How Inflation is Preventing a Real Economic Recovery

03/29/11 Baltimore, Maryland – Oh what a wicked twist…

What a nasty turn…

What a bummer!

Now, consumer prices are rising. The feds wanted inflation. Apparently, they’ve got it. The latest figures show consumer prices rising at 0.5% per month. Doesn’t sound like much. But multiply by 12. It’s over 6% per year.

Producer prices are going up even faster – at a 20% annual rate, if you extrapolate from last month.

Of course, one swallow does not a springtime make. And maybe these early birds of inflation will prove to be loners. We won’t know for a while. But prices on energy, food, and auction-priced goods are definitely going up.

And as they go up, consumers are left with less spending power. Instead of encouraging the real economy forward, inflation is pushing it back.

Instead of causing more spending, the higher prices are absorbing what little purchasing power households had left. Instead of increasing demand, inflation is reducing it.

Let’s go back:

The real economy depends on two major things:

Jobs. And housing.

Most people spend money that comes directly from their jobs. And most of their accumulated wealth is in their houses. Neither looks good.

Here’s a little note on the job situation:

Massachusetts employment organization has canceled its annual job fair because not enough companies have come forward to offer jobs.

Richard Shafer, chairman of the Taunton Employment Task Force, says 20 to 25 employers are needed for the fair scheduled for April 6, but just 10 tables had been reserved. One table was reserved by a nonprofit that offers human services to job seekers, and three by temporary employment agencies.

Shafer tells the Taunton Daily Gazette the lack of employers means the task force won’t have enough money to properly advertise the fair.

The task force has been organizing the job fair nearly every year since 1984.

And Floyd Norris, at The New York Times, tells us that the price of housing is not likely to go up anytime soon:

To judge by the overall level of home sales in the United States, the housing market has stabilized at a level well below the peak period of 2005 and 2006 but still higher than the sales rates that characterized prosperous periods in the 1980s and 1990s. Still, few of those sales are of new homes and a rising proportion are forced sales of homes no longer worth the amount that was borrowed.

Yet sales of newly built single-family homes have plunged to the lowest levels seen since the government began collecting statistics on such sales in 1963. The Census Bureau reported this week that only 17,000 new homes were sold in February, for an annual rate of 250,000 after taking seasonal factors into account. Both of those numbers are the lowest on record.

The February sales pace was undoubtedly depressed by harsh weather in the Northeast, and a rebound in March or April is possible. But the total number of homes sold over the 12-month period – 349,000 – is lower than in any comparable period.

As a result, this cycle has been very different from previous ones.

Too many houses were built in many areas during the boom, and now housing starts have plunged… There are fewer newly built homes available, and in some areas, buyers complain that builders have not been willing to cut prices to meet the prices available on used homes in the same area.

The percentage of forced sales rose to nearly half of all sales in early 2009, at the height of the credit crisis, but fell to around 30 percent as the economy began to improve and banks imposed moratoriums on foreclosures. Now it is on the rise again, producing new pressures on prices and increased competition for home builders still trying to sell homes built in more optimistic times.

And now, as predicted, the feds’ policies are making things worse.

Mr. Market went into correction mode almost exactly four years ago. After years of letting himself go, he had to work out some issues…get clean…get straightened out.

The feds couldn’t leave well enough alone. They fought this correction with everything they had.

Mr. Market wanted deflation – to get rid of 50 years’ worth of debt build-up.

The feds wanted inflation – to boost the economy…and, not coincidentally, reduce the real value of the debt in the system.

Mr. Market took down asset values…reduced prices…bankrupted businesses…and forced households to cut back.

The feds pumped more cash and credit into the system – trying desperately to tempt the economy back to its bubble ways.

So far, neither Mr. Market nor the feds are getting all they want. But they’re both getting something…

Generally, the private sector is de-leveraging…but in an odd, uncertain, hesitating kind of way. A report in yesterday’s Financial Times tells us that the “rich” are cutting back their credit card debt. But the “poor” are actually increasing theirs.

Subprime borrowers have reduced their debts too – mostly by defaults, foreclosures and write-offs. They probably have been unable to pay down debt, for an obvious reason – they don’t have any money.

