from the hip

Something is seriously wrong in a country when a vast majority of its population say that the country is headed in the wrong direction:

81% in Poll Say Nation Is Headed on the Wrong Track

Americans are more dissatisfied with the country’s direction than at any time since the New York Times/CBS News poll began asking about the subject in the early 1990s, according to the latest poll.

In the poll, 81 percent of respondents said they believed “things have pretty seriously gotten off on the wrong track,” up from 69 percent a year ago and 35 percent in early 2002.

This poll was reported by the New York Times. These are numbers, frankly, that would not have surprised me if they had been from a poll conducted in the Soviet Union before glasnost and democratization. But numbers like this, in a democracy, is astonishing, to say the least!

A majority of nearly every demographic and political group — Democrats and Republicans, men and women, residents of cities and rural areas, college graduates and those who finished only high school — say the United States is headed in the wrong direction. Seventy-eight percent of respondents said the country was worse off than five years ago; just 4 percent said it was better off.

Every day in American news media there are several commenter saying that the crisis will soon be over. And among the most positive are the real estate agents and real estate firms.

No wonder. They make most of their income when the housing market is bullish. But is it going to be up this year? Is it over? Is it really only a crisis in the sub-prime loan market and some associated financial instruments, so that all it takes is a few write downs, a reduction in the interest rates, and a little time, and then it will all be over?

Well. It depends a little on what you mean by a few write downs then.

An article in the Financial Times, entitled America’s economy risks mother of all meltdowns, refers to Prof Roubini, who states:

Step one is the worst housing recession in US history. House prices will, he says, fall by 20 to 30 per cent from their peak, which would wipe out between $4,000bn and $6,000bn in household wealth. Ten million households will end up with negative equity and so with a huge incentive to put the house keys in the post and depart for greener fields. Many more home-builders will be bankrupted.

So, yeah, if 4.000 to 6.000 bn, or something even near that, is a little. Or, compare that to the following from Wall Street Journal:

Merrill Lynch economist David Rosenberg, one of the most bearish Wall Street economists, says to look past the 1990-91 recession as a guide to the current downturn. The key difference: the depth of home-price declines.Mr. Rosenberg says in a note to clients that the current downturn is hitting more broadly than the credit crunch and real estate meltdown in the 1990-91 recession, which lasted eight months (as did the mild 2001 contraction). Home prices today are falling in 85% of the country vs. 40% during that period, he notes. When prices hit bottom in 1992, the inventory of new and existing homes for sale was at 7 months of supply. Now it’s at 10 months’ supply “with no improvement in sight,” says Mr. Rosenberg, who was among the first economists to forecast a 2008 recession. He sees average prices nationwide dropping 20% to 30% more, on top of the 11% decline since the 2006 peak.

And this, of course, is really the start of it all. Both talk about 20-30% drop in housing prices. That’s pretty substantial. And, this is when the negative wealth effect kicks in, because people that have lost 3.000, 4.000 or 6.000 bn dollar are not going to be spending quite as much as they did before they lost their money.

I think 2008 will not see any improvements at all. Rather I think we have only just begun to see the bad news of 2008.