From Fake Boom to Real Bust

Paradise in LA LA Land

More is revealed with each passing day.  You can count on it.  But what exactly the ‘more is of’ requires careful discrimination.  Is the ‘more’ merely more noise?  Or is it something of actual substance?  Today we endeavor to pass judgment, on your behalf.

Who exactly these fact checkers would be – the moral servants that would save the world from the ills of fake news – was conveniently missing from the bill. Ironically, the control freaks in California state government can’t control themselves; they want to muck around with people’s lives unconditionally.

Nonetheless, screwball proposals like this out of Sacramento fall into the mere noise category – for now.  We estimate it will take another Presidential election cycle, or two, before such nonsense is taken seriously by the majority of state lawmakers.

At the local level, there are more demanding problems that require more demanding solutions.  Here in Los Angeles County, according to something called the Los Angeles Homeless Services Authority, there is now a homeless population of precisely 57,794.  For perspective, Chavez Ravine (i.e., the Dodger Stadium), has a capacity of 56,000.

This army of indigents, roaming about the LA LA land paradise, has become a significant embarrassment for local leaders.  Haphazard urban campsites litter the bank tops of the colossal, concrete Los Angeles River Channel between Downtown Los Angeles and Downtown Long Beach.  The massive collection of tents and makeshift shelters has become too much to ignore.

Photo credit: Daniel D. Teoli Jr. - Click to enlarge

Homeless in Lost Angeles – skid row is beginning to intrude on City Hall (note this photograph was taken in 2015).

A Novel Pilot Program

Obviously, an unpleasant situation like this requires big, outside the box, solutions.  Free brown bag lunches and roll-out blankets won’t cut it.  Hence, the clever folks at the LA Community Development Commission have launched a pilot program to pay homeowners to construct backyard dwelling units to house the homeless.

Loans of $75,000 are being granted for constructing a new backyard unit for the purpose of housing vagrants.  There’s even a design competition for model secondary dwelling units.  What’s more, loan interest stops accruing after five years in the program, and the loan is forgiven after 10 years.  All for turning your backyard into your very own rescue mission. What could be a more noble endeavor?

Our objective is not to ridicule this novel homeless housing program.  Though, we’ll point out that every subsidy backed solution generates a horde of new problems.  What we’re really after today, is a better understanding of how this diminished condition came to be.

What is going on?  What is it that has produced a world where homeowners must be paid to build backyard homeless dwellings?  It is certainly not the world that is presented by the government’s statistics.

The last we checked the U.S. unemployment rate is just 4.1 percent – a 17 year low.  The unemployment rate in Los Angeles County is 4.5 percent, which is near a record low. So if everyone has jobs, why is everyone homeless?

Unemployment Rates in LA, 1992 - 2018

Unemployment rates in LA County haven’t been this low in recent memory – things have probably never been better! - Click to enlarge

This makes it difficult to explain the sudden proliferation of Hoover-towns – are they a fata morgana? The desert is nearby after all.

From Fake Boom to Real Bust

Similarly, the economy has been on a continuous growth streak since June 2009.  That is a remarkable run.  In fact, it is the second longest economic growth period for the U.S. in the post-World War II era.

The current nine year bull market in U.S. stocks is also one for the record books.  It is now the second-longest U.S. bull market in history. What in the world is going on? After a 400 percent increase in the S&P 500, shouldn’t everyone be rich?  Wasn’t Ben Bernanke’s wealth effect thesis supposed to bring prosperity to the masses?

After a nine year economic expansion, and an unemployment rate of just 4.1 percent, shouldn’t everyone have arrived at a place where they can sufficiently afford even a small, rundown apartment?  Why is it that so many people have given up, and checked out from pursuing a productive, self-supporting life?

Perhaps, it is because the nine year economic boom has, in effect, been a fake boom.  Government statistics may say one thing.  But open eyes, and a crude awareness, tell a completely different story.  It is a story of large segments of the population being left behind.

In other words, the entire capital structure that’s been propping up the present mirage of prosperity will cascade down like a Mammoth Mountain avalanche.  After that, things will really get out of hand.