On December 27th, 2009, we at Louisiana Conservative warned you that there was going to be a housing crisis. While most of the experts were predicting that gas prices will reach $5.00 a gallon in 2008, we did a two article story why gas prices will be $3.00 by Labor Day (Part 1 here, Part 2 here). Though we were wrong about gas prices dropping to $3.00 a gallon by Labor Day, we were right in stating that the longer gas prices stay high, the better it is for consumers as the dramatic drop off in gas prices happened shortly after Hurricane Gustav which allowed oil and gas prices to stay artificially higher for a longer period of time.
Had our government done nothing to repair the economy, ie stimulus projects, the lower gas prices would have put extra money in the pockets of consumers and allowed products to be delivered more cheaply. The combination of the two, more money in the consumer’s pockets, and prices on products decreasing would have sent our economy roaring back, thus making President Obama everybody’s hero. But that’s not what happened, the government did interfere, and as happened in the 1930’s, extended the painful economic recession.
On January 20th, President Obama had the power in his hands to turn our economy around. Three of the four previous President’s before Obama each “inherited” a recession, Reagan, Clinton, and Bush II. Each had different ideas to revive the economy, but each did the same thing. Reagan came in by instilling confidence and cutting taxes, Clinton instilled confidence by saying that people were “anticipating his Presidency”, and Bush II instilled confidence by giving tax rebates. When Obama came into office, he was not instilling confidence. Instead he was telling people that the economy was worse than expected, that it was going to be revived by year’s end. What he did was force the consumers to put up economic defenses. He scared people out of spending. He scared the economy. He did it to push an agenda, to “never waste a good crisis”, and he succeeded but the economy failed. Tarp was passed, Stimulus was passed, homebuyer incentives were passed, and using the economy and the debt that he’s now responsible for pushing up as his excuse, passed health care… almost.
We warned you about the coming housing crisis beginning to hit, more importantly other things are beginning to happen. Today, Yahoo reports that December home sales dropped 17%.
Sales of previously occupied homes took the largest monthly drop in more than 40 years last month, sinking more dramatically than expected after lawmakers gave buyers additional time to use a tax credit.
The report reflects a sharp drop in demand after buyers stopped scrambling to qualify for a tax credit of up to $8,000 for first-time homeowners. It had been due to expire on Nov. 30. But Congress extended the deadline until April 30 and expanded it with a new $6,500 credit for existing homeowners who move.
There may be other bad news on the horizon. Despite the fact that the divorce rate fell again in 2009, it’s quite possible that ongoing effects of the
recession depression will finally have it’s effect on families. It could be that families don’t have the money for a divorce, but the financial situation prolonged enough may cause people to make those changes in their personal lives. When homeowners divorce, often times the house is put up for sale, and the money is divided between the splitting pair. If this happens, expect to see more homes going on the market than expected.
Eventually some people are going to have to be moved out of their homes, it’s unfortunate but the government can not simply continue to reward people who haven’t paid their home mortgages. In order to do that, they have to spend money. In order to spend money, they must first get it from somewhere. Typically they borrow it and pay it back with tax dollars and with interest. Those dollars come from people running businesses and taxing them more while encouraging peope not to pay those businesses back only exacerbates the problem. If people don’t have to keep giving businesses money, eventually those businesses will run out of money, eventually government won’t have the means to pay back loans or even the interest on those loans, eventually nobody will give the United States a loan, which means eventually government won’t have the means to pay for anything.
In this story we find that homeowners are defaulting and redefaulting on their mortgages.
“The monster behind the defaults and redefaults is also one of the main problems causing the Making Home Affordable Program to come under fire: Unemployment. While it may be deemed as a foolish program, the home loan modification venture is trying to keep people in their homes and despite them not meeting the millions of homeowners they want to help and unemployment causing many to face foreclosure anyway, the attempt at keeping people in their house can’t be looked down upon lest that critic have no concept of what it is to live in the real world.”
Sure, but what our government has done is to continuously encourage people not to look for jobs. The economy isn’t growing naturally. It takes money from businesses and gives money to business cutting out the average Joe from earning money, and increasing the interest the federal government pays out. It’s a losing effort that will eventually run out of money.
We now see the effects and results of the home buyers tax credit on December sales, but keep in mind, this was extended in order to keep the December numbers from being worse than the 17% drop. That means no new houses being built, no new jobs being created, no jobs being re-created. Add to that the increase in already built houses hitting the market, high unemployment and the end of the incentive in April, and you have a cocktail for disaster.
And that’s not the only things about to hit. Companies like Exxon, Chevron, et al only account for a single digit percentage of oil production in the United States. Experts put this number between 5% and 7% of total oil production. The rest of the oil is produced by small private companies. Refinery companies such as Exxon must buy that oil from oil producers. So while they want to keep the price of oil down in order to keep the price of gasoline down, this may not be possible. Some countries will produce more than their quotas but other place are still driving down production to cause an oil shortage, a shortage that will be blamed on oil refinaries. Increase in gas prices will take more money out of the pockets of consumers, drive the price of goods back up, and cause the economy to further recede.
The solution is to increase domestic oil production by opening up more areas to drill and congress simply won’t do this, and while their argument is that it’s going to take 10 years to get the oil, it is both a fallacy and a delay. The nation has been arguing over increasing drilling locations for over fifteen years, which had we done that in the first five years, we would have been able to combat the lower production of OPEC and oil can be produced in less than ten years.