What Crisis?

July 17, 2008
Housing Market Perspective - Dennis Kneale


I want to talk to you about the nationwide housing crisis and whether it is really a crisis at all. Every day we hear gloomy news on falling home prices, how foreclosures are soaring and the stunning loss of wealth will send us tumbling into a deep recession.

I have three points to make.

First, we were already in a deep recession. The recession officially started back in December of 2007. He just didn't know it yet.

Second, he speaks of 40 million homes that were bought before 2000 as being safe. He completely dismissed them. None of those homes were refinanced and no cash was extracted? Why do I find that so hard to believe? I find it especially hard to believe after reading this.

Third, his simple chart and theory did not fully grasp what a fundamental oversupply of homes combined with a glut of subprime mortgages would do to our complex and interdependent economy as seen here.

But you just watch, but by the time Congress's $300 billion bailout kicks in the free market will already have made the necessary adjustments, and most of us won't feel it at all.

Here's a glimpse of one of those free market adjustments that most of us won't feel at all.

S&P 500 1-Year Chart

Here's another one.

Civilian Unemployment Rate

Here's yet another glimpse. $300 billion was apparently just a drop in the bucket.

February 11, 2009
President Obama Set to Exceed President Bush’s Deficits

Presidents need to craft policies that address current challenges. Over two years, Washington is set to borrow a staggering $3.5 trillion from a shrinking global savings pool. This could raise interest rates, worsen the recession, and dump $30,000 per household of new debt into the laps of our children and grandchildren. Any justifications for such borrowing should be on the merits of the current economic situation and not on the mistakes made by the previous administration.

By my estimates, that's a brand new car for each household in America, and a nice one at that. Too bad we had to spend it on this non-crisis instead. Oh well.

Update:

February 12, 2009
Fed: Americans' net worth hammered by recession

The report also includes some data that illustrate the inflating credit and housing bubbles that popped with such disastrous results.

That's hammered and disastrous in a non-crisis sort of way of course.