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Discussion: (6 comments)

  1. SeattleSam

    Dr. Perry — You’ve made a number of posts that show that housing prices and activity are getting MUCH better, that labor markets seem to be picking up somewhat and that credit is ready available. So what is holding back overall growth? Rational expectations?

  2. morganovich


    housing prices are up. no question.

    but employment is not really going much of anywhere.

    we’ve been more or less stalled for months in terms of the actual number of people working.

    it’s up less than 1% since february.

    credit is not readily available. business loans are tough and credit requirements high.

    the other thing dropping gdp is state and local government spending. unlike our feds, they actually have to cut employment and spending when they run out of money.

    from what i am seeing (as someone who speaks to a lot of small companies) the big thing holding people up is uncertainty.

    the regulatory and financial markets are so uncertain and the federal government so active and influential that no one has any idea what to expect. businesses tend to look out 3-5 years when making investment decisions. if you cannot see that far, you hoard cash and sit on your hands.

    this is one of the factors that greatly deepened the depression. i recommend amity schlae’s excellent book on this “the forgotten man”.

    “when the buffalo are dancing, it’s a bad time to set up your tepee”

    -apocryphal indian saying

    but that’s more or less where we are.

    cheap money cannot solve a lack of visibility.

    i hear the “i have no idea what to expect/what these new laws even mean for us” complaint all the time.

    obamacare is going to cost 100’s of billions just in costs of companies figuring out what it means to them and how to comply/adjust. that’s real deadweight loss. it also defers decisions until later. you need to figure out your actual cost of labor before making investment decisions and right now, no one even knows what the exchanges are going to look like.

    add in enviro regs and dozens and dozens of others, and it’s just a very uncertain environment.

    that is a major (and often overlooked) cost of big government and whoo doggie are we paying it right now.

    1. SeattleSam

      I’ve read Schlae’s book. I was just trying to get Mark to provide his take on why all of the good news he’s been posting (today it was that commercial lending is back up above pre-recession levels) has not resulted in more good news in the employment or GDP pictures. My own guess is that the rational expectation of future tax increases (particular on hiring full-time employees), regulation and unmanageable government debt makes holding cash (or T-Bills) much more attractive than current rates would ordinarily suggest.

  3. Housing prices being forced up by printed money is not necessarily a good thing.

    It will merely cause more unsavvy buyers to overextend themselves yet again.

  4. We’re experiencing a “real” housing recovery… like the one that evaporated in 2007/2008? There is some real productivity that may be fueling sustainable housing spending in pockets of the country (ND, PA for example), but morganovich is right… the federal drag continues to eat at both our entrepeneurial spirit and accumulated stock of capital.

  5. There is little doubt that house prices have gone up for a while. But the real issue is sustainability. Just how long do we expect the Fed to be able to keep buying all those treasuries without a response from the credit markets? And just how long can the USD defy gravity?

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