The good news: U.S. data are not double-dipping. The fresh, August survey of purchasing managers by the Institute for Supply Management found the service sector improved to 53.3 from 52.7 in July, a reading corresponding to U.S. Gross Domestic Product growth in the 2 percent range.
This modest good news does not explain the stock market again in free fall today, or the 10-year Treasury thumping down to 1.9 percent. To explain the newest swan dive, look to Europe, and a tale of two speeches.
Default by Greece is imminent. Again. Maybe this weekend. Maybe Europe will buy more time; maybe default will be an anticlimax, but markets today anticipate chaos.
Then, the two speeches.
Federal Reserve Chairman Ben Bernanke spoke at midday Thursday. After preamble, and dodging the Fed’s intentions, the body of the speech began: "One striking aspect of the recovery is the unusual weakness in household spending."
After my first, churlish thought (What recovery?), I began as always to search for and count up references to housing weakness. As in no other Bernanke speech, I lost count — too many to count.
The whole speech was devoted to housing wreckage as the force intercepting recovery. No proposals for what we might do, of course, as that action is the province of the Obama administration and Congress.
Three-and-a-half hours later, President Obama rose to deliver an energetic, tub-thumping speech. Content? Direct from the boneless chicken ranch.
He’s had a month and a half to prepare since the "circus" we all deplored, and the rollover-in-progress of the U.S. economy, and wanted the grand stage of a joint session of Congress.
The finished product: $447 billion of "job-creating" spending at the intellectual level of 1964. Old-fashioned, warmed-over pork. To be "paid for." How? He said next week we’ll get to that. His own out-year deficit proposal? Two weeks.
I have a brilliant contractor/architect friend who deflects all questions from families anxious about project completion by answering, "Two weeks." Foundation? Two weeks. Framing? Two weeks. Move in? Two weeks.
Half-baked aside, the American Jobs Act might have some merit if designed to stimulate aggregate demand. The word "stimulus" has been excised from the White House lexicon. (Last night’s best comedy: Anderson Cooper trying to trick Press Secretary Jay Carney into using the word, or admitting excision; but Carney, in Ron Ziegler’s class for dead-eyed and relentless mendacity, could not be fooled.)
If we spend $447 billion but "pay" for it with tax increases and spending cuts, we are not adding chickens to pots, just moving them from pot to pot. No net stimulus at all.
I counted the president’s speech, too, for references to housing. Must do so in all official economic speeches, hoping for dawning awareness … must preserve hope. Obama’s speech had two mentions.
The first, a murky thing: the Act would "rehabilitate homes and businesses in communities hit hardest by foreclosures." Huh?
The second: "We’re going to work with federal housing agencies to help more people refinance …" The president was obviously surprised to be interrupted by bipartisan applause, and a strange look crossed his face. He has no idea how to do the job, and knows it.
The administration panicked last winter, adding 60 basis points (a basis point is 1/100th of 1 percent) to Federal Housing Administration mortgage insurance for all new loans, both refi and purchase. Given that hike, most FHA borrowers cannot refi — not without a far deeper drop in rates.
Mass refis of underwater borrowers is a delusion not limited to the White House. New buyers for new loans must be found to pay off old ones: there is no method for automatic write-down of rate. The market cost to buy down a rate a mere 1 percent is about $60 billion per trillion, and there are at least $2 trillion in underwater loans out here.
We need adequate credit for buyers, not just to rearrange the existing lawn furniture. Buyers. Americans need faith in the value of their homes, mortgaged or not. Fail to assist prices to rise from catastrophic levels, or stay in this until doomsday.