Real House Prices Are Back To Q1 1999 Levels

So calculatedriskblog here: "In real terms, all appreciation in the '00s is gone." 

The Economy is NOT Improving: 3rd Estimate of Real GDP Falls to 1.8 Percent from 2.0 for Q3 2011

What a joke the news is today. GDP is revised down and all you hear on the news is Ho! Ho! Ho!

Q2 GDP was 1.3 percent, and Q1 0.4 percent, for an average growth rate in 2011 so far of barely 1.0 percent.

One percent. From 1930 to 2000 growth averaged 3.5 percent a year. That's the normal America, and it isn't anywhere in sight and hasn't been in over a decade.

If the economy were improving truly, GDP would be much in excess of 2.5 percent, the minimum growth needed to accomodate just the natural growth of the population. The last time we had such growth ended a year ago September, spurious as it was, consisting primarily of parasitical spending by government. It wasn't even tax money the government spent. It was borrowed money. For all that, 2010 growth overall was merely 3.0 percent, in 2009 -3.5 percent, in 2008 -0.3 percent.

The personal savings rate since September 2010 has fallen 30 percent.

The ratio of the number employed to the size of the population has fallen back dramatically to levels last seen in the 1970s and early 1980s.

The growth in employment in the post-war period has stalled with the stall in GDP:

Household net worth has fallen 12 percent since 2006, 85 percent of that from the housing collapse.

Without jobs there is no growth in the savings which form the foundation of housing wealth. Without housing wealth there is no middle class which consumes the products whose aggregate value comprises 70 percent of GDP. And hence no advance in GDP.

A rich man can smoke only so many cigars, a Christopher Hitchens only so many Rothmans.

Data here and here from The Bureau of Economic Analysis.

Bruce Bartlett is so full of it: "More than 90 percent put themselves squarely in the middle"

No they don't. Bruce Bartlett has no scruples left (link):

Social class also involves self-identification. According to the General Social Survey at the University of Chicago, which has been asking people what social class they belong to since 1972, more than 90 percent of Americans put themselves squarely in the middle – belonging either to the working class or the middle class.


This so broadly defines the middle it makes the definition meaningless.

The chief marker of membership in the middle class is homeownership, which the one third of Americans who are renters in 35 percent of the occupied dwellings in the US cannot claim, and they don't, despite what Bruce Bartlett says. They know they are working class, and they admit it.

About equal numbers have said historically that they are either working class or middle class, 45 percent each, by Bartlett's own admission.

Here's his table of the results of the latest self-identification of social class by Americans, which shows an increase in the percentage of Americans self-identifying in 2010 as working class and a more substantial decrease in the percentage of those self-identifying as middle class, just what you would expect during the collapse of the housing bubble and the decline in homeownership:

The Increase in the Wealth Gap is Due to the Housing Collapse

The latest figures from the Federal Reserve (link: compare lines 4 and 42) show that enormous wealth destruction in housing is the overwhelming cause of the dramatic decline in household net worth between 2006 and 2011.

Of the $7.8 trillion decline in net worth over that period, $6.6 trillion of that is all from the bursting of the housing bubble . . . nearly 85 percent.

Hurt most by this are the millions of middle class Americans whose primary asset is their home. Desperately trying to hold on to what they have, by scrimping, saving and working, they don't have the luxury of time to occupy much of anything to protest what is happening to them.

It is impolitic to say so, but their plight is the frequent one of the undiversified investor: too many eggs in one basket.

But that's not a bug, it's a feature of entering the middle class, whose goal is owning a home and raising a family in it, not sophisticated money management and investing. Such people who can scrape together the income of $40,000 to $50,000 necessary to support home ownership typically aren't going to have significant financial assets to manage. Of the 150 million wage earners in America, after all, fully 99 million make $40,000 a year or less.

Neither Obama nor the Republican candidates for president, nor Occupy Wall Street or the Tea Party for that matter, seem to talk much about any of this, yet the collapse of housing better explains the growing gap between rich and poor in America than do the supposed crimes of the one percent. The rich may be getting richer, but it's inspite of the fact that their own homes have declined in value, too. The middle class is being squeezed downward because its primary asset continues to lose value.

The deep frustration of so many of the American people with their elected leaders is that the leaders really don't represent them in this matter, in the same sense that sympathizing with, understanding, or trying to fix this problem doesn't have the urgency for them anymore than it does for the rich. The reason is that virtually none of them has personal experience of it. From our president to our senators and all the way on down to our representatives, we have leaders whose own high net worth and the insulation from our vulnerabilities that that affords make them remote, unfeeling, and unmotivated.

In point of fact, since it was Democrats and Republicans who conspired in the very policies which have misled Americans to drain $10 trillion in home equity over three decades (for example, dramatic changes to tax and banking policy in 1997 and 1999 under Bill Clinton, Newt Gingrich and Phil Gramm), it shouldn't be surprising that none of them really wants to talk about this gorilla in the living room. They helped make and sell the bed we're now sleeping in. And we bought it.

