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Today's
Stories
September 2, 2010
Dean Baker
Burning Down the House
Christopher Ketcham
The Rise of a Green Tea Party
Dave Lindorff
When Markets Fail
September 1, 2010
Paul Craig Roberts
Death By Globalism
Bill Quigley /
Laura Raymond
Another False Ending
William Blum
Things Which Don't Go Away
Jonathan Cook
Bedouin Land Fight
Norman Solomon
A Speech for Endless War
Firmin DeBrabander
From Mexico to Baltimore: Dying on Our Doorstep
Michael Donnelly
Some Fight Back
Mark Weisbrot
Drawing the Wrong Lessons From Germany's Recovery
Roberto Rodriguez
Running for Justice
Adam Federman
The Persecution of Rod Coronado
Website of the Day
10 Reasons Not to Raise the Retirement Age
August 31, 2010
Patrick Cockburn
What is the US Legacy in Iraq?
James Abourezk
Give Me That Old Time Racism
Mike Whitney
The Backward Slide Into Recession
Gareth Porter
Taliban Morale
Jeffrey Blankfort
Mahmoud Abbas: Double Agent
Stewart J. Lawrence
Utah's New Immigration Law
Paul Larudee
Israel's Vision Problem
Robert Jensen
Glenn Beck's Redemption Song
Ayesha Ijaz Khan
Coping With the Flood
Mark Kastel /
Will Fantle
The Food Safety Shell Game
August 30, 2010
Laura Carlsen
Drug War on the Poor
Ismael Hossein-Zadeh
Race to the Bottom: Putting the Brakes on Neoliberal Economics
Dean Baker
A Pointless Waste of Money
Ishmael Reed
Watermill at Gdansk
Russell Mokhiber
How Factory Farms Make You Sick
Ralph Nader
Knowing and Doing
Neve Gordon
An Assault on Israeli Academic Freedom
Ramzy Baroud
Rebranding Iraq
Damien Millet, Sophie Perchellet and Eric Toussaint
Pakistan:
Floods and Debt
Ben Pleasants
My Hawai'i: Driving Lessons on the Big Island
Website of the Day
"Hang the Tree-Hugging Bastards!"
August 27-29, 2010
Alexander Cockburn
CounterPunch Diary
Thank you, Glenn Beck!
Paul Craig Roberts
The Nazification of the United States
Tariq Ali
Floods for Pakistan; Floods of Money for its Leader
Rannie Amiri
The Stalled Voyage of St. Mariam
Mike Whitney
The GOP's Midterm Strategy: Make Sure Obama Fails
Missy Comley Beattie
The Terrorists Have Won
Edward Lewis
Interviewing Michael Neumann
Shamir and Bennett
Assange: The Amazing Adventures of Captain Neo in Blonde Land
Tom Mountain
The Pirates of Puntland: A Tale of Somali Pirates, Ethiopia and the USA
P. Sainath
How Maharashtra Ended Famine
Benjamin Dangl
Pachamama and Progress: Conflicting Visions for Latin America's Future
David Macaray
A Union Fights for its Economic Life
Christopher Brauchli
The Petulant Prince of Blackwater
Jon Mitchell
Postcard from... Futenma
Julia Nissen
Birthright Citizenship, "Anchor Babies" and the 14th Amendment
Charles R. Larson
The Garbage of War Elias Khoury's White Masks
David Yearsley
On the Road to Skaneateles
Website of the Day
PlayingforChange.com
August 26, 2010
Dean Baker
The Odious Alan Simpson
Gregory Harms
It's Not About Religion
Yves Engler
Privatizing the Occupaton:
the Mercenaries and the NGOs
George Wuerthner
Of Wolves and Welfare Ranchers
Saul Landau
Death and Taxes
Laura Carlsen
Uribe's Parting Shot
Billy Wharton
Badgers, Buses and Trains: Why We Need a National Rail System
Ron Jacobs
Feminism Makes Another Curtain Call?
