Some Reflections in the Times of Hysteria
Had anyone said a few months ago that the federal government would step in to provide a trillion dollars to subsidize gasoline—to bring it down to $1.85 a gallon nationwide from prices that were exceeding $4 a gallon—we would have had a national debate. And yet as quietly as the Iraq war cooled down and was ignored, so too we think nothing of the hundreds of billions of dollars saved in reduced energy costs. For the average driver who puts 15,000 miles on his car per year, the annual savings (depending on regional prices, miles per gallon, and the amount and type of miles driven) could reach $1500-2000.
Or contemplate again: What if the Chinese had announced three years ago that in a spirit of good will they would begin buying trillions of US Treasury bond at a .5% interest rather than the 3-5% of the recent past. The result, of course, would be a multi-billion-dollar stimulus for the indebted US economy that would enjoy a temporary reprieve from the cost of its indebtedness. (Remember, in the Carter years T-bills and US bonds were paying out 8-12% and more).
In other words, there are natural stimuli—quite substantial ones—occurring that are lost amid the hysteria of foreclosure. Cheaper energy prices permeate throughout the entire economy from tractor fuel to fertilizers. Cheap foreign capital means renegotiating loans down to near 4% and several hundred dollars per month in savings on one’s mortgage. We are in a recession that has self-remedying qualities rather than justifications for the most radical changes in the economy since the Great Depression.
Haves and sorta have nots
Are we seeing an enormous transference of wealth? Those with capital who lost their stock accounts, and those who sold homes at a loss in some ways subsidized those who walked away from homes and credit card debt, or are renegotiating with the IRS and banks for reduced obligations. The illogical exuberance that resulted in purchase of “things” like televisions, cars, and vacations, financed in some cases by additional second and third (defaulted) mortgages (or 5th and 6th credit cards), was ultimately paid by someone else when the crash occurred—first by the lending agencies themselves, but ultimately (and soon) by the public through higher taxes or decimated retirement accounts, or those average Joes who had securities bundled among real estate debt.
Not Quite a Depression, After all
Another sobering thought. Over 92% of Americans are still at work. Over 90% are still servicing their mortgage debts each month. For these, the “depression” so far doesn’t mean a radical need to reinvent America. They plan to stay in their homes, even if they have negative equity in them; again, loss of equity doesn’t mean catastrophe if they don’t have to sell quickly, refinance, or remodel.
Ditto 401(k)s. If you are retired—terrible. If you are nearing retirement as many of us are—worrisome. But for those under 50, who still put away pre-tax dollars each month, there is a weird sort of solace. I have friends in their 40s who say they won’t pull anything out for a quarter-century, and would prefer to buy stocks and mutual funds now at rock-bottom prices, rather than as was true in 2005 or 2006 at the peak of the market. Quite logical—if the entire market doesn’t go belly up.
Article printed from Works and Days: http://pjmedia.com/victordavishanson
URL to article: http://pjmedia.com/victordavishanson/some-reflections-in-the-times-of-hysteria