Of about 132 million total dwellings in 2010 of all types (table 3), just 61 million occupied dwellings are single family homes occupied by their owners, with an additional 11 million occupied by renters, according to the latest Census data here (link). That means something substantially less than 46 percent of total dwellings in the country could plausibly represent the American dream of the traditional middle class. The richest quintile, those households making over $100,000 per year, let it be remembered, lives in houses, too.

The Economic Policy Institute, whose president is a socialist, here (link) provides a useful summary of how wealthier individuals avoided the severity of the housing decline precisely because more of their assets were diversified and were not all riding on real estate (emphases added):

In 2007—prior to the Great Recession—median net worth was $106,000 (consisting primarily of home equity, as discussed later). ... Net worth for the top 1% was $19.2 million in 2007 . . ..

The updated figures for 2009 reflect the enormous destruction of wealth due to the bursting of the housing bubble. As a general rule, households with less wealth have a greater share of their wealth embedded in their homes. Thus, it is not surprising that the fallout from the deflating housing bubble disproportionally affected them. On average, the top 20% lost 16.0% and the bottom 80% lost 25.1% of their total wealth in 2008 and 2009. Average wealth of the bottom 80% was just $62,900 in 2009—a dropoff of $40,900 from 2007 and slightly less, in inflation-adjusted terms, than it was more than a quarter-century ago in 1983. Those at the top also lost ground but not nearly as much, percentage-wise. Average wealth of the top 1% was close to $14 million in 2009, down $5.2 million from 2007. ...

[H]ousing equity is a far more important form of wealth for most households. ... In 2007, the middle 20% of households held $196,700 in non-stock assets, and only $10,200 in stocks. In other words, non-stock assets—which are over-whelmingly housing equity—made up about 95% of this group’s wealth.

In the United States homeownership has long been associated with solid footing on the economic ladder, and yet the housing crash has meant that for a broad swath of people homeownership is no longer a reality.

The stepping stone from the lower and working classes to the upper classes, obviously, is the middle class. Very few skip that step, on the way up or on the way down. Rags to riches and back to rags again is interesting, but not common. Rich liberals from both parties, however, have a vested interest in minimizing the middle class to polarize the country. Rich Republicans and Democrats alike don't want the competition entrepreneurial Americans threaten them with, and leftist Democrats need a servile, manipulable constituency they can feed table scraps to in order to keep themselves in power. Some so-called conservative Republicans also, it must be said, seek their own fiefdoms of influence and power at the expense of impulses to limited government. George W. Bush's play for senior votes with Medicare Part D comes to mind.

What middle Americans should demand is a bigger House of Representatives to co-opt these entrenched interests by de-concentrating the power which the 435 now enjoy. Tea Partiers in particular should be advocating a return to the constitutional principle of one representative for every thirty-thousand of population, if their protestations to originalism mean anything. Instead of the bloated, rich and corrupt 435 politicians we've been stuck with for a hundred years, we should have 10,000 lean citizen legislators.

When we get them, things will begin to change for the better because our representatives will have far less power and far more reason to listen to the people. Special interests will have much less influence over them, campaigns will be far less costly, and Congressional staffs could be reduced dramatically, saving us money and getting some actual work out of our politicians for a change. The move would also take away the enthusiasm for radical proposals such as the elimination of the electoral college by dramatically expanding the pool of electors in presidential elections.

We might even persuade such a House to overturn the 17th Amendment, another blow for originalism, which would help improve the US Senate almost overnight. By returning the corrupting influences of campaign cash to state houses where senators would be appointed, we might actually be able to do something about corruption more often because it would be closer to home and we'd be more aware of it.

Net Worth of Poorest Republican Candidate for President is 10 X More Than 75 Percent of America

Here's the minimum net worth of the Republican candidates for president:

Sen. Rick Santorum: $880,000

Gov. Rick Perry: $1.1 million

Rep. Michele Bachmann: $1.8 million (Congressional disclosure is average of minimum and maximum)

Rep. Ron Paul: $3.6 million (Congressional disclosure)

Newt: $6.7 million

Gov. Jon Huntsman: $16 million

Gov. Mitt Romney: $190 million

Discussed here (link).

75 percent of the American people have a net worth in 2007 of $80,000 or less.

Brookings Institution Must Be Nuts: Says Congressional Wealth Reflects Middle Class

Brookings Corporate Sponsors

I refer to this in USA Today (link) back in November:

Lawmakers disclose their assets and liabilities only in broad ranges. So the numbers are estimates — the average of a member's lowest and highest possible net worth. Their actual wealth is often higher because disclosures don't include home values.

Despite some superwealthy members, Stephen Hess of the Brookings Institution says Congress generally reflects the middle class.

"In many cases, the top 10% are self-made … and it reflects something that's in the American psyche," he says. "We're not against people being rich. We just wish we were. But we are particularly attracted to people who made their own riches."

In the USA Today list of 530 US Representatives and Senators, fully 250 or 47 percent declare their net worth, sans their homes, to be $1 million or more. Add in everybody down to a declared net worth of $600K or more (the average of $1.1 million and $100K) and the list balloons to 315 or almost 60 percent of the Congress.

