Tag Archives: FRED

Increase in PPI Causing Inflation?

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The producer-price index (PPI) for final demand, which measures changes in the prices businesses receive for their goods and services, rose a seasonally adjusted 0.5% from February, as we can see from the above FRED graph. According to Wall Street Journal, it rose 0.6% excluding the volatile categories of food and energy.

Since PPI indicates an overall rise in the prices business receive from buyers such as governments, consumers and other businesses for a wide array of goods services, we would expect an increase in inputs leading a rise in price for the final consumption goods. The U.S. has experienced a prolonged period of sluggish price increases, with inflation undershooting the Fed’s 2% target for 22 consecutive months. The CPI was up 1.1% in February from a year ago and rose 1.6% excluding the volatile categories of food and energy. The PCE index was up 0.9% in February from a year earlier and rose 1.1% excluding food and energy.

In my understandings, I believe that businesses would open their eyes to cheap inputs from foreign markets so as to guarantee their profit margin. The demand for imported inputs will increase resulting in rise of prices in imported goods, according to ECON 101 demand and supply model. The latest report from Labor Department said that prices for imported goods increased 0.6% in March from a month earlier, on top of February’s 0.9% increase. Import prices last month were still down 0.6% from a year ago.

China would be a big market for cheap imports again, as I once wrote in my early post. The policy of devaluating Chinese Yuan not only slows down China’s GDP growth but also makes Chinese goods cheaper to be imported for other countries. This policy has effectively increased foreign demand for Chinese goods and services and stimulated exports to a new higher level. Given that the domestic inputs prices increase. the US would shift to foreign markets, where China is a demanding one.

However, inflation would pose a lot of risks to economic performance therefore the policy makers are now trying to control it. Looking back to CPI, if businesses have already found ways to reduce their costs of inputs, the inflation may not be serious as we thought. The good news is that Overall prices for goods were flat in March. Food prices rose a seasonally adjusted 1.1% from February while energy prices sank 1.2%. Therefore we still cannot tell whether the increase in inputs of businesses will eventually lead to an increase in inflation.

 

Intro to Sharing Economy

What do Bitcoin, Groupon, Airbnb, Waze, Meshnet, Kickstarter and Wikipedia have in common? Yes, they are all billion-dollar ideas. But there’s more to that.

These game-changing companies or services are all based on the concept of “Sharing Economy”. Like the name suggests, Sharing Economy is “a socio-economic system built around the sharing of human and physical assets”(Wikipedia). The system sees the excess capacity in goods and services as a problem and solves it with collaborative consumption. Simply put, Sharing Economy wants to lower your cost of living by letting you borrow a bike from you neighbor and make your trip in Porto Rico much more enjoyable while cheaper by renting you a house in San Juan.

Jeremy Rifkin’ comments on Airbnb’s success in his column in the LATimes explains a lot about the Sharing Economy:

Airbnb owes its meteoric rise to a new phenomenon — near zero marginal cost — which is disrupting entire sectors of the global economy and giving rise to a new economic system riding alongside the conventional market. Marginal cost is the cost of producing an additional unit of a good or service once a business has its fixed costs in place, and for businesses like Airbnb, that cost is extremely low.”

The extremely low marginal cost is one of the greatest benefits of Sharing Economics. By “riding alongside the conventional market”, this economy system significantly decreases the pressure of purchasing for individuals by efficiently redistributing resources among the crowd. In the conventional market, you have to buy a vacuum machine yourself for $200. That’s $200 per person. But with the sharing model, although you still buy a vacuum machine at the same price but now that you can share it with your neighbor, the cost has become $200/n, depending on how “shareful” you are.

The concept is simple, but the impact can be huge.

In the long run, with the growth of population, the scarcity of resources is going be more and more significant. U.N projects that, by the year of 2050, there will be 9.3 billion people in the world (U.N.). A world without resource-sharing would be unimaginable by then.

In the short run, sharing economy can create extra purchase power to stimulate the market. As showed in the figure, ever since the recession, most households’ real income has been decreasing:real_income

Meanwhile, the CPI has been increasing:cpi

The combined effect forced average households to spend greater portion of their income on food and other basic living expenses(WSJ). People are scared of big purchases because of the financial pressure. Shared purchases, however, removes this pressure. The real expense on shareable goods is divided as explained in the vacuum example and therefore become much lower. With the cheaper shareable goods, people will be able to buy more. Extra purchase power is therefore created.

