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Archive for January, 2009
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In 2008, adverse housing wealth effects killed consumption
This recession is especially rough because of the record retrenchment in consumer spending. High gas prices, the financial crisis, and a dismal housing market pushed consumers to the brink. The current cycle is set to be the worst consumer spending cycle since 1950.
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The Fed just can’t get away from the itemized bailout
Here’s a way to reduce the size of your balance sheet: write down assets. According Bloomberg, that is what the Fed plans to do under the “Homeownership Preservation Policy”:
“The goal of this policy is to avoid preventable foreclosures on such assets through sustainable loan modifications and other actions that are consistent with the Federal Reserve’s obligation to maximize the net present value of the assets for the benefit of taxpayers,” according to the document.
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This is a recession; bankers shouldn’t be forced to lend
My impression of the TARP re-capitalization program was that of an emergency government effort to keep banks from being forced to write down capital losses and risk insolvency. I don’t remember reading it as a “forced lending program.” This is a severe recession; it is an environment where big firms announce 71,400 new job cuts in one day, and not an environment for new loan origination. That would be completely irrational.
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Rents dropping in major metro areas – not good for the macroeconomy
This was bound to happen, with foreclosures on the rise and rock-bottom home sales going to the lowest bidder. And that bidder is likely a property investor, who will rent out the property until market conditions improve to re-sell. Well, guess what: this is driving down rents across the country’s top metro areas.
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UK vs. US in graphs
The U.S. and U.K. economies are in hot (no boiling) water. Some call it the brink of a debt disaster:
“The United States and the United Kingdom stand on the brink of the largest debt crisis in history.
While both governments experiment with quantitative easing, bad banks to absorb non-performing loans, and state guarantees to restart bank lending, the only real way out is some combination of widespread corporate default, debt write-downs and inflation to reduce the burden of debt to more manageable levels. Everything else is window-dressing.” Although the feedback loop cannot be discounted, the real problem here is the tidal wave-sized recession that the financial crisis has brought upon the two economies. The U.K. posted a 1.5% contraction in the fourth quarter (about 6% negative growth, annualized) ,while the U.S. is expected to post an equally dismal 5.5% decline in economic activity.
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Two policy reports; two different stories
Today, the Bank of Japan (BoJ) released its Monthly Report of Recent Economic and Financial Developments. And on the other side of the globe, the Bank of Canada (BoC) released its quarterly Monetary Policy Report Update. The reports, read side by side, reveal that Japan’s outlook is far worse than is Canada’s.
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Forced consolidation in the home building industry
With home values falling over the last few years, new construction coming to a standstill, and inventories building with fierce pressure, consolidation in the home building industry is inevitable. Some say that up to 50% of the homebuilders in the industry will fail, if they haven’t already.
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Housing market still on red alert, but there are signs of stabilization
The housing market – the epicenter of the credit crisis – has yet to stabilize: prices continue to decline; starts are at record lows, and are expected to fall further; and the inventory build in the existing home market remains at troublesome levels; and then there is the shadow-inventory that looms.
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Credit Easing Policy – Now we know what to call the Fed’s easing measures
The US is in a bit of a rut, that is for sure. And the banking crisis, which has currently resulted in just 27 failed banks since January 2008, is ongoing, while the economy is taking a serious turn for the worse. Pretty soon, a systemic crisis will emerge, with mass bank failure and a wipe out of depository institution capital. Or not.
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A World of economic reports in the last week
US import demand was strikingly weak: Global Trade Posts Sharp Decline
