Top of the News: I know you may want to pop the champagne to celebrate today’s report that house construction rose 17.2 percent in May. Unfortunately, inventories remain high, mortgage rates have started rising and May’s numbers are still 45 percent lower than housing starts in May of 2008, hardly a boom time.
The great sprawl-flip this house economy is not going to restart. Now anytime soon.
I find more interesting news in the first BRIC summit. This is the loose economic alliance of Brazil, Russia, India and China. With 40 percent of global currency reserves, BRIC members, especially China and Russia, have been increasing vocal in criticizing the dollar as the world’s reserve currency. (That’s our credit card that allows us to run huge deficits with little consequences).
BRIC is not to be ignored. Although it comprises only 15 percent of the world economy now, observers such as Goldman Sachs’ chief economist Jim O’Neill predict these countries will come to be dominant in the global economy in coming decades (particularly if our economy remains based mostly on finance and housing).
The Financial Times rightly points out the group’s lack of cohesion. They do have one thing in common: varying degrees of frustration with Uncle Sam and the current global financial system. And China especially is building extensive global trade ties while America is bogged down in wars and a financial crash.
The Back Story: I don’t mean to sound like the black helicopter crowd, but check out this amazing YouTube clip from last month. Federal Reserve Inspector General Elizabeth Coleman was questioned by Rep. Alan Grayson.
Is she investigating the Fed’s role in the failure of Lehman Brothers — which severely worsened the crash and played into the hands of then Treasury Secretary Hank Paulson’s old firm Goldman Sachs (no)? Does she have an investigation into the central bank’s $1 trillion expansion of its balance sheet over the previous nine months (not really)? How about the Bloomberg report of $9 trillion in off-balance-sheet lending facilities (huh?).
Scary stuff. The Fed has moved into new territory to save the economy, including acting as a lender in ways it never has before. Much of this is defensible as moves to stop the financial collapse and avoid a 1930s-style deflation. But…as the YouTube clip asks, Is anyone minding the store?
Today’s Econ Haiku:
Aircraft giants hope
That we’ll always have Paris
Just no Dream flight yet