We saw a report that all of the increase in consumer debt could be traced to the government’s student loan program. The FT article made no mention of it. But it would be just like those wily feds – sneaking bottles of Jim Beam into the rehab center!

Prime borrowers, on the other hand, learned a lesson in the sharp crisis of ’07-’09. They’re still de-leveraging and drying out, no matter how much gin the feds put in the punch.

De-leveraging has put the real economy in a funk. Households struggle to make ends meet.

But the feds’ easy money – zero interest rates, $1.8 trillion in deficit spending, QE1 & 2 – is boosting up prices of speculative assets and global auction-priced goods. They’re having the first effect Mr. Bernanke wanted.

It’s that secondary effect that must be causing some worry at the Fed. Instead of giving households a helping hand, lifting them up out of the icy water…inflation is forcing them under water!

Regards,

Bill Bonner
for The Daily Reckoning

Since founding Agora Inc. in 1979, Bill Bonner has found success and garnered camaraderie in numerous communities and industries. A man of many talents, his entrepreneurial savvy, unique writings, philanthropic undertakings, and preservationist activities have all been recognized and awarded by some of America's most respected authorities. Along with Addison Wiggin, his friend and colleague, Bill has written two New York Times best-selling books, Financial Reckoning Day and Empire of Debt. Both works have been critically acclaimed internationally. With political journalist Lila Rajiva, he wrote his third New York Times best-selling book, Mobs, Messiahs and Markets, which offers concrete advice on how to avoid the public spectacle of modern finance. Since 1999, Bill has been a daily contributor and the driving force behind The Daily Reckoning . 

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Rich vs Poor: 14 Funny Statistics And 14 Not So Funny Statistics About This “Economic Recovery”

Today there are two very different Americas.  In one America, the stock market is soaring, huge bonuses are taken for granted, the good times are rolling and people are spending money as if they will be able to "live the dream" for the rest of their lives.  In the other America, the one where most of the rest of us live, unemployment is rampant, a million families were kicked out of their homes last year and hordes of American families are drowning in debt.  The gap between the rich and the poor is bigger today than it ever has been before.  In fact, this article is not so much about "rich vs poor" as it is about "the rich vs the rest of us".  Barack Obama and Ben Bernanke keep touting an "economic recovery", but the truth is that the only ones that seem to be benefiting from this recovery are those at the very top of the economic food chain.

Below you will find 14 funny statistics about this economic recovery and 14 not so funny statistics about this economic recovery.  Actually, if you find yourself deeply struggling in this economy you will probably not find any of the statistics funny.  In fact, you will probably find most of them infuriating.  After all, there are very few people that actually enjoy hearing about how well the rich are doing when they are barely able to pay the mortgage and put food on the table.

In any event, the 28 statistics below show the stark contrast between the "two Americas" that share this nation today.  Many liberals will likely try to use these statistics as an example of why we should tax the rich.  But handing more money to the government is not going to magically create more jobs for the poor.  What the American people desperately need are good jobs, and many liberals don't seem to understand that.  Many conservatives will likely try to use these statistics as evidence that "capitalism" is working.  But the truth is that what we have in the United States today is not capitalism.  Rather, it is more aptly described as "corporatism", because money and power is increasingly becoming concentrated in the hands of gigantic corporations that individuals and small businesses simply cannot compete with.  The truth is that when wealth is concentrated at the very top it does not "trickle down" to the rest of us.  In the old days the wealthy at least were forced to hire the rest of us to run their factories and their businesses, but with the advent of globalism that isn't even true anymore.  Now they can just move their factories and businesses overseas to places where they can legally pay slave labor wages to their employees.

Very large concentrations of money and power are almost always bad for the prosperity of average citizens.  Our founding fathers never intended for our central government to have so much power and they never intended for giant corporations to have so much power.  But we have abandoned the principles of our founding fathers.

When large concentrations of power (whether governmental or corporate) are allowed to flourish, it almost becomes inevitable that the gap between the rich and the poor will grow.  We are seeing this happen all over the world today.