By contrast, 75 percent of the American people have average net worth of less than $80,000 as of 2007. In view of what has happened to housing values since then, I would expect more people to be worth even less than that.

Unlike the members of Congress in the USA Today report, household net worth calculations as tracked by the Federal Reserve include home values.

And between 2006 and Q3 2011, household net worth has fallen by $7.8 trillion, $6.6 trillion of which has been lost in the real estate maelstrom.

For Brookings to say Congressional wealth generally reflects the middle class is preposterous. Kind of like The Wall Street Journal claiming the tax money the government needs so desperately will be found in the middle class, not among the wealthy. Lies, damned lies, designed to rough you up before they pick your pockets again.

WE ARE RULED BY THE RICH.

Anyone who contributes one red cent to their campaigns should be . . . er, institutionalized.

Home Prices Are Still At The Top Of Their Historical Range Before The Bubble

Note the inflation-adjusted similarity of the current index value to the late 1980s and the late 1970s. 

This means prices could continue to fall at least another 7-8 percent from April 2011 levels, and easily overshoot to the downside as the imbalances continue to correct.

And it could take a very long time.

(source)

Homeownership Under Obama Hits a New All-Time Low of 59.2 Percent

Even a broken clock is right twice a day:

"This is a make-or-break moment for the middle class and all those who are fighting to get into the middle class. At stake is whether this will be a country where working people can earn enough to raise a family, build a modest savings, own a home and secure their retirement."

-- President Obama, quoted here, Dec. 6, 2011

The fact is the moment has already broken against the middle class.

Nobody is fighting to get into the middle class. The middle class is fighting to stay middle class, and is losing.

The president, who only now protests that he would rescue the middle class as the election season heats up, has actually presided over its demise, turning the middle class into the working class renters of yesteryear, and worse, according to this story from August 5, 2011 at CNN Money (link):

Home ownership is on the decline and, according to a recent Morgan Stanley report, the United States is fast becoming a nation of renters.

Last Friday, the Census Bureau reported that the percentage of people who owned a home had dropped to 65.9% during the second quarter -- its lowest level since the first quarter of 1998 and a far cry from the high of 69.2% reached in late 2004.

Yet, in a research paper issued a week earlier, Morgan Stanley (MS, Fortune 500) analysts Oliver Chang, Vishwanath Tirupattur and James Egan argued that the home ownership rate is even lower than the Census Bureau statistics say.

In fact, once they factored in delinquent mortgage borrowers (the ones who are likely to lose their homes at some point), Morgan Stanley calculated that the home ownership rate is more like 59.2%.

That's the lowest level since the Census Bureau started keeping quarterly records back in 1965 (before that, it recorded home ownership rates once a decade). The Census Bureau's statistics, however, do not factor in mortgage delinquencies.


When it comes to savings, the president speaks of modest savings and secure retirement as his goals for us, when the actual picture is a grim present and a worse future.

A survey using 2009 data and making the rounds in May 2011 said nearly half of Americans couldn't come up with $2,000 for an emergency within 30 days (link).

And just two days ago a story (link) reported on a different survey which suggests that over half of the 151 million American workers have less than $25,000 saved while over half of the already retired are in the same boat:

More than half of all workers, 56%, say they have less than $25,000 in savings, according to a survey by the Employee Benefit Research Institute. ...

More than half of retirees, 54%, report they have less than $25,000 saved. That's up dramatically from 2006, when 42% said they had less than that.


The most recent data from the Bureau of Economic Analysis (link) confirms that there has been a steady decline in the personal savings rate under Obama from 5.3 percent in 2010 to an annualized rate of 3.8 percent in the third quarter of 2011, a nearly 30 percent decline from what was already an inadequate level.

Some unemployed and now homeless families in hardest hit states like Florida are reduced to living in their cars, trucks and vans because shelters are already full. Their plight was the subject of a recent story (link) on 60 Minutes.

The American middle class is under siege on every front, from jobs, to homeownership, to family formation, to savings, to retirement. All this has unfolded under Obama's watch, who vacations, golfs, parties, fund-raises and speechifies, railing against business and the rich at every opportunity. But it is the middle class which is disappearing as he speaks, and he's done nothing to stop it.

The true meaning of class warfare.

The Next Bailout: Think Fed Leverage at 53:1 is Bad? Try the FHA at 417:1.

So says Fortune (link), or else it's curtains for Ginnie Mae:

The second catalyst [for government support of housing to decline] is the FHA, which looks increasingly like it will need a bailout. In its annual report to Congress, released a few weeks ago, the FHA reported estimated economic net worth of $2.6 billion backing $1.078 trillion insurance in force, for a capital ratio of just 0.24% (or 417x leverage). One year ago, the capital ratio was 0.50%, and in 2007 it was 6.4%.  The FHA's annual report claims it's adequately capitalized, but this conclusion relies on home prices not falling at all from here. ...