Dante Castro Arrasco
The Persecution of Lori Berenson
John Grant
The Curse of the Muslim Seed
Website of the Day
Sorry Friend
August 25, 2010
Dedrick Muhammad
Glenn Beck's March on Washington
"Palin and I will Fulfill King's Dream"
Stewart Lawrence
The Mosque and the Muslim Vote
Mike Whitney
The Housing Holocaust
Judith Bello
Hitchens: Bomb Iran Now
Michael Marqusee
Swaziland's $200 Million Dollar Despot
John Ross
The Barrenderos of Mexico City
Ben Hillier
Huge Electoral Surge for Australia's Greens, but is Sell-Out Close Behind?
Jeff Taylor
A Little Book with a Big Plan
August 23 / 24, 2010
Anne McClintock
CP Special Report: Slow Violence in the Gulf and the BP Coverups
Mike Whitney
Recovery Summer Hits the Rocks
Gareth Porter
An Army of Contractors
Wajahat Ali
The Muslim Obama
Martha Rosenberg
The Man Behind the Egg Scandal
Dean Baker
Fannie and Freddie: Live Public or Die
Jonathan Cook
Smuggling Palestinians
John V. Whitbeck Direct Negotiations: Consequences for Failure?
Stanley Heller
How Would You Spend a Trillion Dollars?
Anthony DiMaggio
A Culture of Corruption
Ralph Nader
The Political Microcosm of Bell, CA
Patrick Bond
The Great Rift in South Africa
Peter Gelderloos
The Decline of Resistance from the Red Scare to the War on Terror
John V. Walsh Countdown to Zero or War on Iran?
Website of the Day
Round Houses
August 20 - 22, 2010
Alexander Cockburn
This is What Success Looks Like
Linn Washington, Jr.
The Lady Who Cried "Nigger!"
Mike Whitney
The Economy is in Big Trouble
Gary Leupp
Hurt Feelings and the Ground Zero Mosque: a Chronology of a Bizarre Controversy
Dean Baker
Whacking the Middle Class
Rannie Amiri
Lebanon Braces for a Turbulent Fall
Jeffrey St. Clair
Paradoxical River: Down the Hanford Reach (Part 3)
Marshall Auerback
The Myth of "Credibility Markets"
Ron Jacobs
Midnight on the Flotilla
Ramzy Baroud
Trapped at Ground Zero
Christopher Brauchli
The Case of Omar Khadr
Elizabeth Streb
How to Become an Extreme Action Hero
Joshua Frank
Mean Gov. Dean: Democratic Hypocrisy on the Mosque
Jonathan Cook
The Secrets in Israel's Archives
Tom Sauer
Pie in the Sky:
the Persistence of Missile Defense
David Macaray
Eat Pray Love Strike
Rev. William E. Alberts
Camouflage on the Home Front
Missy Beattie
A Kind of Barbarism
Lawrence Davidson
Eden's Photoshoot:
a Case of Decency Deficit
Mark Weisbrot
Lugar's Strategic Leak
Margaret Kimberley
Israel, Big Money and Obama
David Rosen
The Tyranny of False Consciousness
Wajahat Ali
The Power of Storytelling
Julie Hilden
The Facebook Defamation Case
Phil Rockstroh
The Deus ex Machina Presidency: a Fantasy
Marjorie Cohn
California, Human Rights and the UN
Charles R. Larson
Sweden's Sexual Dystopia
Paul Krassner
The Secret Murder of Ruben Salazar
David Yearsley
The Smells and Sounds of Coco and Igor
Poets' Basement
O'Hayer, Orloski and Davies
August 19, 2010
Danny Glover /
Saul Landau
Visiting Gerardo
Ellen Brown
A Homeowners' Rebellion
Neve Gordon
Israeli Loyalty Oaths
Martha Rosenberg
Elizabeth Gilbert's Strange Spiritual Journey
Dave Lindorff
The Mosque Saga
Michael Nagler
Afghanistan and the Future of the Empire
Dr. Susan Block
Our Promiscuous Prehistory
Anthony Papa
The End of Prison-Based Gerrymandering in New York
Website of the Day
What Lurks at the Margins for Indigenous People
August 18, 2010
Vicente Navarro
On Soccer and Bullfighting
Paul Craig Roberts
Deceptive Economic Statistics
Alan Nasser
The Neoliberal Attack on Social Security
Anthony DiMaggio
Democrats Go GOP on Tax Cuts
Mike Whitney
Why Iran's Jews are Better Off Than Gaza's Palestinians
Shamus Cooke
A Permanent Housing Collapse?
