Washington's attention to the deficit is commendable. But doing the right thing at the wrong time means doing the wrong thing.
After the markets close on Tuesday evening, the House of Representatives will reject an increase in the debt ceiling. Everybody on Capitol Hill already knows the outcome. The only reason to hold a vote you know will fail is to use the tally as a symbol, a signal. Stop spending, start saving.
Reducing our debt, slowly, methodically, smartly, is the right thing to do. But sometimes, doing the right thing at the wrong time means doing the wrong thing.
WHAT ECONOMY IS WASHINGTON WATCHING?
It's inauspicious that the House will hold this symbolic vote in the closing hours of the year's worst month. Small business optimism has declined for two months, consumer confidence today, and real income growth is flatter than Kansas. Small businesses and families are still prisoners of economic conditions, and the housing market is the biggest ball and chain. Just this morning, the key home price index for 20 large cities fell to their post-boom low and homeownership has declined to levels not seen since the late 1990s (graph below via NYT).
Housing is an inside/outside crisis. For homeowners inside the industry, values are dropping, families are still falling behind payments, and 4 million homes have been lost to foreclosure since 2006. For those on the outside looking in, families on the move are increasingly looking to rent, which is raising the price of rental units. Eventually, the ball and chain will unfasten. But until it does, the recovery will not feel like a recovery.