The government will have to pony up to recapitalize the FHA. FHA mortgages are fed into Ginnie Mae MBS, and Ginnie Mae MBS are explicitly backed by the full faith and credit of the United States government. So if the FHA runs out of funds, the government will have little choice but to step up. To do otherwise would be a default – not out of the question these days, but not very likely either.

FHA and VA loans fill void left by private lending

Dr. Housing Bubble weighs in with the big picture (link):

The trend for lower home prices has been baked in for nearly a year now. Last summer we had a mini burst of buyers thanks to artificial tax credits and low interest rates. I still view the current market as being designed for the nothing down leverage happy mentality that is present in our society. You have a large number of buyers purchasing homes with 3.5 percent down FHA mortgages and the default rates are soaring in this category. ...



Over half a decade ago I knew the bigger issue would be the cognitive dissonance that would linger from a post-bubble world. Many now realize that what occurred in the housing market was a once in a lifetime spending binge induced by debt. Yet some still think those days are only around the corner. The global debt crisis will not allow that. This is why most of the mortgage market is now dominated by the government. How many foreign governments or investors are going to trust Goldman Sachs or Morgan Stanley when they drop by their door steps with new mortgage backed securities? I think some have learned their lessons well and the data reflects this.


The housing market was bound to have a day of reckoning and it looks like it is slowly unraveling. It was simply impossible to have a shadow inventory growing with banks just ignoring the reality. We are now going into year five of the housing bubble bursting. You have millions of those in foreclosure who have not made a payment in one to even two years.


Ultimately the burden falls largely on the middle class. The Federal Reserve has a primary mission to protect banks. That is their bottom line. They are not looking out for the best interest of homeowners or working Americans. For the cost of the bailouts and shadow loans, they could have paid off close to every mortgage in the country. Yet even principal reductions were never on the radar because to do that, it would be to admit a financially broken system. Instead they opted to give out $7.7 trillion in backdoor loans to banks and forced the public to deal with “free market” solutions. An interesting situation no doubt but the problems we are now facing are based on this two-tiered system.



Confounded Interest points out (link) just how high the FHA default rates are:

As of October 2011 17.02% of FHA loans were at some stage of delinquency. The serious delinquency rate is 9.05%.


Clearly another government sponsored enterprise is repeating the mistakes of the past as we speak, having destroyed its capital base with non-performing loans swelling its balance sheet. FHA obviously should require down payments which are much higher than 3.5 percent in order to strengthen its bottom line, but it's probably too late to avoid bailing it out for the mistakes it has already made.

The Fed's Dollar Swap Operation in Europe is a Sign of the Desperation of Monetarism

So says Jeffrey Snider, here:

Rising credit equals rising economic activity, so the advancement of the banking system necessarily and uniformly leads to advancement in the real economy. This is a pervasive belief that is accepted in too many places without critical questioning, especially in the political arena.

As I (and many others) have said numerous times, it is a deliberate prevarication. The Fed and central banks around the world coordinate dollar swap lines to save the banking system from its umpteenth moment of illiquidity simply because the banking system, through credit creation, equals control over the economies those central banks are supposed to serve. ...

The Fed, the economics profession and the financial media spread the idea that this unfettered credit creation paradigm is part and parcel to the basic economic philosophy of capitalism. It is not. Capitalism represents the free expressions of a free society, so leeching onto it achieves another shortcut to allow free people to accept a degree of economic central control. ...

The central control of modern economics seeks to control credit independent of actual demand; indeed, it seeks to create demand from nothing.

If a housing bubble achieves the philosophical aims of "stimulating" the economy to some predetermined target or range, then the political aims of the central bank are fulfilled no matter how shortsighted that may be. ...

The detachment of credit money from actual money demand to engage in productive transactions is both the glaring difference between capitalism and monetarism, and the ultimate weakness of superimposing the latter on the former. ...

As the façade plummets to earth in the messy aftermath of what it, not capitalism, has wrought, the central authorities cling desperately to their system. It matters little if bailing out the eurodollar market for the fifth time actually advances the real economy. All that matters is that the tools for maintaining the elitist utopia are preserved for future use. They just want us to accept that they know better, having already crowned themselves Lords of the global economy.

Is Limbaugh High on Painkillers Again?

After telling us repeatedly in recent weeks that the banks were NOT bailed out, today, 45 minutes into the show, Rush Limbaugh is quoting approvingly from Dan Hannan here at the UK Daily Telegraph, telling us capitalism hasn't been practised here for three years, what with all the bailouts and the like.

Talk about turning on a dime.

Rush's defense of the banks has been that American banks didn't need bailouts (TARP), took them and paid them back because they were intimidated by the Feds.

This continues to misrepresent TARP, and miss the scope of the bailouts, which were a series of massive, sustained behind-the-scenes loan operations at rock-bottom rates in the trillions of dollars. TARP was a puny fraction of the total loaned by the Federal Reserve.

The same pattern is now repeating in the EU crisis, with the Fed loaning dollars ultra-cheap to EU banks.

This is not a free market in banking, and it hasn't been since 1913.

