The story of 2008: The Economy ... by gimleteye

I looked back at our blog-- a kind of blog snapshot-- at intervals going back two years; December 24, 2007 and 2006. Just after Christmas 2006, I wrote a blog post titled, "The Latin Builders Association: Arrested Development." It is an interesting starting point, to consider the big story of 2008: the economy.

"Now that the Miami housing bubble is popping, one would think that Miami might engage in a real conversation about the limits of development. From the builders' point of view, even if profit comes at debilitating costs to the public there can never be too much development in South Florida: that's the "free market", right? Subprime loans? Bring em on. Unwitting consumers? Give em mortgages they can’t possibly maintain. ... So why does this industry association only ever advocate for suburban sprawl?" (12/27/2006)

As 2008 winds to a close, we still have not had the conversation I hoped for. Instead, we have panicked zoning applications like Parkland outside the UDB to put more sprawl near the Everglades and call it "green", and the commitment of taxpayer dollars to litigation against the State of Florida that rejected earlier applications to move the Urban Development Boundary. The good news: we have a new county commission chair, Dennis Moss, who just might have the leadership skills to take the unreformable majority in a new direction. We'll see.

On 12/24/2007, a year ago I wrote: "According to the AP, sales of existing single-family homes plunged by the largest amount in 25 years. Nationally, the median price for a single-family home dropped 1.8 percent to $217,000. ... not to worry: the National Association of Realtors chief economist, Lawrence Yun, said to AP, that he "expected sales to start to rebound this spring."

Home sales obviously resisted Mr. Yun's cheerful prognosis. Yun no longer has a job with NAR.

The home building sector of the economy, and the homebuilders, are still in denial. Now they are rushing the halls of Congress for a further bailout, having secured earlier this year a right to tax credits based on taxes paid to the federal government during the boom years-- a neat trick I wish I had secured myself except that the homebuilders now need our taxes to bail them out.

In the round of holiday parties, all anyone talks about is the economy. in 2008 the stock market and housing prices fell more sharply since any time since the Depression. This long unwind has been going on for years, just like the Depression.

2008 was a year we witnessed events no one thought possible: the take-over of the US financial sector by the US government, with America's most critical industries all clamoring for their own bailouts-- including those who fomented the housing asset bubble, right here in South Florida.

2008 was also the end of the Reagan Revolution.

The talk has been of suffering and more people on the edge of suffering. If you had purchased a home or property since 2005, the chances are your mortgage is upside down; that accounts for a lot of people in South Florida-- especially people who began to invest speculatively in real estate, chasing the bubble.

The question on everyone's lips: when is the pain going to end?

Here is my prediction: the stock markets will not turn upward until hedge funds stop panic selling in response to redemption calls from frightened wealthy investors. The excessive leverage in the US financial system-- tens of trillions of dollars-- has to fully resolve and that is going to take time. In the first half of 2008, half of all hedge funds could disappear. The fiscal stimulus plan by the Obama administration will only help if tax dollars are used to form the nucleus for a new energy economy: if the only purpose is to build roads, bridges, and serving existing infrastructure-- the fiscal stimulus could provoke a deeper Depression; this one unfolding from stagflation.

The good news? We are not likely to have a 1929 style run on the banks-- we were near to it, in October. But I do think unemployment will soar and that the reliance of retirees on dwindling savings is going to be severely tested throughout 2009 and 2010.

Let's be clear, too, about this: the housing sector such as represented by the Latin Builders Association in Miami is spent, as a lever to improve the economy. Its false promises are finished. There is too much inventory to absorb and too much financial turbulence to work through: our focus has to be on rebuilding the atrophied sectors of the US economy, starting with energy.

There will be inflation at the back end of this deflation. The only way we will beat inflation is if we are producing and making products that the world wants to buy. It is back to basics, right now; create value through manufacturing, technology, and a cogent response to the health care emergency. These are very urgent tasks; ones, I pray, our leadership can get to quickly and decisively in 2009.