Wednesday, December 24, 2008

Dear America:

"This economy proves Obama is the worst President ever. The fact that he's not actually President yet is just semantics."

--Holman Jenkins, Wall Street Journal

Not So Fast

While I hate to be a humbug on Christmas Eve, it's worth pointing out that many of the predictions of a weak economic recovery in late 2009 are based on the housing market finally having bottomed out. The only problem with that is that the housing market shows zero signs of bottoming out at all, if anything the decline is accelerating.
The U.S. housing market took a sharp turn for the worse while Spain joined a growing list of countries in a recession that shows no sign of abating.

Existing U.S. home sales and prices both fell at a record pace last month, according to a report released Tuesday, further evidence that the financial turmoil which intensified in September was driving consumers deeper into retreat.

"The quickly deteriorating conditions in the job market, stock market and consumer confidence in October and November have knocked down home sales to another level," said Lawrence Yun, chief economist for the National Association of Realtors.

Sales of newly built U.S. homes slowed to the weakest level since 1991, according to separate figures from the Commerce Department.

We're getting closer and closer to that death spiral depression scenario every month, it seems. The housing market crash lowers consumer consumption, lower consumption causes layoffs, layoffs take more and more people out of their homes, and prices continue to fall as a result as more homes are put on the market and more buyers are taken out as credit requirements tighten.

At this point a gargantuan stimulus package, well above the trillion dollar mark, may be the last hope we have. All signs point to an even steeper pace of deterioration in early 2009.

As bad at this year has been, next year will be much, much worse.

[UPDATE] Just in time for Christmas, the weekly job numbers are out with new unemployment claims hitting a 26-year peak at 586,000. It'll get worse. Much worse.

Happy Holidays.


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