| Submit your comments on this article |
| Economy |
| A snorkel or an aqualung? |
| 2009-03-25 |
| Seems like just yesterday that voices were saying that the Dow was going to 5 000. United States President Barack Obama's big rescue plan was too small, and internationally coordinated fiscal stimuli were too uncoordinated to be of any use. Then Citigroup said it had been profitable for the first two months of the year and hallelulah, the market raced upwards. There have been other, small signs that the worst may be in the past, notably the fact this week that new homes under construction in the United States increased for the first time after seven consecutive months of falling. Federal Bank chairperson Ben Bernanke, taking an uncharacteristically high profile, has also been saying that the recession will end this year and that the economy will begin to recover in 2010. He cautioned that there would be no recovery without first stabilising the financial system. "We're working on it. And I do think we will get it stabilised." But there is no shortage of analysts who say that stabilisation will be achieved only once housing prices in the United States have returned to their pre-bubble, long-term sustainable average. These analysts point to a study by Yale economist Robert Shiller, which tracks the inflation-adjusted value of US homes back to 1890. The recent housing boom saw prices increase by 83% since 1987. The meltdown has seen these prices fall by more than 25%, but they still need to fall a further 20% to reach the average price, which this market has sustained since the 1950s. Another way to think about the prospects of recovery is last week's US wealth data. Americans lost a collective $12.7-trillion last year. "This is the largest decline in US household asset values ever recorded over a 12-month period," says Stanlib's Kevin Lings. US household assets were still an impressive $65.7-trillion at the end of last year, he says, although he expects losses since then to be about $2-trillion. Lings says that US household debt amounted to $14.2-trillion at the end of 2008. This is mostly in home mortgages (74% of total) and consumer credit (18%). |
| Posted by:Fred |
| #5 Americans lost a collective $12.7-trillion last year. How much of that was stock-market loss, how much a "paper" loss based on changes in the market value of their home? I'm halfway through paying off a 30-year mortgage on a home I bought for $65K. It's currently "valued" at $150K by the city - more than twice what I paid for it. Homes like mine are selling for $135K-$175K here in town. If you state that the change in appraisal value from $65K to $150K increased my net worth by $85K, and now my home is "only" worth $125K now, then you could say I've "lost" $25K. Since I haven't realized either the "gain" or the "loss", it really has no meaning to me. The people really hurt by all this are the folks in their 50's and 60's who invested heavily in stocks and bonds for their retirement. Not only are their holdings worth less, but the cash dividends they'd expected to help them in their retirement years are either missing or greatly reduced. The fact that the US still hasn't undone some of the very laws that got us into this mess doesn't give me a good feeling for the future. |
| Posted by: Old Patriot 2009-03-25 17:56 |
| #4 Citigroup believable? Citigroup solvent? |
| Posted by: Anguper Hupomosing9418 2009-03-25 11:24 |
| #3 In 1930 there were three recoveries that looked major, and a total of seven for the year. Needless to say, they didn't pan out. |
| Posted by: Anonymoose 2009-03-25 10:38 |
| #2 "A snorkel or an aqualung?" Aqualung was a way better album than Snorkel. No comparison. |
| Posted by: Penguin 2009-03-25 08:18 |
| #1 Citigroup profitable? That was operating profits, which excludes the balance sheet stuff such as the toxic assets. |
| Posted by: Cynicism Inc 2009-03-25 06:45 |