Damage Control

I heard a devastating statistic the other day that scared me to death. When Barack Obama became president approximately 40% of the American people received some form of government financial aid. In the almost 28 months of his presidency that figure has risen to 51%, a staggering increase of almost 28%. Some would say that this was due to the Bush recession and I would point out that we’ve had recessions before and we always recovered within 18 months or so.

Others would say that it was due to the collapse of the housing market and I would point out that the TARP bailout was initially created to help in this area. Instead, it became corporate welfare for the banks and financial institutions at the direction of Henry Paulson, a Wall-Streeter with a huge conflict of interest. Rather than correct the problems with Fannie Mae and Freddie Mac lending money to people who had no ability to repay their mortgages the Treasury Department allowed the financial institutions to clean up their books for shareholders. Secretary Geithner has trumpeted TARP as a money-making program but he’s missed the point. It was intended to resurrect the housing market because it is one of the fundamental industries of the American economy. Geithner was given a lemon and is trying to make lemonade but the American economy still has a sour taste in its mouth.

Some Americans look at the housing market and see only the real estate signs on the front lawns of American homes. What they don’t see is the effect that new home building has on our economy as a whole. The peak in housing starts was 2005 when we had 2,o68,300. In 2010 we had 586,900, a drop of almost 72%. Here are the sectors that are impacted by this devastating statistic:

• Employment in the skilled trades: plumbers, electricians, carpenters, roofers, masons, landscapers, etc.

• Manufacturers of durable goods such as clothes washers and driers, refrigerators, cooking stoves, microwaves, dish washers, air conditioning and heating units;

• Suppliers of raw materials such as bricks, block, concrete, wood products, roofing materials, siding, insulation, piping, duct work, etc.

The impact that the precipitous decline in new housing starts is having on our federal, state and local governments is also devastating. Various levels of government collect numerous tax levies associated with new housing starts, from infrastructure assessments to building permit fees to real estate taxes. The decrease in sales taxes on the raw materials alone is a staggering amount for our state and local governments to suffer. No wonder they are being crushing by massive deficits that would destroy most American businesses.

Business and consumer bankruptcies are up across our country. The annual filings have risen dramatically starting in 2008 and continuing through 2010. Every business and consumer bankruptcy represents a loss of jobs, tax revenue and consumer spending. The cascading effect on the American economy is tremendous. In addition, the people affected by bankruptcies often become dependents of the government through unemployment benefits and various forms of government assistance.

It has often been said that the American economy is the most dynamic and resilient on the planet. However, it seems that we have become a tired, old man staggering around the room. While the mainstream media trumpets the rebounding American economy our unemployment rate is 9.2% while our underemployment rate is anywhere from 17% to 22.5% depending on who you believe. In any case it is way too high for our economy to rebound.

Who’s to blame? This is a complex question that will require more than one article to examine. Many of the instabilities in the American economy were created 20, 30 and 40 years ago. Some such as the Community Reinvestment Act were efforts to boost American home ownership in what we now know was a misguided approach that has impacted our economy right up to the present day. The increasing dependency of the federal government to borrow huge sums of money to finance “wants” such as the Prescription Drug Benefit and the Obama Stimulus Program. Financing the War on Terror without taxation or a tax surtax. Some would say that the Bush tax cuts are to blame but we did experience a rise in tax revenues with them. There are many on the left that think of taxes as enhancing revenue and actually define tax cuts as decreasing revenue as if all monies belong to the state.

Over the next several weeks I will feature posts that highlight our economic situation and present ideas that might help us to recover. I look forward to your comments. Feel free to join one of our forums. If you have something that you would like to post send it along to me at rickb1948@gmail.com.

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• The Housing Industry is the Problem!
• NSA Spying: Defending the Indefensible
• Demagoguing Student Loans (Again)
• Barack Obama’s Policy of Misdirection
• Obama has an Eric Holder Problem
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To the official site of Related Posts via Taxonomies.