Sunday, November 6, 2005

David Smith's Don't get suckered by the house price rally

For a long-time, part of the rhetorical expectation of a coming "perfect" political storm has been an anticipation of an economic crack-up, due to unwise Bush policies. The only problem with this scenario -- in its most exaggerated form a replay of 1932 -- is that, for the most part, Bush's actual economic policies are aimed at fairly gradual grinding down of the middle class into dust and the steady but not calamitous decline in U.S. economic and political primacy in the world. Bush is destroying the economic power and prosperity of most Americans at a fairly rapid pace, but without the kind of unmistakeable catastrophe, which visited Herbert Hoover, and without the prospect of any such crisis overtaking us. Without such a crisis, and the political storm it creates, it may be difficult to change policy.

Nevertheless, many have predicted such a crack-up, and one element has been the housing bubble, which has affected some areas in the U.S., as well as the U.K. and Australia. Here is a helpful reminder that, putting aside the requirements of a "sexy" narrative aside, reality points toward stagnation, not crash.

David Smith's Don't get suckered by the house price rally: "A crash is, of course, much sexier than a period of stagnation, so I don’t blame the BBC. Many parts of the media have been itching for the crash to happen. . . .

"A whole industry has built up around the crash story, with websites, weblogs (blogs) and newsletters. I can only think this is driven by schadenfreude - pleasure in the (potential) misfortune of others.

"So am I smug? The crash school will say that the pain has merely need deferred, and that rising claimant unemployment, an increase in repossession orders and the latest figures showing a 46% year-on-year rise in personal bankruptcies are harbingers of doom. Maybe the crash of 2005 will become the crash of 2006."

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