Extreme Spending and Budget Cuts
The nation is still blinking from post-election attentiveness, along with domestic economics. the Middle East Europe, Japan and China all have their things simmering near the boiling point. Although what matters here the most is the looming Fiscal cliff, next is housing credit. The bizarre presidential election became a dual
opponent on the ropes. Mitt Romney made an assumption no president would become re-elected while an economy was doing so poorly. President Obama made an assumption that a fat cat from Wall Street who was deaf to the people's needs would not be elected in the aftermath of the bubble. Thus neither candidate ran on a platform of what was noteworthy or new, although the Republican party absolutely picked up on the message. They became lucky to even hold on to the House, and now must rethink their entire painted-into-the- corner notion. Romney is deaf, although not the leadership of the Republican in Congress. These are robust, intelligent lawmakers; a trait not to attractive to mainstream voters, although above everything else they continue to survive.
Required to Avoid Another Recession
President Barack Obama along with Vice President Biden taken just before the November. 9th address by the president talking about the shape of the economy. Photo taken by Pete Souza.
A new plan to take advantage of the other party instantly began after the election was over. Senate Minority Leader Mitch McConnel and House Speaker John Boehner without even an
objectionable chirp from the other Tea Pots: "Create More tax revenue? Naturally. We're all on-board." After many years of Republican unyielding to tax increases, it is doubtful that even the full shock of their reversal has descended upon the White House. Avoiding a fiscal cliff now entirely depends upon the White House selling Democrats on entitlement and spending cuts. A reversal away from this cliff will demand a majority vote from both political parties, wale the hard left along with the hard right is not going to entertain any compromises.
I am not so optimistic as last week, if it all depends on politicking by Obama with Congress a strong defense inside the bunker won't bear fruit. Over Thanksgiving, one person soared above all others in deserving our gratitude and that is: Ben Bernanke. He has given two speeches during the last week, both relevant to and at odds with a new panic over at the FHA. Last week Bernanke gave a speech at Operation Hope, right next door to the Atlanta home church of Martin King, while his remarks were entirely devoted to mortgages and housing. He opened his remarks by noting that minority and lower-income communities have endured the greatest losses during the housing bust. Then he went on to remark that the homeownership rate has dropped to a low point of 15-years, while the application of new mortgages are the lowest point since 1995. During the post-Bubble tightening of credit, "The pendulum has now swung way too far to the other side."
Bernake then recited the solutions the Fed has been describing all year long in speeches and a white paper. Plus an idea gone astray in all the pointless and oppressive rule-making, along with incomprehensible new "disclosures", an opportunity in the making for autonomous housing counselors to assist borrowers with less-developed skills than those held MBA graduates. The day following his speech, word leaked out that to shore up its losses FHA will again need to increase its fees, most likely to an 1.35 percent annual surcharge on new mortgages (nearly triple the rate during its initial 75 years), and foregoing any waivers for sufficient owner equity, which becomes a life-of-the-loan fee.
The destruction will fall upon the people the FHA was created to help. The FHA became the only lending body that did not loosen lending standards because of the Bubble, caught up by misbehavior of others. As it has now priced itself from others in the lending field, it will see more difficulty self-financing sales of its foreclosures, which will deteriorate the overall housing market, which I believe will cause greater net losses to itself than had it left fees alone. Despite accurate hits to the core Obama constituencies, and dead silence from Treasury and White House. Bernanke has the ability to see, although Obama and Geithner are Romneyesque.
The second speech by Bernanke was a repeat of the pendulum of housing credit and then he addressed the cliff. The entire Western world (which includes Japan) is caught up in the the balance of growth-austerity, fiscal sustainability vs headwinds of budget-cuts. Bernanke believes: the two goals are mutually reinforcing and totally compatible. The nation is in need of cheerleading from Japan and Europe where the balance is jointly destructive, although here, with because of a brilliant and active central bank, there's still a chance. We can yet make a choice between bread that's overcooked and burnt dark, or icky white and soggy thighs. Let's give thanks. Turkeys other places are toast.
The institute of Economic Cycle Research's leading weekly index is a never-missed recession-caller
and the longest-running, It is staying with a recession call which is now one year old. Although perplexed by the spring and summer index rise, it is rallying again now. Although I think the forecast is overcooked, although there's no mistaking a weakness as we get nearer the fiscal cliff, while the good news may be an agreement to the most extreme spending and budget cuts ever to occur in our history.