The only concern about sharing economy is regulatory uncertainty (Economist). Sharing Economy’s model suggests that everybody can be service provider or property lender. This will surely introduce problems when it comes to security, licensing and other indirectly related issues such as benefit negotiating. But since Airbnb and Uber have been proven to be successful in their respective industry, it is expected that these obstacles on Sharing Economy will be removed in the near future.

Minimum wage vs Unemployment: A Historical Approach

As President Obama continues his cross-country tour encouraging a raise in minimum wage, there is a lot of speculation as to how the change would affect the minimum wage in America. Of course, where better to look than history to see how increases in minimum wage have affected the short-term unemployment rate in America.

The below graph shows FRED data on the civilian unemployment rate across time, along with data points I’ve added to show where the minimum wage was increased by more than 10%. The proposed increase to $10.10 from the current rate of $7.25 would be the second largest change in history, compared to an 88% change in 1950 (the 1950 increase took the wage from $0.40/hour to $0.75/hour).  More detailed information on other wage increases can be found in the table I’ve created.

FRED_unemployment

So what have we seen from rate hikes in the past? There are a couple important trends to consider. First, there has been a much more noticeable increase in unemployment for recent minimum wage increases. Since 1990, 5/6 (83%) of rate increases have resulted in a short-term increase in unemployment rate. In addition, all five were prior to or during a recession – a bad sign for those in favor of increasing the rate once again. Oddly enough, the other big rate increase, the aforementioned 88% hike in 1950, actually was turning a huge decline in unemployment. The wage increase’s timing significantly helped, as it was during a cyclical boom following the late 1940s recession.

The big question mark from this data is how today’s mark compares to a wage in the cents. Is data from the 1950s relevant for today? While history’s tales often tell true, it is always hard to justify comparing what seem like apples to oranges. When considering the trends mentioned above since 1990, it may be safer to take the successful increases of the 1950s with a grain of salt.

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However, while similar increases have seemed to spark or worsen recession periods in the past quarter of the century, trials seem to tell another story. The Wall Street Journal reported today that the city of San Jose hasn’t experienced job loss after moving the minimum from $8 to $10. After the announcement that the wage would move, there was a sharp reaction resulting in many layoffs. However, once the change went through, things quickly leveled out and there was a similar reaction in the positive direction. While it is dangerous to take this small sample too seriously, it could provide evidence that minimum wage workers are going to be needed, even at higher salaries.

The Congressional Budget Office has estimated that while there will be approximately 500,000 finding themselves without a job, the wage increase will bring almost a million out of poverty in the United States. But before we make one of, if not the most, drastic change in minimum wage in history based on economic models, it is important to view the negative consequences that have been so frequent in the recent past.

How fast is too fast for the Fed?

At the March FOMC meeting, Narayana Kocherlakota,the president of the Federal Reserve Bank of Minneapolis, dissented against the issued statement, objecting to the lack of numbers based guidance in regards to the taper.  According to WSJ, Mr. Kocherlakota, “believed the change in the Fed’s language weakened its commitment to push very weak levels of inflation back to the official target of 2%”.  Instead, he wanted to make 5.5% unemployment the new threshold for raising short-term interest rates.  Keeping interest rates low until unemployment reaches 5.5% could take some time, and is certainly a more stimulate monetary policy than that of the current Fed regime.  This so-called forward guidance would further drive down long term interest rates, and potentially stimulate the economy further.

While I may be slightly pessimistic about the recovery of the American economy, I’m not sure the Fed needs to have as loose of a monetary policy as Mr. Kocherlokota desires.  Despite that disagreement, I believe it would be wise for the Fed to make it’s trigger for raising interest rates less nebulous than in the most recent statement.  Even though I believe a 5.5% unemployment target might be too extreme, it certainly sends concrete and easy-to-interpret signals to the financial markets about the Fed’s future policy actions.

The vagueness of the Fed’s statement about keeping interest rates near zero “for a considerable  time” after the taper ends seems especially strange in light of recent G-20 summits that were “essentially all about clearer communication”.  I believe the Fed risks global instability when signals that could be interpreted in a variety of ways.

