In a nation still blinking to post-election wakefulness, stick with domestic economics. Europe, the Middle East, China and Japan all have their stuff simmering near boil. But here matters most here. Fiscal cliff, then housing credit.
The strange presidential election was a double rope-a-dope. Mitt Romney assumed that no president would be re-elected in an economy as poor as this. President Obama assumed that a Wall Street fat cat deaf to the people would be unelectable in the Bubble aftermath. Roger that. Ten four.
Thus neither ran on anything new or noteworthy, but the Republicans absolutely got the message. They were lucky to hold the House, and must reformulate their whole painted-in-corner concept. Romney is deaf, but not the Republican leadership in Congress. These are tough, smart hombres; not attractive to mainstream civilians, but above all else they are survivors.
A new rope-a-dope began instantly after the election. House Speaker John Boehner and Senate Minority Leader Mitch McConnell without a peep of objection from the Tea Pots: "More tax revenue? Of course. We’re all-aboard."
After several years of Republican tax intransigence, I doubt that the full impact of their dope-reversal has landed in the White House. Now avoiding the fiscal cliff depends entirely on the White House delivering Democrats on spending and entitlement cuts. A turn away from the cliff will require a majority of votes from both parties, as the hard left and hard right will not join any available compromise.
I am less optimistic than last week, if everything depends on Obama’s politicking with Congress. Good defense in the bunker won’t bring this one home.
This Thanksgiving, one person soars above all others deserving our gratitude: Ben Bernanke. He has delivered two speeches in the last week, separated by — and relevant to — a new panic at the FHA.
Last week Bernanke spoke at Operation Hope, next door to Martin King’s home church in Atlanta, and his remarks were devoted entirely to housing and mortgages. He opened by noting that lower-income and minority communities have suffered the greatest losses in the housing bust. Then to say the rate of homeownership has fallen to a 15-year low, and the extension of new mortgages the lowest since 1995. In post-Bubble credit tightening, "The pendulum has swung too far the other way."
He then recited the remedies the Fed has described all year in a white paper and speeches. Plus one idea lost in all the oppressive and pointless rule-making, and new and incomprehensible "disclosures" — an opportunity for independent housing counselors to help borrowers who have skills less-developed than those of an MBA holder.
The day after he spoke, word leaked that to plug its losses the FHA will again jack its fees, probably to an annual 1.35 percent surcharge on new loans (near triple the rate in its first 75 years), and without waiver upon sufficient owner equity, a life-of-loan fee.
The damage will fall on the least of our brethren, the ones whom the FHA was designed to help. The FHA was the only lending entity not to loosen standards in the Bubble, caught by the misbehavior of others. As it prices itself from the field, it will have more trouble self-financing the sale of its foreclosures, and will weaken the overall market, I believe causing more net loss to itself than if it had left fees as-were.
Despite precision hits to core Obama constituencies, silence from White House and Treasury. Bernanke can see, but Obama and Geithner … Romneyesque.
Bernanke’s second speech repeated the housing credit-pendulum lines, and then addressed the cliff. The whole Western world (including Japan) is caught in the growth-austerity balance, fiscal sustainability versus budget-cut headwinds. Bernanke: "Fortunately, the two objectives are fully compatible, and mutually reinforcing."
The nation needs cheerleading from somebody. In Europe and Japan the balance is mutually destructive, but here, with an active and brilliant central bank, we have a shot. We can still choose between overcooked breast and done dark, or moist white and icky thighs. Give thanks. Turkeys elsewhere are toast.
The Economic Cycle Research Institute’s weekly leading index is the longest-running, never-missed recession-caller. It is sticking to a recession call now 1 year old. Although confounded by the spring-summer rise in its index, it is rolling over again now. I think its forecast is overdone, but there is no mistaking its weakness as we approach the fiscal cliff, and the good news would be agreeing to the most profound budget and spending cuts ever in our history.