Annualgain

U.S. Economic Recovery and the Housing Sector Mirage

Thanks to everyone for your thoughtful responses - Jeff, Teresa, Ken. Good discourse.

AG

U.S. Economic Recovery and the Housing Sector Mirage

"During the Great Depression it would have been plausible for the economy to “recover” even if employment, housing and consumer spending were all still in decline (as they are in the United States, today). However, the current U.S. economy is built entirely atop a housing-bubble, and a level of consumption which can only be maintained by ever-increasing consumer debt."

Mr. Nielsen:
The last time I commented on one of your articles, you responded and I think the tone between us became contentious. That is not my intention here, I really just want to learn from you and others. So here's my comment:

How is the recent housing bubble so different from the credit bubble that brought on the great depression? Whether the borrowing was backed by houses or stocks, when the assets declined in value, all the loans were under water. Right?

Now, here's where I think you and I might really differ in our views, i.e. the consumer debt vs. spending balance. Not only is consumer revolving debt down recently, total consumer borrowings are down in aggregate. At the same time consumer spending is increasing, albeit at an anemic rate.

How can consumers pay down debt and increase spending at the same time? Well, despite the fact that the U.S. has more unemployment, personal income is increasing in aggregate. The reason we are going to have very very muted recovery in the U.S. is that consumers are putting some their income increase towards spending and some towards debt reduction.
Consumer Loans: research.stlouisfed.or...
Personal Income: research.stlouisfed.or...
Personal Consumption Expenditures: research.stlouisfed.or...

I don't disagree with the housing stats you provide in your article. I guess I just disagree with the interpretation.

AG

Time for California Muni Bond Investors to Take a Stand

Next area of speculative investing: Buying CA state IOUs at $0.50 on the dollar.