Others in the financial community have other worries about the policy of the Fed.  A recent International Monetary Fund  (the full report is here) report warns that if the U.S. grows faster than expected and begins raising interest rates too soon, the global economy would be weaken as a result of the increased borrowing costs for emerging nations.  The IMF warns that a slowing growth in emerging markets might cause investors to pull money out of those countries and result in a global shockwave, perhaps a worse version of what we saw earlier this year.  This is essentially a call for the Fed to be more cautious about the effect that their policy has on the world economy.  As I wrote about in a previous post, I don’t believe that the Fed should worry too much about the global economy when setting their own policy.  The Fed’s stated dual mandate is to help the U.S. economy achieve full employment and stable inflation levels, not to ensure global market stability.unemploymentcpi

The case of Mr. Kocherlakota and the opinion of the IMF provide both an internal and external criticism of the current Fed policy.  Both seem to be indicating that the Fed should wait longer than expected to raise interest rates and return the economy to normalcy.  As the graph to the right shows, employment has been steadily dropping over the past several years (although the unemployment situation is worse than the number implies), but inflation been much lower than the desired two percent target.  These two facts combined seem to support Mr. Kocherlakota’s argument that the Fed enacting a more stimulative monetary policy would be more in line with the stated goals of the Fed.  A more stimulative policy would keep interest rates near zero longer, coinciding with the IMF’s desire for lower rates.

However, there is certainly a downsize to the Fed making their policy more stimulative.  A change in it’s course could destabilize markets and increase uncertainty.  Perhaps the Fed doing a “good enough” job that everyone is currently positioned for would be better for the economy than the Fed strongly adjusting it’s expectations for a slightly expedited recovery.  Frankly, determine the benefits from either policy is difficult, and personally I would prefer stability in such a situation.

Looking into unemployment in US

Since Federal Reserve’s tapering took place in the beginning of 2014, I was concerned if it could maintain its desired unemployment rate of 6.5% and inflation rate of 2% in my previous blog post Federal Reserve’s decision – tapering. April has arrived (it is hard to believe that more than 1/4 of 2014 passed already!), and data shows that the US economy is in the process of recovery from its recession from 2010.

I plotted the unemployment rate from 2008 to 2014, using FRED : Federal Reserve Economic Data website. From this graph, I could see a high increase in unemployment rate from mid 2008 to 2010 (from 4.9% to 10%), when the international economy was in a turmoil due to worldwide recession. With efforts such as quantitative easing and other monetary/fiscal policies, unemployment rate has been decreasing steadily to 6.7% as of March 2014. From the graph, it could be observed that since the tapering by Federal Reserve started in 2014, unemployment rate has been steady at 6.7%, just above the Federal Reserve’s target of 6.5%. Therefore, one could say that Federal Reserve’s tapering in 2014 was a right decision, not overstimulating the economy yet still meeting its economic goals.

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However, regardless of this positive economic data there is a downside. Wall Street Journal article Five Years of Declining Unemployment Doing Little to Close Race Gaps points out the downside very well. According to the article, although the unemployment rate has been decreased steadily since October 2009, the unemployment rate gap among the race has not been decreasing much. The graph below shows this gap. Among various races, Asians and white people have relatively lower unemployment rate compared to Black or African American and Hispanic or Latino American. Furthermore, it can be seen that the gap between unemployment rate of Black or African American and White American got even bigger in 2014, compared to 2010 when unemployment rate peaked.

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As we all know, economic growth and decrease in inequality are two important economic goals. It is a good thing that the US economy is getting better, despite Federal Reserve’s decision of tapering in 2014. However, a way to decrease the gap of inequality is still vague to me. Maybe it might be beyond the scope of economists; we are all aware that Asians and White Americans has a higher ratio of college graduate degree, and I think this is the main reason for inequality among various races. I think it is important to create policies that can encourage them to get higher education- something that monetary policies cannot be easily achieved by neither Federal Reserve nor extensive monetary policies.

(Revised) Fed Keeps Steady Policy Course

In the past months, the Federal Reserve has executed a steady tapering in their purchases of  long-term treasury bill and mortgage backed securities, although not without opponents.  As expected, the Fed voted in January to reduce the QE scheme from $75 billion to $65 billion in purchases, in the midst of slumping developing markets, and the exchange rates of many foreign currencies fell in response to changing expectations in the domestic market.  As U.S. investors saw potential for higher U.S. returns as government demand for T-bills decreased, they pulled funds out of foreign markets, causing net capital outflows and the weakened currencies in those markets.

