Late mortgage payments and home repossessions in the US have hit their highest level since records began, while the Trade deficit in 2006 was also the worst ever at over $850 billion – the fifth successive year of rising deficit, both according to Official US records. Economic experts say they think the Trade deficit has now peaked – but that’s probably because of the house price problem.
Experts in the real estate field have said they expect more softening to follow on from the price falls of 10% in the last month alone. This is the sort of news that – if allowed to run unabated – hurts incumbent politicians hard, especially if they are members of the party that has historically linked itself with a prudent custodianship of the economy.
Time to release some juicy, manufactured, spun, or otherwise safe and compliant news story that can deflect attention away from what’s happening to people’s pocketbooks.
Well, whadya know, how convenient! Look at this file that’s been lying around for a while, waiting for a moment when it could be announced as “new news” just in time to stop some other story (such as the Vice-President’s man, Libby, being found guilty of perjury) from becoming too damaging.
After five years in captivity, subjected to a regime of constant stress and “conditioning” (George doesn’t like to call it torture, but that’s what it basically is) in which his self-will and personality are slowly broken down until the lump of body tissue that is left will confess to anything his captors want (just like happened to US airmen in the hands of the Chinese in Korea, or in Vietnam) Khalid Sheikh Mohammed confesses. To everything. To the bits he did do and the bits he didn’t do. To anything.
So, this guy is a safe story, he’s taking the rap for 911 – and a load of other attacks the press hasn’t heard of, stuff like bombing Big Ben, assassinating President Carter (some might say that would be a boon for humanity, but I couldn’t possibly say that) plus a load of other stuff which seriously makes me wonder if his confession under duress means diddly squat. I’m really surprised it took five years to get this information though, apparently most people can’t last more than two weeks, if that.
But with all this domestic bad news out there, somebody in the Bush administration is bound to have seen this 911 story as a “good thing” – on a number of levels. Someone should have told them the story of Peter and the Wolf though (look it up).
Firstly, 911 happened on Bush’s watch, so politically it’d be good for him to find someone, anyone, to blame it on; secondly, with the failure of Iraq being so indelibly linked with the Bush administration’s response to 911 – and the echoes of “Mission Accomplished” still falsely ringing in our ears, they had to show they really were after the terrorists and not the oil; and thirdly one of the few things that will stop people worrying about how poor they are is giving them someone to hate. And of course, a little distraction from the Libby case might mean the press don’t get a chance to follow the trail to his boss, the next link in the, uhh, Cheney.
Even if that isn’t completely possible, it will certainly reduce the column inches devoted to any domestic finance problems that may now be buried at the back in the finance section, nicely hidden. But people’s houses have suddenly become hard to sell, their values are falling, and that’s hard to hide.
The problem of course isn’t the price of homes on its own, no, it goes deeper than that. For a long time, the consumer-led economy in the US has been supported by the rising prices of homes. Every time people move house, they spend some of the equity from their home on consumer goods: a down payment on a new car here, a new TV or computer there, some expensive treats like a trip to Europe, a new video or digital camera for the whole family, new outfits and so on – the spending rises on a wave of increasing debt.
Note that the wealth that has been transferred in this way has not been created, it comes from pure asset price inflation, just like a bubble grows with no more substance, just a lot of hot air. Salaries didn’t increase. Homes didn’t suddenly have babies that could be sold on or given to homeowners’ children… all that happened was that debt increased, but each home remained pretty much the same: four walls and a roof.
Unless this money is spent on things the US economy can provide, the money goes overseas – mostly to China and Japan and the rest of the Far East, but also a lot goes to Europe and some to Latin America. And it all stems from the debts ordinary Americans have been taking on for years. Not just on houses, but also cars – for years the US auto industry failed to change the models it sold, concentrating instead on making it easier to buy things people wouldn’t otherwise have bought through wilder and wilder financing schemes that provided the manufacturers with some small means to make the enormous losses they would otherwise suffer seem slightly more respectable – to begin with. But that’s another story.
It’s when people borrow money against the value of their home and forget that interest rates can rise as well as fall that danger signals begin. And interest rates are still historically low right now. If the default rate is the wrost ever on record now, imagine if interest rates hit the double digit levels they did in the 80s, twice the level of todays rates! Add in the high cost of oil (caused purely by the invasion of Iraq) to everyday costs and the fragility of the current US economy is easy to see. Except for Texas oil of course – with oil prices so high right now, they must be pretty pleased with life.
When lenders themselves start believing in the “new paradigm” of upwards only house price rises and lend to those for whom a modest increase in interest rates would mean they could no longer afford the payments at all – the so called “sub-prime” category – then governments really should look at what they are doing and put some thought into their actions. Taking their eye off the ball and looking only at Iraq for terrorists the whole world now knows never were there does no one any good. Why spend $80 billion a year on a stupid war in Iraq when a lot less than that could have been far more effective in Afghanistan where the terrorists really were. If they’d not had selfish interests at heart.
It seems quite clear now though, that the current Administration knows very little about principles (they didn’t follow International Law when they invaded Iraq), or careful analysis (they had no clue what to do after they invaded Iraq), or telling the truth (Mr Libby and Co, no weapons of mass destruction, no terrorists – until they invaded), or the rule of law (US Supreme Court ruling against the Bush Administration over their handling of Guantanamo, Abu Gharib).
Sure, being in control of the US military might make them at first appear to be very powerful (all those nukes), but that’s not the same as being effective (still no Osamu bin Laden). They do know how to make money from oil though – provided “world events” keep the price up high enough of course.
Who cares if that hits the value of housing? It can always be buried by some nice scare story – can’t it?
Lesson for George: The Means are as important as the Ends. Forget this and your previous allies will end up supporting the rights of your adversaries, disliking you even more for forcing them to point out the inadequacies and bad behaviour of their once strong friend (that means America, George).