Taxpayers shouldn't be backstopping any banks, who have been cut loose by Republicans and Democrats to play with your money, your bonds and stocks, and your mortgages. When they succeed, they pocket the profits. When they fail, you pay.

You are subsidizing the success of the business model of the banks, and accepting the risk for its failure. 

Rush appears to be too goofed up to grasp this, besides the fact that to do so means to repudiate the accomplishments of Republicans like Phil Gramm and Newt Gingrich, whose power and influence were exercised to pass the legislation in the 1990s which has brought us to this pass.

The New Global Fascist Order Slashes Dollar Borrowing Costs, But Not For You

It's not fascism when WE do it.

As reported here:

The U.S. Federal Reserve slashed the cost of emergency dollar loans to foreign banks as the world’s major central banks took coordinated action to prevent Europe’s debt crisis from triggering a global liquidity crunch.

The moves were announced in statements issued simultaneously by the U.S. Federal Reserve, the European Central Bank, the Bank of England, the Bank of Japan, the Bank of Canada and the Swiss National Bank. ...

“Global central banks are opening the spigots and the casualty has been the dollar,” said Kathleen Brooks, research director at Forex.com.

“The extension of the dollar swap lines essentially means that dollars will be available cheaply and on request for the next 15 months to Europe’s troubled financial sector, which will probably greedily eat them up after being starved of much-needed dollar funding since the summer.”

Meanwhile the US consumer's liquidity crisis continues apace:

hours worked remain flat year over year;

real wages have declined nearly 2 percent year over year;

housing values have declined $6.6 trillion since 2006;

owners' equity in real estate is down $6.9 trillion since 2005;

household net worth is down $5.55 trillion since 2006;

unprecedented unemployment above 8 percent has continued for 33 months straight;

the US dollar has declined 27 percent in value in ten years;

debt delinquency rates are running at 10 percent;

open credit accounts have declined by 23 percent since 2008;

the annual percentage rate on the average credit card is nearly 15 percent;

a three year new car loan will cost you nearly 4.5 percent;

a 30 year mortgage will cost you 4 percent, if you can get one;

and the bank pays you doodily squat on your savings.

But if you're a European bank, the US Federal Reserve is making a gift of loans at just 0.58 percent:

The new [dollar swap] pricing will be applied to operations starting on Dec. 5. Seven-day loans would carry an interest rate of about 0.58 percent, down from 1.08 percent, based on the current one- week OIS rate of 0.08 percent.


The bankers' bank has picked its winners again. And you aren't one of them.

Household Debt Declines One Half of One Percent, Headlines Scream "Consumers Deleverage"

What a crock!

Total household debt fell $60 billion quarter over quarter to $11.66 trillion. Big whoop!

Examples here and here.






Does this look like a dramatically improving picture to you?!

(source)

Remembering the $Trillions Withdrawn from the Housing ATM

Boy, don't we wish we had those back today.

Consider The Washington Post, May 30, 2007, here:

According to Fed data, homeowners' equity -- the value of their homes minus mortgage debt -- grew to nearly $11 trillion at the end of [2006], or double the value at the end of 1998. ...

[T]he housing boom ... fueled spending directly by turning homes into cash machines. As prices rose and interest rates fell, Americans extracted trillions of dollars in extra cash through home sales, mortgage refinancings and home equity loans.

Homeowners gained an average of nearly $1 trillion a year in extra spending money from 2001 through 2005 -- more than triple the rate in the previous decade -- according to a study by former Federal Reserve chairman Alan Greenspan and Fed economist James E. Kennedy. That's the "free cash," as the authors call it, left over after closing costs and other fees deducted from equity withdrawals.

Most of the money extracted during those boom years, nearly two-thirds, came from home sales, the authors found. Another 21 percent came from home equity lines of credit, while 15 percent came from mortgage refinancings.

About a third of the free cash gained during this period was used to buy other homes, they calculated. About 29 percent was used to acquire stocks and other assets. About 12 percent went to home improvements. And nearly a fourth, 23 percent, went to consumer spending, including paying credit card bills and reducing other non-mortgage debts.

Translated into dollars, a trillion dollars a year for five years over 2001 through 2005 is $5 trillion nominal in extra spending money, nearly a quarter of which, $1.15 trillion, was simply blown. Some people literally ate it, drank it, and danced the night away with it. If the study is correct, the extra spending money in the 1990s from our homes came to an additional $3 trillion. I can only guess about the 1980s, but even if only $1.5 trillion, this means Americans have easily extracted almost $10 trillion from home equity over the course of 30 years.

A review of the latest Federal Reserve data here shows that net worth of owners' equity in household real estate has fallen $7 trillion just since 2005. Falling from $13.2 trillion in 2005 to $6.2 trillion as of the end of Q2 2011, this is a decline of 53 percent. This metric pretty perfectly mirrors the bubble in housing which began in earnest in 1997, coincident with the change in the tax law permitting capital gains tax free every two years up to $500K with conditions. Except that the measure hasn't yet quite reached what it was in 1997. We're still about a trillion dollars shy of that mark in nominal terms.