Unfortunately, it does not appear that any of this is going to change any time soon.  In the United States, both the federal government and multinational corporations are constantly attempting to grab even more power.  It has gotten to the point where individual Americans really don't have much power left at all.

In any event, hopefully you will find the following statistics informative or at least entertaining.  The wealthy are most definitely enjoying an "economic recovery" while most of the rest of us are still really struggling....

Funny - Who said that the titans of Wall Street couldn't look hot?  According to the American Society of Plastic Surgeons, facelifts for men jumped 14 percent last year.

Not Funny - According to the U.S. Labor Department, unemployment actually increased in 351 of the 372 largest U.S. cities during the month of January.

Funny - The average bonus for a worker on Wall Street in 2010 was only $128,530.  It appears that more Wall Street bailouts may be needed.

Not Funny - During this most recent economic downturn, employee compensation in the United States has been the lowest that it has been relative to gross domestic product in over 50 years.

Funny - According to DataQuick Information Systems, the sale of million dollars homes rose an average of 18.6 percent in the top 20 major metro areas in the U.S. in 2010.  But is spending a million dollars on one house really worth it?  After all, over the past several years there have been times when you could buy a house in some bad areas of Detroit for just one dollar.

Not Funny - In 2010, for the first time ever more than a million U.S. families lost their homes to foreclosure, and that number is expected to go even higher in 2011.

Funny - According to Moody's Analytics, the wealthiest 5% of households in the United States now account for approximately 37% of all consumer spending.  Most of the rest of us don't have much discretionary income to spend these days, but at least we have Justin Bieber, American Idol and Dancing with the Stars to keep us entertained.

Not Funny - According to Gallup, the U.S. unemployment rate in mid-March was 10.2%, which was virtually unchanged from the 10.3% figure that it was sitting at exactly one year ago.

Funny - According to the Wall Street Journal, sales of private jumbo jets to the ultra-wealthy are absolutely soaring....

Sales of private jumbo jets are so strong that Airbus and Boeing now have special sales forces devoted to potentates and the hyper-rich.

Not Funny - There are now over 6.4 million Americans that have given up looking for work completely.  That number has increased by about 30 percent since the economic downturn began.

Funny - Porsche recently reported that sales increased by 29 percent during 2010.  Even Porsche jokes are coming back into style....

Question: Why did the blonde try and steal a police car?

Answer: She saw “911” on the back and thought it was a Porsche.

Not Funny - Approximately half of all American workers make $25,000 a year or less.

Funny - Cadillac recently reported that sales increased by 36 percent during 2010.

Not Funny - According to the U.S. Energy Department, the average U.S. household will spend approximately $700 more on gasoline in 2011 than it did during 2010.

Funny - Rolls-Royce recently reported that sales increased by 171 percent during 2010.

Not Funny - According to a new study by America's Research Group, approximately 75 percent of all Americans are doing less shopping because of rising gasoline prices.

Funny - According to the New York Post, Barack Obama enjoyed a total of 10 separate vacations that stretched over a total of 90 vacation days during the years of 2009 and 2010.  Apparently Barack Obama was not talking about himself when he told the American people the following....

"If you’re a family trying to cut back, you might skip going out to dinner, or you might put off a vacation."

Not Funny - When 2007 began, 26 million Americans were on food stamps.  Today, an all-time record 44 million Americans are on food stamps.

Funny - Ralph Lauren reported a 24 percent increase in revenue in the fourth quarter of 2010.  It is good to know that preppies are thriving in this economy.

Not Funny - The Ivex Packaging Paper plant in Joliet, Illinois is shutting down for good after 97 years in business.  79 good jobs will be lost.  Meanwhile, China has become the number one producer of paper products in the entire world.

Funny - Luxury jewelry retailer Tiffany & Co. recently announced that their profits increased by 29 percent in the 4th quarter of 2010.  All of the men that did not buy their women jewelry during the holidays are trying to keep this particular news item from getting passed around.

Not Funny - Average household debt in the United States has now reached a level of 136% of average household income.

Funny - In 2009, only 18,288 vehicles with a price tag of $100,000 or more were sold in the United States.  In 2010, 32,144 such vehicles were sold.  It appears that "showing off for chicks" is now very much back in style.

