Absolutely the dumbest question anyone around here can ask is: How come when housing prices were rising astronomically, everyone was buying; yet now that housing prices are falling, very few are buying?
There are smooth answers to this question floating around but none of them quite stick. However, a comment made by a local realtor the other day may provide a clue. She said that home prices are falling so low there is once again some interest from out-of-town investors.
Chewing over this one for a few days, we came up with the novel notion that a great deal of the housing built in Merced during the last several years was for investment more than it was for actual living in a house. Perhaps, when the bottom of the market is discovered, the crap game can begin again. There is no doubt that the local land-use authorities, composed of elected officials, are still disposed to approve whatever subdivision is proposed, if only more subdivisions would be proposed. However, we are in
a glut of housing stock -- unsold houses, foreclosed houses, and half-built subdivisions.
They call it "planning." Because whatever it is is not "planning," conversations with local planners have become absurd exercises in listening to people who believe their own pathetic propaganda.
Meanwhile, thanks to the subprime meltdown, which has caused a credit crisis, and the falling housing prices associated with the crisis, European finance markets are tumbling. If it weren't such illogical journalism on a serious topic, this line about today's "surprise" Fed interest-rate reduction from the Associated Press, would be funny:
The surprise Fed move was aimed at fears that trouble in financial markets from the U.S.
subprime crisis was spreading to the broader economy. Interest rate cuts tend to boost
stocks. Asian Markets Rebound After Fed Cut...YURI KAGEYAMA
http://ap.google.com/article/ALeqM5h3kgMAkbLwyfxBdjzw8Pc4KZ7DhQD8UBAFIO1
The headline of the article refers to an Asian stock-market rally today on news that the Fed had lowered the prime rate from 4.25 to 3.50. European financial markets continued to fall for a second day. Europe is concerned about a US recession; Asia economies, much more integrated into the American consumer economy, rise are fall on news of Fed rate cuts at this point, evidently.
Meanwhile, inflation is increasing rapidly. The traditional way inflation evens out is through lower prices for exports but the US no longer exports enough to balance the trade deficit however cheap the dollar gets. Except for arms, the US manufacturing industry has been off-shored for three decades. None of the financial stimulus packages about which one reads every morning in this presidential election year contemplates taking a wire brush to the Rust Bowl.
Chalmers Johnson, whose Blowback trilogy is extremely helpful for understanding the shape \of things past, present and future in our crumbling empire, estimated today that the Pentagon 2008 budget would run to $1 trillion and commented that "military Keynesianism" is a suicidal course.
...The current account measures the net trade surplus or deficit of a country plus cross-border payments of interest, royalties, dividends, capital gains, foreign aid, and other income. For example, in order for Japan to manufacture anything, it must import all required raw materials. Even after this incredible expense is met, it still has an $88 billion per year trade surplus with the United States and enjoys the world's second highest current account balance. (China is number one.) The United States, by contrast, is number 163 -- dead last on the list, worse than countries like Australia and the United Kingdom that also have large trade deficits. Its 2006 current account deficit was $811.5 billion; second worst was Spain at $106.4 billion. This is what is unsustainable.
It's not just that our tastes for foreign goods, including imported oil, vastly exceed our ability to pay for them. We are financing them through massive borrowing. On November 7, 2007, the U.S. Treasury announced that the national debt had breached $9 trillion for the first time ever. This was just five weeks after Congress raised the so-called debt ceiling to $9.815 trillion. If you begin in 1789, at the moment the Constitution became the supreme law of the land, the debt accumulated by the federal government did not top $1 trillion until 1981. When George Bush became president in January 2001, it stood at approximately $5.7 trillion. Since then, it has increased by 45%. This huge debt can be largely explained by our defense expenditures in comparison with the rest of the world. The world's top 10 military spenders and the approximate amounts each country currently budgets for its military establishment are:1. United States (FY08 budget), $623 billion
2. China (2004), $65 billion
3. Russia, $50 billion
4. France (2005), $45 billion
5. Japan (2007), $41.75 billion
6. Germany (2003), $35.1 billion
7. Italy (2003), $28.2 billion
8. South Korea (2003), $21.1 billion
9. India (2005 est.), $19 billion
10. Saudi Arabia (2005 est.), $18 billionWorld total military expenditures (2004 est.), $1,100 billion
World total (minus the United States), $500 billionOur excessive military expenditures did not occur over just a few short years or simply because of the Bush administration's policies. They have been going on for a very long time in accordance with a superficially plausible ideology and have now become entrenched in our democratic political system where they are starting to wreak havoc. This ideology I call "military Keynesianism" -- the determination to maintain a permanent war economy and to treat military output as an ordinary economic product, even though it makes no contribution to either production or consumption...
On May 1, 2007, the Center for Economic and Policy Research of Washington, D.C., released a study prepared by the global forecasting company Global Insight on the long-term economic impact of increased military spending. Guided by economist Dean Baker, this research showed that, after an initial demand stimulus, by about the sixth year the effect of increased military spending turns negative. Needless to say, the U.S. economy has had to cope with growing defense spending for more than 60 years. He found that,
after 10 years of higher defense spending, there would be 464,000 fewer jobs than in a baseline scenario that involved lower defense spending.Baker concluded:
"It is often believed that wars and military spending increases are good for the economy. In fact, most economic models show that military spending diverts resources from productive uses, such as consumption and investment, and ultimately slows economic growth and reduces employment"...
Some of the damage done can never be rectified. There are, however, some steps that this
country urgently needs to take. These include reversing Bush's 2001 and 2003 tax cuts for the wealthy, beginning to liquidate our global empire of over 800 military bases, cutting from the defense budget all projects that bear no relationship to the national security of the United States, and ceasing to use the defense budget as a Keynesian jobs program. If we do these things we have a chance of squeaking by. If we don't, we face probable national insolvency and a long depression. -- "Going Bankrupt," Johnson,
http://www.tomdispatch.com/post/174884/chalmers_johnson_how_to_sink_america)
Prediction of depression is a tricky business. Is a generation of economists that has achieved prominence under the dogma of laissez faire capitalism adept at coping with information that throws that dogma into doubt? All of us of a certain age have passedthrough periods of war-boom economies and economic recession. What else have we known, actually? Many people seem to feel alarm about this one because of the common belief that the underlying economy is not "fundamentally sound." This gives force to Johnson's main thesis of "imperial overreach" and its dire economic consequences (quite aside from the slaughter of the innocent), all laid out 25 years ago by Mancur Olson in his Rise and Decline of Nations with its frequent references to the economic decline of the British Empire. The various economic stimulus packages drawing bipartisan support will help credit card companies and foreign manufacturers of imported goods, but will they help those of us caught in this economy? Why should we assume these stimuluses would increase employment in a population whose jobs have been offshored or taken by imported foreign workers (legal or illegal)? At this point the US has lost a generation of manufacturing and the innovations in it that might have stalled global warming. But, don't worry: drilling leases in the Artic will soon be auctioned in the end-of-days feeding frenzy of wealthy contributors to this brutal, corrupt political regime. The larger fear is that the economic stimuluses will fail, depression will happen, and the government will respond with imperialism rather than peace, repression rather than relief, education and health care. There is a point beyond which no economy can be abused by its rulers without collapsing. Today don't we have more to fear from hubris, arrogance and recklessness than from "fear itself"?