Total real estate valuation over the same period has fallen less, from $22.1 trillion to $16.2 trillion, or 27 percent. But equity as a percentage of value has fallen more than valuation, 35 percent.

A longer term chart of the latter phenomenon found here shows that since 1980 home equity as a percentage of value has been under constant pressure, most probably from what is called portfolio shifting, debt expenditures from car loans and credit cards, college tuition, stock investing and second, third and fourth home investing piling into HELOCs, 2nds, refis and the like. The interest on all that stuff before 1986 was tax deductible in its own right, but after Reagan's famous tax reform, deductibility was restricted to interest from home equity loans and lines of credit only. That arrangement was formalized at levels up to $100K in 1987, precisely after which as shown in the chart the decline in owners' equity commenced with new vigor. So people who could financed everything they could through HELOCs, cash out refinancing and the like in order to continue to be able to deduct the interest expense on their tax returns.

As a result of this and the collapse in the real estate bubble, today we are faced with the dramatic all time low of 38 percent in owners' equity as a percentage of value, a decline of nearly 47 percent since 1982.

Just think how much better off we would be today if we hadn't tapped all that equity over those three decades, especially in inflation-adjusted terms. We truly have been the squanderers.

So present household real estate valuation at $16.2 trillion represents a level last seen in 2003 in nominal terms. But adjusted for inflation, that's $13.7 trillion, which was actually the total nominal value of household real estate last seen in 2001. To get to the pre-bubble valuations of 1996, today's number would have to fall yet further to $11.8 trillion.

In other words, to erase completely the effects of the bubble on valuations, adjusted for inflation, would imply that total real estate valuation would need to fall another 27 percent from here, or $4.4 trillion.

The American dream nightmare.

Today's Economy is Already Being Stimulated by a Bipartisan Attack on Federal Revenue

I'm talking about the Social Security Tax Holiday for 2011, which continues to add $112 billion this year to workers' paychecks as we speak.

If it's doing any good for the economy, remember it's going away in about six weeks and will all be reversed next year. It's called pulling prosperity forward. Which leaves a void in . . . the future, to be filled by . . . what, exactly?

Except Obama doesn't want there to be a question about the immediate future, which is why his famous, urgently-needed "today" jobs bill from last August but which still isn't going anywhere includes an extension and expansion of the holiday, and will cost the Social Security program $240 billion next year on top of this year's cost.

Obviously necessary, if you're running for reelection.

But it's just more gimmickry from our professional grifter class. Refresh your memory about it here, but think about it this way: These same crackpots keep wanting to take away your tax deductions PERMANENTLY while at the same time offering you TEMPORARY crumbs from our masters' table.

$112 billion this year, $240 billion next year, but in the disguise of tax reform they want to saddle you forever with paying higher income taxes to the tune of $88 billion each and every year because you can no longer deduct your mortgage interest. Tax deductions have a permanency tax rates do not. The lower overall rates bequeathed to us by the 1986 tax reform which today's Republicans so proudly do hail were gone like a fart in the windstorm by 1992 when Bill Clinton took over.

A bowl of pottage for your birthright.

Michael Barone Joins The Liberal Chorus Attacking Progressive Taxation

You heard me right, the liberal chorus attacking the progressive tax code, in this case the progressive tax code's deductibility provisions which are . . . well, progressive.

Barone and other liberal Republicans like Pat Toomey, Gang of Sixers and Gang of Twelvers do it on the grounds that the deductions for mortgage interest and state and local taxes help the $100K+ set more.

Nevermind "the rich" already pay the vast majority of the taxes. They want to make them pay even more because . . . well, they don't really need the money, and government does! And maybe liberals will like us more.

Talk about ceding the moral high ground to the left. Who would want to go to all the trouble of becoming rich just so that they can have the privilege of paying even more of the taxes?

Nevermind that the poor own one of the biggest "tax loss expenditures" in the form of transfer payments for the Earned Income Credit and the Child Tax Credit: $109 billion. Compare that to the mortgage interest deduction's tax loss cost to the Treasury : $88 billion.

Here is Barone:

[T]he big money you can get from eliminating tax preferences comes from three provisions that are widely popular.

The three are the charitable deduction, the home mortgage interest deduction, and the state and local tax deduction. ...


[T]he vast bulk of the "tax expenditures" -- the money the government doesn't receive because taxpayers deduct mortgage interest payments from total income -- goes to high earners . . ..


Well why shouldn't they under a progressive tax system? 


There's really no difference between Michael Barone and Republican advocates for "tax reform" and Democrats like Peter Orszag, for example, who makes an argument for similarly flattening deductibility for the rich by limiting their traditional deductions enjoyed by everyone across the income spectrum. What this amounts to is an admission that the progressive deductibility which we have now does NOT go hand in hand with the tax code's progressive taxation.

The current arrangement may not seem fair to flat taxers, but it is internally consistent. If you pay progressively more in taxes, your deductions should justly be progressively worth more to you. And so they are. If you pay progressively less in taxes, your deductions should justly be worth less to you, progressively. And so they are.

