January 22, 2009

MARKETS GO UP, MARKETS GO DOWN:

The end is near: Could the economy be fixing itself? (Irwin Kellner, 1/22/09, MarketWatch)

During the past three years personal incomes rose a total of 10% while home prices dropped by some 23%, on average.

This implies that by the time home prices bottom out, they will have fallen a total of 30% from their 2006 highs. In those markets where housing really got overheated, prices are already down by as much as 50%!

When combined with today's ultra-low mortgage rates, homes in many parts of the country may already be as affordable as they were in the halcyon days of the 1980s. [...]

Another piece of good news is that once housing prices touch bottom, it follows that the value of mortgage-backed securities will materialize as well. This is the sine qua non for thawing out the financial markets, for it will make the banks confident enough to resume lending -- first to each other, then to business and finally to consumers.

And once money begins circulating throughout the economy, many businesses will revive; they will stop firing and start hiring. For their part, consumers will resume spending -- which, in case you did not notice, now accounts for 70% of our gross domestic product.

So the Obama administration may not have to devise another plan to fix the economy. It could well be on the way to mending itself.


Like Bill Clinton, he stands to benefit from the upswing a Bush hands him. Provided, of course, that he doesn't mess it up with a stimulus package.

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Posted by Orrin Judd at January 22, 2009 8:41 PM
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