I just read a really great article on WSJ.com about how bad a shape we are actually in economically. When you look at the mortgage “crisis” in terms of the economy as a whole, it doesn’t even make a ‘blip’ on the radar.
What Federal Reserve Chairman Ben Bernanke recently estimated as a $100 billion loss on subprime loans would represent only 0.1% of the $100 trillion in combined assets of all U.S. households and U.S. non-farm, non-financial corporations. Even if losses ballooned to $300 billion, it would represent less than 0.3% of total U.S. assets.
Are we to believe that our the financial machine that is the U.S. economy can be tanked by the loss of .3% of total U.S. assets? This is madness! This is just irresponsible on the part of our politicians and press to hold the ‘R’ word over our heads day-in and day-out… and for what purpose? Could it possibly be that all this horrible economic news is somehow related to the upcoming election? Could it possibly be that the media have an agenda? This is not just some conspiracy theory here, the numbers don’t lie; and if you are going to start spreading doom-and-gloom based on .3% (not 3%, POINT THREE PERCENT) of the U.S. economy, one cannot help but to question the motives behind such news.
The author goes on to point out that if our economy really could be tanked by a downturn in .3% of our total assets… then our problems are much bigger then any stimulus package could ever fix.
If the U.S. financial system is really as fragile as many people say, why should we go to such lengths to save it? If a $100 billion, or even $300 billion, loss in the subprime loan world can cause the entire system to collapse, maybe we should be working hard to build a better system that is stronger and more reliable [instead of just putting band-aid bailout fixes on top of it].
The irony is almost too much to take. Yesterday everyone was worried about excessive consumer spending, a lack of saving, exploding debt levels, and federal budget deficits. Today, our government is doing just about everything in its power to help consumers borrow more at low rates, while it is running up the budget deficit to get people to spend more. This is the tyranny of the urgent in an election year and it’s the development that investors should really worry about. It reads just like the 1970s.