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Month: October 2023

Published on 48 Comments on Democrats are not the ones preventing a deal to elect a Speaker

Here's a current headline in Politico:

The text of the piece generally is OK, but what's with the consistent theme that Democrats are holding the strings here? They can't do anything until Republicans ask, and so far Republicans have flatly refused to entertain any kind of deal. A better headline would be:

Republicans dither about asking Democrats to help them out of their latest jam

It's more accurate, anyway.

Published on 12 Comments on Home sales drop to lowest rate in over a decade

Yesterday I mentioned that sales of new homes had fallen over the past couple of years. Today the Wall Street Journal passes along the news that existing home sales have plummeted as well:

Home sales fell in September to the lowest rate in 13 years, showing the corner of the economy most weakened by high interest rates remains in decline. For all of 2023, sales of previously owned homes are on track to be the lowest since at least 2011, because increased rates are weighing on demand.

The housing market isn't declining the way it did in 2007, posing a risk to the entire economy, but it's declining enough to do some damage. Just wait.

Published on 15 Comments on Sidney “Release the Kraken” Powell pleads guilty to election conspiracy

Today is full of good news. First Jim Jordan threw in the towel and now crackpot lawyer Sidney Powell has done the same:

Sidney K. Powell, a member of Donald J. Trump’s legal team after he lost the 2020 election, pleaded guilty on Thursday morning to six misdemeanor counts instead of facing a criminal trial that was to begin next week.

....The guilty plea was a blow to Mr. Trump, who faces the most charges of any defendant along with Rudolph W. Giuliani, his former personal lawyer. Both men face 13 counts. Significantly, it means that a member of the Trump legal team will cooperate with the prosecution as it pursues criminal convictions related to efforts to keep the former president in power after he lost the 2020 election.

You will recall Powell as the attorney who popped up at Rudy Giuliani's side shortly after the 2020 election and, in machine gun style, blamed Cuba, Venezuela, the Clinton Foundation, the billionaire George Soros, and Antifa for somehow scavenging votes away from Donald Trump. She was so insane that even the Trump campaign disavowed her. Nevertheless, a couple of weeks later she was at a meeting in the White House and Trump reportedly was mulling the idea of appointing her as a special counsel to oversee an investigation of voter fraud.

Later she was sued by Dominion Voting Systems and filed a statement suggesting that she was innocent of defamation because her claims were so outlandish no one could reasonably believe them:

The filing says that the claims Powell made in interviews on Fox News and Fox Business, and in a press conference at the Republican National Committee are not statements of fact. In particular, her claims “that she had evidence that the election result was the ‘greatest crime of the century if not the life of the world,’” or that Democrats “developed a computer system to alter votes electronically” would not be accepted by a “reasonable person” as “statements of fact.”

Powell and her lawyers go further, citing Dominion’s criticism that Powell’s claims were “wild accusations,” “outlandish claims,” “inherently improbable,” or “impossible” as evidence that “reasonable people would not accept such statements as fact but view them only as claims.”

Anyway, it's not clear how close Powell ever was to Trump or how much she knows about his efforts to overturn the election. So it's possible that flipping her won't accomplish much. But it can't hurt.

Published on 22 Comments on Jim Jordan is out

I see that Jim Jordan has decided not to become a three-time loser, instead ending his run for Speaker of the House. What a wuss. Kevin McCarthy was willing to endure 14 rounds of humiliation before he finally became Speaker.

So what now? It's not too late to go back to McCarthy. Maybe a few of the eight folks who voted him out in the first place have had a change of heart?

AFTERNOON UPDATE: Jordan has apparently changed his mind and will try again. Stay tuned.

Published on 9 Comments on Student loan resumption will only barely affect the economy

The COVID pause on student loan repayment is over. With 28 million borrowers now having to make payments again, will this slash consumption and take the US economy down with it? Probably not. The New York Fed analyzed some recent survey results and concluded that the impact would be minimal:

On average, borrowers expect to reduce consumption by around $56 per month from their average monthly spending reported in August. If we scale this monthly decline up to the 28 million borrowers with federally-managed loans currently in forbearance, this would suggest nearly a $1.6 billion decline in monthly spending, or 0.1 percentage point of August 2023 personal consumption expenditures (PCE).

