Posted by Michael A. Kamperman on August 31, 2009
Is Japan the canary in the coal mine? On Sunday the Japanese elections swept out the ruling LDP, who has held power since 1955. The consensus opinion is the voters are not embracing the message of the winning Democratic Party; the voters are embracing trying something else…anything else. Such change swept many ruling governments from power in the 1930’s. In the U.S. FDR seized power. In Germany it was Adolph Hitler. While in no way am I suggesting a Nazi regime is waiting in the wings, I am suggesting change is waiting in the wings. Such is the price of a debt-induced inflationary depression on the current leaders. The people know things are not going in the right direction. However, most of the people don’t know what change of direction things should be going in. They only believe it is better to try the devil they don’t know rather than keep the devil they know. The next major industrialized nation up for potential electoral change is Germany. Right now the polls believe Chancellor Angela Merkel’s ruling coalition will prevail. But this expectation has been thrown into doubt by the gains made in elections over the weekend by leftist parties. Like the policy proposals that swept Japan, the left leaning Free Democrats in Germany are the only major party to run on cutting taxes and the federal government bureaucracy. And in both Japan and Germany this platform gained votes. The economic crisis is causing social upheaval to sweep the globe, and it is prevalent in the U.S.
In the U.S. in 2007 less than 1 in 12 Americans were on food stamps. Now the number has risen to 1 in 9. In the middle of 2007 about 1 in 100 Americans with prime mortgages were 30 days delinquent. Today, the number of Americans with prime mortgages that are 30 days delinquent, or more, is approaching 1 in 10. Such devastating personal financial tragedies have consequences. In democracies these consequences are expressed at the ballot box. The economic uncertainty in the U.S. has spilled over at Town Hall meetings held by members of the House and the Senate across the U.S. What is specifically troubling is how easily the depressed and confused electorate can be drawn to ideas that are frankly dangerous to the economic health of the U.S. For example, my own Congressman Chet Edwards held a health care Town Hall meeting in Waco this weekend. Three times questioners suggested we would be better off eliminating Social Security, Medicare, and Medicaid. What panics me is not that an individual in a crowd of over a thousand would stand up and say this. What panics me is the individuals who expressed these viewpoints received standing ovations from large segments of the audience.
In no way would the U.S. be better off eliminating these programs. In fact, during times of debt-induced deflationary depressions the federal government would be wise to expand these programs. But a false fixation on balancing the budget and having fiscal discipline in times of economic crisis risk throwing the U.S. and the world into a new depression greater than the Great Depression. I hope President Obama is paying attention to the economic pain the country is feeling. If not, he will certainly go down in history as President Herbert Hoover II.
Posted by Michael A. Kamperman on August 21, 2009
Over 1 in 8 mortgages in America are now 30 days or more past due. The Mortgage Bankers Association has reported that 13.2% of all mortgages are more than 30 days past due, which means people owe two or more payments. So who are these people? Mainly they are parents with children who are still living at home who are not wealthy. While exact data is not available, it is reasonable to assume that perhaps up to 1 in 5 families with children living at home and classified as lower to upper middle class are delinquent on their mortgage. How is this possible if only 1 in 8 people are delinquent on their mortgages? Well, currently about 66% of all households own a single family home. About 83% of married couples own a home. Most of the truly poor people in America do not own a home, although recently some did. Many of the non-poor married couples who do not own a home consist of those recently married for the first time still renting and those near the end of life who are living in assisted living situations. Most of the others are so mobile they do not purchase a home, or they live in natural rent areas like New York City. Basically, it is the dream of most middle class married couples to purchase a home. The data that 1 in 8 mortgages are delinquent is for all mortgages, whether they were made last month or 29 years and 11 months ago. The vast majority of mortgages owed by people who have been in their homes for 15 or more years are not delinquent. Most of the married couples who have been in their homes for 15 or more years have seen their children grow up, move out, and in some cases move back in. Basically, the vast majority of troubled mortgages are to people who have been in their homes for less than 15 years. Most middle class families with children living at home have been in their homes for less than 15 years.
Yet middle class families with children are not only reeling from significant price depreciation on their properties. They are also reeling from suffering a disproportionate blow from the unemployment crisis. Most employers that have laid off workers have based their decisions on seniority. Therefore, job losses are much higher amongst people in their 20’s and 30’s than it is for those in their 40’s and 50’s on average. So the crisis is not only most acute amongst families with all ages of children living at home, but especially amongst families with younger children.
Sadly, Washington seems oblivious to the crisis. Today Ben Bernanke, who was our last and best hope to give the economy the jolt it so desperately needs, predicted the economy would soon return to growth. Apparently Fed Chair Bernanke is too focused on Wall Street and not nearly focused enough on Main Street. How will a world economy that is dependent on the spending patterns of U.S. households with children return to growth when 1 in 5 of these households are struggling to hold on? What kind of consumer confidence can exist in middle class families not affected by the crisis when all of them know a close personal friend or family member that has lost their job? At this point we are back to President Obama, who desperately wants to be re-elected in 2012, as our last best hope. If I were him I would refinance every existing mortgage in America at 4% without an appraisal, a credit check, a new title policy, or a verification of income. And for those people that are delinquent I would simply add the delinquent payments to the mortgage balance and give them a chance to start over. All of the money for existing mortgages is already out the door and in one way or another the American taxpayer is already on the hook for over 80% of all mortgages. We don’t need change we can believe in, we need leadership we can believe in.