Proposals to limit deductions for one class of taxpayers amount to destroying the internal coherence of the progressive tax code itself. It is nothing less than an attack on the idea of progressivity and its fair unfairness, all in the name of extracting even more from the pockets of successful people.

Sheer nincompoopery. 

Internal Migration Hits Record Low, Down Over 75 Percent From 1985 Peak

Why don't you stretch out on the sofa so you can rest your government handicaps on a pillow?

CNBC.com's Diana Olick has the story here:

Just over 11 million Americans moved between March of 2010 and March of 2011, according to a new report from the U.S. Census. ...

The housing crash has left Americans stagnant, but even worse, it has left homeowners trapped. The decline in the mobility rate of those who already own homes was even more dramatic. Just 4.7 percent of homeowners moved in the past year, down from 5.2 percent the previous year, according to the Census. That translates into 9.7 million homeowners, again a record low.

The immobility of current homeowners is a huge drag on the economy.

It's not just malaise. It's sclerosis. 

The Big Fat Idiot Establishment Republicans Like Rush Limbaugh Won't Replace Your Tax Deductions

When deductibility of interest expenses in a wide variety of vehicles was eliminated for income tax purposes in the tax reform act of 1986 under Ronald Reagan, those deductions ended up being replaced by deductibility of interest if incurred through HELOCs (home equity lines of credit) shortly thereafter.

Deductibility of interest expense on consumer loans, car loans and credit cards went the way of the dodo, only to be shifted to HELOCs. It was a fateful decision which made overleveraging of housing as routine as taking out the trash. But that's an entirely different kettle of fish.

In 1987 Congress quickly acted to expand deductibility of HELOC interest expense because the 1986 act cut people off at the knees and they didn't like it one bit. It was a consumer society accustomed to deducting credit card interest, and it didn't like the new rules at all. The 1986 act quickly proved to be a futile attempt to curb consumer spending and encourage savings. The political fallout was so great that the interest expense from HELOC borrowing was dramatically expanded to fill the gap the next year.

I quote from The New York Times, here, February 2, 1988:

BORROWINGS AGAINST EQUITY: In addition, homeowners will be allowed to claim mortgage deductions for up to $100,000 in borrowings against the equity in their house - no matter what the loan is used for. 

A veritable chorus of voices today on the right and left, including Rush Limbaugh who is simply phoning it in these days, is appealing to this period to urge the country to get behind a Republican Super Committee plan to raise revenues by closing loopholes like the mortgage interest deduction for wealthier taxpayers, "just like we did in 1986."

Oh yeah? What's in it for us?

Once the camel gets its nose under this tent in the name of making the rich pay more, you can bet the precedent will be used down the road to deprive the middle class also of the deductibility of interest on a home mortgage.

And you'll get nothing to replace it except an empty promise to lower your overall tax rate, which the next Congress will rescind in a heartbeat. Few of you remember that the top tax bracket from 1988 to 1992 was 28 percent. Bill Clinton and the Democrats made short work of that.

Real conservatism is about using federal tax policy to promote property ownership, ordered existence and family formation. The current crop of establishment Republicans, including Rush Limbaugh, is a bunch of phonies. Rush can't even remember 1986:

The Republicans are offering a plan which would take away itemized deductions for anybody making over $174,400 a year. In exchange for that they would lower the top tax rate from the current 35 down to 28%. We've done this before. We did this in 1986. This was part of Reagan tax reform except the top marginal rate then was 50. Wait a minute. No. All itemized deductions for people who make the... Stick with me on this. All itemized deductions for everybody who makes $174,000 or more -- home mortgage interest, charities, all of that, gone in exchange for a lowered rate from 38, 28%. Now, we've done this before.  Back in 1986, top rate was 50, took it down to 28, there was a bubble of 31 percent for few people, and we got rid of some deductions.

There will be no future America without the traditional family.

Too bad Rush Limbaugh has never had one.

What Fun! Bailouts Crash! Treas. Dept. Says Autos Cost Taxpayers $80 Billion, TARP $57 Billion

So The Detroit News here:

The Treasury Department dramatically boosted its estimate of losses from its $85 billion auto industry bailout by more than $9 billion . . ..

In its monthly report to Congress, the Treasury Department now says it expects to lose $23.6 billion, up from its previous estimate of $14.33 billion.

The Treasury now pegs the cost of the bailout of GM, Chrysler Group LLC and the auto finance companies at $79.6 billion. ...

[For TARP t]he government now expects to lose $57.33 billion, including the full cost of the housing program, up from $36.7 billion. The new estimate means the government doesn't believe it will make an overall profit on its bailouts.

In other words, the bailouts were a failure, and the taxpayers got stuck with the bill. But you already knew that.

Adam Davidson of NPR Wants to Increase Taxes on It, But What Really is The Middle Class?

