There is a theme going on in the mainstream publications. They have finally been awakened to the bright brave future on the horizon. This discovery is so profound that they have even omitted the usual gloomy outlook in the general mood and conclusion of their articles. [Sarcasm intended.]
Three recent examples are very revealing.
First. Paul Krugman, in his NY Times column writes about "The State of Paralysis" about the state of affairs in California. It is a well written piece. A couple of quotes:
The opening remark: "California, it has long been claimed, is where the future happens first. But is that still true? If it is, God help America."
Near the end: "So will America follow California into ungovernability? Well,
California has some special weaknesses that aren’t shared by the
federal government. In particular, tax increases at the federal level
don’t require a two-thirds majority, and can in some cases bypass the
filibuster. So acting responsibly should be easier in Washington than
in Sacramento.
But the California precedent still has me
rattled. Who would have thought that America’s largest state, a state
whose economy is larger than that of all but a few nations, could so
easily become a banana republic?"
Well, who would have thought that the Soviet Union would collapse? "It's the economy, stupid!" As well as inflexible political system.
Second. Another article in NY Times have discovered a feedback effect from unemployment:
"With many economists anticipating that the unemployment rate will rise
into the double digits from its current 8.9 percent, foreclosures are
expected to accelerate. That could exacerbate bank losses, adding
pressure to the financial system and the broader economy." I don't know if its so-called sub-prime crisis that occurred earlier, a general lack of thinking, or perpetual optimism that prevented this discovery from being broadcasted 1-2 years ago, when the writing was on the wall.
This follows with another revelation: "“We’re about to have a big problem,” said Morris A. Davis, a real estate expert at the University of Wisconsin. “Foreclosures were bad last year? It’s going to get worse.”" Yep. Something my last post was all about. Something that Mr. Mortgage predicted a year ago.
Finally a piece of quantitative information: "Economy.com expects that 60 percent of the mortgage defaults this year
will be set off primarily by unemployment, up from 29 percent last
year." Somebody is still talking about "green shoots" of economic improvements?
The graphics for that article are pretty good. Clearly shows sub-prime defaults plateauing while Alt-A and prime (!) mortgage defaults rising very steadily for well over a year.
Third. Finally, a really heart-warming stuff about the government debt [sarcasm still intended]. Main quote:
" "Nothing happens until it does," said Auerbach. "People were warning
about the housing market and the bubble and nobody seemed to worry
about that, and now a lot of us are sorry. The United States can go on
for several more years doing absolutely nothing responsible to get the
debt under control and things may be fine, but at some point, and it's
impossible to predict when, people can lose confidence in the U.S.
government's ability to deal with its problem, and things can unravel.
Whether that happens in five years or 10 or even longer, it's
impossible to say."
The idea that something very bad will happen is now a consensus view among budget experts."
By my own rule, this will happen. Unfortunately, it only makes sense. I'd cut that vague estimate of 5-10 years by half. So it would be 2-5 years before the default.
In the best tradition of American culture, I'll conclude this post with a joke. It is a translation of a (true) dialog between two Russian programmers:
- Why do you need be in this testing?
-- Well, something might be broken?
- What do you mean that "something might be broken"?
-- Something is always broken during the first test!
- That's better. Gotta look at things more optimistically.