Farzana Versey
The Israeli Images
Franklin Lamb
A 15-Minute Sop for Refugees
Sheldon Richman
The Ugly Truth
Tom Thompson
We Need NASCAR for Politicians
Song of the Day
Jump You Fu-kers!: a Ballad for Wall Street
August 17, 2010
Michael Yates
Lock 'Em Up
Joe Bageant
Honk If You Love Caviar!
Greg Moses
"While Everyone Else Went to College, I Went to Jail:" a Conversation with Saad Nabeel
George Bisharat /
Nimer Sultany
Second-Class Citizens
Dean Baker
Bernanke's Paralysis
Lawrence S. Wittner
America's Runaway Military Spending: How Much is Enough?
Marshall Auerback
Which Party Poses the Real Risk to Social Security's Future?
Jonathan Cook
Racist Universities?
Patrick Bond
Is Africa Still Being Looted? Let Us Count the Ways
Adam Turl
Homeless and Hungry at College
Website of the Day
All About Newt
August 16, 2010
Jeff Halper
The Message of the Bulldozers
Esam Al-Amin
Who Killed Hariri?
Franklin C. Spinney
How the Defense Industry is Hosing Obama and the Taxpayer ... Again
Paul Craig Roberts
The Ecstasy of Empire
Ralph Nader
Hopes Dimming
Joe Mowrey
The Wages of Compromise
Mark Weisbrot
Failing Haiti
Jayne Lyn Stahl
Petraeus Speaks
Lawrence Reichard
US Embraces Honduran Thugocracy
David Michael Green
Losing It at the White House
Website of the Day
The US War in Yemen
August 13 - 15, 2010
Alexander Cockburn
America Enters a New Time
Kevin Alexander Gray
Shooting Cans: the Racist Assault on the 14th Amendment
John Ross
The Case of the Mysterious Disappearers
Gareth Porter
Top Israeli Generals and Intel Officials Oppose Striking Iran
Ray McGovern
Shilling for War on Iran
Ramzy Baroud
Life in Bourj el-Barajneh
Anthony DiMaggio
Flotilla Violence Expected
Saul Landau
A Cuban Adventure With Lee Lockwood
Mark Engler
The Gulf at the Gas Station
Steve Conn
Uncle Ted is Dead: Sen. Stevens and the Exploitation of Alaska
David Rosen
Know-Nothings of 2010
John Grant
Bradley Manning and the Secret World
Nathaniel Wolfson
Covering Palestine
Margaret Kimberley
America on the Precipice
Yves Engler
Occupation by NGO
Jeffrey Ballinger
REI Members Rise Up!
David Macaray
Do Union Members Make the Best Workers?
Jonathan Woodrow Martin
Sturdy Walls, Crumbling Job Market
Robert Alvarez
Chernobyl's Million Dead
Missy Beattie
Needing You
Christopher Brauchli
Glitch in the System
Scott Grzenczyk
Smearing the Judge
Betsy Ross
Airport Insecurity: a New Level of Creepiness
Shamus Cooke
Is Obama Playing With Nuclear Fire?
Sam Wellington
Freedom From Want
Pete Redington
Anarchy in the Soccer Stadium
Don Monkerud
Change Frustration
Laura Flanders
A Global War on Flooding?
Daniel Robelo
Mexico Considers Legalizing Drugs
Charles R. Larson
A Somalian Story
David Yearsley
Did John Adams Save the Day for Luca Guadagnino's "I Am Love"?
