Wednesday, November 28, 2012

This Time It's The Same (But Yet It Seems So Different)

Words From The Past
For the past six months, I have been slowly pouring over books, articles, essays and many other written forms of thought covering past economic crises.  I found a particularly interesting book at the library, written by Murray Rothbard, The Panic of 1819
Rothbard goes on to describe the 1819 panic as the first true economic crisis of the United States.  It was the first time that a  significant portion of the population was engaged in what we would refer to as modern financial activities - people were living in cities, using money, acquiring debt, using collateral to leverage themselves and, of course, speculating in land.  Although almost 90% of the population was rural and many people were engaged in barter and self-sufficiency, net exports and inflation had a wondrous and disastrous effect on the economy.
I now have a better idea than before that this most recent financial crisis wasn't the first of it's kind; nor is it unique to the United States nor any other afflicted countries.  That much I assumed before I knew, but now that I know I assume the Federal Reserve has things under control - assuming they know their history.
Three Graphs
I want to share three graphs showing why - I at least think - this most recent crisis is different than other recent crises.

The mortgage delinquency rate at commercial banks shot up just as the fed funds rate peaked. That can't be good for home prices or suburbia.

A slight drop-off in home owner's equity. Until 2006, there had not been a negative year-over-year change in home owner's equity since at least the early-1950s.

About 40% of the unemployed have been unemployed for at least more than half-a-year (27 weeks).

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