The other day we heard reports of widespread pessimism about the economy. Unemployment is dropping, the stock market is up, and the economy appears to be growing. But nevertheless, the number of Americans who think we’re headed for Hell on a skateboard has risen some 13 percent. The price of gold is shooting toward the stratosphere, supposedly because investors worldwide are losing faith in the dollar’s strength and because the person on the street is having to sell her earrings to pay her mortgage. Meanwhile, the value of residential real estate continues to plummet, the drop so extreme that it suspiciously resembles the dread double-dip. Experts say this will continue until foreclosures abate, another way of saying “no end in sight.”
Be scared. Be very scared.
It’s not surprising that gold bugs would scuttle for shelter under the gilded refrigerator after the startling threat by Standard & Poor to downgrade the United States’ credit rating if the politicos don’t quit squabbling and do something to repair the wounded economy. If I could afford some gold, I’d probably be squeezing under there with them. On the other hand, I’m not in any rush to pawn my earrings.
Let’s get real.
Yesterday, U.S. stocks ended at a three-year high, a sharp recovery from the drop after the S&P’s dire warning. The Wall Street Journal, hardly a bastion of liberal Pollyannism, attributes this to consumer optimism (!) and strong earnings by “industrial heavyweights.”
Elsewhere, observers suggest that the S&P’s pronouncement could work to improve the country’s debt outlook. A credit downgrade, if it happened, would erode investor confidence in U.S. companies worldwide. The one-in-three chance of such a disaster just might push the demagogues on both sides of the political aisle to set aside ideology long enough to work together to resolve the debt problem. In that case, treasury prices could rise as spending is cut and taxes are increased. And if a downgrade actually did happen, causing the stock market to drop around 6 or 8 percent, investors would flock to safer havens: government bonds.
It’s worth remembering, though, that the state of the national debt may not be as dire as we’re led to believe. Writing at TPM, Brian Beutler notes that by historical standards, the debt is nowhere near as desperate as people think, and he provides graphs to prove it. He points out that the problem we need to address is unemployment:
The Bureau of Labor Statistics provides the data that suggests Congress’s priorities are out of whack. Currently, civilian unemployment is higher than at any point in the post-war period save for a brief spike in the early 1980s when the Federal Reserve briefly used contractionary monetary policy to fight inflation. Already its clear that unemployment is falling much more slowly than it did in 1981. And when people get back to work, revenues will climb, and deficits will shrink on their own.
As for real estate, despite the Bloomberg report that puts Phoenix at the bottom of a declining market, an April market update based on Arizona MLS listings reveals that the total number of active listings has dropped and sales are up 26 percent over the past 30 days. The supply of homes on the market here is now down to what has traditionally been regarded as normal, a 3.8-month supply. Meanwhile, in another hard-hit real estate market, Florida’s Miami-Dade County, March sales are are up 84 percent over March 2010 sales, largely driven by foreign investors.
So, it would appear that pessimism is in the mind of the beholder.
Me, I’m feeling a great deal less grim than I felt at this time last year. As ill-paid as it is, work seems more abundant: despite skyrocketing food and fuel costs, eight sections of comp and writing courses at the community college will support me in the style to which I intend to remain accustomed, and if the budding new client relationship works out, The Copyeditor’s Desk will be set for quite awhile. The happy stock market has revived my retirement savings nicely. Despite the dismal loss on the downtown house and the drop in value in my own residence, my net worth is $21,660 more than it was in August of 2007.
How about you? Are you feeling better, worse, or pretty much the same about the economy, compared to your sentiments a year ago?
Interesting. When the economy was headed for disaster, everyone was optimistic. Maybe it’s a good sign that people are pessimistic.
My house lost a stunning 45% of its value and my monthly income is drastically reduced. So no, I don’t feel any better.
@ Stephen: Oh! That’s terrible! Neither is good, but together is altogether too much.
My own house, which is paid for, lost about 15% to 20% of value; the downtown house, though…oh my. If we’re lucky it’s “only” lost about 37%, but the truth is, if we tried to sell it now we’d get about 42% of what we paid for it (at what we thought was the bottom-out point!).
Jobs seem more likely to come back before real estate values, and so I surely do hope that soon you’ll see in improvement in income, and that you can hang in there long enough to minimize losses on the house.
I *hope* that it’s improving, and more of the people that I know are employed, so I’m taking that as a good sign.