Commentary

The federal government shutdown is center stage in the news and the question that is repeatedly asked is: What impact will it have on the economy? Of course, the potential economic impact will be difficult to gauge because the shutdown has stopped the flow of government data releases until the funding battle is resolved. Luckily, one key indicator remains live.

The summer is over and with it the end of re-runs of (some of) our favorite shows. There might even be some original movies, not sequels or prequels. But, there’s one more re-run we have to endure but with a new twist: Republicans in Congress balking at increasing the debt ceiling and threatening a government shutdown when the federal fiscal year ends October 1 unless and this is the twist legislation passed by the Congress and signed into law by the President is tweaked, modified, changed, delayed or otherwise abandoned .

What's up with the Fed? The venerable, usually media-shy central bank came in for more than its share of attention in the past week and has no one to blame but itself. It started with the withdrawal of Larry Summers as a candidate to replace Fed Chairman Ben Bernanke who, by the way, has not said he's leaving. Then came the conclusion of a two-day, closed-door policy meeting that defied all market expectations.

In a speech to the nation, the president described a spirit of cooperation between Democrats and Republicans and between Congress and his administration. He invited leaders of both parties to the White House to discuss an upcoming vote which he acknowledged would be a tough decision for many members of Congress. And he closed with: ""America is a nation that tackles problems head on, where leaders come together to meet great tests."" The words were not those of President Obama but of President Bush.

While August's employment situation report was less than robust (with a staggering reduction in July's revised payrolls), it wasn't the first set of data to suggest trouble on the horizon for the housing recovery. The Case-Shiller home price index for June--the most recent--showed continuing, albeit slower, house price gains, pushing affordable homeownership still further from low paid workers. That is, until the numbers change again.

At the end of the classic ""Miracle on 34th Street,"" Fred Gailey—fresh from proving department store Santa Kris Kringle is the Santa Claus—muses aloud, ""Maybe I didn't do such a wonderful thing after all"" when (spoiler alert) he spots Kringle's cane in a vacant, for-sale house his soon-to-be stepdaughter Susie has dreamed of. Perhaps critics of sequester may not have been doing such a ""wonderful thing"" when they argued that across-the-board cuts would have a crippling effect on the nation's economy because of the importance of government spending's ripple effect. Those critics, of course, had statistics on their side.

With Ben Bernanke set to leave his post as Federal Reserve chairman next January, we could be set for a history-making appointment. Lawrence Summers' appointment would appear to be justified looking solely at his resume, but it was at Harvard he may have shown his true colors. Janet Yellen is considered a ""dove"" on the Federal Open Market Committee--more concerned with unemployment than inflation and thus less likely to press for higher interest rates.

Is it possible that we have turned the corner on the real estate crisis? Some economic indicators seem to be pointing in that direction. Inasmuch as there are tangible measurements, which have evolved into positive forecast discussions, we are not out of the woods just yet. The foreclosure process remains in the spotlight. Shortly after the 2010 robo-signing issue materialized and was reported on every news channel imaginable, REO sales throughout the country began a downward spiral. Although the robo-signing issue seems to have been addressed, there are many states that still have a cumbersome foreclosure process.

President Obama is trying to solve the wrong problem by calling, as he did in his speech in Phoenix, for the end of Fannie Mae and Freddie Mac as we know it. To be sure, Fannie and Freddie were not the hallmarks of responsibility in the mortgage meltdown, but have gotten a bad rap. For all their housing expertise, they missed all the signals of the housing bubble (but then again so did Federal Reserve chairman Alan Greenspan and his successor Ben S. Bernanke who dismissed it when the first signs of the meltdown emerged). Instead of suggesting replacing Fannie and Freddie to restore the nation's housing markets, the president should be proposing to return them to their original charters.

""Beauty,"" Lew Wallace, the author of ""Ben Hur,"" once wrote, ""is altogether in the eye of the beholder."" So, it seems, is ""disappointment""-- at least when it comes to describing or characterizing the employment report for July, which showed 162,000 new payroll jobs and a drop in the unemployment to 7.4 percent. The disappointment came not from the unemployment rate--the lowest since September 2008--but from the creation of ""only"" 162,000 jobs. To be sure, the people who are ""disappointed"" are those forecasters who predicted more jobs would be created.