Economy Watch: Deficit Commission Floats Austerity
- Nov 11, 2010
November 11, 2010
By Dees Stribling, Contributing Editor
It isn’t being called an “austerity plan”–austerity being all the rage among certain beleaguered Euro-economies–but the draft proposal released by co-chairmen of the 18-member bipartisan National Commission on Fiscal Responsibility and Reform has some austerity elements.
How to control the federal deficit monster? The co-chairmen suggest cutting expenses, including military spending; cutting entitlement outlays, including Social Security and especially Medicare; and raising taxes, in large part by doing away with long-standing deductions to income tax, such as the mortgage interest deduction.
All together, the plan might be mathematically rational, and might indeed prevent $4 trillion in projected federal budget deficits by 2020. Politics, however, particularly federal-level spending politics, have a way of not being rational in the way mathematics is.
In any case the final version of the plan will not be this preliminary version. The commission must now debate the plan and try to hammer out a final version by Dec. 1. Fourteen of the 18 members must agree to the final version, and even then it will only be a very large input to Congress’ suggestion box.
Home Values Still Sag
Zillow.com, which tracks housing values market-by-market nationwide, has reported that in September, the average U.S. home value was $179,900, or 4.3 percent lower than the same month in 2009. The September 2010 average declined 0.4 percent from August.
That’s only a national average, however. Certain markets are still taking it on the chin when it comes to home valuation. Ocala, Fla., for instance, experienced a 19.8 percent drop between this September and last. Other Florida markets likewise pummeled include metro Orlando (down 11.9 percent year-over-year), Miami-Ft. Lauderdale (down 15.2 percent) and Tampa (down 23.9 percent), and naturally Florida has no monopoly on double-digit housing declines.
A few markets saw their housing stock gain value between 2009 and 2010, but for the most part those increases came in the wake of considerable losses during 2007 and 2008. One telling example involves the dead-cat bounce of greater Merced, Calif., which gained 6.1 percent year-over-year in September 2010. Sounds good, except that back in 2006, average home prices in Merced were far in excess of $300,000. Now the average is $113,500.
Gold: It’s Different This Time?
Homes might be down, but the price of gold is still up. Famously so–about 500 percent in dollar terms since 2000, with much of that spike since 2007. Gold tends to go up in nervous times, and these times are nothing if not nervous.
Yet the price of an ounce of gold in dollars still isn’t as high as it was in 1980, despite ahistoric claims of “record highs” in current headlines. Adjusted for inflation, the peak gold price 30 years ago was well over $2,000 an ounce in current dollars (it broke $1,400 an ounce on Wednesday). But there were good reasons for the run-up in 1980: the U.S. economy was suffering a deep recession and there was a lot of international turmoil. A little like today.
Despite everything, the gold bubble popped in 1980. A lot of investors are now betting a lot of non-metallic money now that it couldn’t happen that way again–that asset bubbles are, once again, a thing of the past. (The recent past; ask any U.S. homeowner.)
Wall Street had a minor up day on Wednesday, with the Dow Jones Industrial Average gaining 10.29 points, or 0.09 percent. The S&P 500 and the Nasdaq rose 0.44 percent and 0.62 percent, respectively.