At this point, there's good news, bad news and...quite ugly news.
The housing market may have passed an inflection point. It's still sinking overall, but it's showing early signs of stabilizing -- with earlier reports suggesting overall price declines are decelerating, the pace of overall sales declines shrinking and the surge in inventories slowing. We may be approaching the new post-bubble equilibrium, absent other major shocks. That's the latest good news.
The most important bad news today is not in news sections but in the op-ed section of today's Wall Street Journal, where Professors Reinhart and Rogoff make a disturbing case that the U.S. financial crisis is, in some sense, typical and therefore subject to typical crisis traits. They find striking similarities between this crisis and Spain 1977, Norway 1987, Finland 1991, Sweden 1991, and Japan 1992, suggesting:
...the bottom won't come before the end of 2010...equity prices could still take a couple more years for a sustained rebound...the duration of the period of rising unemployment [could average] nearly five
years, with a mean increase in the unemployment rate of seven
percentage points, which would bring the U.S. to double digits.
The ugly news is in Washington. DC, which shows no clear indication it will avoid past mistakes or clear the way for the necessary, wrenching adjustment from the excesses of the past. The chaotic clash of mostly bad ideas and motives alone, evident in the messy debate over the so-called "stimulus" plan, only serves to aggravate uncertainty and undermine market confidence that these people know what the heck they're doing, or really have the economy's best long-term interests at heart.
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