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REMINDER: All investment, economics, and finance related material now appears at the new IaconoResearch.com. For the time being at least, this has become a personal blog covering a variety of mostly unrelated topics.
It’s hard to imagine how the economy is going to improve in any substantive way over the next 75 days. One good thing for the party in power is that the November 2nd election comes four and a half weeks after the monthly labor report on October 1st and just three days before the next one on November 5th – at least the latest unemployment data won’t be too fresh in the minds of the electorate when they go to the polls.
From the Tom Toles archive and blog at the Washington Post.
The most insightful (and funniest) commentary I’ve come across all year regarding our voluminous tax code and its urgent need for major reform comes from Caroline Baum at Bloomberg where these thoughts were offered up as part of a wide-ranging critique of a system that, one way or another (something about Tea Parties) will one day be overhauled.
The public is sick and tired of politicians preaching tax increases and practicing tax evasion. We’re fed up with the 67,000-page loophole-ridden tax code with its egregious exemptions and deductions.
Did you know that there’s a standard tax deduction for the blind but not the deaf? Or what about the deduction for work uniforms, except if you’re a painter wearing white overalls? Imagine how deaf painters must feel.
There simply has to be a better way.
One has only to look where incentivizing behavior through endless changes and tweaks to the tax code have gotten us to date in order to realize that the system – as it has evolved over decades – is a dangerous tool in the hands of politicians.
A report in today’s Wall Street Journal reminds us how unlikely it is that the baby boomer-led U.S. economy as we once knew it will ever be restored. Incomes, savings, investments, and consumption are now entering a new and very different era where all four seem to be going in the same direction – down. The decline in spending by retirees is clear to see in the chart below and baby boomers will probably have to cut back even more.
The diminishing work prospects will require many older folks to make do with less - a discouraging outlook for firms hoping to sell them everything from dinners to cars.
As of 2008, the latest data available, people aged 65 to 74 were spending 12.3% less than they did ten years earlier, in inflation-adjusted terms. They cut spending on cars and trucks by 46%, household furnishings by 35% and dining out by 27%. At the same time, they spent 75% more on health care and 131% more on health insurance.
That’s a pretty remarkable shift in spending – from cars, clothes, and dinners out to monthly meds. Sadly, the health care industry is likely to be about the only “engine” for economic growth in the U.S. for some time to come.
Mark your calendar for next Monday, August 23rd, because that’s when existing home sales for the month of July will be reported – the first sales total after the government stopped “paying people to buy houses” as Robert Shiller recently noted. At that time, whatever hope there once was of a sustainable rebound in property prices is likely to be dashed.
In this Bloomberg commentary today, Michael Carliner brings up the disturbing possibility that we might be hearing about underwater homeowners for many years. I don’t know about you, but I think I’ve already heard enough on this subject to last the rest of my lifetime.
If expectations reflect changes in home prices over the last three years, for example, consumers seem to anticipate annual house price declines of 3.7 percent to 10.4 percent, depending on which of the various house price indexes is used.
…
What will it take to turn this attitude around? Only a sustained flow of favorable information is likely to alter negative perceptions of housing as an investment. The market is unlikely to provide such good news in the near term.More likely, markets will reinforce expectations of further price declines. Even with new home construction declining, there are too many houses for sale. And when the bounce provided by the home buyer tax credit ends, there will be renewed pressure on prices.
…
The reality is that the real estate market won’t fully recover until builders and consumers start believing once again that housing is a relatively safe investment with reasonable returns, and that will take some time.
Of course, the continued, slow emptying of the “foreclosure” pipeline into the resale market will put downward pressure on prices for years to come, the banks seeming to be in no hurry at all to move things along any faster than the current glacial pace. We could be hearing about underwater homeowners for the rest of the decade…
For some reason, the closing credits to The Other Guys contains a number of animations on the subject of the ongoing financial crisis, beginning with how a Ponzi scheme works.
Half way through is my favorite – a time lapse depiction using elevators to show how the ratio of CEO salaries to employee salaries has changed over the last hundred years.
MUST READS
Weak Japan GDP Hits Markets – WSJ
Ten-year yields hit fresh 16-month low – Reuters
China overtakes Japan in 2Q as No. 2 economy – AP
What the Double-Dip Recession Will Look Like – 24/7 Wall Street
Citigroup: U.S. Home Resales Due for New Low: Chart of the Day – Bloomberg
Dodd-Frank Financial Reform: The Triumph of Crony Capitalism – Daily Capitalist
It Takes a Tea Party to Start Tax Revolution – Baum, Bloomberg
JOHN STOSSEL: Memo to Alan Greenspan — Zip It – Fox Forum
Mass Delusion, American Style – Burning Platform
Housing Ills Cloud Debate on Fannie – WSJ
MARKETS/INVESTING
Oil hovers under $76 in Asia amid demand doubts – AP
Gold hits 7-week high as Japan data knocks shares – Reuters
China Favors Euro Over Dollar as Bernanke Alters Path – Bloomberg
Brutal week, but battered bulls still unbroken – MarketWatch
The Hindenburg Omen: Doom. Doom! DOOM!!! – reason.com
A Fragile Economic Outlook Continues – Hussman Funds
Why Are Exchanges For-Profits? – TBP
ECONOMY/WORLD/HOUSING/BANKING
Another Threat to Economy: Boomers Cutting Back – WSJ
CPI Has Nothing To Do With Deflation Risk – Asia Times
Economic fears rise as disappointing figures pile up – LA Times
Germany sticks to debt target despite boom: finance minister – Reuters
Ireland can withstand euro’s ordeal by fire, but can Southern Europe? – Telegraph
Your House Might Be Underwater for Years – Bloomberg
A desert city that didn’t fan out – LA Times
FHA Gets Tougher on Mortgages – WSJ
Hoenig: Keeping rates low a’dangerous gamble’ – China Post
The Fed Can’t Solve Our Economic Woes – WSJ
By Tim Iacono, Since 2005
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