Here's the expected impact on various demographic groups:

Oddly enough, two groups expect their spending to increase: non-whites and those without a BA. However, those may be statistical artifacts. The Fed's sample size was small and the error bars are large.

But their broad conclusion is probably fairly reliable: the end of the repayment pause will have only a tiny impact on the overall economy. And that comes straight from the borrowers themselves.

Published on 19 Comments on Homes have gotten pretty expensive these days

Matt Darling is puzzled:

It's true that the overall homeownership rate hasn't changed much recently, which might cause you to think that people are still buying homes as much as ever. But you'd be wrong. Homeownership rates have a ton of inertia built in because nearly all the people who owned homes a few years ago still own homes today. Even if homes are getting expensive and fewer new buyers can afford them, it takes a long time to show up in the homeownership rate. So instead, take a look directly at purchases of new homes:

After plummeting during the housing bust, purchases of new homes steadily increased back to their long-term average and then started to drop beginning in 2021. Here's why:

Due to higher home prices and higher interest rates, the cost of the median home mortgage skyrocketed starting in 2021.

So, yeah, new homes have become less affordable over the past couple of years. You need to earn pretty good money to afford an annual nut of ~$32,000. A few years ago an income of $70,000 was enough to afford a median home. Today it's more like $115,000.

Published on 20 Comments on Surprise! Jim Jordan is not a fiscal conservative.

Jim Jordan, in an apparent attempt to bolster his tax cut bona fides, has suggested he would support raising the cap on the state and local tax deduction. This would cut taxes by about $50 billion, mostly for the affluent, but even some Republicans are unimpressed:

Thom Tillis may find this surprising, but he should know better. Republicans haven't been fiscal conservatives since the Reagan era. They are in favor of tax cuts, higher defense spending, and cuts in social spending. That's it. The net result of all this has always been higher deficits, exactly the opposite of fiscal conservatism.

Published on 8 Comments on Why did CPI and PCE inflation diverge during the pandemic?

I don't remember: have I posted this chart before? I guess it can't hurt to post it again:

There are technical differences between the CPI and PCE measures of inflation, but they mostly only show up over long stretches of time. Over short periods, as you can see, they're generally quite close.

Except during the recent inflation spike. Did we really hit a high of 9%, as CPI suggests, or only 7%, as PCE suggests? Or did we actually top out at 10%, as the European HICP says? I don't know, but it's an intriguing mystery.

In any case, CPI and PCE are now back together and both say inflation has risen about 3.5% over the past year and 3% over the past six months. That's pretty close to the Fed's 2% target. Core PCE is already there, increasing at an annualized rate of 2.16% over the past three months.

Published on 8 Comments on Can the economy continue to shrug off high interest rates?

Paul Krugman says that signs are good for a soft landing even though the Fed has hiked short-term interest rates sharply and long-term rates have followed right along:

If you had told me two years ago that interest rates would soar like this, I would have predicted a nasty recession with spiking unemployment. But in fact job growth, and probably G.D.P. growth, have just kept chugging along.

The problem for economic analysts is that there are two possible reasons the recession dog hasn’t barked. One is that we’re seeing fundamental economic change — that new investment opportunities have increased r-star, so that the economy can handle high interest rates indefinitely. The other is that there are, as Milton Friedman claimed, “long and variable lags” in the effects of monetary policy, and high rates will eventually break something major.

R-star is the "neutral" rate of interest, an estimate of what interest rates would be at full employment if the Fed left things alone. Here's an estimate of r-star over the past few years:

It sure doesn't look like r-star has gone up lately. The Fed is holding interest rates above 5% right now, which continues to look extremely contractionary. For now, count me as team long and variable lags. I hope to be wrong since a recession could easily hand the presidency to Donald Trump, but I suspect a recession is coming.