Housing Market: Repetitive Motion Injury

Some say that the definition of insanity is doing the same thing over and over again and expecting a different result. If that is the case, then the recent statements by new Treasury Secretary Hank Paulson are a prime example:

Paulson made no changes in U.S. policy, saying that a strong dollar is in the national interest, and calling on China to embark on structural reforms that would create more flexibility in its currency and allow for greater domestic consumption. He said the fiscal deficit is improving, but its long-term stability depends on reforms in entitlement spending. Asked if the economy faces a recession in the near term, Paulson declared, "Absolutely not."

Not only is Paulson apparently on the same well-trod path that John Snow took before his unceremonious exit, right down to the "Get China into debt" philosophy, but he's seriously drunk the Kool-Aid and thinks that reforming Social Security is our most pressing problem:

He offered no new ideas on how Social Security could be reformed to meet the financing needs of 78 million baby boomers, but he said a solution must be found soon.

"The longer we wait to fix this problem, the more limited will be the options available to us, the greater the cost and the more severe the economic impact on our nation," he said.

And in other news, the "no recession" economy continues to demonstrate its resilience to shock...or not:

"By now, it is evident that consumer spending is showing the strains of elevated gasoline prices and a slowing housing market, while for debt-laden consumers higher interest rates have increased the burden of monthly debt service payments," said Stu Hoffman, chief economist for PNC. "With little relief from any of these factors likely in the near term, consumers are becoming increasingly reliant on wage growth to support spending."

As long as prices outstrip wages, and interest rates continue to rise, consumers will pull inward and spend less. Debt keeps consumers from spending, and the more they are pushed into debt, the less they have to leverage. This is rapidly becoming a zero-sum game, and (hopeless that I am at the prospect) Paulson needs to stop playing politics and face the facts.

(Image courtesy of Transcription Gear.)

Posted at August 1, 2006 03:14 PM

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Some say that the definition of insanity is doing the same thing over and over again and expecting a different result. If that is the case, then the recent statements by new Treasury Secretary Hank Paulson are a prime example: Paulson made no changes in U.S. policy, saying that a strong dollar is in the national interest, and calling on China to embark on structural reforms that would create more flexibility in its currency and allow for greater domestic consumption. He said the fiscal deficit is improving, but its long-term stability depends on reforms in entitlement spending. Asked if the economy faces a recession in the near term, Paulson declared, "Absolutely not." Not only is Paulson apparently on the same well-trod path that John Snow took before his unceremonious exit, right down to the "Get China into debt" philosophy, but he's seriously drunk the Kool-Aid and thinks that reforming Social Security is our most pressing problem: He offered no new ideas on how Social Security could be reformed to meet the financing needs of 78 million baby boomers, but he said a solution must be found soon. "The longer we wait to fix this problem, the more limited will be the options available to us, the greater the cost and the more severe the economic impact on our nation," he said. And in other news, the "no recession" economy continues to demonstrate its resilience to shock...or not: "By now, it is evident that consumer spending is showing the strains of elevated gasoline prices and a slowing housing market, while for debt-laden consumers higher interest rates have increased the burden of monthly debt service payments," said Stu Hoffman, chief economist for PNC. "With little relief from any of these factors likely in the near term, consumers are becoming increasingly reliant on wage growth to support spending." As long as prices outstrip wages, and interest rates continue to rise, consumers will pull inward and spend less. Debt keeps consumers from spending, and the more they are pushed into debt, the less they have to leverage. This is rapidly becoming a zero-sum game, and (hopeless that I am at the prospect) Paulson needs to stop playing politics and face the facts. (Image courtesy of Transcription Gear.)