Memories...............

Reagan Recession (1981-82)
Black Monday (1987)
Saving & Loan Crisis (1988-89)
Bush I recession (1990-91)
Clinton Bubble (1995 - 2001)

It's amazing that one doesn't trip over the unemployed selling apples on street corners on a daily basis. Now we have fear peddling within business press clamoring for a "recession soon" (very hopefully no later than next quarter - in order to maximize the negative impact on the Rebublicans prior to elections). When I see gargle such as:

"Banking analyst Richard Bove over at boutique brokerage Punk Ziegel points out that debt in the U.S. economy over the past five years has grown at a pace three times faster than income. Nominal gross-domestic-product growth has advanced at 3% while financial debt has grown at a 9.7% clip to $13.8 trillion."

it engenders great curiosity. The "nominal" GDP comes from the Chained Dollar, Bureau of Econmic Analysis stats while the "financial debt" number is derived from the Federal Reserve Flow of Funds report (buried around page 100, usually). That's the BEA source for the line item "Net Worth of households" which is found in an addenda to a reconciliation report between the Fed and the BEA regarding personal savings. The source for the writer's very necessary quote is conflating an income statement line item with a balance sheet line item in order to generate the appropriate sense of dread to justify a call for "recession soon".

There is another way to look at the matter using the same Flow of Funds Report. The long view (26 years) of personal asset/liability/net worth numbers shows the last four years (excluding the 911 aftermath) substantialy outperforming the 26 year average increase in growth of net worth with the five year average (including the 911 aftermath) still outperforming the Clinton Bubble years.


The last chapter of the housing "bubble" story won't be written until around the first quarter of 2010. The houses involved will still be standing and most of them will still have the same owners, content with their decision to satisfy the need for shelter through purchase. That is in marked contrast to the discontent of purchasers of 100 shares of Vaporware Inc. At the end of the Clinton Bubble all they had was wallpaper. By the spring of 2010 many of the people who lied on mortgage applications will be back to renting and, hopefully, many of the people responsible for accepting the lies will be looking for employment outside the mortgage industry. In a wholly just world, the credit rating agencies which issued sterling ratings for junk financing backed by liar's mortgages would have new management (and ownership). That's very unlikely to happen but investors have now been fully appraised of the "value" of the service which the rating agencies perform.

The list of setbacks at the top of this piece is proof that the path to the ownership society laid out by Ronald Reagan is neither absolutely smooth nor without risk. The fact remains that the growth rate of net worth has averaged 7.4% through 26 years in spite of setbacks (and, by far, the worst losses were engendered by the Clinton Bubble). There may well be a minor recession ahead but it is neither necessary (as was the Reagan recession) nor apt to be other than minor. Houses aren't vaporware and the actual overbuild in housing amounts to much less than a year's worth of product. Shelter isn't an expense that can be postponed indefinitely and population growth alone posits a requirement of 1.25 million new units per year (based upon the occupancy rate of 2.4 persons per unit, which has been relatively steady for forty years). Add the exodus from states such as Michigan, where Democratic governance in partnership with unions has successfully destroyed the possibility of growth in employment, toss in 1/2 per cent of existing stock annual replacement rate and the new housing "need" number rises to 1.7 million units.

Having lived through every one of the minor setbacks enumerated at the top of this article, I have absolutely no fear of what the future may bring under Republican political leadership. I would not say the same if the history were extended to include the miserable period of Carter's inept presidency and the future included another unskilled, unaccomplished and unpromising Democrat of his ilk. If fear is necessary to force one to the polls then consider that Carter had a better resume in 1976 than all three of the leading Democrat candidates today could produce if they combined their total accomplishments.