I love people who speak the truth.
Regrettably, speaking the truth today is an increasingly rare commodity in our nation and on the global economic landscape. Given that reality, unbiased and bold truth telling hits me like a rush of adrenaline on a cool, crisp morning.
I got just such a rush listening to Bloomberg today as Tom Keene interviewed St. Louis Fed President Jim Bullard.
For those who care to learn and understand what is going on in our global economy, this interview was truly enlightening.
Let me give you the painful but brutal truth as to why our economic recovery is going to take so long. Bullard recently wrote,
“Recovery from this point is ongoing and will ultimately take many years. In particular households are saddled with too much mortgage debt compared with historical norms.”
Stating the obvious, you may think. Stick with me.
How much is too much mortgage debt? Bullard maintains the answer to that question is $3.7 TRILLION.
Be mindful that massive figure represents approximately 25% of our nation’s annual GDP. How is that number derived? Bullard lays out that the overall loan to value ratioof the U.S. housing market is currently between 90-95% against a historical norm of approximately 60%. That differential is a cool $3.7 trillion.
How long will it take American homeowners to pay down their mortgage debt to levels approaching historical norms? Bullard asserts it will take from 7 to 15 years.
Thus, while housing affordability is exceptionally attractive currently, the market is not going to get away from potential buyers who are truly being “paid to wait.”
Aside from housing, Bullard highlighted the fact that the extraordinary measures the Fed has taken to support the economy have distorted overall levels of interest rates and their impact on the economy beyond what models would otherwise project.
In regard to the Fed undertaking another round of quantitative easing, Bullard put forth that the hurdle for that undertaking is high and the risk to the Fed’s balance sheet has increased. If the Fed were to pursue more QE, it would further put our central bank into uncharted waters.
What does this all mean? Bullard concludes that a 2% level of overall growth for our nation’s economy might be as good as we can expect for the foreseeable future. How we might generate real job growth in the face of that underwhelming level of growth is the great $64 ZILLION question.
Not exactly a pretty picture but the cold slap in the face with a heavy dose of the truth was decidedly refreshing compared to the drivel put forth by many — dare I say most — on the political and economic stumps.
For those who would care to view the 13 minute interview, I welcome sharing it.
As always. . . keep your head up and navigate accordingly.