By continuing with the intended tapering policy, the Fed made a decision not to consider the potential adverse effects of their decision on foreign markets.  In fact, “Fed officials made no mention of these trends in the statement released [in January].”  In recent years, this has been the general strategy of the Fed, with chairman Ben Bernanke stating in 2011, “It’s really up to emerging markets to find appropriate tools to balance their own growth.”  Foreign central banks took this policy to heart in January, with the Turkish central bank raising it’s overnight lending rate over 400 basis points , and other small central banks enacting similar policies.  While their policies weren’t very effective, these emerging markets clearly understand that the U.S. will not shape their policy to accommodate them.

At the March FOMC meeting, the Fed stuck to it’s stated plan, further tapering purchases from $65 billion to $55 billion in the coming months.  Perhaps the key feature of the March statement was the change in language about when the federal funds rate would start to rise.  No longer was the the federal funds rate to float between 0 and 25 basis points, “at least as long as the unemployment rate remains above 6-1/2 percent” as in the January press release. Instead, the March statement stated rates will remain low, “for a considerable time after the asset purchase program ends”.

 

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This key feature highlights the Feds respect and compliance with their dual mandate to both keep inflation and employment at their natural levels.  The March statement cuts the tie between unemployment and the federal funds rate.  As Chairwomen Yellen has mentioned recently, the labor market is still weak, and has much room to improve despite the increase in employment.  The graphic illustrates how unemployment has dropped, but along with it labor force participation as well.  These facts, coupled with the increase in workers only able to find part time employment skew the actual health of the economy, and thus why the Fed has stepped away from using unemployment as a measure for the economy as a whole.

fedholdingscpi

Although the Fed has seemingly deviated from past statements, the policy actions are consistent with their overall mandates.  The Fed initially chose a 6.5% unemployment number to try and avoid overheating the economy and driving inflation up.  However, this is no concern, because inflation has actually been far lower than desired in recent years, hovering between one and one and a half percent, despite the influx of money into the economy by way of the present quantitative easing.

I believe that the Fed has made the correct decision not to react to the fluctuations in the foreign markets or faulty economic data in their recent policy decisions. The Fed has recently show discipline not to venture from solid fundamentals and also to be willing to adjust expectations to what is best for the economy.  Although unheralded, the Fed has been key in propelling the economy towards recovery and stability, and has probably save tens or hundreds of thousands of jobs.

Mexico: Ready for rise in US interest rates

It seems almost certain that at some point in the near future the interest rates in the United States are going to rise. Interest rates have been hovering around zero for several years now, and it is only a matter of time until they rise at least a little bit.

fredgraph

When this happens, it will not only have an effect on the domestic economy, but on the international economy as well as we have seen in class through the international finance diagrams. One country in particular that has struggled in the past with movements in the US interest rates is Mexico. However, according to Agustín Carstens, Governor of the Bank of Mexico, the country is in a much better place to handle an increase in US interest rates, whenever that may occur.

Previously, Mexico has suffered from movements in the US interest rates as they were not well prepared and not able to handle these changes very well. In the past, the issue would have looked something like this: the US increases interest rates, which would result in a movement along the US NCO curve up and to the left. This would then cause the supply of dollars to shift to the left, which would increase the exchange rate in the United States and lower net exports. Simultaneously in Mexico, this would cause the NCO curve to shift to the right and the supply of pesos to shift to the right as well, which would decrease the exchange rate and increase net exports. While an increase in net exports may not seem like such a bad thing, this would put Mexico above their natural level of output and may begin to overheat their economy.

But now that Mexico is better prepared and will be able to handle such an increase in US interest rates, this sort of trouble should not occur. “Mexico is trying to have this process of increase in interest rates as orderly as possible,” Ramos-Francia (Mexico’s central bank deputy governor) said. When in fact the US does raise interest rates, Mexico should be able to respond in such a way to stay at (or return after a brief stray from) their natural level of output. In order to do so, after an increase from the US, Mexico could sell bonds domestically to decrease their money supply in order to increase their interest rates. This should result in a partial decrease in investment and a movement up and to the left along their new NCO curve which would shift the supply curve of pesos to the left (about halfway between the original and the intermediate curve), decreasing net exports partially and increasing the exchange rate, but not all the way back to the original level. In this way, Mexico would lower both net exports and investment part way in order to get back to the natural level of output.

