09 June 2011

A take on current events and QE3 by a friend of the Blog

All that stimulus money, and what is there really to show for it on a lasting, long-term basis?  Not much, and certainly not worth the long-term costs when you factor in future debt payments!  Remember all of those big flashy signs that let you know that your Government's Stimulus program was making an improvement here and there, while ignoring the fact that you were paying for it then, now, and in the future?  Wow, what a long term impact on the economy...not!  By now, we were supposed to be (theoretically per Obama and teams' calculations) going to be in the midst of a robust economic recovery that was going to solve all of the problems of employment, housing, etc.

Instead, we've spent a ridiculous amount of money, including cash for this, cash for that, and, in the end, the laws of free markets and supply and demand can not be beaten.  Somethings are better left free of government interference, and, in the end, things like the housing market could clear on their own and find the bottom sooner and more efficiently.  Instead, we are today left swimming through the same cloudy pool of uncertainty on many key economic fronts.

Since the first preliminary reports of Q1 GDP were reported at a lackluster 1.8 percent, recent economic figures are showing a trend towards less robust growth.  Things were "supposed" to be humming by now, and the facts are they are not.

In advance of Friday's big payroll report, ADP released its own version this morning which fell way short of expectations.  Now the correlation with the more widely followed Government data on Friday has been somewhat loose at times, so it may or may not translate into the Friday report.  However, the investment houses waisted no time today in lowering the expectations for job gains.

The leverage the Dems got from recent larger gains may be losing steam if the numbers disappoint as it looks like they may.  Yes, even though we are adding some jobs, we are not adding anything like we should, and that will result in the headline unemployment number turning around and going higher.

That will get the attention of the masses, and even the liberal media have to report the unemployment rate.

Don't worry though, friends call this employment situation as "transitory", the most over-used word in DC.  Really?  Seems like you've thrown everything, including the kitchen sink, at it, and although it appears better, the gains we saw recently aren't sticking for the all important LONG TERM!  Temporary, politically motivated fixes rarely serve the long term good.

How about inflation? - it's definitely been higher lately.  But, all you hear from DC is that higher inflation is now transitory (there's that word again), too.  Now, I don't know where energy prices are headed, but they've obviously made us all pay more at the gas pump.  That's caused all transportation costs to soar, and, eventually the poorly run Postal Service isn't the only business looking to the consumer to help on that front.  But, it's also food, which the government likes to play down as temporary as well.  The facts are that food is more global than ever, and more world population growth will forever increase demand on a necessity with fairly limited supply.  To me, that seems like higher food prices are here for the foreseeable future....not to mention all of the weather issues all over the US. Besides, package and serving sizes continue to shrink at the grocery store and restaurants.  That's sneaky inflation, but inflation nevertheless!

Then, there is commodity inflation, much of which has been induced to great speculation and inflation from quantitative easing.  Even specialty paint diecasts (platinum, gold, and copper plated cars) have gone up significantly this year despite the fact that the demand for diecasts is far less than NASCAR's peak a few years ago.  That's inflation, and that's a direct result of quantitative easing.

Speaking of quantitative easing, thank goodness it's coming to an end.  I think the long term benefits are minimal to none and certainly not good, for the responsible crowd.  The penalty inflicted on savers and those retired on a fixed income are now significant, given the lack of yield available on investments.  Now that we are into multiple years of artificially low rates, the nest eggs of many retirees are vanashing before their eyes.  That is just not right! Let the forces of the natural economy dictate the level of interest rates.  You are robbing the very people that saved like they were supposed to!

Back to inflation and housing, and this is where it gets interesting because of the trend towards renting versus owning.  No surprise, the dream of owning a home has been an absolute nightmare for many.  Given the prospect that housing prices are not going to soar when/if we find the magical bottom, many people are deciding to ditch the hassles of ownership when they can now rent from a wonderful new stock of once owner-occupied housing.  As a consequence, rental prices are rising.  Here's where it gets intersting - in the inflation calcs, the rent-equivalent factor of housing is actually increasing quite a bit and is further pushing the inflation statistics higher.  I don't think the wiz kids in Washington thought that price pressure from housing costs would be showing up in their fancy math calculations given the overall condition of the housing market, but it is.  Just wait for the spin machine to start discounting the CPI, even CPI-ex food and energy, because they'll want to downplay the inflation number given the massive move to rental units and subsequent rental increases.  No doubt, we'll soon be hearing that the CPI numbers are "overstating" blah, blah, blah, blah.  The fact is there is some serious inflation being paid on a daily basis by all of us.  The general population knows it, feels it, and their cutting back in other areas in order to have money left over to pay taxes.

Which brings me to my final point.  How's that property tax looking?  Frickin' brutal is right!  Finally, because of the multiple year averaging, our assessed values are starting to decline.  Three years later, finally a move downward.  However, surprise, the property tax rate has increased more than the assessed value decline, so the overall property tax bill is increasing for most families.  Trust me, without the expectation of increasing home prices, there is going to be a significant group of people that are going to start questioning the sanity of the amount of property taxes they are paying around here on an ongoing basis.  Not to mention, if you are one of the retired crowd trying to live off of your QE induced low return investments, the ability to keep up with property taxes will be an ongoing hurdle.  More future supply for the sell side of the market.

Almost done - don't think for a moment fiscal responsibility is really going to take hold at the local and state level.  Your tax in Illinois is never going to be less than 5 percent, and I will bet that it will be easier for Quinn and his cronies in Springfield to do stiff battle over a debate of actually increasing that rate versus actually making the cuts required to avoid that necessity.

So much has been spent, and so little has really, and honestly, been done to fix the long term issues.  My real concern is that politics will take over with the election looming and nothing good will come of the decisions made...and certainly nothing more than pushing the problem down the road, like the solution to the Hillside Strangler on the Inbound Eisenhower Expressway.  All that money to push the log jamb a mile and a half further down the road without really solving the issue.  Oh, and more recently "rebuilt" the Ike over the previous 2 years, and now they are writing on the front pages about trying to fix the Ike.  Didn't we just spend a ton of money over the past two years?  That's right - it was a throw of taxpayer money under the guise of a much needed stimulus project.  Nothing accomplished for the long term good, and a whole lot of debt to show for it.

I've come full circle....like the virtuous cycle of stupid, short term government decisions which will someday allow much of "consuming America" to be owned by other "saving countries" like China.


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