Wednesday, November 07, 2007

Are we in trouble?

Bumped and updated:

Is the economy in trouble? Oil is almost $100 a barrel. Foreclosures are sky high. What is the truth? Here is my opinion:

Go to Starbucks and buy a latte. Pay $3 for 16 oz. That is $24 a gallon for coffee.
Go to the convenience store, buy a bottle of water. Pay $1.49 for a liter. That is $5.60 a gallon.

I drive about 35 miles a day on average, my car gets 26mpg. That is about $4.02 (@2.99/gal) for gas a day. And I don't drink bottled water or lattes.

There are over 118 million households. 68% own their own homes, so 80 million homes. Foreclosure filings do not always result in the loss of a home (50% in this area), figure this is a bad season and 68% lose their homes, 4 mill foreclosures * 68% = 2,720,000 homes lost, or about 3.4%. But those people are not going to be homeless, they will drive up demand for rentals, especially in harder hit areas.

This is not to suggest that high gas prices and foreclosures are not problems. They will create issues in the economy. Higher gas prices will cause fewer miles to be driven and reduce some discretionary spending, but not tons. Foreclosures will cause lower home prices, which will make moving happen less....If my home didn't appreciate in value, I might stay longer in it and add the features I wanted in a new home to my existing home.

Chaos theory in economic systems suggest that while the larger economy continues to chug along, certain segments will occasionally feel pain.

Only a significant act (and 9/11 barely touched the economy) will have an economy wide impact....short of a disaster of BIBLICAL proportions, there is nothing even close....

UPDATE 9am 11/07:
I want to make clear that the implications of chaotic behavior on economic systems does not say that pain will be minor, it can be quite bad, but that in a 7 or 8 TRILLION dollar economy, we need a multiple hundreds of billions of dollars event to even get noticed. In regions, you can have a very bad time without the national economy even noticing. Case in point, I came across this little item this morning: suburbs in Phoenix are getting hammered with foreclosures/forced sales.

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