Not Funny - The U.S. economy now has 10 percent fewer "middle class jobs" than it did just ten years ago.

Funny - Porsche has announced that they will soon be taking orders for their first hybrid sports car, the 918 Spyder.  The price tag on one of these puppies will only be $845,000.

Not Funny - The average CEO now makes approximately 185 times more money than the average American worker.

Funny - Barack Obama recently played only his 61st round of golf since moving into the White House.  Many are now concerned that Obama is simply not getting enough free time.

Not Funny - According to one recent study, 21 percent of all children in the United States were living below the poverty line during 2010.

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The Mythical Recovery

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I could have taken the easy way out and simply highlighted data from the latest Gallup poll, which reveals that "Americans' Worries About Economy, Budget Top Other Issues."

But instead, I figured I'd put a bit more effort into it and list the breathtaking array of recent articles that show just how mythical this so-called recovery really is.

"Poll: Nearly One-Third of Homeowners Underwater on Mortgages" (The Hill)

Nearly one-third of American homeowners say they owe more on their mortgage than their home is worth, according to a new poll.

Rasmussen Reports found that of 720 homeowners surveyed, 31 percent reported they were "underwater" on their mortgages. Another 53 percent said that their homes were now worth more than the amount they borrowed to buy it.

The survey serves as the latest indicator of the housing market's continued struggles.

"Consumers Vs. Businesses Square Off on Economy" (CNBC.com)

The dismal home sales numbers released Monday morning are the latest to illustrate a developing disconnect between consumer sentiment and behavior, on the one hand, and between business plans, on the other.

Sales of previously owned homes dropped 9.6 percent in February, to a 4.88 million annual rate. That’s far slower than Bloomberg’s median forecast of economists estimate of 5.13. The median price dropped 5.2 percent from a year earlier, according to figures from the National Association of Realtors.

This comes just a few days after we learned that February saw a year over year decline in housing starts of 20.8 percent, according to the Census Bureau. Building permits dropped 20.5 percent, year over year.

Inflation-adjusted consumer spending fell in January—the most recent month for which we have data—surprising many economists who thought we’d see a bigger economic stimulus from the Obama administration’s payroll tax cut. As it turns out—and as we predicted—Americans are saving a much higher portion of the tax than expected.

Meanwhile, consumers are also losing confidence. The preliminary March reading of the University of Michigan's consumer sentiment index for March came in at 68.2, well off Reuters’ median forecast of economists of 76.5.

"More Men Are Having Plastic Surgery to Save their Jobs" (BNET)

The recession may have had an unexpected consequence for men, particularly those over 40.  In 2010, more men may have gone under the knife for the sake of saving-or finding-a job. The number of men getting facelifts rose 14% from 2009 to 2010 while men using Botox increased 9% and male liposuction rose 7%, according to new statistics just released from the American Society of Plastic Surgeons (ASPS).  The reason for the increases may have to do with the tighter job market, which has hit men disproportionately.

“I have guys telling me they’re getting passed over for job promotions that are going to younger guys,” said Phil Haeck, M.D., a cosmetic surgeon who practices in Seattle, the heart of the very youthful tech industry. “I have others who are unemployed and are desperate to get back to work and ask, is there anything you can do to make me look younger?”  said Haeck, who is also the president of ASPS.

"Recovery Leaves Women Behind" (Baltimore Sun)

Recession hurt male-dominated sectors, but hiring is lagging for women

It became known as the "mancession" because the recent downturn battered industries dominated by men.

But the economic battle of the sexes has taken a turn. While the nation's nascent recovery has been slow and bumpy for just about everyone, it has been almost nonexistent for women.

Of the 1.3 million jobs gained in the U.S. in the past year, 1.1 million — nearly 90 percent — went to men, Department of Labor statistics show. Women gained just 149,000 jobs during that time. If you count jobs since the recovery officially started in July 2009, men gained more than 600,000 jobs while women lost 300,000, the figures show.

"The recovery is really not happening for women at all," said Joan Entmacher, vice president for family economic security at the National Women's Law Center in Washington. "It's a slow recovery overall, but it's really leaving women behind."

