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posted: 5/31/2014 5:01 AM

Signs are pointing to another recession

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During the past few days two rather subtle announcements, which escaped much scrutiny in the news media, have raised a rather concerning view of the economy going forward. The Obama administration, through the Commerce Department, that had estimated earlier GDP for Q1 2014 to be a measly 0.1 percent, will likely go negative as details finally being sorted out indicate that the GDP was probably about 0.5 percent negative by most estimates.

In the other announcement the Obama administration is doing a U-turn on regulations put into effect in 2011 to avoid another housing disaster. Currently both Fannie May and Freddie Mac require a 20 percent minimum down payment but have been pushed by HUD into reducing this to 10 percent.

These two issues are tied at the hip. Housing growth has slowed, which has dragged down the GDP. The answer: Make borrowing cheaper so more people can buy a house. If this doesn't smell like the beginning of another housing bust, nothing does. If purchasing a home is not affordable now, with current lending rates, it is unlikely it ever will be. Reducing the amount of skin in the game that's required to buy a home simply makes default a more likely option in the future.

But that isn't what is being orchestrated here. You see if the Q1 is negative GDP, then if Q2 is possibly negative, we have the big R, or as it's called by economists "recession." So to avoid that for political reasons, we'll throw the baby out with the bath water and lead to another potential housing abyss later on. I must admit when I first saw the Q1 GDP of 0.1 percent I was suspect of some governmental numbers manipulation, but I wasn't surprised.

Richard Francke


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