Rumors abound that the Federal Reserve is planning a new round of 'quantitative easing' as early as this spring.
The Fed's program of purchasing over $ 1 Trillion of mortgage bonds that began in January of 2009 has done nothing to help the faltering housing market. In fact, according to a recent Case-Shiller index report, the value of U.S. housing is down 32% from its 2006 peak.
Fed chief Ben Bernanke admits the central bank's inability to turn the housing market around without broader government assistance. He also restated the critical role of residential real estate, indicating that without a reversal in same, a broader economic recovery is unlikely.
The current state of the U.S. economy in general continues to be hotly debated. The current administration, bolstered by most of the media, insist the U.S. is in a recovery.
President Obama frequently boasts the millions of jobs that have been created in the past three years, conveniently ignoring the many more millions of jobs that have been lost. This myopic portrayal of employment picture may generate useful sound bites for the President's re-election campaign, but is little comfort to the many millions of Americans that are either unemployed, under-employed, or have given up even trying to find employment.
We have heard much about the recent reported drops in the official unemployment rate. The current figure of 8.5% is, in the President's words, a move in the right direction. However, a recent Dow Jones newswire report said that Charles Evans, president of the Federal Reserve Bank of Chicago, is concerned that the recent decline in the unemployment rate to 8.5% could be distorted by long-term unemployed workers simply dropping out of the work force and no longer being counted among the jobless or by other short-term effects.
Seasonal hiring for the holidays is likely part of the reason for the drop from 9.1% to 8.5% official unemployment. Official numbers have never accounted for Americans who have simply stopped looking for work. Estimates of the actual unemployment rate are as high as 17% as cited by Mary Engel of MSN Money. John Williams' 'Shadow Government Statistics report estimates that real unemployment is well over 20%!
Government manipulation of unemployment figures, as well as other statistics on GDP growth and the CPI is nothing new. But that practice is rarely reported in the mainstream media, which seems intent on presenting a distorted and overly optimistic picture of the health of the U.S. economy. The old saying that, “When your neighbor loses his job it's a recession ... when you lose your job, it's a depression,” may be overly simplistic, but it is telling.
Seemingly lost in the never-ending avalanche of official statistics is the experience of individuals ... real people ... you, me, and the family next door. The human face of the suffering behind the endless parade of numbers. I'm reminded of an article in the L.A. Times a year or two ago about a family in Southern California that was being evicted from their Southern California home on Christmas Eve. The couple's young daughter turned to the Sheriff conducting the eviction and asked, “How will Santa find us?”
So what is another round of 'QE' likely to mean to the average American? Not much, really.
No amount of mortgage bond purchases by the Fed will force banks to lend. And therein lies the rub. The Fed bailed out the banks, propped up the 'too big to fail' financial institutions, backstopped many of very companies that created the near-collapse of the entire U.S. economy, but they did nothing to help the typical 'guy on the street.' Wall Street bankers got a scolding of sorts, and a handful of the perpetrators were investigated or indicted.
But as the recent Senate questioning of MF Global's Jon Corzine showed, most of these hearings result in few if any real changes in the way government or big business operates. Homeowners continue to lose their homes, and workers continued to be laid off, as a growing number of both large and small companies downsize to survive. It seems that hardly a day passes that another large U.S. corporation is either filing for bankruptcy protection or laying off thousands of workers.
Business news channels trumpet the massive amounts of cash being held by corporate giants, but little if any of these reported surpluses have created any meaningful improvement for 'main street.' Individuals and small business are still struggling simply to survive.
Banks may be flush with cash, but contrary to the declarations of bank CEOs, they're pretty tight-fisted when it comes to lending to either small businesses, consumers or homebuyers. Despite the hundreds of billions in TARP funds, the government can't force banks to lend,
Banks are cautious, especially in light of increasing government regulation and recent 'stress tests.' Unfortunately, the crash of 2007-2008 has caused a distorted overreaction to the loose lending policies of the past. The pendulum has swung from one extreme to the other ... neither extreme healthy or likely to promote an economic recovery.
The result has been stagnation at best ... a new recession, or even a possible depression. Where will it all end? No one knows. But in my opinion, conditions are not improving. The underlying causes of this now global economic malaise continue to fester.
The combination of tight money, reluctant, cash-starved consumers and a gridlocked congress don't create a climate conducive to economic recovery. While governments around the world play a never-ending game of 'kick the can,' the majority of the populace has become 'the can.' 'Kick the can' may be fun for carefree kids, but it's never been much fun for the can.
Next up: “Euro, Euro on the wall ... Who's the poorest of them all?
(Fourth in a series of articles on the REO industry written by Philip Wegener)
Philip Wegener is a Los Angeles based mortgage-industry executive and President/CEO of Central Mortgage Asset Management.
