Time to hunker down?

A new study out reports that Americans are moving from home to home at a rate not seen in years. In fact the last time this few of us moved around this little it was 1962 and there were far fewer of us then.

It was only a few months ago that we were still treated to a nightly onslaught of programs on TLC about people moving into new houses with a celebratory display of ikea wares. But that was then, this is now. Now, there is no moving up. Now, we are hunkering down.

Of course hunkering down is both a symptom and a cause of greater economic stress. A symptom as people who are worried about their financial future (even if they have jobs) start to hedge their bets by staying put in homes that they might have deemed too small, or in neighborhoods felt to no longer be desirable. That of course is one more factor in the ongoing meltdown in the housing market. Add it to the constrained credit markets and you start to see why even with a growing stock of ever cheaper homes on the market there are fewer shoppers.

But this immobility is also a cause of further stress. As people hunker down, both by not moving or shopping for smaller goods and services, they depress multiple sectors of the economy. To lure shoppers in, merchants and professionals lower their prices. Buyers then start to sense a pattern of sinking prices and realize that by holding off on a purchase a bit longer they will have greater buying power and their money will be worth more. Welcome to the wide world of deflation.

Deflation is, oddly enough, a situation where money becomes worth more. Spain is now in the early stages of what might be a deflationary spiral as prices come down in an attempt to spur business. But with little disposable income, no one is buying. Merchants, suppliers, professionals and factories shed staff, fewer can buy anything at all.

Of course the upside to deflation is that for anyone who has cash in hand it will be a buyers paradise- so hang on to your piggy bank. The US is unlikely to face such a fate however since the Fed has also said that it will issue up to one trillion dollars of debt to cover losses in various financial firms and housing loans. That is in effect printing another trillion dollars, something that in normal times would trigger inflation- where money loses its purchase power. Will the Fed, and the Obama administration be able to hold this balancing act until the bottom strikes and we start to move back up? Time will tell, but there is always the memory of the stagflation 70's to keep us up at night.

The Stimulus is Paving the Way

I live in Richmond CA. Richmond has many points of interest to the outside observer. It has been called the most dangerous city in California. It is home to Chevron, complete with oil refinery and an odd smell in the air nearby. It was the site of the first day care/preschool operations in the USA (during WWII, when women were working at the Kaiser shipyards), and to go along with that home to the Rosie the Riveter Museum. It also has its own brand of politics, the mayor is liberal. By local standards that tells you that she is a member of the Green party (really) and the more conservative city council is populated by Democrats (it is the Bay area).

More striking for me, is that I think I can see the Obama Stimulus at work outside my living room window this morning. A few years ago Richmond was so broke that the city teetered on the edge of bankruptcy and real financial ruin. The replacement of the city administrator and a number of other senior level civil servants seemed to put that city back on a path to solvency. However in the ensuing year, many city services and programs had been cut back to subsistence levels. One of these was street paving. In fact the Contra Costa Times ran an article describing how Richmond had, by downsizing its street maintenance operations created a situation where they would never catch up on street repair, given the normal course of attrition to a city street.

Indeed the road that runs past my house was so riddled with potholes that when a crew came through two years ago t fill them people stopped and applauded as they worked their way down the street- when was the last time you saw anyone applaud a street crew?

Right now, even in the midst of what must surely be a huge revenue shortfall, there is a crew outside laying down shiny new pavement (not to mention that its raining). I can only attribute this continued to commitment to spending money on the stimulus package. Without those promises of funding from the state and federal level I cannot see my fair city blithely spending away like this. While my street was pretty awful, it was not a matter of life or death by any means, and if nothing else it slowed folks down a bit, making it safer for kids in the neighborhood.