We are now nearly eight years into the great experiment. Following the economic meltdown of 2008, governments worldwide embarked on the largest economic interventions ever attempted. While the central banks and politicians promised wonders from these elixirs, the results have been quite different.
Tony Sagami, editor of the Rational Bear at Mauldin Economics recently published an article titled 4 Signs That the Lights May Be About to Go Out in the Housing Market that paints a disturbing picture of one of the more important parts of the US economy, housing. Sagami shares the following data:
- Currently the homeownership rate is back down to 1993 levels.
- The Wall Street Journal reported that pending US home sales dropped by 2.5% in January, as compared to December, and had a rather insignificant gain for the year of less than 1.5%.
- New home sales for January dropped by over 9%, according to the Investor’s Business Daily.
- The medium sales price for new homes dropped by 4.5% in January, following drops of 3.7% and .3% respectively in December and November.
A further indictor of the weakness in the housing market is the return of creative mortgage financing, the same type of gimmickry that helped create the original meltdown. Equifax reports an increase of the mortgages given to people with credit scores of less than 620. In addition, during the first nine months of 2015, over $50 billion in mortgages were of the sub-prime variety, a substantial growth in this risky lending practice.
The housing figures are troubling on their own. However, when taken in the context of the massive governmental interventions of the past 8 years, they are more problematic. These interventions included a massive stimulus program, running up the US debt to over $19 trillion dollars and keeping interest rates near 0% for nearly eight years (and now threatening to go negative).
Housing is not the only major part of the economy showing weakness. Sagami reports on weakness in manufacturing, corporate earnings, and restaurants.
It is evident to any with the most basic knowledge in economics that the governmental interventions and central banks fiscal policies have utterly failed to stimulate economic growth, as we were promised when implementing these radical programs. Now the question turns to whether or not these policies actually have led to economies worldwide heading toward recession. But do not expect the governments or central banks to accept responsibility. In fact they are doubly down on the failed policies by sending interest rates into unchartered territory, negative. These are challenging times indeed.