Stephen Martin
Naked Lunch of American Politics
August 12, 2010
Anthony DiMaggio
The Muslim Community Center at Ground Zero: a Manufactured Controversy
Paul Craig Roberts
The Big Things That Matter
Mike Whitney
Back in the Soup
Christian Christensen
Three Digital Myths
Stewart J. Lawrence
Latinos and Obama: Signs of Disaffection
Tariq Ali
It's No Secret: Pakistan and the Taliban
Lawrence Davidson
Omar Khadr, Bradley Manning and Our National Psyche
Binoy Kampmark
The Affair of the Diamonds: Naomi Campbell's Flirtation with Charles Taylor
Website of the Day
R. Crumb: My Weirdest Trip
August 11, 2010
Maximillian C. Forte
A War on Wikileaks?
Barbara Rose Johnston
From Hiroshima to Fallujah: Nuclear News, Nuclear Fears and the Role of Science
Jonathan Cook
The US Arms Bonanza in the Middle East
Winslow T. Wheeler
Talking With Gates About the Defense Budget
Dean Baker
Economists Without a Clue
David Macaray
Disenfranchisement as Political Repression
Sheldon Richman
What They are Still Doing in Our Name
Sam Smith
Why Liberals Deserve to Lose
Rob Stone, MD
Progressives and Conservatives Agree: Single-Payer is Inevitable
Laura Flanders
Charity or Philanthro-Fuedalism?
Website of the Day
Obama's Cat Food Commission
August 10, 2010
Gareth Porter
Serial Denial on Iraq and Afghanistan
Uri Avnery
Olmert and the Jackals
Mike Whitney
Kill Hugo?
Linh Dinh
Wordless Masses: Camden's Shuttered Libraries
Mark Weisbrot
Hungary Defies IMF and European Authorities
Linn Washington
Weed Weirdness: Californian Pot Measure Creates Strange Alliances
Clare Bayard
Soldiers Expose Deployment of Unprepared Troops
Billy Wharton
The Rite Aid Scandal: Health Records Still Treated as Commodities
John V. Walsh
Fighting Back Against ObamaCare
Michael Barker
Three Cups of Tea for Imperialism!
August 9, 2010
Mark Schuller
Is Haiti Falling Through the Cracks? A Walk Inside the Camps
Stan Cox
Why People Get Hot Under the Collar About Air Conditioning
Greg Moses
The Story of a Deported Texas Student Awaits Obama in Dallas
Jonathan Cook
"Major George" and Israel's Abu Ghraib
Arno J. Mayer
Nuclear Carriers on the Move
Ron Jacobs
Blood on Our Hands?
David Michael Green
What is to be Done?
Jayne Lyn Stahl
Spike Lee Fans at the Pentagon?
James Rothenberg
Hush Money Generation
John Grant
American Stupidity
Website of the Day
What a Collapsing Empire Looks Like
August 6 - 8, 2010
Alexander Cockburn
Marriage's Fiercest Defenders
Patrick Cockburn
Welcome to Lebanon: Graveyard of the Arrogant
Bill Quigley,
Davida Finger and Lance Hill
Katrina Pain Index 2010
William Blum
Bombing Iran
Samuel Leff
The Green Berets as an Armed Peace Corps?
Jeffrey St. Clair
Paradoxical River: Down the Hanford Reach (Part Two)
Ralph Nader
The Spectulator's Rebate
Bill Hatch
Rodeo, Then and Now: Broncs, Boots and Boobs
David Yearsley
How BP Harnesses Music to Its Message
Saul Landau /
Nelson Valdes
Gross Media Negligence on Cuba
Sherwood Ross
Bernie Madoff and the Watchdog That Didn't Bite
John Ross
Starving for Justice
Conn Hallinan
The US and Yemen: a Lethal Blend
P. Sainath
India's "Paid News" Scandal: Blotted Out by Press Lords
Wayne Clark
Hyping Hawks and Circling Vultures
Jonathan Cook
The Destruction of a Negev Village
Margaret Kimberley
White Citizenship
Linh Dinh
House Slave Syndrome
Ramzy Baroud
Smoke on a Bridge
Ellen Brown
Escaping the Sovereign Debt Trap
David Rosen
Blood on the Floor: the Recession and Workplace Violence
Lawrence Davidson
Flattening the Bedouin Village of al-Arakib
Norman Solomon
Nuclear U: the University of California and the Nuclear Weapons Business
Gatien Elie,
Allan Popelard and Paul Vannier
France's New Rural Ghettos
Tom Genrich / Michele Parry
Back to the Land in France:
Settler's By Choice
Dave Lindorff
A Whistleblower Bounty on Corporate Crime
Missy Beattie
Woe:
the Politics of Exploitation
Rannie Amiri
Questions for an Ahmadinejad / Obama Debate
Charles R. Larson
Namibia's Brutal History
Niranjan Ramakrishnan
Tigers ... or Copycats?
