, undermining the inclusiveness and responsiveness of political and economic institutions, limiting access to education, and stunting individual development. Yet our understanding of how these mechanisms interact with the broader economy is limited.”

Kamala Harris said as much in her acceptance speech: “opportunity is not available to everyone. That’s why we will create what I call an opportunity economy, an opportunity economy where everyone has the chance to compete and a chance to succeed.”

A majority of Americans and a majority of Electoral College votes must agree with her for this to happen in November.

Harlan Green © 2024

Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen

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