KeNo's Housing and Economic Portal: Tuesday August 23 Housing and Economic stories

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The world runs out of options - (www.telegraph.co.uk) The Great Reprieve is exhausted. The world has used up the three years' grace gained by extreme stimulus after the debt bubble burst in 2008. This time we face the risk of double-dip recession without shock absorbers. Interest rates are already at or near zero in much of the OECD club. Fiscal deficits are stretched to the limits of safety. Far from loosening, the US is on track to tighten by 2pc of GDP next year, and Europe by 1pc to 2pc, into the slowdown. China has already pushed credit to 200pc of GDP. It cannot repeat the trick. The Anglo-Saxons can print more money, but the gains in asset prices for the rich are offset by losses from fuel and food inflation for the poor. This is a destructive trade-off. The decision to throw everything we had at the crisis after Lehman-AIG was a legitimate gamble at the time, given the near certainty of depression if shock therapy had been tried – as in 1931.

The Real Reason The Debt Ceiling Fight Was Horrible News For Markets - (finance.yahoo.com) The debt ceiling fight didn't end in default (thank god) and in all truth it didn't even result in severe austerity in the near term. The cuts next year aren't actually all that dramatic, although they're certainly very unhelpful at a time when the private sector is weak and deleveraging. But the fight did reveal some bad news. See, people talk about the Bernanke Put (will the Fed chair step in to ease conditions if things get bad enough?) but throughout history you've always had a Washington Put. When things get bad, governments do stuff. That's not just limited to America. There isn't a government in the world that doesn't try to ameliorate hard times, whether they be economic, natural disaster-related or something else.

Are we on the verge of a 'Lehman Bros. on Steroids Drama'? - (www.telegraph.co.uk) On the warm September night Lehman Brothers was placed into liquidation, I walked up Seventh Avenue, past the 138-year-old bank's New York headquarters. It was far from a normal night. Instead, it felt like I was watching a bizarre play unfold, even though this was real life at its most vivid. Outside 745 Seventh Avenue, beyond the media scrum, bankers and secretaries and employees of every colour and creed carried boxes, trinkets and golf clubs, looking distraught. Almost three years on, on Friday, speaking to bankers and others in the Square Mile, the same sense of uncertainty and fear was clear. What would happen next? Is this as bad as it gets? Or is there more to come? The parallels between 2008 – when I was this paper's Wall Street correspondent – and now are obvious. But they are wrong. This is not the same – it is arguably far worse. In 2008, yes, the banking world changed. Large US institutions, the names of which were etched on tombstones and information memorandums for decades, disappeared overnight. In the UK, high street names disappeared and merged as hundreds and thousands of people queued round the block to get their hands on savings. But this time the "crisis" – and I would counter at this point that it is not clear if this is a full-blown crisis or an over-reaction based on heavy selling – is more esoteric, less tangible. People understand banks going under, it is somewhat more difficult for the average person on the street to understand how – and why – a country might need to be bailed out.

The ECB throws Italy and Spain to the wolves - (www.telegraph.co.uk) "The ECB has yet so show it understands that it is the only institution that can save Italy and Spain from fundamentally unwarranted defaults. Everybody is afraid and real money investors are dumping their holdings. The ECB must step in to cap the yields at 6pc or 6.5pc and put a floor under the market," he said.Italian yields spiked to 6.21pc yesterday after a relief rally wilted. Spanish yields hit 6.3pc. The debt of both countries is hovering near 400 basis points over German Bunds, 50 points shy of the level used by central clearing house LCH.Clearnet to trigger margin calls. This was the point where the debt crises of Greece, Ireland and Portugal crossed the line of no return. Spain has cancelled further debt auctions in August. "As long as the ECB stays on the sidelines, a speculative, fear-driven withdrawal of market funding can feed a self-fulfilling insolvency. Any number of banks and insurance companies would take huge hits. The ECB will have to come in, or accept the biggest banking crisis since 1931," Mr Buiter said.

U.S. Consumer Confidence Drops to Minus 47.6 - (www.bloomberg.com) The Bloomberg Consumer Comfort Index was minus 47.6 in the period to July 31, the lowest since May, compared with minus 46.8 the prior week. Confidence among women fell to the lowest level since October 2009, while Americans making more than $100,000 a year were the most pessimistic since November 2009. The biggest one-week drop in the Standard & Poor’s 500 Index in a year, political wrangling over raising the debt ceiling and a stagnant job market probably weighed on consumers’ moods. The loss of confidence heightens the risk that consumer spending, which accounts for 70 percent of the economy, will be slow to rebound in the second half of the year. “The lack of momentum in the economy and the lack of improvement in labor market conditions just continue to weigh on consumers,” said John Herrmann, senior-fixed income strategist at State Street Global Markets LLC in Boston. What’s more, “the debt ceiling debate was unnerving,” he said.