Only about 12 months ago liberals such as John Kerry and Ted Kennedy were talking down the economy claiming the Bush Tax cuts have resulted in the “worst economy since Herbert Hoover.” On cue, they then called for “rolling back the Bush tax cuts” (i.e. raising taxes) . This we were told was “real fiscal conservatism.”
The reason that liberal Democrats keep losing election after election is that not only are they not qualified to be in charge of our national security but they continue to oppose fiscal policy (i.e. tax simplification and cuts) which time and time again result in robust economic growth accross the board.
Today the Wall St. Journal (subs req)reports on the continued economic growth which our friends in the elite media continue to marginalize or ignore.
We interrupt your daily doom-and-gloom programming with a word from the real economy: It’s even better than advertised. October’s estimate of 3.8% third-quarter GDP growth was revised upward yesterday to 4.3%, which means the expansion was moving fast enough in late summer to blow right past Hurricane Katrina.
This represents the fastest expansion since the first quarter of 2004, as well as the 10th consecutive quarter of growth averaging close to 4% on an annual basis. So much for those predictions of recession we heard in the spring, and again in September. In fact, has there ever been a U.S. expansion this robust that has been accompanied by so much disbelief and predictions of imminent collapse? Not since the 1980s, we’d guess.
The third-quarter GDP revisions were especially notable for showing strength nearly across the board. Durable-goods orders were particularly strong, increasing at an annual rate of 10.5% and up 6% from the third quarter of 2004. Gross private investment grew at 5.8%, real equipment and software spending at nearly 12%. In other words, business investment has been a major growth driver, contrary to the conventional wisdom that consumers have been sustaining growth only by emptying their “over-extended” wallets. This bodes well for future growth, even as the housing market continues to cool.
One more reason for Republicans to lead by making the Bush tax cuts due to expire permanent (including extenstion of the 15% capital gains tax) and scrapping anti-growth proposals such as the “windfall profits tax.” How absurd can you get. You’re in the majority people. Enough with the destructive socialist policies to make “nice” with Harry Reid and Nancy Pelosi who hate your guts because you are mean, nasty Conservatives.
Also last Saturday on our radio show a thoughtful caller claimed that the economy was doing well primarily because of low interest rates which have primarily driven the housing boom which many have described as a “bubble.” This caller to our show was not alone in his assertion. As a real estate investor myself I have worried about a housing “bubble.”
In today’s Wall St. Journal (subs req) Michael T. Darda explains why fears of a “bubble” are largely overblown:
An increasing number of economists and strategists on Wall Street expect the recent cooling in home sales to turn into an outright freeze in the residential real estate market. Data showing that median home prices of existing one-family homes rose 16.6% in October from a year earlier, the fastest pace since 1979, only reinforced the view that an unsustainable boom is likely to end in tears. The working hypothesis is that the undertow from a softening residential real-estate sector will eventually weaken national home prices and pressure household asset values. The reverse wealth effect that would ensue is expected to cut into consumer spending and severely weaken — if not end — the current U.S. economic expansion.
One of the major reasons that he does not fear a severe nationwide drop in home prices and therefore household equity is:
Home prices have been rising faster than incomes, but the ratio between average home prices and incomes remains below historical averages. Similarly, the ratio between total capitalization of household real estate relative to capitalized incomes (i.e., incomes adjusted for long-term interest rates) also remains below historical averages. Of course, this is no guarantee that home prices will continue to appreciate rapidly. It does suggest, however, that a broad-based decline in median or average home prices, which would be a threat to the growth outlook, remains unlikely.
For those who are concerned that the current real estate prices are at “unsustainable levels” he offers this analysis:
While some contend that the boom in residential real estate has pushed real home prices to record — and unsustainable — levels, this depends on the definition of real. If we use gold (which is real) as a deflator instead of the Consumer Price Index (which is not), the median home price stood at $216,200 as of October 2005, compared with $334,000 (in 2005 gold-based dollars) in July 1970. In other words, while there might be froth around the edges, median home prices have yet to fully catch up with the decline in the value of the dollar since the U.S. left the last vestiges of the gold standard more than three decades ago.
What are the biggest risks Michael sees on the horizon?
Yet despite the favorable disposition of many indicators of grassroots growth, there are real risks to the outlook. If destructive tax hikes emerge from a failure to extend the 2003 tax cuts on capital gains and dividends, asset prices would have to adjust lower to reflect lower expected after-tax returns. At the same time, if the Fed eventually becomes overly restrictive with short rates and liquidity, the household and corporate sectors could weaken in unison.
One more reason for Bush and the GOP to leverage the phenominal economic data out today to continue to promote high growth-low tax policies! Democrats should be forced to answer as well. Why has the deficit decreased and economic growth and empolyment increased substantially since the Bush tax cuts?
You got some splanin to do Senator(s) Kennedy and Kerry! Perhaps an econ 101 refresher course this year?