What Wall Street and CNBC don’t want you to know is that with 4 million American home foreclosures sitting in the banks’ inventories, it will take at least 20 years to absorb enough of these homes to pull us out of our deepest recession ever.
Historically, all recoveries from recessions have been rooted in principles of sound money and conservative fiscal economics. In times of fiscal conservatism, strong housing markets are inevitably the result of low unemployment, strong job creation, low interest rates, and monetary policies of less government spending and lower taxes. Obama’s fake recovery has none of these attributes and will not enjoy the success of past recoveries.
Take a look at the extraordinarily slow absorption rate of our 4 million home inventory, with an additional 2 million in the pipeline, and an unemployment rate sitting at 10%. And remember, the Bush tax rates were not cut… they were just extended for two years. How does this change anything? How does a payroll tax cut of 2%, or $800 per year for an “employed” person, do anything when the cost of food, insurance, education, etc. will more than cancel out the tax savings?
Think about the liquidity that has been thrown at this recession. Combined with the housing disaster, there’s no recovery in sight. Start with the Bush TARP money, where each of the five largest banks got $10 billion apiece, and Ford got $5 billion. Then throw on the additional $1.7 trillion that the Federal Reserve covertly slipped to our five largest banks and a group of banks in Europe. And like Enron, to show no losses, the banks secretly shifted their toxic mortgages to the Fed’s balance sheet. Add to that another $1 trillion that Obama has thrown at the states, which is set to end in June. For the states to meet their balanced budget mandates, massive state lay-offs must occur.
But the cheerleaders like CNBC’s Larry Kudlow are always quick to point out to us that the sub-prime meltdown was nothing; that it was a “tiny blip” that would not spread. He even pointed to a chart, at the time provided by his “dumb as a box of rocks” pal and chief CNBC economist Steve Liesman, looked into the camera and unbelievably said (to paraphrase): “Look, there are hardly any foreclosures at all in the country! What housing problem are they talking about?” He even went so far as to recommend buying stocks when his good friend Angelo Mozilo of Countrywide was shorting the home builders!
What Kudlow and the others don’t want you to know is that the stock market is a fraud. Because our biggest source of wealth, our home equities, has been wiped out, Obama now has the audacity to pump the stock market to make our 401k’s look better, and to entice us to spend. And let’s be honest about QE2. It was designed to run the stock market up, not to lower unemployment and interest rates as Ben “the bold-faced liar” Ber-nutty claims. So far, the administration’s Hail Mary is working. Since August, the market has rallied 20%, and it will continue to rally as long as there are enough trees to turn into paper. But like the temporary flurry of real estate sales that occurred as a result of the $6000 first time homebuyer credit, this rally will come to an end when the government’s $600 billion bond purchase stops. The downward plunge in home prices has resumed, and the market will suffer the same fate.
Liquidity is not analogous to sustainability. The problem is that the president and Ber-nutty don’t get it. It’s not a lack of liquidity that is the problem… it’s a lack of letting the free market work. Until they let housing prices drop to meet their true market value, where in Florida, California, and Arizona another 30% drop is expected, there can be no recovery. Until they stop subsidizing the insolvent banks, allowing them to fail, there can be no recovery. Until Congress shows the guts to cut Social Security, Medicare, and defense spending by 20%, there can be no recovery. Until they eliminate payroll taxes, ban derivatives, cut the top tax rate to 22%, shut down Fannie and Freddie, and put Hank Paulson, Larry Summers, Geithner, Rubin, Dodd, and Frank in jail for their American heist, there can be no recovery or free market capital system. Nor can there be an America as our founders envisioned.