Forbidding Foreclosure Numbers

We are in a period where the economic news seems very confused and inconsistent.  The stock market has rebounded significantly from its low point earlier this year, but unemployment continues its inexorable climb.  Some investment banks have earned huge profits, but businesses are forecasting a grim, cautious holiday spending season.  And then today we get the latest news on foreclosures — and it is stunningly bad.  The third quarter of 2009 turns out to be the worst quarter for foreclosures of all time.  It is worse than the very bad second quarter of this year, and 23 percent worse than the third quarter of 2008.

937, 840 homes — almost 1 million homes — received a foreclosure notice during the quarter, which is about one out of every 136 homes nationwide.  Get this:  in Nevada, the state that was worst hit, one out of every 23 households received a foreclosure filing.  It is hard to imagine what the hardest-hit Nevada neighborhoods look like.  During the quarter more than 237,000 homes were repossessed.  We are all used to dealing in big numbers, but these numbers are truly staggering.  In just one three-month period of just one year, the owners of almost one million homes reached the point where their lenders gave up and resorted to the ultimate option of foreclosure.

Given these numbers, we shouldn’t be too thrilled by the glimmers of positive economic news.  Unfortunately, the net worth of many Americans is significantly tied up in their homes.  Even if those homes aren’t in foreclosure, the housing market will likely be depressed for a long time.  There are a lot of empty houses there to be purchased before prospective homebuyers start bidding up the current prices for existing homes.  We aren’t going to see a true recovery, and a significant increase in consumer confidence, until the housing market rebounds, and these latest figures indicate that that development may be far into the future.

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COLA Zero

This year Social Security recipients will not be receiving an cost of living increase in their benefits because inflation has been negative for the year due to the drop in energy prices.  It is the first year since 1975 — when Social Security benefits were pegged to inflation through COLAs — that Social Security benefits will not increase.

Senior citizens and their lobbying arm, the AARP, are a potent political force, and therefore it is not surprising that politicians, including President Obama, have immediately weighed in and argued that the federal government should make a $250 payment to more than 50 million senior citizens, as well as veterans, railroad workers, and people with disabilities.  You can do the math — such a proposal, if enacted, would add more than $12 billion, perhaps as much as $14 billion, to the federal deficit.

I have nothing against senior citizens, but I do object to what seems like blatant pandering.  The current weak economy has thrown millions out of work and affected the standard of living of countless millions more.  Why should senior citizens, who already receive significant sums in federal benefits, receive an additional cash payment from the government?  Social Security benefits have been pegged to inflation for more than 30 years, and seniors have done pretty well as a result.  Take a look at this chart published by the Social Security Administration.  The COLAs have worked to the significant advantage of seniors; in 2008, for example, seniors received a 5.8 percent increase in their Social Security benefits.  I know a lot of people who would have been happy to receive a 5.8 percent compensation increase at the end of last year.

If this is the year when prices don’t increase, and therefore no COLA increase is forthcoming, why should we change our approach?  Why should our already already overwhelming federal deficit be increased by billions more?  If we can’t resist shoveling out more money when a time-honored formula says we shouldn’t, is there really any hope that our politicians will be able to show the resolve necessary to bring our ridiculous deficit spending under control?