Laura Flanders
Recovery for the Rich
Andrew Ford Lyons
Playing Soccer in Gaza
Stuart Jeanne Bramhall
Wilhelm Reich and the Tea Party
Cpt. Paul Watson
The Rainbow Fades
Christopher Brauchli
Whacky Politics
Phil Rockstroh
A Götterdäm-merung of Kitsch
Barry Crimmins
Follow-Up Call
Benjamin Dangl
A History of Monstrous Mexico City
Finley Peter Dunne
Mr. Dooley on the Charity of the Very Rich
Poets' Basement
Three by DJ Moser
Website of the Weekend
"I Don't Like Liberals"
August 5, 2010
Mike Whitney
An Avoidable Depression
William Blum
Tell Me Again: What's the War About?
Daniel Kovalik
Venezuela and Labor: the Big Lie
Russell Mokhiber
America's Solitary Nightmare
Patrick Bond
South Africa Loses Its War on Poverty
David Macaray
The Police Need to Step Up
Ashley Smith
Haiti's Colonial Overlord
Susan Galleymore
Rationalizing the Bombing of Hiroshima
Website of the Day
Gavin's Sludge
August 4, 2010
Carl Ginsburg
Buffett, Gates, Rockefeller and the Conscience of the Very, Very Rich
Ron Jacobs
Afghanistan: a War Correspondent's Viewpoint
Mike Whitney
Looming Changes at the Fed
William P. O’Connor
Salt in the Wounds
Nick Dearden
Toxic Debts:
Why Should Pakistan Trust Us?
Gareth Porter
Obama Junks 2008 "Troops Out" Pledge
Jeffery R. Webber
Uribe's Parting Shot
Doug Giebel
Flip-Flops and Failures
Deepak Adhikari
Postcard From Nepal
Adam Turl
A Progressive Alternative in Illinois
Wildlife Photoshoot of the Day
Palin's Momma Grizzlies
August 3, 2010
Bill Quigley
Why We Sued to Represent Anwar Aulaqi
Dean Baker
Double Dip Recessions
Mike Roselle
The Battle for Coal River Mountain
Don Duncan
Shooting Back: Young Palestinians With Cameras
Anthony DiMaggio
Operation Infinite Occupation
Martha Rosenberg
Why are US Troops Killing Themselves?
Clarence Lusane
Racism, Shirley Sherrod and the Obama White House
Franklin Lamb
America's Dog in Lebanese Fight
Conn Hallinan
Behind the Colombia / Venezuela Tensions
John Grant
Murder Inc. in Afghanistan
Website of the Day
FrankenSalmon
August 2, 2010
Darwin Bond-Graham
Women of the Storm (and the Men Who Love Them)
Maximillian C. Forte
The Wikileaks Afghan War Diary: Reasons for Celebration, Causes for Concern
Ralph Nader
Obama's Afghan Formula: Peace Through War
Jonathan Cook
Israeli Rabbi Preaches "Slaughter" of Gentile Babies
Ron Wilkins
The Other Side of Shirley Sherrod
David Macaray
Those Guatamalan Pay Scales
Linh Dinh
Rotting Fish: Congress, Goldman Sachs and the First Responders
Steven Higgs
The First Autistic Kid at School: the Story of Travis Roach
David Michael Green
A Bottomless Well of Greed
Gail Dines
The Stepford Sluts: the Return of "Mad Men"
Website of the Day
It's All Happening in Olympia!
