James Saft

James Saft is a Reuters columnist. The opinions expressed are his own.

If housing is the primary force behind the U.S. economic cycle, then the recession early warning bells just started ringing.

Sales of new single-family homes recorded a shocking fall in February, tumbling by 16.9 percent, to a seasonally adjusted 250,000 annual rate, hitting the lowest such figures since records began in 1963.

New home sales are down 28 percent compared to a year ago and the inventory of unsold new homes is now equal to 8.9 months of sales.

Even more amazingly, in a nation with more than 110 million households, there were just 19,000 single family home sales for the month on a raw unadjusted basis.

Put simply, far from being an engine of growth after several years of contraction, investment in housing looks to be a drag on the economy in 2011.

We’ve entered a new era in global financial markets: the U.S. is intentionally devaluing the dollar.

For the U.S., which has long espoused a strong dollar but in reality had a policy of benign neglect, this is the equivalent of pushing the big red eject button in the jet cockpit: something big is going to happen and we will have to see how it will work out.
The Federal Reserve on Wednesday moved to open a second round of quantitative easing, pledging to purchase a total of $600 billion of longer-dated Treasuries between now and the end of the second quarter of next year. As well, the Fed will reinvest $250-300 billion in the same period, meaning that the central bank will be buying up $110 billion a month in Treasuries and creating a like amount of new money out of the ether.

Perhaps the principal way QE will boost the economy, the Fed hopes, is by lowering effective interest rates, enticing investors to move into riskier assets, some of which may generate inflation and jobs. As well there is the wealth effect; the old canard of spending more because your retirement account and house have gone up in nominal terms.