Why I’m Optimist About The Recession

Doctor Gloom And Doom Housing Bubble has been running his series of posts on understanding the Great Depression. Read the whole post.  It is extraordinarily doubtful there will be a repeat of the Great Depression of the 1930s.  Ben (”Whac-A-Bear, Whac-A-Fannie”) Bernake is a student of the Depression.  What brought on the severity of the Depression was collapse of the money supply.  In the 1930 not enough currency existed to support a market economy.  Farmers dumped milk, eggs, and products.  No one could buy them because there was no money, no dollars.  Today we talk about “liquidity” and the money supply.  While I have agreed with the good Doctors analysis, I doubt “Whacky” Bernake and the Fed are going to make the same mistake again.

As of the passage of the housing bill, presumably tomorrow, about $1 trillion dollars, $345 billion for mortgage lender bailout, and $600+- billion Fed line of credit for Freddie & Fannie.  That’salota mortgages.  Freddie and Fannie will “own” the mortgage market again.  But there will be liquidity.

Because this bailout is funded by the taxpayer, there some negative consequences.

Up until recently there has been an economic perfect storm of declining home prices, financial markets crisis, a falling dollar crisis, and rising energy cost crisis.  These four, coming at the same time, is unique.  From a purely analytic view, Negative Dynamical Volatility was setting in.  Chaos.  Each crisis whacked was worse than the preceding crisis, and each crisis occurring at more and more frequent intervals.  Negative Dynamic Volatility is a condition that precedes chaos.

It is not over yet.  But doing a quick bit of math, the $1 trillion liquidity infusion will dampen the volatility and create some stability.  Real estate will probably not lead the nation into a depression.