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Obama raises stakes on his house price gamble

There is a foolish gambling strategy. When your bet starts going bad, you raise the stakes and throw everything you have into the pot. Then if you lose, you go bankrupt.

Over the past year, President Obama's economic advisors have been trying out that gambling strategy using US Treasury money. Through the first three quarters of 2009, according to a Treasury spokesman, they had already bet $111 billion on Fannie Mae and Freddie Mac in hopes of preventing house prices from falling to their normal inflation-adjusted level.

On Christmas eve, according to Bloomberg.com, they raised the limit that they are willing throw into the pot from the previously announced $400 billion. They are gambling our country's future with no limit on how much they are willing to bet.

Meanwhile the latest statistics suggest that the gamble is failing. On January 4, the New York Times reported that house prices may have already started falling:

The figures released Tuesday showed that the Standard & Poor’s/Case-Shiller home price index, a widely watched measure of housing markets in 20 metropolitan areas, rose 0.4 percent in October from the previous month on a seasonally adjusted basis. 

[Some analysts] noted that the Case-Shiller index showed an increase only because each report is an average of the preceding three months, meaning the strong August market was still being counted in the October report....

 

The strong August market was inflated by first time home buyers trying to buy houses before tax breaks were supposed to expire. House prices have been declining since then.

Obama's advisors are gambling that if they can stabilize house prices, they can stabilize banks, and that if banks have more money to lend, businesses will borrow it. But manufacturing companies won't invest unless there are investment opportunities, and investment opportunities won't occur until we require balanced trade.

Instead of tackling the root cause of our economic problems, our lack of manufacturing investment due to our toleration of foreign-government produced trade deficits, the Obama administration's strategy has been to grow our economy on gambling winnings.

Disclosure: No positions



Disclosure: economy, housing market