Newsweek writer Rob Samuelson is starting to climb on my “I like to read” list for daily articles. Today he writes about Lollipop economics, which coming from Austrian Economics is preaching to the choir, and how lollipop economics are dangerous to the U.S. economic environment.
Now I want to use the term environment for a specific reason. One, I don’t want to refer to it as a system. I don’t want to give the impression that pulling one lever here will make something else rise somewhere else. Unfortunately for us and to politicians it doesn’t work like that. Think about it, if it did then we would not be in a problem now would we.
No, U.S. economics…actually macro economics is an environment. Performing an activity in one part of the econo-sphere has many unpredictable changes across the econo-sphere. Lolly-popping, for instance, takes money from investors, workers, and consumers [alike, in the form of taxes] and uses that to stimulate “popular” part of the econo-sphere.
let’s use the housing market as a sudo-case study. The candidates, except Ron Paul, want to stimulate the housing market. To do that loans must be issues and prime rates lowered. First, the investors will no engage at this level. A flood of low interest loans exponentially raises their risk and the low prime rate guaranties a little return on their investment. Remember that these investors have the money because they know how the market works and worked hard to earn a profit in the market. Their judgment is typically the best as they are the ones that have a direct pulse on what the consumer wants.
So the investors are not going to be hot for this stimuli. Lets take the worker, i.e. the real estate sector. The people that work to manage the transaction between to private parties (the buy and seller) are licking their chomps at this. Regardless if this is a good idea or bad idea, they want any “sense” that it is a good time to buy so they can in turn make a profit. Let it be known that its my opinion that they are the ones bytching about how the housing market is taking a tumble.
The economist that do not work for a right or left wing think tank call this a “market correction”. Remember that El Presidente Bush stimulate the housing market early in the 2000’s. Yeaeeeeeeh, those of us that watched the market from the Bush intervention, waited for this and bought our houses in April (raising hand).
Consumers, or at least those who happen to be shopping during the initial stimulus period are going to luck out. Of course those are the ones that are going to be making the news. And of course, why not. When the President stimulates a section of the market at the expense of the rest of the market (in its entirety) he or she will be toting that for as long as he or she can. During that time it create a false sense of opportunity.
Consumer continued…. in reality Consumers will have a hard time finding a lender that is willing to invest in them to purchase a home. Unless, of course there is some guarantee that they can make their money back. Like….um….lets say in the sub notes or commonly known as Adjustable Rate Mortgages. People seeing a 4% prime will mess their pants at a chance to own a home for so cheap.
Consumer continued… “The screwing”, After a period of time people will bytch that its hard to get a loan. Investors will bytch that they cannot make a reasonable profit. And then the magic happens, the Federal Reserve moves from the consumers side of the table and over to the investors side. Slowly they raise interest rates to quell the mass whining from the investment sector. And thus the implosion of the housing market as all the consumers holding an ARM get a collectively sodomized (with out lube). Let’s be honest, if you took an ARM you deserve to get nailed. Shame on you.
Now the sector is foreclosing like Paris Hilton crossing off her boyfriend list. This infuses the market with surplus houses. Investors now lose their interest revenue. Consumers lose their consumption, and the workers lose their ability to work as the housing market sector collectively corrects itself……every body gets F’ed!
Why……because we bought into the Lollipop promises of the person you voted for.
And yes….I was one of those bastards that bought a foreclosed house at a fixed prime rate on the very last day before the the housing market start popping. Serious, we entered on Friday and the next Monday it went *pop*.