Maybe if I paint my house white, I can be President!

My wife is constantly telling me that I should be more positive in my blogs. I keep reminding her that there aren’t a lot of positive things going on so it’s hard to be positive. But I think this one will be her favorite. I found something that Barack Obama did right. I know, I know, it’s hard to believe, but I have found one scrap of a good policy amidst the tidal wave of social changes, dithering on troop deployment, and demonizing free speech.

This week, the National Association of Realtors announced that home sales are up 24% from the bottom of the market in January. This in turn has reduced the supply of available houses, causing home values to creep up ever so slightly. While that news is great news for all us home owners, it’s important to understand why the surge in home buying is taking place.

Even casual readers of this blog have seen that from the beginning of the economic downturn I’ve been preaching tax cuts, tax cuts, tax cuts. It is always the solution to any economic slowdown. Usually, the reason the economy is slowing in the first place is because of some government intervention which has finally caught up with the markets inability to sustain itself given the heavy burden. It’s like a champion runner who can run like the wind, until you put a 100-pound backpack on him, then he’s just average, or worse. The only way to restore this thoroughbred of an economy is to take the backpack off. That’s just what President Obama did when he signed the stimulus bill back in February.

I’m pretty sure no one noticed this since most legislators didn’t read the bill, but somehow a few billion in tax cuts did make their way through the stimulus bill despite the overwhelming amount of the nearly $800 billion in spending. There was a nice little tax cut in there for first-time home buyers. If you haven’t bought a home in the last three years,  you are eligible for a 10% tax break on your new home purchase, up to $8000. The clock is ticking on this tax break, as it is due to expire on Nov. 30. It is believed that the extraordinary surge in home buying in the month of September is due to prospective home buyers trying to get in under the deadline. DUH! Ya think so?!?

It is axiomatic that no nation has ever taxed itself into prosperity. The reason this nation has had the most productive economy in history is because of the generally low tax rates here compared to other, more socialist economies. As we have headed down the road to socialism, we have seen the dramatic effect on our once exemplary economy. Unemployment is now closer to 10% than it has been in 27 years. Real unemployment (those who have lost their jobs and have stopped looking for new ones or have taken part-time work) is at a staggering 17%! We are still in the throes of a deep recession. Banks are still failing at an alarming rate. Despite all of this, there is one shining beacon of hope: the housing market.

Because of this one little tax cut mired in the morass that was the economic stimulus package, housing sales are at a two-year high. Now the push is on by the Realtors’ association to get Congress to extend the tax cut. Surprisingly, they have found an unlikely ally: Sen. Chris Dodd, head of the banking committee in the Senate. Dodd has never seen a tax cut he liked, except this one. Facing a tough re-election next year (with competition from the WWE’s Linda McMahon and others), Dodd has decided to hitch his wagon to something that works. . .a tax cut.

Of course, the praise for Obama’s lowly tax cut has not been universal. According to an article by the Associated Press, Zach Pandl, an economist at Nomura Securities said that the Realtors association has “an incentive to talk up the effects of the credit as it is urging Congress to extend it, and it therefore may be exaggerating the credit’s effects.” That might be true Zach, if it were an anomaly. If this was some strange occurrence never before seen in the history of macro economics. Unfortunately for Zach (and whoever it was that gave him an economics degree), this kind of stimulus has happened EVERY TIME it has been tried.

For example, I documented in this blog last July (That’s great but what do you do for an encore!) how Angela Merkel, the Chancellor of Germany who was facing re-election, succumbed to pressure to cut taxes. Her country was mired in recession and her re-election was looking bleak. I threw down the gauntlet in that article. I told Germany to BRING IT! Well, they did. Economic signs have turned around and although it is still early, indications are that the recovery has begun. As a result, Merkel was re-elected and her coalition government has vowed more tax cuts to keep the economy headed in the right direction.

I will offer just this one caveat to what we are seeing with our housing market. Yes, it is true that more first-time home buyers are getting into the market, but this bill defines them as people who have not owned a home in the last three years. Many of the so-called “sub-prime” borrowers got out of the market about that time. I fear that we are letting some of the same people back in the system who couldn’t pay for their homes the last time. If you are not familiar with the Community Reinvestment Act, you should read my blog “Get you money for nothin’ and your houses for free!” It details the influence Congress had on the housing market using the CRA. Now they are trying to expand the CRA instead of repealing it. This means we are destined to repeat the same disaster we had last year unless someone stops them.

But for now, I’m happy to bask in the glow of a very mature response to Obama’s brilliant tactic of taking my advice, at least on the housing market:



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Filed under economy, politics, tax cuts

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