No More Rabbits In The Hat

The Lehmann Letter (SM) Everyone wonders: Why is this recession so much worse than earlier recessions? Why is it dragging on for so long? Why is the recovery so weak? To answer that, we must familiarize ourselves with earlier recessions and recoveries. •Before the 1990s Dot-Com Boom. Household spending on homes and autos led the business cycle after World War II. As borrowing and spending surged, inflation and interest rates rose. That brought an end to the boom, and recession began. When inflation and interest rates fell due to recession, and encouraged renewed borrowing and spending, a new expansion began. Continue reading

Housing & Asset Deflation

The Lehmann Letter (SM) Today the Census Bureau confirmed housing’s predicament: July sales of new homes fell to a new low of 276,000. This bad news follows directly on the heels of yesterday’s word of the drop in existing-home sales. New Home Sales Click on chart to enlarge.) Recessions shaded And the chart makes clear that new-home sales have been stumbling around the bottom for the past year. To date all hopes of recovery have been premature. Here’s why. 1. We are in the midst of an asset deflation brought on by the reaction to the earlier housing boom. Continue reading


The Lehmann Letter (SM) Housing Today the National Association of Realtors announced a big drop in July existing-home sales. These data can vary sharply from month to month and the expiration of the housing-tax-credit had an effect. But the continued housing slump is cause for concern. And it’s not just existing-home sales that have been hit hard. New-home sales and residential construction are also in the doldrums. Residential real estate is in a slump. Prevailing rock-bottom interest rates highlight the slump. They should stimulate building and buying, but they can’t do the job. Households’ balance sheets are so illiquid and Continue reading