Moreover, there is a far weaker prospect for a return to 2007-like profit margins than investors seem to recognize. Economic expansions are paced not by major growth in consumption (which tends to be fairly smooth even during economic downturns), but instead by gross investment in capital goods, technology and housing, as well as debt-financed durables such as autos. Yet our policy makers have aggressively crowded out private investment through this bailout policy, which allocates good capital to the worst stewards, and they have done virtually nothing to abate the housing downturn. Add deleveraging pressure to that mix, and an absence of opportunity for mortgage equity withdrawals (which fed GDP growth during the last expansion), and we have an economy that is likely to produce a very stagnant recovery even if one has begun – of which I am also skeptical.
As I've noted before, recent months have represented a lull in the reset schedule, which was accompanied until recently by a moratorium on new foreclosures. Those foreclosures are now ramping up quickly, and a fresh surge in resets will add to the difficulties beginning later this year.
James Howard Kunstler:
We're in a strange hiatus for now. "Hope" levitates the legitimacy of the dollar, the stock markets, and the authority of leadership. In the background, implosion continues, debt goes unpaid, banks ignore bad loans to keep them off their books, jobs and incomes vanish, cars and other things go unsold, and a tragic wishfulness strains to sustain the unsustainable. Our expectations are inconsistent with what is happening to us.
It will be very painful for us to walk away from the car-centered life. Half the population faces the ugly obstacle of being hopelessly over-invested in a suburban house and all the life-ways associated with it. There will be no easy way out for them, whatever they chose to do politically, whatever noise they make, whomever they scapegoat, whatever fantasies they cultivate about what the world owes them, or who they think they are.
Husmann's "crowding out" is some really old fallacy, idnit?
I read Kunstler every week, but it's pretty hard to tell one week from another. For evidence he's right, consider FASB 159: For the first time I ever recall, it explicitly allows companies to pick & chose which assets they want to value FMV & which historically, even for similar assets.
I always got the feeling that Kunstler's views are shaded far too much by his weirdly reactionary misanthropy. For example:
My fellow townspeople often confuse the architecture and urban design with the activity taking place in it. It's an important distinction. The building itself, shown here, is a sturdy but unspectacular business building on the main street (Broadway) of Saratoga Springs, NY. Think of it as a "background building." It's not trying to be special or monumental, but it does what we want it to do: it makes provision for retail near the street and it allows other activities upstairs (offices, apartments). It accomplishes all this complexity gracefully. The activity taking place here, however, is a symptom of the growing barbarism in American life. _________ has traditionally been a marginal activity among civilized people, the calling card of cannibals, sailors, and whores. The appropriate place for it is on the margins, in the back alleys, the skid rows. The mainstreaming of ________ (on main street) is a harbinger of social dysfunction.
The missing word is, hilariously enough, "tattooing."
Kunstler's interesting because his biggest fault--nostalgia for the imginary past of the Brave Pioneer Man protectin' his wimmenfolk--makes him willing to imagine a future that could be worse and far, far different than anyone will acknowledge. He's not very trustworthy when it comes to judging Obama for the same reason; he's a Romantic.
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