"Recession, Moms' Schedules Help Thaw Cold Shoulders to Frozen Meals" (Dallas Morning News)

Ask a harried mom about what's for dinner, and you could get an icy reply.

Feeling increased pressure to get a full meal on the table in less than 30 minutes, more families are eyeing the frozen food aisles for items that can carry dinnertime.

About 16 percent of dinners tonight will come from the freezer aisle, an all-time high and up from 11 percent in 1990, according to the NPD Group.

Also, frozen food is taking up more of the store, according to grocery consulting firm Willard Bishop. The average length has about doubled since 1990, to about 400 feet today.

“We used to talk about the freezer aisle,” said Corey Henry, a spokesman for the American Frozen Food Institute. “But now it's freezer aisles.”

The trend toward frozen has only increased since the beginning of the recession, said Stacy DeBroff, chief executive of Mom Central, a Newton, Mass.-based social media agency specializing in marketing to mothers.

“Moms are busier than ever,” she said. “With the recession, a lot of moms who had been staying at home with their kids are working part time to make ends meet.”

In many cases, she said, these women are working to balance out income from a partner who lost a job or suffered a pay cut.

"Recession Boosts Private Labels" (McClatchy Newspapers)

Retailers hope customers stick with store brands.

CHARLOTTE, N.C. — Even as the economy shows signs of recovering, local retailers are expanding their selection of store brands and working to persuade more customers to try — and stick with — their products.

Store brands have been around for decades, offering goods similar to nationally recognized brands such as Heinz and Tide at lower prices. But they’ve come to make up a larger portion of retailers’ sales as consumers traded down to save money — often up to 30 percent compared to national brands.

Retailers are ramping up private-label offerings, trying to cement the recent gains and sell customers more of their goods.

Food prices are expected to rise this year as a result of higher oil costs and poor harvests. The U.S. Department of Agriculture is forecasting production of staple crops wheat and corn won’t meet global demand.

Neil Stern, a senior partner and retail consultant at McMillan Doolittle in Chicago, said store brands usually become more popular during down times and have kept their appeal.

"Survey: Non-Profits Still Feeling Brunt of Economic Downturn" (USA Today)

Non-profit organizations are still feeling the brunt of the economic downturn according to a new survey by Nonprofit Finance Fund. Indeed out of the 1,900 non-profit leaders that were surveyed, 87% say that the "recession has not ended."

So what's responsible for this negative outlook? It's a combination of an on-going lack of resources while at the same time an increase in demand for services.

"Some of the adjustments we're seeing are creative and healthy - such as strategic collaborations to improve impact in a community," says Rebecca Thomas, vice president of consulting services at Nonprofit Finance Fund, in a news release. "Other effects - layoffs, people who need services being turned away, organizations operating at a deficit or with no cash, are further compromising the social safety net at a great cost to America."

"Struggling US Economy Results in More Immigrants Returning to Mexico" (Associated Press)

NOGALES, Ariz. — More Mexican citizens are loading up their cars and taking them to Mexico.

Auto legalization shops along the border say they've noticed an increase in people filing to permanently register their cars in Mexico.

One Nogales business owner says most of his customers come from places like Las Vegas and Phoenix where the lack of construction jobs has made it hard to find a job. Other business owners say customers just got tired of being harassed about their immigration status.

According to Mexican census data provided to the Nogales International, an estimated 351,000 people have returned to Mexico in the past five years. That's about a third of the 1.1 million who left the country in that time. A decade ago, about 17 percent of migrants who left Mexico returned.

"Roster of Delinquent Taxpayers Reflect an Economy Still Struggling" (Charlotte Observer)

For the second year in a row, Mecklenburg officials say the largest share of unpaid tax bills across the county belong to those owing less than $5,000, another sign that many residents are still struggling to recover from the recession.

Today, the county is listing more than 36,500 overdue bills for real estate and personal property taxes in a legal notice in Mecklenburg County editions of the Observer. The ad, required by state law, lists bills not paid by Feb. 28 to the county, city of Charlotte and Mecklenburg's six towns.

The debt listed in today's advertisement totals about $38.1million, down from more than $43 million last year.

