Monday, November 19, 2007

What is different...

I have made the argument that the current foreclosure ' crisis' is not that big a deal given the size of our economy. I am not even willing to concede that the 'credit crisis' is in fact something that will cause any significant economic problems.

Earlier in the year, when gas was surpassing $3 a gallon, we waited for the flow of bankruptcies to start. Nothing. Fully absorbed. Practically without a twitch.

Now gas is going back over $3 a gallon, and it's timing is bad. Holiday shopping. No, I don't think $3 gas is going to stop or even slow holiday shopping. Matter of fact, I think we might actually have a good holiday season. My problem is that people are looking at their house, the mortgage, the possible payment increase, the big truck or SUV with a payment of $400 or $500 a month and another $300 a month in gas, and thinking, next year, things are going to be bad. May as well have a good holiday.

Credit card balances are going up. They will continue to go up. Did you know that from the time people start having financial difficulties to the time they file bankruptcy is often 3 years? People will rob Peter to pay Paul for a long time, and if they have decent credit, that can be a couple of years - as long as nothing bad happens like illness, divorce or job loss.

Many people that argue the economy is fine are complaining that those of that point out problems are 'talking the economy down'. To an extent, that is true. Perception is important.

As long as the average person believes THEY will survive this 'crisis', the crisis is non-existent. The economy is going to be dealing with several bad things at one time, and it will have an impact on many people. What will cause the biggest problem is the average person believing THEY are going to be harmed. Such a mindset will do more damage to our economy than any CDO or SIV. Oh, and $3 a gallon pretty personal.

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