In The New York Times, here, where he expansively defines the middle class as everyone making between $30K and $200K:

To solve our debt problems, we have to go to where the money is -- the middle class. People who earn between $30,000 and $200,000 a year make a total of around $5 trillion and pay less than 10 percent of that in taxes . . .. [M]ost economists acknowledge, and most politicians privately concede, that the middle class will have to give up some benefits . . . or it will have to pay more in taxes. Actually, it will probably have to do both.

It's a frequently repeated myth that the middle class includes many of the people in the top income quintile, that is, those making in excess of $100,000 per year, but it just isn't true no matter how often it gets repeated.

Richer men and women don't want to be called rich, of course, so they make believe they're just like the rest of us and call themselves middle class when they're anything but.

That this myth is getting repeated so often these days, however, and not just in liberal quarters like The New York Times but also in places like The Wall Street Journal, should make your antennae stand up.

I say this is all part of a softening-up operation to get the rubes ready for a big fat tax increase.

That uncomfortable feeling you get reading the article above might as well be because the author is using one of these to blow smoke up your rear end:

In all seriousness, though, the fact of the matter is that in 2010 there were 99.5 million wage earners making less than $40,000 a year, according to the latest information from Social Security, here. That's fully two thirds of all the wage earners in the country, and a long way from the earners in the top quintile.

The next tranche up from there, namely wage earners making between $40,000 and less than $80,000 a year, is really small by comparison, just under 35 million wage earners.

And fewer than 10 million wage earners inhabited the next level up in 2010, those who made between $80,000 and $120,000.

The $120,000 to $160,000 set is hardly a crowd by comparison, just over 3 million wage earners strong.

Between $160,000 and $200,000 there were 1.25 million people.

And beyond that: 1.75 million wage earners, making to infinity and beyond.

Asserting that middle class extends all the way up to $200,000 when nearly 90 percent make less than $80,000 a year is quite simply ridiculous. It's obvious that the middle is below $40,000 when the average wage of all 150 million workers in 2010 was $39,959. Worker number 75 million from the bottom made just $26,363.

A more meaningful metric for middle class is what kind of housing income can buy at that great dividing line of $40,000.

For example, when I bought my first real traditional home way back in the nineties, the seller's attorney congratulated us at closing by saying, "Welcome to the middle class." I might have said we'd never left it, seeing that we had been owners of other kinds of dwellings twice before, but the attitude represented the cultural consensus that single family home ownership with a lawn to cut defines the socio-economic middle. Being able to afford such a place has been synonymous with achieving the American dream since WWII, after a long period of economic upheaval which quite literally unsettled millions.

So who can afford what when it comes to housing today is an important measure for judging whether the American dream continues intact.

Consider that the median price of an existing single family home in the US stands at $165,400 in September 2011, according to the National Association of Realtors, here. The lowest median price is in the Midwest at $137,400, and the highest is in the Northeast at $229,400.

Assuming one can come up with the 20 percent down payment of $33,080, which is a tall order for someone making $40,000 a year in today's economy, $132,320 financed at 4 percent over 30 years means a principal and interest payment of $631 a month. Add $300 a month for taxes and insurance and the $931 monthly payment means, at a maximum percentage of income of 28 percent, income must be $3,325 a month, or $39,900 a year.

Another way to put this is that the maximum price of a home which can be afforded by a $40,000 income is the current median price of $165,400. Anything beyond that is out of reach.

So, for how many people is that out of reach?

Based on the numbers from Social Security above, for easily 66 percent of the workforce, or nearly 100 million workers who individually couldn't buy more home than the median priced home without more income. But of course many households have two earners who combine their incomes to do just that.

Nevertheless tax data from 2009 more than support the conclusion that a clear majority of Americans cannot afford housing at the median price level.

The latest information indicates that half of the country, nearly 69 million tax returns in 2009, had adjusted gross incomes of less than $32,396.

The next tranche up from there, consisting of 34.5 million more tax returns, takes us up to 75 percent of the whole country, and adjusted gross income of less than $66,193.

(And contrary to Mr. Davidson, the combined adjusted gross income of the first 75 percent of taxpayers is only $2.7 trillion. Of the first 50 percent, barely $1.1 trillion. The money is most definitely not in the middle. It's in the top 25 percent, with $5.2 trillion in AGI last year).

In other words, somewhere between 50 and 75 percent of the country would have to settle for housing which falls well below today's median price level if they had to buy today, despite the 16 percent decline in the median price from $198,100 reached in 2008.

Many who already own a home under these circumstances are desperately trying to keep theirs because they know their chances of being able to buy another one are not very good. Incomes are flat to declining and unemployment and underemployment are widespread. With home prices depressed, many who purchased during the bubble from 1998 to 2007 wouldn't walk away with enough from a sale for a down payment on another home. Some estimates put that number of underwater mortgage holders at 25 million, fully half of Americans with mortgages.

They dare not sell, because to do so is to leave the middle class.

Indeed, according to the Census Bureau here home ownership rates have fallen almost 4 percent from peak, back to 1998 levels.

And the liberals' solution to this middle class implosion is to raise their taxes.

It's not just crazy. It's mean, because increasing taxes on the real middle class will turn it into the working class, which, I gather, is the whole point of socialism.