The sky is falling … or is it ?

Excerpted from Washington Post: “Quit Doling Out That Bad-Economy Line”,  Donald Luskin, September 14, 2008

* * * * *

In the past two months, the Post alone has written no fewer than nine times, in news stories, columns and op-eds, that key elements of the economy are the worst they’ve been “since the Great Depression.”

That diagnosis has been applied twice to the housing “slump” and once to the housing “crisis,” to the “severe” decline in home prices, to the “spike” in mortgage foreclosures, to the “change” in the mortgage market and the “turmoil” in debt markets, and to the “crisis” or “meltdown” in financial markets.

* * * * *

Overall, the pessimists are up against an insurmountable reality: In the last reported quarter, the U.S. economy grew at an annual rate of 3.3 percent, adjusted for inflation. That’s virtually the same as the 3.4 percent average growth rate since — yes — the Great Depression.

* * * * * 

Why, then, does the public appear to agree with the media? A recent Zogby poll shows that 66 percent of likely voters believe that “the entire world is either now locked in a global economic recession or soon will be.” Actually, that’s a major clue to what started this thought-contagion about everything being the worst it has been “since the Great Depression”: Politics.

* * * * *

The Mortgage Bankers Association (MBA) database, which allows rigorous apples-to-apples comparisons, only goes back to 1979. It shows that today’s delinquency rate is only a little higher than the level seen in 1985.

According to the MBA, 6.4 percent of mortgages are delinquent to some extent, and 2.75 percent are in foreclosure.

Moreover, MBA data show that today’s foreclosures are concentrated in that small fraction of U.S. homes financed by subprime mortgages. Such homes make up only 12 percent of all mortgages, yet account for 52 percent of foreclosures.

* * * * * *

It is flat-out wrong … that “the personal savings rate is now the lowest it’s been since the Great Depression.” The latest rate, for the second quarter of 2008, is 2.6 percent — higher than the 1.9 percent rate that prevailed in the last quarter of Bill Clinton’s presidency.

* * * * *

According to the latest report from the National Association of Realtors, the median price of an existing home is up 8.5 percent from the low of last February.

And according to the U.S. Census Bureau, the median price of a new home is up 1.3 percent from the low of last December. Home prices may not be at all-time highs — and there are pockets of continuing decline in some urban areas — but overall they’ve clearly stopped going down and have started to recover.

* * * * *

According to the FDIC, there have been a total of 13 bank failures in 2007 and so far into 2008. There were 15 in 1999-2000, the climax of the celebrated era of Clintonian prosperity. And in recession-free 1988-89, there were 1,004 failures — almost an order of magnitude more than today. Since the Great Depression, the average number of bank failures each year has been 94.

* * * * *

From all-time highs last October, the S&P 500 has fallen 20 percent. But that’s nothing by historical standards. Stocks have often fallen more than that over comparable spans of time. Even the present 20-percent loss isn’t what it seems. The damage has been heavily concentrated in the financial sector — banks, investment firms and mortgage companies. If you exclude the financial sector, stocks are off 14.8 percent.

* * * * *

Whatever the political outcome this year, hopefully this will prove to be yet another instance of that iron law of economics and markets: The sentiment of the majority is always wrong at key turning points. And the majority is plenty pessimistic right now. That suggests that we’re on the brink not of recession, but of accelerating prosperity.

Full articel:
http://www.washingtonpost.com/wp-dyn/content/article/2008/09/12/AR2008091202415_pf.html

* * * * *

Want more from the Homa Files?
Click link =>
  The Homa Files Blog

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s