Ronald Reagan and Chicken Little

The Wall Street Journal says the sky is falling, mostly because the Fed cut rates too far and waited too long to raise them again. Now they can't raise them aas much as they ought to for fear of stalling the economy out. Ah. Hmm.

Now, please let me say by way of preamble that I am not an economist and don't aspire to be one. Understanding the Fed is practically impossible even for very smart people and I am not certain that I qualify. Al I do is watch the markets, read a little about them, and apply whatever common sense I possess to see if what I see on the street matches a theory about what the High and Mighty are doing.

Back in 1987 when the stock market crashed to its biggest one-day selloff in history, the financial markets were in a panic, people were jumping out of buildings again, it was The End Of The World. President Reagan was asked breathlessly what it all meant, could civilization be saved, something like that. And he said, after a short pause for reflection, "it is, I believe, purely a stock market thing." He was, of course, precisely correct, although in fairness it was a stock market thing caused by the destruction of the savings and loan industry due to monumentally stupid governmental interference, which a man named Keating attempted to circumvent for his savings and loans by bribing five Senators, one of which is John McCain, who now wants to be President. May God forbid.

But I digress.

We are currently suffering - suffering! - through a terrible real-estate crash. Yep. No, really. I swear. Here's the WSJ (partly quoting Fed Governor Richard Fisher) on the issue:

"Today, as anybody not from the former planet of Pluto knows, the housing market is undergoing a substantial correction and inflicting real costs to millions of homeowners across the country." In other words, the Fed itself is responsible for the current housing bust because its over-easy policy created a real estate frenzy that was bound to end once the Fed tried to regain control over inflation expectations.

Millions of homeowners have real costs associated with....what? The fact that their houses are appreciating by 2% instead of 20%? Hey, you know, in some places house values have actually retreated by as much as 7%! The horror! If you guessed that everywhere house values are declining at all, they were rising for the past 5 years by and average of 22% per year, you get a gold star. Take a $200,000 house, add 22% each year for 5 years, subtract 7%, carry the 3, multiply by the coefficient of Avogadro's Number....you get a house that's worth in excess of $450,000. But it's not worth $500,000 anymore! AAAIIIIIIEEEEE!

As usual, we have people complaining that a small downturn in prices is causing "real costs to millions of homeowners", as if the money that they are being cost, by their own contention, was real in the first place. The "housing bust" is as close to a phantasm wrapped in a chimaera stuffed in a figment that I have ever seen. Housing stocks are up. Building continues. But there's a whale of a lot more money out there now to use to chase these properties than there used to be. And as usual, the pundits are going to cry over the hundreds that lost their shirts and ignore the millions that have something now that they didn't have before. Also as usual, the ones most likely to be punished are the speculators and the investors that over-leveraged themselves, not the homeowners who own a property that is probably not - even temporarily - upside-down, and on which they're only going to lose money if they have to sell in a hurry. And only in San Diego and Phoenix.

So peace, peace. The sun rises, night falls, flowers grow, Christmas is coming and the goose is still getting fat. Where it exists at all, the "housing bust" is just a real-estate thing.