July 30 - August 1, 2010
Alexander Cockburn
Do Disclosures of Atrocities Change Anything?
Paul Craig Roberts
Let Them Eat Cake
Gareth Porter
Bomb Iran? Neocon Nutballs Ramp Up Campaign
Patrick Cockburn
Getting Out of Afghanistan
Linn Washington
Racism in the Federal Government
Jeffrey St. Clair
Paradoxical River: Down the Hanford Reach
Anthony DiMaggio
Iran Under Siege
Chase Madar
Torturing the Rule of Law at Obama's Gitmo
Bill Kauffman
Wherein We Meet Genial Radicals by the Shores of Lake Champlain
Stewart J. Lawrence
Enjoining Arizona: Why the Battle Isn't Over
John Ross
Lovefest in the Zocalo
Joanne Mariner
Forced Returns From Guantanamo: Repatriated to Torture?
John Weisheit
Strip Mining Canyon Country
Saul Landau
The Alan Gross Case
Allan J. Lichtman
Comic Strip Politics
Margaret Kimberley
Shirley Sherrod's Righteous Anger
Russell Mokhiber
Don Blankenship Hates the Police
Rannie Amiri
The Existential Threat Facing Lebanon Today
Fred Gardner
Smoking Pot Does Not Cause Lung Cancer
Jeff Ballinger
The Day FIFA Lost Its Soul
Ramzy Baroud
Why Muslims Should Rethink Palestine
Steve Roest
Toxic Whales
Christopher Brauchli
The Return of Tancredo
Sheldon Richman
Trashing the Fourth Amendment
Missy Beattie
Devil's Food Cake
Don Monkerud
A Tea Party Fairy Tale
Mitu Sengupta
The Price of Being World Class
Mark Weisbrot
Colombia-Venezuela Dispute Will be Better Resolved in South America
Eric Walberg
Russia, Afghanistan and Star Wars
Willie L. Pelote
Cut From the Top
Charles R. Larson
The Last Woman on Earth
Kim Nicolini
Class Bonding and Man-Children in LA
David Yearsley
Christian Bach's Castrato Arias
Poets' Basement
Hays, Halle and Ford
July 29, 2010
Mike Whitney
Trillions for Wall Street
Jordan Flaherty Rogue State: a Movement Rises in Arizona
Dave Lindorff
National Insecurity Complex
Ron Jacobs
The Story of Evo Morales
Mark Weisbrot
Jobs, Stimulus and Debt
Conn Haliinan
The Great Myth of Counter-Insurgency
Sheldon Richman
Government Has Run Amok Since 9/11
Brian M. Downing
Rising Tensions in the Persian Gulf
Website of the Day
An Interview with Julian Assange
July 28, 2010
Paul Craig Roberts
US Treasury is Running on Fumes
Gregory Elich
The Sinking of the Cheonan and Its Political Uses
Bruce McEwen
The Great Marijuana Boom
Jonathan Cook
Shin Bet Exposed
David Macaray
Taft-Hartley Revisited
Jeanine Molloff
The Predatory Nature of Home Loan Modifications
Barry Crimmins Sickened Ire: a Visit to St. Moneychanger's Hospital
Linn Washington
Another Reverse Racism Scam
John Grant
Letter to an American Hero: PFC Bradley Manning
Anthony Papa
Is Cameron Douglas' Life in Danger?
Website of the Day
Animal Cruelty But One CAFO Crime
July 27, 2010
Gareth Porter
The Afghan War Springs a Leak
Mike Whitney
A Decade of Declining Housing Prices
Chris Floyd
The Poor Must Die
Karl Grossman
Floating Chernobyls
Dean Baker
Blacking Out on the Economy
Marjorie Cohn
McCain on Iraq: "We Already Won That One"
Patrick Cockburn
Worse Than Hiroshima?
