by Mike McCune —
Scandals, wildfires, Syria and the looming implementation of the Affordable Health Act continue to dominate the news. The economy has been pushed to the back burner. Big mistake for America.
If you think things are rosy, think again. Despite all the “things are back to normal” news being aired so scandals can be focused on, the economy is beginning to sag again. The trouble will coalesce in…the housing market, the trigger for the recession.
This time the villain won’t be delinquent homeowners or derivatives but rising interest rates.
Yields on 10-year U.S. Treasury Notes hit 2.27% Tuesday, the highest level in more than a year. This was in response to a global sell-off in bonds tied to the Bank of Japan’s failure to expand its stimulus package and support the market. This wasn’t expected.
Japan’s Nikkei 225 is dropping like an Apollo capsule without a parachute despite active and massive intervention by the Bank of Japan. Markets reacted here on unease as to whether next week’s FOMC meeting of the Fed will prove to be just as impotent in its stimulus (bond buying) as BOJ was.
What is more disturbing for the economic waters here in the U.S. is the surge in housing has been accomplished on the back of lower interest rates and continued support through income tax deductions.
Peter Tchir of TF Market Advisors, a New York-based research, asset management and consulting firm, took particular interest in the rising rates as mortgage rates mirror the 10-year Treasury rate. America has already seen more than half a point rise in mortgage rates to 4.1% since May 1.
Americans will continue to be told to take advantage of such low rates because, measured against history, this is still extremely low. But compared to the economic picture as a whole, the risk of taking on a home mortgage is overwhelming the benefits of getting the lower rate.
The risk comes from the fact this “recovery” has not produced jobs equal to the ones lost in the recession. Much of the job growth, as the Rant has detailed, is in lower-paying, service-oriented jobs or in temporary positions. As has been stated here, the Bureau of Labor Statistics continues to distort the truth about the recovery by counting new part-time and temporary jobs as equal to disappeared full-time jobs.
The BLS must adjust its method of counting and count a job as a job only when it surpasses the ‘living standard’ test. If a person cannot support a family (food, energy, clothing, housing and transportation) on those earnings then that doesn’t meet the test and should not be described as a ‘job’.
To top the bad news in the bond sell-off, most of the withheld money is going into “risk-free” government securities. The investors who rush into this area on basing their investment on the “reliably positive U.S. GDP growth.”
Failure to account for inflation’s effect is the driving the alleged GDP growth when in reality the U.S. is declining as a recent Philadelphia Federal Reserve Mid-Atlantic Manufacturing Report showed. In the first quarter of 2013 the report showed factory output capability in the U.S. declined by 22% in one year. But the report lightly touched on this aspect while gleefully reporting factory capacity usage was up 6.7% in a year-over year analysis.
If GDP was actually growing the capacity usage should have surged more than 22% since we had lost that much output capacity. But that is bad news and thus to be avoided.
One more point as to a failing, not growing economy. The newest jobs report showed the weekly first time unemployment claims had hit a low point of 334,000. If you look at the latest employment report you find 175,000 jobs were created last month.
To get a true picture you must multiply the first-time claims by 4 (bringing the new low report to a whopping 1.336 million first time claims in the previous month). Somebody please explain how 175,000 in new jobs can be matched against 1.336 million new unemployment filers and still be considered “growth”.
And then there is one more piece of news about housing. Mortgage applications are dropping rapidly. This means the demand in the market is waning again.
But when you have scandals to sidestep while trying to get Americans to see the value in arming Al-Qaeda rebels in Syria while trying to avoid paying for your ‘affordable’ portion of Obamacare, it is understandable why our elected officials in Washington have more pressing needs than focusing on the economy.
But if the economy tanks again because of a new crisis in housing, where does that leave Main Street?
The very definition of Washington is the inept beating the incompetent. And the beat goes on.
“I have sworn on the altar of God eternal hostility to every form of tyranny over the mind of man.”–Thomas Jefferson