2011 August 17 | timiacono.com

Perry and Bernanke – Day 3

It has been fascinating to watch the mainstream media attention given to Governor Rick Perry’s comments on Fed Chief Ben Bernanke and his printing press, though, in all the coverage, it would have been worth mentioning that the guy who came in second in the Iowa straw poll (Rep. Ron Paul) wrote an entire book about the central bank (End the Fed).

From the Chris Britt archive at Creators.com.

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I’ve about had it with the inane theory that the lack of aggregate demand is the primary reason why we are now mired in the worst economic slump since the Great Depression. The latest bit of idiocy on the subject was offered up by Reagan/Bush policy adviser Bruce Bartlett in a New York Times commentary today that, when laid side-by-side with some of Paul Krugman’s writing on the subject (see here, here, here) is truly disturbing because, this “lack of aggregate demand” theory courses through all policymaking debate, on both the left and on the right, in Washington and New York.

The theory posits that it is not important what level of overall demand an economy has reached or how it got there, but that, when all the wheels fall off the wagon as they did back in 2008, the imperative is for the government to somehow restore that level of demand.

Otherwise, you get another Great Depression.

It makes no difference if, back in 2005, people making $40,000 a year were buying no money down $500,000 homes and then, after the home’s value went up to $600,000 in 2006, pulling out their $100,000 in brand new home equity to put in a pool, buy a motor home, and install big screen TVs in every room of the house because, once you reach a certain level of demand and it begins to drop like a rock because everyone has become indebted up to their eyeballs, it must be restored.

At that point, it simply becomes a question of how much taxes must be cut or how much money must be borrowed or printed to accomplish that goal.

Whether that level of demand was reasonable never seems to come up and the idea that we’ve come to the end of a 30-year debt binge in all areas of public and private finances – where the accumulated debt can no longer be easily serviced, let alone taking on new debt to fuel more consumption – gets only passing notice.

There are lots more examples of this here, here, here , here, here, here, and here, this unfortunately being another example of how conventional wisdom is often wrong.

A Dying Residential Construction Industry

You’d have to think that, at some point, the Commerce Department is going to lose interest in reporting the monthly housing starts data since, if the graphic below were an EKG, the patient would clearly be dead. Nonetheless, they push on, today’s report(.pdf) indicating that housing starts fell 1.5 percent to an annual rate of 604,000, right around the historically low average level of the last three years since the housing boom went decidedly bust.

Permits for new construction fell 3.2 percent to an annual rate of 597,000, but, nobody really cares.  Of more interest to housing market observers these days is whether wards of the state Fannie Mae and Freddie Mac will continue to exist in their current form and if they might someday soon turn into the nation’s largest landlord, renting out the millions of foreclosed homes that they either already own or will take back in the years ahead.

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Wednesday Morning Links

MUST READS
Debt talks fail to calm markets – BBC
Crisis deepens as slump reaches Europe’s core – Telegraph
The Consumption Economy Is Dying—Let it Die – Atlantic
U.S. Government Merits Junk Debt Rating – Kotlikoff, Bloomberg
Rick Perry vs. Ben Bernanke: Round One – Taibblog
Perry’s criticism may portend more political pressure for Fed – Washington Post
In Rick Perry’s World Without a Fed, He Should Barter for U.S. Votes – Bloomberg
Rick Perry’s Attack on Bernanke Highlights Political Risks Facing the Fed – WSJ
Perry’s Tone Toward Bernanke May Not Play Well Outside of Texas – Bloomberg
FBI’s Mortgage Fraud Effort Leaves Big Banks Untouched – HuffPost
Buffett: Stop Whining and Write Uncle Sam a Check – Fiscal Times
The Stooge of Omaha – Financial Post

MARKETS/INVESTING
Oil rises above $87 on mixed US supply – AP
Gold supported by euro zone debt concerns – Reuters
Silver prices likely to follow gold’s lead – Mineweb
Markets Go From Nightmare to Bad Dream – Reinhart, Bloomberg
‘Gold should only be sold, not bought at these prices’ – Commodity Online
Wells Fargo: Gold Market Is a ‘Bubble Poised to Burst’ – Bloomberg
SNB moves softly to tame Swiss franc; currency spikes – Reuters
China allows currency to rise as inflation persists – Channel News Asia
How volatile has the market really been? – MarketWatch

ECONOMY/WORLD/HOUSING/BANKING
It’s the Aggregate Demand, Stupid – NY Times
Moody’s Lowers Economic Growth Outlook – WSJ
Rising Spending Holds Off U.S. Double-Dip – Bloomberg
New High: 93% Say They’re Paying More for Groceries – Rasmussen
The Problem With Growth Data? It Isn’t Always Reliable – NY Times
UK unemployment jumps as economy falters – Guardian
Bank of England Abandons Inflation Target – WSJ
Biden to Reassure China on Treasuries – BusinessWeek
China’s economic policy in a league of its own – MarketWatch
California home prices and sales fall in July – LA Times
Bullard: Rate Pledge Not a Signal for More Bond Buying – Bloomberg
Don’t Blame Us, Say Central Bankers – WSJ

 
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