Quote of the Week

I'm going to keep things quick and simple with this week's Quote of the Week, because I think it largely speaks for itself. Let's get right to it, with blogger Karl Denninger's response to the recent revelation that over 47 million Americans (about 15% of the total population) are now receiving food stamps. That's an increase of nearly 50% just since 2009, which is costing our government an additional $25 billion annually. Yuck.

This week's QUOTE OF THE WEEK

"The last month for which data is available, September, shows over 600,000 people [began collecting food stamps] in that month alone, comprised of 290,000 households. In one month! The average handout is $278.89 per household, or $134.29 per person monthly. Note that there are only 143,549,000 people in the workforce -- that is, people earning a wage... To put this in perspective for every three people working one is collecting food stamps."
                                     - Karl Denninger, The Market Ticker

That is awful. Setting political issues of the "fiscal cliff" or the "welfare state" or whatever else aside, the simple fact is that this is a completely untenable economic situation. Far too many people are currently receiving food stamps, and this alone is a huge indication that our policy responses to the financial crisis of 2008-09 (deficit spending, Fed money-printing) have been an utter failure.

The debt-based financial games that we've played for the last several decades have gutted our nation's middle class (death by several trillion paper cuts), and yet many would suggest that more of the same is what we need to solve our problems. Believe me, they're wrong.

It is imperative that we stop lying to ourselves and pretending that these policies work. They don't. We need to clean up our fiscal house (starting with defense and Medicare), take the power away from the banks who continue to steal from the rest of society, and most importantly stop printing money. It won't be fun, and it won't be easy, but it really is the only option—things will only be worse in the future if we fail to act today. America is a country that has always strived for greatness, and 15% of the population on food stamps falls far short of "great".

[Market Ticker]

Happy Holidays (Bonus Clips of the Week)

Alright folks, it's weekend time, and I'll be spending the weekend putting up our Christmas decorations (and tree) and spreading good holiday cheer. In that spirit, here's a couple of Christmas-related Clips of the Week, for your viewing pleasure. And don't forget me when you do your shopping... I'd like a Vitamix blender, please. Thanks.

First up, DMX sings/raps "Rudolph the Red-Nosed Reindeer". This was way better and more amusing than I expected it to be. Awesome.



Then, in another excellent Jimmy Fallon musical number, Jimmy, the Roots, and Mariah Carey take on "All I Want For Christmas Is You", using childrens' instruments, of course (h/t Red Cowboy).

Clip of the Week

Just like last week, Barry Ritholtz shared a few good links this week, including this guy and these guys, all of whom are completely insane in every sense of the word and make me wish I was doing more with my life. There's also this amusing clip entitled "Gay Women Will Marry Your Boyfriends" and this clip of cheetahs running in slow motion, which is always awesome.

There wasn't much notable in sports this week, except for this amazing play by Nebraska QB Taylor Martinez and the annual Teddy Bear Toss at a Canadian minor league hockey game, which cracks me up every time (pity the poor intern who has to count, catalog, and then box up those bears before donating them).

In other random videos, this doberman loves the water slide, Jon Stewart skewers Fox News' annual "War on Christmas" theme, Jimmy Kimmel continues to prey on human stupidity, this pop music mashup is incredibly well done, dogs can drive cars now, and these guys did a great job of satirizing Instagram, with a Nickelback twist (h/t Killagroove on that last one).

Also brought to my attention by Killagroove was this week's champ, this Vimeo clip about the "Mine Kafon", a creative and very cool solution to mine clearance in Afghanistan. It's a novel way to solve a pretty messed up problem, and I salute this guy for doing it (and the filmmaker, Callum Cooper, for documenting it).


Mine Kafon | Callum Cooper from Focus Forward Films on Vimeo.

On housing and the low cost of money

I'm often writing about the perils of the Fed's monetary policy, but there are obviously some bright spots to be found out there. I'm sure by now that you've read at least one glowing article this year about the "housing recovery", and for the most part it's legitimate (even if there are some strange dynamics under the surface).

