Friday, December 26, 2008

Be Wary of the Doomsayers

There is a case to be made that the US economy may not stay dormant all that long.

First of all, the vast majority of homeowners and businesses are not highly levered and will not be destroyed by the deleveraging tsunami underway. Leaving aside the financial stocks, most stocks in the S&P500 are not, by any stretch, highly leveraged. Ditto for most homeowners.

Second, there has been the equivalent of a $ 1 trillion tax cut for the American economy in the form of lower energy and food costs -- lower since the Spring of 2008. This is a huge tax break in the form of lowered costs for what most families view as the necessities of life. Even home heating costs this winter will be mild, compared to predictions just a few short weeks ago. Where are all of those folks who were talking about $ 200 oil in early summer of 2008? Have they gone into hibernation for the winter?

Third, even correcting for stocks and home prices, American families as a whole are far, far wealthier than they were just ten short years ago. This is an incredibly wealthy society when compared to anything in history. The vast bulk of that wealth is intact.

We are not headed for a repeat of the great depression. We are much more likely to have a short and quick recession. All of the fiscal follies of the Bush/Obama admistrations will not be able to overcome the utlimate strength of the American economy and the world economy.

It will be interesting to see who takes credit for what will prove to be a fairly quick rebound from our economic malaise.