While there have been some complaints from emerging markets about how much US policy can negatively affect their growth and progress, Augustín Carstens has said that “there are limits to international policy-making coordination. Developing-economy leaders ‘should take policies in advanced economies as given’ and should ‘deal with their own problems’ through their own powers.”

In saying this, it seems that Carstens maintains a positive view that Mexico has reached a point where they have enough power that they can truly handle their own issues as they come along from movements in the US. This is obviously a good thing for both Mexico and the US, as the United States can make changes as they see fit (as we should) and Mexico will be able to respond accordingly.

Vote with your conscience or with your party?

With midterm elections coming up, 33 of the 100 senate seats along with all 435 seats in the house are up for grabs and many congressman are undoubtedly trying to vote along party lines to keep their constituents happy and ensure their chances of (re)election. While spending cuts and deficit reduction are on everyone’s mind, no one from either party wants to tackle entitlement reform. That said, certain entitlements need to be expanded during times of economic hardship, although not everyone would agree on this. While there are the automatic spending increases like unemployment benefits that act as a safety net so that the American people don’t have to wait for Congress to pass something so they can eat, sometimes more needs to be done.

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The above data from FRED shows that the initial claims for unemployment benefits. As you can see, the recession peak is leveling off with lower levels of newly jobless. While this would indicate that the economy is recovering, the long term unemployed are still struggling. The Senate and House are considering extending benefits for the long term unemployed now, although there is opposition from Republicans. While there are Republicans from states with high unemployment in support of the extension, the majority of Republicans are opposed to it.

John Boehner, the speaker of the House, said that his opposition to the bill stems from its lack of helping people get back to work and the fact that provisions to pay for the additional spending haven’t been figured out. While that may be true, it will take a long time for these people to get back to work, and waiting for other spending cuts to pay for the bill is stalling on an issue that needs attention now.

While I understand the need to limit spending, in the midst of a recovery certain things need to be taken care of. This issue should be nonpartisan and I think that the Republicans are making a mistake in opposing this bill. While they don’t want to rock the boat before their elections, I think that in this case proving that they can rise above political pressures to help the American people who are still struggling could only help them in the eyes of voters. Even Ben Bernanke has expressed concern over the issue while serving as Chairman of the Fed, which is supposed to be immune to political pressures. His message is clear regardless of party ideology: the Long Term Unemployed need help now.

 

The Macroprudential Debate

In interesting Wall Street Journal article caught my attention this morning.  With the title, “Think Financial Systems are Safe? Think Again, Warns Carney” I immediately questioned the stability of America’s current financial systems.  But after further thought, it seems that the Great Recession inspired massive amounts of de-leveraging in the US financial system, thereby offering some hope of economic stability.  Indeed, the graph below illustrates that financial institutions have cut back on leveraging in the past 6 years, likely in response to the devastating consequences over-leveraging had in 2008.  But the aforementioned Wall Street Journal article is not about the United States; it’s about the United Kingdom.

Financial System Leveraging

Mark Carney, the governor of the Bank of England, is concerned about mounting levels of debt in the United Kingdom’s financial sector.  Specifically, he believes that England’s massive monetary stimulus is beginning to show its hand in the credit cycle by encouraging financial institutions to borrow excessively.  Certainly, more borrowing (and accordingly more investment) is desirable during today’s economic downturn; anyone who has taken macroeconomics knows that increased levels of investment will boost GDP and help pull a suffering economy out of recession.

However, Carney notes an important distinction between the business cycle and the credit cycle.  According to Carney, the business cycle, which is monitored to determine if a nation is in a recession, is significantly shorter than the credit cycle, which refers to the leveraging and de-leveraging of institutions.  Carney asserts that the credit cycle is as much as 2 times longer than the business cycle.  This assertion implies that while monetary stimulus may show positive effects in the short and medium run (by positively impacting the business cycle), it may show negative effects in the long run (by adversely impacting the credit cycle).  The graph below seems to support Carney’s theory of a longer credit cycle, as it illustrates that the recovery in America’s real GDP (the business cycle) occurred much faster than outstanding financial liabilities (the credit cycle).