The question, of course, is whether this recovery is sustainable, and what will happen to housing prices if interest rates begin to rise from their freakishly low levels. That's a topic that Tim Iacono took on in a recent blog post, and I thought his findings were absolutely worth sharing (emphasis mine).

I’ve about had it with how giddy a large portion of the U.S. population has become about rising home prices. 

Don’t get me wrong, when first thinking about this, I was about as happy as anyone else to learn that property values are now rising sharply again since, after renting for six years, my wife and I finally bought a house about two years ago. So, we stand to benefit as much as anyone else. 

But, when you look at what’s driving home prices higher and how unnatural and unsustainable those factors are, suddenly the headlines sound more ominous than optimistic...  

Yes, low inventory is a big factor behind the home price surge as the flood of foreclosures has slowed to a trickle while strong investor demand and growing confidence amongst American consumers have surely tipped the scales in favor of higher prices. But, it is today’s freakishly low interest rates – engineered by the Federal Reserve – that have clearly played the biggest role in pushing home prices higher, simply because most people buy a house based on the monthly mortgage payment, not the purchase price. 

And when you see the impact record low rates have on purchase prices, you might be as concerned as I am... 

Based on a constant mortgage payment of $1,100 per month (what seemed to be a good national average based on this story and others like it), today’s 3.31 percent 30-year mortgage rate will finance a house at almost double the price that the 40-year average mortgage rate would!

While there are clearly other factors involved, it is the Federal Reserve’s asset purchase program that is largely responsible for these freakishly low rates (it is one of their stated policy objectives) and, while the central bank has promised to keep rates low for a long time and to continue buying mortgage-backed securities indefinitely, those actions are by no means guaranteed. 

This is a dynamic that I've been well aware of for a long time now, but it's still striking to see it laid out graphically like in Tim's piece. In just the last 12 months, 30-year mortgage rates have come down from 4.2% to 3.4%. Using Tim's $1,100 monthly payment, that means that a buyer who waited a year can now afford to buy a $276,000 home, as opposed to a $250,000 home last year.

That's an increase of 10.4% year-over-year because of the low cost of money, and yet home prices are only reported to have increased by 5 or 6% over the last year, even according to the rosiest estimates. Therefore, in any realistic terms, the price of housing has continued to decline this year, rather than rebound sharply as the headlines would have you believe.

If interest rates are really going to stay this low forever, then you shouldn't have much to worry about, and you can go ahead and buy real estate to your heart's content (just don't read these three posts before you do so). But as Wells Fargo is always reminding me in their constant mailings, "Interest rates rarely stay put for long!"

And if Wells Fargo is indeed correct, well then... Tim's chart tells us that housing's got another pretty significant leg down (like, 30 or 40%) to get back to those historical average rates. And that likely won't be pretty for anybody hoping to sell property at any point in the next few decades. Good luck!

[Iacono Research]

On the other hand...

... maybe we DON'T want our population to keep growing. Reuters reports from Maine:

Researchers studying Maine's lobster population, booming in recent years amid warming waters and disappearing predators, have detected something never before seen in the wild: lobster cannibalism. 

It has long been known that lobsters will attack and eat each other if confined together in a small space — hence the banding of claws on lobsters in supermarket tanks. 

That aggressive behavior had not been thought to occur in the wild, but with the increasing density of the crustaceans in the Gulf of Maine it seems big lobsters are feasting on little lobsters once the sun goes down. 

"We've got the lobsters feeding back on themselves just because they're so abundant," said Richard Wahle, a marine sciences professor at the University of Maine, who is supervising the research. "It's never been observed just out in the open like this," he said.

Apparently overfishing of other species like cod and halibut have created a dearth of natural predators for the lobsters (no, I didn't know that cod and halibut could kill and eat lobsters, but now I do), which has helped to cause this strange behavior.

All I know is, if this is what happens when a species becomes overpopulated, then I think I can handle a little bit of economic stagnation over the alternative. So, please don't eat me, people. Eat lobsters instead, they're delicious and apparently plentiful. 

