Well, the clock has struck midnight. Cinderella's fancy clothes have changed into rags, and her stately carriage is now just a pumpkin. Much like this fantasy-heroine suffered a rude awakening, so too, are many Americans suddenly seeing their own (economic) fantasy evaporate before their eyes as 2010 begins.
A plethora of news items, both new and recent, completely shatter any pretense that the U.S. economy is “growing”. The latest, bomb-shell headlines are that U.S. residential rental vacancies are at their highest level in 30 years. Simultaneously, U.S. shopping mall vacancies just set an all-time record. Meanwhile, foreclosures/defaults in both markets continue along near/at all-time record highs – and there are over 20 million empty homes in the U.S.
With respect to the residential market, there are only two, possible explanations for these catastrophic numbers. Either the supply has been built-up to such grossly excessive levels that there simply aren't nearly enough people to occupy these residences (ever)or their wealth/income levels have collapsed to a point where much of the U.S. population simply can no longer afford shelter.
For the housing market itself, it is totally irrelevant which of these scenarios represents the current U.S. market (personally, I see this as a 50/50 proposition). The U.S. has the largest excess supply of housing of any economy in history. This is purely cause-and-effect.
To begin with, the U.S. tax deduction for mortgage interest is (to the best of my knowledge) unique among major, industrialized economies. Like every tax-loophole, this distorts economic activity – through causing excessive levels of home-ownership, relative to the size of the population and/or the level of wealth of the American people.
Many Americans may bristle at me describing U.S. home-ownership as “excessive”. This is not social commentary, but purely economic analysis. Regular readers will know that I am a true egalitarian. However, we must never allow our views on social justice to cloud our analysis of economic reality. And the “reality” is that this massive, housing tax-loophole is one of the prime culprits for the current, catastrophic over-supply of housing in the U.S..
To be sure, there are many other contributing factors. Excessively low U.S. interest rates, the abolition of lending standards, and the abolition of regulation were also horrible mistakes. However, since all three of those previous mistakes were undertaken through orders from Wall Street, the realcause of the current, U.S. housing catastrophe was Wall Street's scheme to fleece the world out of trillions of dollars through marketing “toxic” mortgage products, and Ponzi-scheme derivatives – based upon the U.S. housing bubble.
While it was inevitable that such a premeditated hijacking of the U.S. economy would end in disaster, it is the mortgage-interest deduction which hasmagnified the amplitude of this disaster, considerably. Yes, encouraging high levels of home-ownership is a lofty ideal. However, as Americans (and the rest of the world) can now see, there is nothing desirable about having tens of millions of grossly, over-leveraged homeowners.
Indeed, one must assume that Wall Street chose the U.S. housing sector as the vehicle for its scheme not only to make out like bandits while they were pumping-up this bubble, but because they will net an even greater long-term haul through throwing tens of millions of American families onto the streets, and confiscating their homes. If the mortgage-interest deduction had not created so many over-leveraged homeowners (even before the housing sector became so extremely over-valued), Wall Street may have very well simply relied upon creating another equities-bubble to further its evil schemes.
A lesson to be learned (assuming anyone in the U.S. government is trying to learn from these mistakes) is that if you choose to distort your economy by channeling vast amounts of wealth into a particular sector (via an enormous tax-loophole) that such a sector must be much more vigorously regulatedthan other sectors of the economy – precisely to prevent an “economic distortion” from becoming an “economic bubble”. We can now all see where the combination of a huge distortion, and no regulation leads.
Be that as it may, the U.S. housing catastrophe is only one component of the U.S. economic meltdown. The combination of an entire sector of over-leveraged, corporate property-owners, decades of “extend and pretend” debt roll-overs, and the “death” of the U.S. consumer combine to make the U.S. commercial real-estate market at least as much of a nightmare as U.S. residential real estate. And standing behind the largest collapse of residential and commercial real estate in history are U.S. banks.
While the mark-to-fantasy accounting rules enacted in the U.S. last year have allowed U.S. financial institutions (and all U.S. corporations) to hide most losses on their books forever (unless/until assets are sold), Wall Street spent all of 2009 making “trading profits” in their own, rigged-casino (i.e. U.S. equity markets), and none of their time making loans to people and businesses in the United States.
As other writers have already observed, all that Wall Street “banks” really are today are grossly over-leveraged “hedge funds”, which are hiding trillions of dollars of real estate and other loan-losses on their books. They are “banks” in name only. Events in the U.S. mortgage market in 2009 confirm this.
Nearly 100% of new, mortgage debt in the U.S. last year was either originated or “guaranteed” by the U.S. government (see "The U.S. Government's Zero Down-payment Mortgages"). With respect to the “guaranteed” mortgages, all that U.S. “banks” did in 2009 was to insert themselves as “middlemen” in many of these mortgage contracts – taking a cut of profit for themselves, while assuming zero risk.
When you combine this with the fact that the U.S. government continues to “lend” unlimited amounts of money to the Wall Street bankers at 0% interest (i.e. “free money), and with every penny of those loans subsidized by U.S. taxpayers, it becomes totally impossible for the Wall Street oligarchs to justify their continued existence.
Large U.S. banks are essentially unwilling to supply any of their own money to the U.S. economy. There is obviously no possible benefit to the U.S. economy to “lend” these banksters (subsidized) money at 0%, so they can take a cut of the interest on new mortgages for themselves – while assuming zero risk. All that does is make mortgages inevitably more expensive for Americans because there are two bankers squeezing money out of them in these mortgages: the Wall Street middle-men and the U.S. government.
