The usual chatter on the Sunday morning talk shows turned a bit more dark this past weekend, what with evidence mounting that a double-dip recession--or worse--could be in the cards.
This prevailing economic wisdom has some economists calling for yet another government stimulus package. House Majority Leader Steny Hoyer (D. Md.) was on the tube Sunday admitting that the last stimulus package is not working as was hoped. But VP Joe Biden says a new stimulus is not, at the moment, on the agenda.
Economists, meanwhile, are keeping close eye on the weekly Treasury bond auctions, normally arcane affairs that rarely attract the attention of anyone other than bond traders and the Fed. But during the past several weeks, investors have several times demanded higher interest rates on Treasurys than the government would like. When the market drives up rates, the Fed's ability to control rates through its overnight funds and discount rates is compromised. If the market takes control of interest rates, which it very well could, and housing has not stabilized, watch out.
The stock markets have been moving mostly sideways-to-down for weeks, not unusual for the summer, but investors are continuing to hoard cash. Some of that cash appears to have dipped into and out of commodities, suggesting not only risk aversion but a nagging perception of inflation to come. Consumer sentiment took a dive in June, suggesting that the general public does not have much faith in the current course of government.
Just as there appeared to be some measure of recovery in the lower end of the housing market, particularly in hard-hit California, now comes news that the upper end of the market could be headed for the tank. First there is the issue of option ARMs, which some economists believe will lead to another round of foreclosures rivaling the subprime meltdown, only this one will skew upscale and perhaps cause a double-dip in the Case-Shiller home price indices.
Even more evidence of the likelihood of this emerged last week in the form of research from a company called McDash Analytics that foreclosures in general are not so much a matter of subprime lending but of zero-downpayment mortgages. That's hardly a shock, and it was the loosening of subprime standards that led banks and other lenders to loosen requirements on the more creditworthy as well, even if it was a mistake on both counts. It allowed for the spreading of risk, which is what made subprime mortgages possible in the first place.
The government can not put a floor into stocks. It can not, obviously, control the global credit markets. It can not possibly create enough government jobs to make up for the losses in the private sector. But it can at least attempt to put a floor under housing, the single largest and most important investment to the vast swath of productive, taxpaying, investing America. Without them, there will be no economic recovery.
U.S. Senator Johnny Isakson (R-Ga.) last month introduced a bill that's not too far removed from the original Fix Housing First proposal that would do just that with a $15,000 tax credit for all home buyers with no income restrictions. Had the Bush Administration taken this course last Spring, there is at least the possibility that the housing market would be stable now, with even toxic mortgage-backed securities trading at some known value.
While this Congress dithers this summer over global warming and health care and the empathy of the Supreme Court nominee, it should make the time to pass this bill.
