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In times of economic turmoil (and this is one of those times), people want to hear an economist’s opinion of what’s going on. In a nutshell, I think that we are currently in the throes of a classic economic panic (as did the editors of The Wall Street Journal on January 19). The fact is that the U.S. economy’s fundamentals are perfectly fine—except for residential housing and related retail. Most of the current problem is actually caused by fear—banks are afraid to make short-term loans to each other, people are afraid to buy or sell houses, credit companies are afraid to offer loans, consumers are afraid to go shopping. This is not uncommon in the history of the world, but it certainly seems scary when we are in the midst of it.
For a long-term perspective on economic manias, panics and crashes, please read Manias, Panics and Crashes by Charles Kindleberger and Robert Aliber (appropriate title, don’t you think?). I get no royalties from this endorsement—it’s just a phenomenally relevant book at the moment.
The economy is definitely in a slowdown. Whether it becomes an official recession or not, people are feeling the deceleration and are reacting accordingly. I think this will last another quarter or so and then things will pick up, thanks to the fiscal stimulus package and the dramatic drop in interest rates engineered by the Federal Open Market Committee.
To get my full story, subscribe to my newsletter or, better yet, book me for a speech or discussion at your next sales meeting, annual meeting, board meeting, executive management group meeting or the like. I’d love to give you my viewpoint, which is supported by published data but is at variance with most of what you hear, read or see in the majority of media outlets.
-- Jim Smith
© James F. Smith 2008 REALTORS® is a registered trademark of the National Association of REALTORS®
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