• Early gains in the housing market could indicate more improvements to come.
• It will take time for home construction to pick up again.
• The Federal Reserve will have to decide whether to drive down mortgage rates to boost housing markets, a policy that punishes savers.
There is no quick relief for what ails this economy.
But there may be a short answer to what is badly needed: jobs. Remember the consumer? The consumer accounts for two-thirds of our economy. Two-thirds! So that’s what’s wrong. For some time, there has been a lot of misery and uncertainty for consumers who may have lost their homes or their jobs, could now be underemployed, or might be afraid of such a loss. This is true locally and nationwide.
Training, education
The government does not create an economy. The government creates conditions for an economy to grow and thrive. The mechanics of supply and demand can create jobs and opportunities for families.
As workers spend, save, and pay taxes, our economy can grow, and that in turn will finance government.
The short-term government approach has involved bailouts, handouts and other so-called “stimuli.” Some of these fixes have been off-target at best. Certainly the unemployed are grateful for the fish, but what the unemployed really need for the long haul is to be taught how to fish. In other words, we need to fund training and education programs that prepare people for new job requirements.
Political rhetoric
We hear lots of political rhetoric and incitement of class warfare. The U.S. housing policy has been: “Everyone, regardless of means or capabilities, should have a house and a mortgage.”
Credit was super easy to obtain. This led to the bubble in housing and real estate prices and the burst that wrecked our economy and, potentially, the future well-being of our citizens.
Some argue the Federal Reserve has overused monetary policy by putting in place very low interest rates for an extended period of time. This has harmed millions of savers, creating casualties of those who put cash aside, and now the Fed is discussing a policy aimed at driving mortgage rates down even more, in a bid to clear the inventory of unsold houses. This is a laudable goal, but the means of achieving it are questionable.
Residential investment has risen 2.4 percent for the September quarter, marking the first back-to-back positive quarters since 2005. New home sales rose 5.7 percent in September, as buyers were attracted by lower mortgage interest rates as well as lower prices. There continues to be a housing and building lot overhang nationally and locally, which will take time to clear. Construction activity has been weak for both commercial and residential projects.
Solving the housing and jobs problem is key to the health of our economy.
Banks can help and want to. Banks need to be allowed to invest in job-producing activities. Banks have bolstered their own capital and cash holdings. Business owners, community bankers, consumers, and local leaders will tell you that bank regulatory uncertainty is killing job creation, and delays the return of prosperity.
We know that consumers remain frustrated and uncertain. Nothing is more concerning than the lack of job prospects. We must create the capacity for more nongovernmental jobs. But to create more jobs, capital needs to be invested. Some think we need higher taxes.
Taking capital away from entrepreneurs and investors who fund new and existing companies that create jobs is the wrong tactic. We need to create incentives for those with capital to create jobs.
