What Wall Street and Uncle Sam are missing

Posted by paul

Aug 20

CNBC’s Senior Futures Editor, Albert Bozzo wrote an article today discussing the dichotomy of housing’s budding rebound and the overall real estate market. Mr. Bozzo lists items such as government intervention, evidenced in the $8,000 tax credit for first time home buyers, as reasons for some apparent life in the housing market. The overall housing market (which includes commercial, retail, service industries, suppliers and so on) remains in a fiscal slump due to the recession at large. He subsequently identifies an expansion of the government tax credit program as a driver for continued growth in housing sales. I can see Mr. Bozzo does not understand basic macroeconomic theory.

Mr. Bozzo continues in his diatribe to identify problem areas in the real estate market by shedding light on a lack of new housing starts by such companies as Toll Brothers. This is partly attributed to homeowners not moving up or trading their current homes for larger, more expensive ones. His analysis gives such detail as larger, more expensive home sales being depressed, while cheaper-priced properties are way up this year. Why is that? The so-called “vultures” (as he calls them) or, more appropriately named, real estate investors are taking advantage of historic low interest rates and an abundance of foreclosed houses.

He ends this article with a quote from the CEO of REALOGY, “You either make the market or incentivize it. You have to tackle the move-up market and you only have to do a little to move up a [person's] decision to move from two-three years out to now.”

What Mr. Bozzo and mentally challenged individuals like him fail to realize is this: Capitalistic market forces always influence corrections and growth spurts. The free market system has inherent checks and balances that ebb and flow depending on what suppliers produce and what buyers consume. Period.

Government cannot produce anything. With the exception of worthless paper to be used as currency, government cannot and should never attempt to directly make markets or incentivize them. Government’s role is merely to provide security for those citizens involved in commerce here in this country. By offering a tax credit to one group of citizens, you inherently increase the tax burden on an entirely different group. Why? BECAUSE GOVERNMENT DOES NOT PRODUCE ANYTHING. It merely shuffles the money supply.

Mr. Bozzo’s analysis should be directed towards jobs and why companies are not growing fast enough to produce them. The truly intellectual among us will quickly recognize that you cannot buy or borrow your way out of an economic recession, depression or any other such problem. Government, to be effective, should lower taxes, incentivize American production and dis-incentivize importation of physical goods or intellectual properties that can be produced here and sold to the rest of the world.

Then you create jobs.

Then you grow businesses.

Then you increase individual incomes across the country.

Then citizens are inspired to purchase larger homes to support the “move-up” market.

Then you generate wealth. And by the way, the overall housing market stops receding and starts proceeding, once again.