Depression Articles

No Depression Coming for U.S. Economy

Jupiter, Fla. (PRWEB) April 5, 2008 -- Larry Edelson takes a closer look at the mortgage crisis and why it's nowhere near being over and why it's not as bad as people are making it out to be. Mr. Edelson examines the seven reasons why the mortgage and credit crisis are not that bad for the U.S.

The mortgage crisis is nowhere close to being over. Yet the mortgage and credit crisis do not present a doomsday scenario. Don't misunderstand; the financial crisis in the U.S. is probably the worst crisis the U.S. has seen since the Great Depression. However, it is not the end of the U.S. nor is it the end of the world. And it's not definite that it will lead to another depression. Quite the contrary, it could possibly lead to much higher inflation. There are seven reasons why the mortgage and credit crisis is not as bad as some seem to believe:

Reason #1: Only 0.83% of U.S. mortgages are currently in foreclosure. It is a record high, but put it into perspective. There are 44 million mortgages in the U.S. with an average balance of about $200,000. That's a total mortgage market of $8.8 trillion. At a default rate of .83%, it ends up at $73.4 billion in losses. Even if the default rate were to explode to 10%, it would end up at about $734 billion in losses, less than the damage inflicted by the tech wreck of 2000-2001. And keep in mind that the value of the collateral, the real estate underlying mortgages, does not fall in value to zero. That means that even in foreclosure, a mortgage in default is not a total loss to the creditors. While foreclosures are a real problem, they will not break the back of the U.S. financial system.

Reason #2: Mortgage markets have tightened, but they are still more liquid than they were in previous real estate declines. Much is being made about how no one knows who owns what these days when it comes to the mortgage companies and banks. This is chiefly because most mortgages are now underwritten by agencies rather than the local bank.

Reason #3: Big bankers have cash and strength to endure. Citibank has already needed a cash infusion. Bear Stearns had to be bailed out. Merrill Lynch needed $11 billion. Foreign investment and government intervention will help U.S. financial companies. To be sure, some banks will fail in the weeks and month ahead. Perhaps even more investment bankers will collapse, but the banking industry is just coming off of four years of record earnings and is flush with cash, a record $1.35 trillion as of the end of 2007, according to the FDIC. And the banks are sitting on over $12.2 trillion in total assets.

Reason #4: The Federal Reserve has unlimited resources. The Fed's just-announced new regulatory push will help long-term. But short-term, the Fed will continue to pump in liquidity and print money like there's no tomorrow. Keep in mind the Fed has unlimited resources. It can and will do everything to prevent the financial crisis from turning into a great depression.

Reason #5: Overseas exposure to U.S. subprime risk is limited. Investors, bankers, and governments around the globe have been obsessing that America's crisis will cause the world to collapse as well. But after researching further, Mr. Edelson has found no indication that the U.S. credit contagion will seriously infect the global economy. Of course, not all areas have complete immunity.

Reason #6: The cheap dollar makes it possible for overseas investors to buy more with their euros, yen, pounds, and Australian dollars. In fact, practically all currencies buy more in dollar terms these days. And the greenback will only get cheaper as the Fed keeps the printing presses running overtime and, possibly, cuts rates further. With so many cheapening dollars flowing to Asia to pay for Americans' insatiable appetite for inexpensive imported goods, Asian consumers have more buying power than ever before.

Reason #7: Asian demand offsets U.S. economic softness. On paper, the United States has the world's largest economy, but it has become essentially static. Instead, the real powerhouses of expansion are China and India, the globe's two fastest-growing economies. Rising consumption in Asia can help power the global economy.

"Other parts of Asia have caught the boom fever and are coming into their own. Even Japan is awakening from its long coma to show signs of renewed economic vigor. Without this demand and the rising economies of Asia, the global economy and the U.S. would be particularly vulnerable. But that's not the case. The world has changed dramatically in the last 10 years. And there is no question in my mind that the economic growth being seen in Asia is a positive for the U.S.," Edelson states.

To read this issue online, please visit:

http://www.moneyandmarkets.com/Issues.aspx?No-Depression-Coming-for-US-Economy-1626

About Larry Edelson and Money and Markets

With nearly three decades of experience in precious metals and natural resources markets, Larry Edelson has played a pivotal role in training Weiss Research staff and in guiding Weiss Research's customers to prudent investments in the sector. His Real Wealth Report, Gold Trader Hotline and Energy Options Alert provide a continuing education on natural resource investments, with recommendations aiming for both profit and risk management. His team of technical analysts helps enhance the timing of investment recommendations with the aim of continually improving the performance results for investors.

Mr. Edelson is also a regular contributor to the daily e-letter, Money and Markets. Recognized as an expert in precious metals and natural resources, he is often called upon by the media for his investing views. Mr. Edelson has been featured on Bloomberg, Reuters, and CNBC as well as The New York Times, New York Sun, and Marketwatch.com

Mr. Edelson holds a B.A. degree from Columbia University.

Money and Markets (www.moneyandmarkets.com) is a free daily investment newsletter from Dr. Martin Weiss and Weiss Research analysts offering the latest investing news and financial insights for the stock market, including tips and advice on investing in gold, energy and oil. Weiss Research, Inc. is located in Jupiter, Florida. For more information about our editors, or to set up an interview, please contact Jennifer Moran at 561-627-3300 or visit www.moneyandmarkets.com.

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