Recalculation in 2006-08; Recession in 2008-10

Here’s a recent report on the housing markets in responsible cities that didn’t get swept up in the sub-prime mania:

In the last year, home prices in Seattle had a bigger decline than in Las Vegas. Minneapolis dropped more than Miami, and Atlanta fared worse than Phoenix.

The bubble markets, where builders, buyers and banks ran wild, began falling first, economists say, so they are close to the end of the cycle and in some cases on their way back up. Nearly everyone else still has another season of pain.

“When I go out and talk to people around town, they say, ‘Wow, I thought we were going to have a 12 percent correction and call it a day,’ ” said Stan Humphries, chief economist for the housing site Zillow, which is based in Seattle. “But this thing just keeps on going.”

Seattle is down about 31 percent from its mid-2007 peak and, according to Zillow’s calculations, still has as much as 10 percent to fall. . . .

The fact that even a fairly prosperous area like Seattle was ensnared in the downturn shows just how much of a national phenomenon the crash has been.

The slump began when the low-quality loans that drove the latter stage of the boom began to go bad, but the resulting recession greatly enlarged the crisis.  [emphasis added.]

This should be no surprise to readers who were following themoneyillusion back in 2009.

And speaking of being ahead of the curve, who was the one who argued back in 2009 that China was a powerful engine of recovery in the global economy?  And that the last thing we should be doing is pressing China into a highly deflationary policies such as immediately hiking the yuan by 25%?  China decided to take it slow, and raise the yuan gradually once its recession ended.  And here are the results of this pro-growth policy:

BEIJING (AP) — China’s exports surged in January in a sign of rebounding global demand and its politically sensitive trade surplus fell to a nine-month low, possibly easing pressure on Beijing to allow its currency to rise.

China’s global trade surplus fell 55 percent from a year earlier to $6.5 billion, customs data showed Monday. Exports soared 37.7 percent — more than double December’s rate — to $150.7 billion, while China’s strong domestic demand drove explosive import growth of 53.5 percent to $144.3 billion.

“Strength of exports, and even more so imports, points to solid demand — globally and domestically. The former bodes well for global recovery,” said Dariusz Kowalczyk, senior economist for Credit Agricole CIB in Hong Kong, in a report.  [emphasis added]

Remember all those xenophobic protectionists, the ones who insist China’s just a big mecantilist bully, which exports lots of stuff but closes its own markets to the rest of the world?  The ones who see the world as a giant zero-sum game?  I wonder how they’ll spin this trade number?

BTW, might we replace the word ’sign’ in the first sentence with ’cause?’

PS:  It’s true that while US exports to China are soaring rapidly in percentage terms, they are still far smaller than imports.  We tend to export more to places like Latin America and Australia, where there is a boom in natural resources and the building of infrastructure to support resource development:

Owens adds about 65-percent of Caterpillar’s construction equipment sales last year were in emerging markets including China and Latin America.

But think about this:  Where do most of those natural resources go that are dug out of the ground in Chile and Peru and Brazil using Caterpillar equipment?

About Scott Sumner 490 Articles

Affiliation: Bentley University

Scott Sumner has taught economics at Bentley University for the past 27 years.

He earned a BA in economics at Wisconsin and a PhD at University of Chicago.

Professor Sumner's current research topics include monetary policy targets and the Great Depression. His areas of interest are macroeconomics, monetary theory and policy, and history of economic thought.

Professor Sumner has published articles in the Journal of Political Economy, the Journal of Money, Credit and Banking, and the Bulletin of Economic Research.

Visit: TheMoneyIllusion

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