Today is a monumental day for my family. Five years ago, in the middle of a significant snowstorm, I drove my wife to the hospital where she would do all the hard work in delivering Stella Faith Marohn to this world. I'm so grateful to have been able to have a schedule that has allowed me to spend nearly every Friday home being dad (in a sole parenting role) with Stella and her older sister, Chloe. Now that she's reached five years, I know my "Daddy Friday" days are numbered because this fall she will follow her sister to school full time. So today I'm extra grateful that her special day falls on the one day of the week when mom is at work and I am totally free to make her the center of my universe.
Birthdays are a huge deal when you are five. Thanks for letting me share that joy with you.
Now on to this week's news.
- I need to thank Jeffrey Polet of Front Porch Republic for featuring Strong Towns thinking so prominently in a recent post. He tied together the national presidential election campaign with some local, old economy projects in a piece that is insightful. I love the cross pollination of these ideas and am really excited with the way people like Polet are applying them.
Charles Marohn³ and his colleagues at the Strong Towns project have detailed what industrial development such as the LG battery plant means for cities such as Holland. While there is a short-term gain from the rush of capital investment, the long-term liability issues are passed off to future generations. Since the cities cannot generate the requisite levels of revenue to cover the maintenance costs, Marohn concludes that nationwide “we have a ticking time bomb of unfunded liability for infrastructure maintenance.” Whatever short-term financial benefits accrue from development are more than offset by these unfunded liabilities, which amount to more than $5 trillion. Marohn deftly demonstrates what would be required of local taxpayers to pay these liabilities, and its clear the plants can’t produce enough to cover the costs.
- I would also like to thank the site Transport Nexus, which has been frequently referencing and passing along our material. We're thankful that you find our work inspiring and applicable to your community. We love your insights.
We use projections in transportation planning all the time. I am not convinced they are sound. Dealing with the provision of commuter parking for a commuter railroad, for example, we rely on population/household forecasts from the metropolitan planning organization along with some in-house variables that assume that most people will drive to access transit. But if we build the transit station so that the only way to access it is by driving, than we are fulfilling our own prophecy.
- I know there are many of you out there that so desperately want the economy to improve that you will latch onto any positive sign to confirm your optimism. I can't blame you -- it is human nature and much has been accomplished throughout history by positive thinking -- but in this case, unfounded optimism is actually keeping us from facing reality. But let's start with the positive news: This week GDP numbers suggested that the economy was growing faster than anticipated and was on a steady upward trajectory. For the fourth quarter, we actually broke the psychological barrier of a 3% annual rate of growth. Yeah! Soon we'll be building new housing and then it will be off to the races...right?
"We are seeing what historically would be considered a healthy growth rate for the country," said Brian Hamilton, CEO of Sageworks, a financial information company. "Last quarter compares very favorably to the GDP growth rate over the past few years and indicates the country continues to recover from the recession."
- Remember back to our Mechanisms of Growth, which we also include in the Curbside Chat? The third mechanism is debt, including public debt but largely private debt. In the second and now the third generation of the Suburban Experiment, we have kept the Growth Ponzi Scheme going by taking on ever-increasing amounts of debt; borrowing from future prosperity in order to sustain today's. Nothing has changed as consumer debt levels continue to rise reaching a peak in -- you guessed it -- the fourth quarter of last year. It is easy to grow GDP by 3% when you grow debt by 9%.
"People made some progress in reducing card debt earlier in the year, but in the last few months, as the stock market started to rise, they started to return to their old ways of charging things," he explained.
In December 2011, the total consumer debt -- which is the combination of non-revolving and revolving debt -- rose by some 9.3 percent to $2.498 trillion, according to the latest Federal Reserve Board numbers.
Both revolving debt and non-revolving debt increased. Revolving debt, which is credit-card debt, went up by 4.1 percent. Non-revolving debt, which includes loans for cars and education, rose 11.8 percent, the central bank's report said.
- Oh, and that 3% growth....well that is not in real, inflation-adjusted terms. The official government terms have inflation rising at 3.1% (that means very roughly that the cost of things is going up 3.1% per year) -- which would mean a 3% rate of GDP growth would be going backward in real terms -- but an approach to calculating price rises that is less vested in the official meme suggests an inflation rate of 8%. Feeling squeezed financially? This is why.
