Can the Jobs and Housing Recovery Overcome Inflation?
Inflationary Tactics 101
As the economic implications of the U.S reaction to Covid-19 continue to play out, unemployment rates from the U.S department of labor paint a rosy picture of the supposed jobs rebound. Unemployment saw an improvement from the 14.7% highs of April 2020 to just 6.9% in January 2021.
"It may look good, but it ain't," wrote Gregory Daco, chief US economist at Oxford Economics in this CNN report on unemployment. Compared to one year ago in January 2020, unemployment still trends upwards with about a 2.5% increase. Other statistics from labor participation and total jobs show an incomplete jobs recovery.
On top of that, the ‘real’ unemployment rate—the U-6 rate—is 4.2% higher in January 2021 from January 2020 (seasonally adjusted) at 11.1%. Though it may look jobs are on the road to recovery, other deficiencies are dragging it down.
The housing recovery
After a year of the government mandated moratorium on foreclosure—which was originally only 60 days— the moratorium continues with no end in sight. The housing relief now lasts at least another month and in some cases two months, with the possibility of more extensions. According to this article by Kiplinger.com, the foreclosure moratorium for FHA-insured single family mortgages was extended by the Biden Administration to March 31, 2021, with a possibility of two six-month extensions into 2022. Freddie Mac and Fannie Mae extended its moratorium on foreclosures to February 28, 2021.
The moratorium, compounded with Federal Reserve quantitative easing, (stimulus checks, unemployment and business loans) and the overall share of portfolio and PLS loans in forbearance rising steadily through late 2020 to 9.16% at the end of Jan. 2021 has kept the average forbearance rate to around a steady 5.3% from December to February. However, this rate does not take into account the debt sold by the lenders, meaning forbearance and eventual foreclosure rates may be higher than any lenders’ balance sheets indicate.
An unbalanced sheet
The housing and jobs incomplete recovery are explained by the method in which they began to recover in the first place: Reckless money printing. Data from the Federal Reserve Bank of St. Louis shows a 25.1% increase in the M2 money supply—$15.5 to $19.4 trillion—from March 2020 to Feb. 2021, meaning a fourth of the total dollar circulation was created in the past year. The FED is also slashing various loans as low as 0% to stimulate spending. Recovering by printing money and delaying housing foreclosure have yet to significantly effect the CPI, but the advice given to would-be real estate investors that “real-estate always appreciates” will be as true as saying the price of eggs always appreciates in the next 5-10 years.
With free money and 0% loans, it is no wonder some businesses have kept jobs and individuals have maintained housing payments. However, this is temporary fix that helped little.
The 60 years of embedded growth obligations have driven American Institutions to constant inflation. A population reliant solely on supply chains gave the country no choice but massive public spending and a generation of leadership with no incentive to stop the gravy train. Inflationary recovery has historically been a self-fulfilling prophecy with disastrous outcomes. Few politicians are willing to sour the party—or their reelection—for common sense economics, resulting in an ever-inflating can being heaved down the road for future Americans to deal with.
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