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To address the varying time scales of the business and credit cycle, Carney and the Bank of England are exploring the use of “Macroprudential Policy.”  According to an informative Wall Street Journal video, Macroprudential Policy is monetary policy that targets a single sector rather than the entire economy.  Examples include targeting the housing market.  For example, given Korea’s massive boom in housing prices recently, the Korean Central Bank recently instituted Macroprudential Policy to regulate this sector.  By requiring 50% down payments on all mortgages and limiting mortgage payments to less than 40% of one’s income, the Korean government has effectively caused housing prices to flatten.  And in their opinion, by flattening housing prices, the Korean government has prevented a housing bubble without raising interest rates and punishing the entire economy.

It is this type of sector-specific intervention that intrigues Carney.  He believes that by regulating the financial sector more intensely (by setting limits on borrowing, etc.), the Bank of England can reduce the risk of over-leveraging in the financial sector without raising interest rates.  Doing so presents a “best-of-both-worlds” scenario; interest rates will remain low, helping to fuel a business cycle recovery, while financial leveraging will also remain low, helping to prevent over-leveraging.  Given that Macroprudential Policy is a relatively new tool and that no consensus exists as to its effectiveness (Israel has not been as successful as Korea in applying Macroprudential Policy to the housing market), it will be interesting to see which policies the Bank of England ultimately pursues.

While Carney may think Macroprudential Policy is important for the United Kingdom, I do not think it is appropriate for the United States.  The graphs above illustrate that America’s financial sector is not binging on debt; rather outstanding liabilities have been relatively flat since 2009.  Furthermore, a desire to remain solvent has inspired many financial institutions to limit leveraging without instruction (JP Morgan, for example, dropped student loans in 2013 to limit its “bad debt”).  For these reasons, I don’t think Macroprudential Policy is appropriate for the United States right now.  As a matter of fact, I think it could harm the US recovery by limiting business cycle activity.  Nevertheless, I think Carney’s distinction between the business and credit cycle is significant.  In the future, it will be very important for policymakers to monitor debt-levels closely to ensure there are not long-term, adverse effects of Quantitative Easing on the magnitude and riskiness of outstanding liabilities.

The American Dream is only for the Rich

For years, homeownership has been a central component of the American Dream.  But today, homeownership seems to be an impossible goal for the average American.  Since the Great Recession, homeownership has been on a consistently steep decline, as is evident in the graph below.

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Why is homeownership on the decline?  The answer seems to lie in how unaffordable ownership has become.  Given today’s high housing and renting prices, owning a home and saving to own a home have become a privilege of the rich.  The Wall Street Journal makes this point very clear in the graph below.

Home owner cost - new vs. old

This graph makes homeownership seem very paradoxical; it suggests that in order to afford a home, you must already own one.  First-time buyers simply cannot afford their own place.  As a result, household wealth, like income, is severely concentrated in the hands of the wealth.  In the United States, the wealthiest 10% control over 50% of housing wealth, while the poorest 40% control only 8% of housing wealth.

It is interesting to examine the underlying factors contributing to this wealth disparity.  Unfortunately, one of the contributing factors is a reluctance by lenders to take on large amounts of mortgage risk.  Given the recent financial crisis, this apprehensiveness certainly seems logical.  But as a result, only the wealthy can obtain mortgages at today’s high rates.  Indeed, average rates on 30-year fixed mortgages hit a two-year peak of 4.58% back in August, and this average still hovers around 4.35% today.  Given these high rates and an increased need for borrowers to pay more money down, the poor simply cannot afford to buy homes.

Unable to purchase their own homes, many Americans turn to the rental market, which continues to grow.  In 2014, the US is estimated to add 1.3 million net households.  That said, the majority of these households will be rented, not owned, leaving the US homeownership rate flat at around 65%, well below its 2004 peak of 69%.  Furthermore, the high rental rate in the United States does not mean that renting is inexpensive; rather renting is so prevalent only because ownership is so expensive.  In fact, 25% of renters in the United States spend over 50% of their income on rent payments.  This high price limits renters ability to save and invest, decreasing the chances that they will ever own a home.

As anyone who has taken intermediate macroeconomics knows, the value of one’s home can have a significant impact on an agent’s personal wealth, which in turn determines his spending habits.  Because homeownership rates in the United States are so low, many Americans are missing out on the wealth effect of today’s rising home prices.  Because these Americans are not feeling wealthier, they are not spending as much as they otherwise would.  This limited spending in turn hurts the aggregate economy, as it makes our economic recovery an even slower process than it needs to be.  In this way, homeownership and its inherent inequality, by limiting spending at a time when this country needs it most, pose a significant threat to America’s economic recovery.