Steve Breyman
Afghanistan: the Inside Story
Heather Gray
How Shirley Sherrod Saved a White-Owned Farm in South Georgia
Randall Amster
Climate of Fear on the Border
Manuel Garcia, Jr
Dear Democrats, 2012
Website of the Day
BP and Academic Freedom
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September 2, 2010
Where the Housing Market is Going
Burning Down the House
By DEAN BAKER
The howls of surprised economists were everywhere last week as the government reported on Tuesday that July had the sharpest single-month plunge in existing home sales on record. The next day the Commerce Department reported that new home sales hit a post-war low in July.
All the economists who had told us that the housing market had stabilized and that prices would soon rebound looked really foolish yet again. To understand how lost these professional error-makers really are it is only necessary to know that the Mortgage Bankers Association (MBA) puts out data on mortgage applications every week. The MBA index plummeted beginning in May, immediately after the last day (April 30) for signing a house sale contract that qualified for the homebuyers tax credit.
It typically takes 6-8 weeks between when a contract is signed and a house sale closes. The plunge in applications in May meant that homebuyers were not signing contracts to buy homes. This meant that sales would plummet in July. Economists with a clue were not surprised by the July plunge in home sales.
What should be clear is that the tax credits helped to pull housing demand forward. People who might have bought in the second half of 2010 or even 2011 instead bought their home before the tax credit expired. Now that the credit has expired, there is less demand than ever, leaving the market open for another plunge in prices. The support the tax credit gave to the housing market was only temporary.
It is worth asking what was accomplished by spending tens of billions of dollars to prop up the market for a bit over a year with these tax credits. First, this allowed millions of people to sell their home over this period at a higher price than would have otherwise been the case. The flip side is that more than five million people bought homes at prices that were still inflated by the bubble. Many of these buyers will see substantial loses when they resell their house.
The banks also had a stake in this. The homebuyers tax credit prevented prices from declining as rapidly as would have been the case otherwise. This allowed millions of homeowners to be able to sell their home at a price where they could pay off their mortgage. This made banks who could have been holding underwater mortgages very happy.
Of course someone had to issue the mortgage to all those people who bought homes at prices that are still inflated by the bubble. The overwhelming majority of the mortgages issued in the last year and a half are insured by the government, either through Fannie Mae and Freddie Mac, or through HUD. So, taxpayers are carrying the risk that further price declines will push these mortgages underwater, not banks or private investors.
The further plunge in house prices will have serious implications for the course of the recovery. By my calculations, the decline in house prices through the first half of 2009 eliminated $5-6 trillion of the $8 trillion of housing equity created by the bubble. Look to the further declines in the rest of this year to eliminate most or all of the remaining bubble equity.
The loss of this wealth will further dampen growth. This should drive home the fact that house prices, like the NASDAQ following the tech crash, are not coming back. Homeowners will have to come to grips with this massive loss of wealth. While many commentators (no doubt the surprised ones) complain that consumption is low, the reality is that consumption is still at an unusually high level relative to disposable income.
Furthermore, with a huge cohort of baby boomers approaching retirement with almost no wealth, there will be more need to save than ever. This need to save is accentuated by the plans of those in the Obama Administration and the congressional leadership to cut Social Security.
This means that we should expect consumption spending to weaken sharply in the second half of 2010 and into 2011 as the savings rate rises into the 8-10 percent range, further slowing economic growth. This comes against a backdrop where final demand had only been growing at a 1.2 percent average rate over the last four quarters.
Final demand is GDP, excluding inventories. Growth was boosted over the last year by the restocking of inventories. This process is largely completed, which means that we should expect GDP growth to be pretty much equal to final demand growth going forward.
Starting with a 1.2 percent growth rate, then throwing in weaker consumption due to further house price declines, state and local government cutbacks, and the winding down of stimulus, it is questionable whether growth will even remain positive over the next four quarters. Given all these negative factors, it is very hard to construct a story showing the economy on a healthy growth path, even though many economists still seem to think it is. Of course these economists were probably surprised by last month’s home sales data.
Dean Baker is the co-director of the Center for Economic and Policy Research (CEPR). He is the author of Plunder and Blunder: The Rise and Fall of the Bubble Economy and False Profits: Recoverying From the Bubble Economy.
This column was originally published by The Guardian.
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