County Tax Collector Neal Dixon said his staff talks to property owners who say that while they are employed, they are working fewer hours for less money.

"They've struggled through as long as they can, and they try to make ends meet," said John Connaughton, a professor of economics at UNC Charlotte. "And all of a sudden, they get a property tax bill for $2,000 or $3,000 .... and it's just difficult."

Nothing to see here, folks. Move along.

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No Hope for a Consumer-Driven Economic Recovery

03/21/11 Baltimore, Maryland – The Great Correction intensifies…

The Dow rose on Friday. The dollar fell. Gold is back over $1,400. And the euro – the world’s most despised currency – is back over $1.40.

A chart circulates, supposedly proving that GDP is now back to where it was in ’07, after falling only 4% in the downturn.

We don’t believe it; they’ve juked and jived the figures.

None of the key components of US GDP have recovered. Housing starts, for example, are running at a million less than they were before the crisis began. Employment is back to the levels it was at 10 years ago – with 7 million fewer jobs than in 2007! Retail sales are going up – but they are still not at the level they were in ’06 or ’07.

So how could the overall economy recover, while the most important parts of it do not?

The real answer: the economy hasn’t recovered. And the Great Correction hasn’t gone away. Instead, the correction is like a hurricane sitting just off the coast. It took a swipe at land, and now, it’s back out at sea; its winds are picking up speed. It’s getting larger…stronger… It’s intensifying.

Why?

As we’ve said too many times, none of the problems that led to the crisis of ’07-’09 were corrected. Instead, they were twisted into awful new shapes. They’re still there – swirling around, worse than ever.

Approximately 73% of the economy comes from consumer shopping. So, in order for the economy to grow, consumers have to be able to shop, right? But how can they?

Properly adjusted for inflation, the average wage is lower today than it was in 1973. That’s right, almost 40 years of going nowhere.

Well, hold on…we know what you’re thinking: “What are you talking about? There were some great years for the US economy between ’73 and ’07.”

And you’re right. But they didn’t come from solid, real growth in consumer purchasing power. Instead, they came from two sources:

First, consumers borrowed more. Total debt went from about 150% of GDP to over 370%. The financial industry went wild, sending our credit cards to dogs and dead people…lending money to people without jobs or income…writing mortgage contracts with built-in fuses.

This was not healthy growth. It was not sustainable. It just took “growth” from the future and moved it forward. Want to know why the housing industry builds so few houses today? Easy. It already built today’s houses yesterday. Why is a credit-fueled boom not sustainable? It’s because credit markets go up and down, just like all other markets. When credit is cheaper, people borrow more and buy more. When credit becomes more expensive, they have to pay down their loans and stop buying so much.

Second, during the period ’74 to ’07 more people worked longer hours. The whole family went to work; not just the head of the household. And they worked more hours. This was proclaimed as a great era for women. They went to college. They got jobs. And they had families too. Now, they no longer supplement their husband’s salary. They’ve become equal partners in the household…often, senior partners. The lucky ladies; they get to work two jobs now – one at the office and another one at home!

Up until 2007, the feds could counteract every attempted correction by making more credit available at lower prices. But by 2006, the credit machine no longer worked. The private sector economy was saturated with debt. It couldn’t take any more.

Only the feds could still borrow freely – which they did. In ’09 and ’10, the US government borrowed ALL America’s savings – and then some. Since November of ’10, the Fed has simply been printing money – enough to cover 109% of the government’s borrowing needs during that period.

For the most part, households still can’t borrow…and don’t want to. Unless they are borrowing from the government. All the recent increase in consumer credit, for example, can be explained by the increase in student loans.

Consumers are in no position to borrow…and no position to drive a real recovery. They’re still nailing up plywood over the windows and moving the furniture to the second floor. They don’t have jobs. They don’t have credit. And their houses – which they might have borrowed against – are still sinking below the waterline.

Oh yes, the next big surge of ARM resets, recasts and defaults begins next month.

Pity the poor lumpenconsumer. He was in such a hurry to consume in the bubble years. Now he can’t consume at all. His income is stagnant. His net worth is falling.

And if that weren’t bad enough. The poor consumer’s costs are rising.

