Dr. Housing Bubble 07/06/09

[Crewleader]

The Financial and Economic Argument for No Green Shoots: No Deus Ex Machina for the Economy. 10 Charts Showing why There will be no Second Half Recovery in 2009.

The second half recovery argument took a significant blow last week when it was announced that 467,000 Americans were laid off in the month of June. This number understates the problem because of BLS tinkering with the birth/death model and the headline number does not reflect the over 9 million Americans who are working part-time but want full-time work. It also was little help that the state with the highest GDP in the nation is unable to manage its own finances and now finds itself in a $26.3 billion deficit and issuing IOUs. This does not look like a green shoot recovery. The problem of course stems from the initial premise dating back to the early part of this year that somehow, with the economic stimulus and bailouts that the economy would be back on its feet. What did happen is the crony banking system is still intact but the real economy is deteriorating at the same pace.

In this article, I am going to layout 10 charts as to why there will be no second half recovery in 2009. Before getting into the details, it is crucial to note that Americans have never lost so much of their net worth in any recession on record:



In no time in history have Americans faced such a destruction to their bottom line. Since the recession started, some $13.87 trillion in household net worth has evaporated. Much of this of course comes from the housing bubble imploding but also, the stock market following the same path. Now given that housing in many areas is still overpriced, we can expect that the bottom line will drop further as housing contracts. The above chart has data up to Q1 of 2009 and given housing prices fell in Q2 of 2009 we should see another drop in household net worth. The bottom line is Americans feel poorer because they are and this will have a major psychological impact on how they spend. The green shoot argument hinges on the stimulus package that was some $787 billion. Given the amount of lost net worth, this stimulus is a drop in the bucket. Also, $287 billion of the plan was based on temporary tax breaks which are now being negated by many states raising taxes. Part of the tax credit gave new home buyers an $8,000 tax break (this has run out for California). Yet here we are issuing IOUs like some Dumb and Dumber reenactment.

http://www.doctorhousingbubble.com/the-financial-and-economic-argument-for-no-green-shoots-no-deus-ex-machina-for-the-economy-10-charts-showing-why-there-will-be-no-second-half-recovery-in-2009/

[orwell]

1. According to this chart...

...we would need to collectively lose another 5 to 8 trillion over the next 2 to 5 years just to get back to the upward trend. In other words, since about 1995 we have accumulated net worth far above the longer term trend.

The long term uptrend is still intact.