Mish takes a look at the great debate over the effect that the housing/lending mess will have on the overall economy. According to Business Week, there will be “limited impact”:
On Mar. 13 the Mortgage Bankers Assn. reported a record percentage of mortgages entering foreclosure in the fourth quarter—news that sent the Standard & Poor’s 500-stock index tumbling 2%.
Nonetheless, in the broadest sense, say economists, the economy should be able to withstand the downdraft in the mortgage market. “It’s going to have limited impact.”
The good news is that, although the subprime business has grown rapidly in recent years, it remains a small part of the overall mortgage market—14% of outstanding mortgage loans. And only some subprime loans are in trouble.
But Stephen Roach is sounding a little concerned, as he discusses “The Great Unraveling”:
From bubble to bubble – it’s a painfully familiar saga. First equities, now housing. First denial, then grudging acceptance. It’s the pattern and its repetitive character that is so striking. For the second time in seven years, asset-dependent America has gone to excess. And once again, twin bubbles in a particular asset class and the real economy are in the process of bursting – most likely with greater-than-expected consequences for the US economy, a US-centric global economy, and world financial markets.
Too much attention is being focused on the narrow story – the extent of any damage to housing and mortgage finance markets. There’s a much bigger story. Yes, the US housing market is currently in a serious recession – even the optimists concede that point. To me, the real debate is about “spillovers” – whether the housing downturn will spread to the rest of the economy.
There’s plenty more in the piece, including some Greenspan input and a little Philly Fed talk.
I don’t profess to know what’s going to happen. What I do know is that I’ll be keeping a very close watch on how the market is reacting to what’s happening - because in the end, that’s the only thing that really matters to me and my money.