Take a look at this report from CNBC:

Cost of Living Hits Record, Passing Pre-Crisis High

One would think that after the worst financial crisis since the Great Depression, Americans could at least catch a break for a while …

A special index created by the Labor Department to measure the actual cost of living for Americans hit a record high in February, according to data released Thursday, surpassing the old high in July 2008. The Chained Consumer Price Index, released along with the more widely-watched CPI, increased 0.5 percent to 127.4, from 126.8 in January. In July 2008, just as the housing crisis was tightening its grip, the Chained Consumer Price Index hit its previous record of 126.9.

The regular CPI, which has already been at a record for a while, increased 0.5 percent, the fastest pace in 1-1/2 years. However, the Fed’s preferred measure, CPI excluding food and energy, increased by just 0.2 percent.

Bottom line: The cost of living for Americans is now above where it was when housing prices were in a bubble, stock prices at a record, unemployment low and consumer confidence was soaring. Something has gotta give.

Bill Bonner
for The Daily Reckoning

Since founding Agora Inc. in 1979, Bill Bonner has found success and garnered camaraderie in numerous communities and industries. A man of many talents, his entrepreneurial savvy, unique writings, philanthropic undertakings, and preservationist activities have all been recognized and awarded by some of America's most respected authorities. Along with Addison Wiggin, his friend and colleague, Bill has written two New York Times best-selling books, Financial Reckoning Day and Empire of Debt. Both works have been critically acclaimed internationally. With political journalist Lila Rajiva, he wrote his third New York Times best-selling book, Mobs, Messiahs and Markets, which offers concrete advice on how to avoid the public spectacle of modern finance. Since 1999, Bill has been a daily contributor and the driving force behind The Daily Reckoning . 

View articles by Bill Bonner

The articles and commentary featured on the Daily Reckoning are presented by Agora Financial.

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Housing Prices Still the Bane of Economic Recovery

03/18/11 Baltimore, Maryland – Whoa…this looks bad too.

In the housing sector, the fed’s ultra-low interest rates are supposed to make it easier to refinance…which is supposed to help firm up prices. But prices haven’t firmed. They’re still giving way.

The latest numbers show prices falling, hitting post-bubble lows in 11 cities. Of the 20 major cities in the survey, only two of them had positive price movements last year. No surprise, only one – Zombietown itself, Washington, DC, home of the feds – showed an increase of more than 2%.

Worst hit were the sunshine states – California, Florida, Nevada, Arizona and Georgia. Along with Michigan, more than a third of homeowners in these states have negative equity in their houses…with 70% of them underwater in Nevada.

Wealth effect? Not in housing. According to the Case/Shiller numbers, homeowners saw their net housing wealth decline by $650 billion in the last quarter of 2010. And since many more households own houses than stocks – 66% are homeowners – falling housing prices has a much bigger effect on the economy than rising stock prices.

And it gets worse. The big wave of resetting (and recasting) ARM loans begins to crash into the housing market next month. There are about $700 billion worth of loans in this group. Many will not be successfully rewritten. Falling housing prices will make it impossible. Homeowners will prefer to walk away, rather than be shackled to a long-term mortgage 30% to 50% higher than the value of the house.

Says housing expert Robert M. Campbell:

“I continue to believe that the second downward leg in house prices that began in 2010 will likely take US housing prices to a point that is 15% to 20% below current levels.”

Bill Bonner
for The Daily Reckoning

Since founding Agora Inc. in 1979, Bill Bonner has found success and garnered camaraderie in numerous communities and industries. A man of many talents, his entrepreneurial savvy, unique writings, philanthropic undertakings, and preservationist activities have all been recognized and awarded by some of America's most respected authorities. Along with Addison Wiggin, his friend and colleague, Bill has written two New York Times best-selling books, Financial Reckoning Day and Empire of Debt. Both works have been critically acclaimed internationally. With political journalist Lila Rajiva, he wrote his third New York Times best-selling book, Mobs, Messiahs and Markets, which offers concrete advice on how to avoid the public spectacle of modern finance. Since 1999, Bill has been a daily contributor and the driving force behind The Daily Reckoning . 

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