Forget the modest 3.1 percent rise in the Consumer Price Index, the government's widely used measure of inflation. Everyday prices are up some 8 percent over the past year, according to the American Institute for Economic Research.
The not-for-profit research group measures inflation without looking at the big, one-time purchases that can skew the numbers. That means they don't look at the price of houses, furniture, appliances, cars, or computers. Instead, AIER focuses on Americans' typical daily purchases, such as food, gasoline, child care, prescription drugs, phone and television service, and other household products.
- Think, if you will, of what a stable, financially-viable and resilient economy would look like. In my vision, the absolute last thing that happens in such an economy is for the central banker to go to the legislative branch and warn of a "massive financial cliff" ahead. How is it that we have created a system where "massive financial cliffs" are part of the landscape? And why doesn't this freak people out? Are we just numb to this rhetoric? The more I listen to those in a position to tinker with the levers of the economy, the more I think the only investments that make sense today are vegetable seeds and ammunition.
Congress risks taking the economy over a “massive fiscal cliff,” Federal Reserve Chairman Ben Bernanke warned lawmakers on Wednesday.
In remarks that hit Wall Street stock prices, the central bank boss suggested the economy could hit a serious roadblock if Congress allows the Bush tax rates and a payroll tax cut to expire and $1.2 trillion in spending cuts to be implemented simultaneously in January.
- Growth in housing is the base of the entire Suburban Ponzi Scheme economy, so it is important to note that we are still hemorrhaging red ink from our recent financial alchemy in the housing sector. This week it was revealed that Fannie Mae lost $2.4 billion in the 4th quarter of 2011 and $16.9 billion for the year. Oh, and there's really no end in sight to the losses, which will continue for a long, long time. So for those of you interpreting the tea leaves of recovery, point us to who is going to juice the housing sector now. By now, the following narrative should sound familiar to you:
Fannie and Freddie were once profitable, but the money they have lost dwarfs what they made in good years. During the three years leading up to the house price peak, Fannie reported annual profits of between $4.1 billion and $6.3 billion, and Freddie, $2.1 billion to $2.9 billion. During the five years since, Fannie lost a cumulative $163 billion, and Freddie, which hasn’t yet reported fourth quarter results for 2011, $91 billion.
- And, of course, there is that whole Ponzi Scheme problem with infrastructure. In the Suburban Experiment we exchanged near-term prosperity for long-term obligations, the latter of which are becoming increasingly difficult to put off. The American Water Works Association this week is telling people that water bills are going to double or triple in the coming years, just to cover maintenance. That may be what it turns out to be in large metropolitan areas where land use patterns are more productive, but in small towns and suburban developments, a tripling of bills is wildly optimistic.
Fixing and expanding underground drinking water systems will cost over $1 trillion in the next 25 years and users will get socked with the bill, according to the American Water Works Association.
As with most infrastructure investments, spending heavily now means less costs down the road. But with little appetite in the country for even trickling taxes now, a delayed and more expensive fix is almost guaranteed. The association figures that spending to fix leaky water systems will double from roughly $13 billion a year today to $30 billion annually by 2040.
- So after all of this, who still wants to volunteer on a local planning board? The answer: our friend Gary Kavanagh from the blog Gary Rides Bikes who was recently appointed to a bike advisory committee. Awesome, Gary. Thanks for working to make Santa Monica a strong town.
- Finally, this last week in Austin I got into a conversation where the group Improv Everywhere was mentioned. I love their work and have shared them here before, but thinking of them prompted me to go back and watch some of my favorites. With the baseball season fast approaching, I wanted to make sure you all had seen this one -- one of my all time fav's.
Have a fantastic weekend, everyone. See you back on Monday.
Planning to be in L.A. for the APA conference in April? Live in the Anaheim area? Are you a fan of Strong Towns and Walt Disney? As a fundraiser for Strong Towns, we are providing a special opportunity for six people to get a "planner's tour" of Disneyland. See the Happiest Place on Earth through the eyes of Strong Towns. Click here for more information and to register. This is going to be a really fun time.