[Reuters]

Quote of the Week (Fertility Edition)

I definitely had at least half a mind to give this week's Quote of the Week to Chiefs quarterback Brady Quinn, who did an admirable job of distilling a horrific incident down to a useful message (without preaching or being trite or condescending, like some people). It's rare that you see an athlete being so frank and dropping their guard like Quinn did (it happened around five minutes into the press conference, which started out pretty slowly), and I salute him for it.

As he mused, "when you ask someone how they're doing, do you really mean it... and when you answer someone back, are you really telling them the truth?" I think Quinn is right to decry the shallowness of many (or most) interpersonal relationships in our social media-driven era, and his words can definitely give us all some food for thought.

But I came across another excerpt yesterday that was even more academically intriguing, if somewhat less poignant and powerful. Courtesy of Marginal Revolution's Tyler Cowen, and echoing some of the comments I made in this blog post last week, I give you the New York Times' Ross Douthat, who discusses the reasons for and potential impact of America's plummeting fertility rate:

This week's QUOTE OF THE WEEK

"There’s been a broader cultural shift away from a child-centric understanding of romance and marriage. In 1990, 65 percent of Americans told Pew that children were “very important” to a successful marriage; in 2007, just before the current baby bust, only 41 percent agreed... The retreat from child rearing is, at some level, a symptom of late-modern exhaustion — a decadence that first arose in the West but now haunts rich societies around the globe. It’s a spirit that privileges the present over the future, chooses stagnation over innovation, prefers what already exists over what might be. It embraces the comforts and pleasures of modernity, while shrugging off the basic sacrifices that built our civilization in the first place."
                                            - Ross Douthat, New York Times

I think there's a lot of merit to Douthat's take on the matter. The decision to eschew having children is, in a sense, the pinnacle of short-term thinking (a dynamic which has clearly taken on a life of its own in recent generations). If we all made the decision to have no children, our society would (theoretically, anyway) disappear in a matter of decades. None of us would be here but for someone else's decision to procreate, and yet there is often no recognition of that fact when it comes time for us to make a similar decision.

The decision is, in fact, the ultimate indulgence of a rich and stagnant society, one that is made all the more possible and plausible by the emergence and standardization of birth control, the access to which the UN has bizarrely ruled a universal human right.

To be fair, for many people in my generation, the decision not to have children has been a direct by-product of the explosion of debt (student loans and other types) in recent decades, and in that respect it's a perfectly rational—yet still sub-optimal—decision. If you can't afford to have kids (or don't feel like you can), then you clearly shouldn't, lest those children be deprived or resented by their own parents.

Nevertheless, it's an interesting thought experiment to wonder what would happen if only the underprivileged people in the world (those who couldn't afford birth control, and therefore couldn't afford to decide not to have children) were procreating. What would the next generation look like? What would be the prospects for global economic growth? And what kinds of decisions would such a scenario lead governments and voters to make, if the rich and powerful had no direct connection to the next generation of humans?

I don't know the answers to all of these questions (especially since many of them are purely academic in nature), but I do know that those who have the weakest connection to the future are the least likely to make good decisions with respect to said future. And if we continue to make decisions that sacrifice the future to benefit today, then I'm pretty sure we're not going to like the future very much once we do get there.

[New York Times]
(h/t Marginal Revolution)

Finally, some real innovation

You see, guys, what have I always been telling you? If we really want to get some real innovation in this country to get us out of our economic doldrums, we just have to start taking our cues from Russia. Wait, that can't be right...

In October, design practice Y/N studio caused a stir by designing a blueprint for a swimming lane along Regent's canal in London, so that people could swim to work. Now, the Estonian architecture studio Salto has built an equally inventive solution to the boredom of the morning commute – a 51m (170ft) -long trampoline, so that you can bounce to your destination. 

 

The trampoline, called Fast Track, has been built and installed at arts festival Archstoyanie, and has been a hit since it was opened at the end of November in the Nikola-Lenivets forest, in south-west Russia. Made of black rubber, it is, according to Salto "an attempt to create [an] intelligent infrastructure that is emotional and corresponds to the local context, giving the user a different experience of moving and perceiving the environment".

Hey, that's a fantastic idea! It's green, it gets us off our butts and exercising a little bit, it encourages our long-lost love of nature... what could possibly go wrong? Oh... right.