My Mortgage Blog

Mid-July is normally the center of the Silly Season news-drought, in which media give front-page treatment to “Man Bites Dog.”
     
This year, that dog is plumb-near bit to death.
     
Newsies this week over-read Perfesser Bernanke’s testimony and Fed minutes, finding all sorts of hints that were not there. The Fed is “open to stimulus if necessary,” but so it is, always. At this moment, the Fed is confused, sticking to “better in second half,” its members divided (scattered), and both CPI and PPI core inflation popped to .3% in June. The Fed Chairman must be prepared to fill hours of air time with no content, and the Perfesser rose to the occasion.
     
The economic data are just above stall speed. The NFIB small-business survey in June was the same as May, at recession threshold, and June retail sales had no gain.
     
The Treasury borrowed a wad of long-term money for the first time in six months without Fed QE buys, and had no trouble -- perhaps in largest part because Europe’s slow suicide is proceeding. A European bank-on-bank run is spreading, the cost of Euribor loans jumping from 0.6% to 1.47% in one week (post-Lehman: 4%). Banks are the circulatory system for any economy, and shutdown is the cardinal symptom of Bad Stuff. Today’s results of Eurozone bank stress-tests are the blackest of black comedy.
     
The European economy is far more vulnerable to its banks than we are. The top five banks in France have assets (loans, sovereign bonds...) equal to 3.25 times French GDP, Germany about the same; in Belgium, double; Italy 1.4 times; and Banco Santander by itself is 1.14 times the size of Spain’s GDP. In the US, the top five banks are barely 60% of GDP (source: NYT today). Too big to fail? Too big to save.
     
Here at home... oh, my. This debt-limit lockup is so yesterday. The entire leadership of China wakes every day to work on competing. Our leadership spends all day in an argument 50 years old: Democrats enacting underestimated future social spending not supported by revenue, Republicans fighting every step of the way, even the spending to which their own constituents feel entitled, plus their military adventures.
     
Our economy grew fast enough to support continuous growth in revenue all through Reagan-Bush ‘41-Clinton, also supported by the inspired 1986 tax reform; and in combination with Bush ‘41-Clinton spending restraint we did what we are supposed to do: we ran an immense budget surplus in good times. All through those years, and Dubya, debt-limit brinkmanship was silly theater with certain outcome.
     
The best of that burlesque: in the fall of 1995, Newt Gingrich thought the country would back his plan to balance the budget via shutdown shock therapy. Bill Clinton exposed him (permanently) as Captain Underpants.
     
Until this week, I thought Mr. Obama could do the same to Eric Cantor, the essence of amoral ambition standing in skivvies. Obama still thinks so. Not so. Not now. In the 16 years post-Newt, these words have been spoken at too many kitchen tables: “Whatever we do, whatever happens to us, we are not going to borrow any more.”
     
And in those 16 years, the “haves” in this country have had it with the Democrats’ limitless grasping to fund their promises. The top 1% of income earners pay 27% of all Federal revenue, more than ever. The top 20% (inclusive) pay 70%. No sensible person opposes sufficient revenue, but not to be wasted, and not if the demand is open-ended.
     
Since last November, Democrats in denial, there may be enough votes in the House to enforce a stay-put debt limit. We will not default on Treasury obligations. Federal revenue runs $200 billion per month. Interest costs barely $25 billion, and we can roll over all existing debt within limit. The remainder will just about cover one month’s Social Security, Medicare, Medicaid, and Defense. Maybe air traffic controllers and the FBI, maybe not. If the limit stays put, in another couple of weeks we’re going to find out what we’ve been getting for the $130 billion we’re borrowing each month.
     
Today, the University of Michigan released the lowest reading for consumer confidence since March 2009, to 63.8 in July from June’s 71.5. Can’t imagine why.