Similarly, the U.S. government (and the U.S. economy) would be in far better shape today if it had used part of the $10 trillion in loans/hand-outs/guarantees to the Wall Street oligarchs to create a new, nationalizedcommercial lender – much like it has nationalized the entire, U.S. mortgage market. For only a tiny fraction of that capital, the U.S. could have a vibrant, commercial lending sector. Instead, elements of the U.S. economy which would have otherwise been healthy enough to survive this economic cataclysm are being strangled to death through under-capitalization.
This brings me to the U.S. employment market. I was rabidly denouncing the ever more-fraudulent, monthly jobs reports from the U.S. Bureau of Labor Statistics throughout 2009, and increasingly other writers and economists are doing the same. There is no great “mystery” here.
For the last, several economic cycles, each time the U.S. weekly, payroll lay-offs begins to exceed the 300,000/week level (translating to between 1.25 and 1.5 million lay-offs per month) the U.S. economy has started to lose jobson a net basis. The same pattern held true at the beginning of the current collapse.
It is the simplest of arithmetic, and the simplest of economics to point out that as lay-offs continue to go higher that new hiring continues to go lower – in other words, the numbers always move in opposite directions. Thus, at thebeginning of this economic collapse, the U.S. economy was still producing about 1.25 million new positions each month (to partially offset lay-offs).
However, as U.S. lay-offs went to 400,000/week, and then 500,000/week, and then 600,000/week (peaking at roughly 3 million lay-offs per month), what the monthly jobs reports from the BLS have been pretending was that instead of hiring decreasing as lay-offs increase that U.S. hiring was increasingalmost as fast as the lay-offs increased.
Keep in mind that when the U.S. lay-offs were at 3 million/month, the BLS was engaging in the ludicrous farce that net monthly job-losses never exceeded 700,000 jobs. In other words, when lay-offs increased to 3 million/month, supposedly hiring increased (by 1 million jobs per month) to a level of 2.3 million jobs (3 million minus 700,000).
This isn't even theoretically possible. In the real world, when U.S. lay-offs hit 3 million/month, then (at best) there might have been ½ million new positions created – leaving a net, monthly job-loss of at least 2.5 million jobs. This is why early last year I estimated that the U.S. economy would lose roughly 20 million (net) jobs in 2009. I saw nothing in U.S. economic activity last year to cause me to revise that opinion.
I would suggest to readers that the latest jobs report from the BLS is a glaring, warning-siren that the U.S. government is about to at least partially abandon this economic charade. Remember that for well over a year now, the BLS monthly jobs numbers have not even been slightly constrained by facts.The numbers are total fabrications – with the only constraint being the level of gullibility in the market (and telling people what they want to hear).
This brings us to last Friday's very strange report. Clearly, what the market (and investors) wanted to hear from the BLS was that the U.S. jobs market was “continuing to improve”. What they got was the opposite news. The November number was “revised” to yield a positive number – while the December report was worse than November and “worse than expectations”.
Two observations here. First, the U.S. propaganda-machine has taken their “beat expectations” game to absurd, new extremes. Economic statistics are tortured every month to yield numbers which (at about a 10-to-1 margin “beat expectations”). Where these conjured numbers have represented extremedeviations from reality, the technique has been to quietly revise numbers lower in following reports – generally through hiding these negative revisions with another “beat expectations” headline number.
The BLS (and thus the U.S. government) chose to engage in the oppositetactic with this report. It allowed the media to focus on that positive revision for November by choosing not to distract people with a “happy-days-are-here-again” number for December.
Let me be crystal-clear on one point: there is no possible way that net, job-losses could have ended in November. Apart from the multitude of reasons mentioned earlier in this piece, another recent commentary focused onanother dismal U.S. economic report which conclusively proves that the U.S. economy was still losing large numbers of jobs in November: construction spending plummeted 13% year-over-year.
It was the Obama regime, itself, which told people that all the “infrastructure projects” which were (supposedly) part of its “stimulus plan” would not begin to ramp-up until late in 2009 and early-2010. Thus, for actual construction spending to be 13% lower than the catastrophic number for November of 2008 (the heart of the global panic) this is conclusive. There are no “infrastructure projects” in the U.S. (apart from private prisons) and there are no “stimulus” jobs.
When we combine the facts with the choice by the U.S. government to manufacture a December jobs report which shows employment trending in thewrong direction, this would seem to me to be a guarantee that the U.S. government is about to abandon its “U.S. economy is growing” propaganda – and embrace the “double-dip recession”.
While it is always possible that this is merely a Wall Street tactic – to whip-saw investors through manufacturing a big sell-off (after luring all investors back onto the “long” side), my own interpretation is that the U.S. government is now seeing such horrific weakness in the U.S. economy that it has decided that any further pretense of “growth” and “recovery” would be so obviously implausible that even the gullible, market-sheep could no longer be duped.
Either interpretation would/will lead to the same result: a massive sell-off in U.S. equity markets. Those “investors” who have made profits over the last ten months in the banksters' rigged casinos should consider themselvesextremely fortunate – and take their money off the table while they still have it. This is as close as you will get to “advance warning” from the U.S. government. The sell-off, itself will undoubtedly begin before the next, catastrophic economic report comes out.
The wait won't be very long. There never was a “U.S. economic recovery”. However, the coming collapse in this so-called “double-dip” will be very, very real.