Saturday, April 5, 2008

Looking at the Theoreticals

I seem to be hearing more and more from the doom and gloom school of thought about our current economic status. So, it seems to be time to take a look at some of the economics at play.
First, let's examine the weakening dollar. The US economy is still one of the world's largest, assuming the EU is counted as one economy. If you don't count the EU as one unit, we are only ahead of our next closest competitor (China) by 6.8 trillion dollars, or 11 trillion ahead of our closest European competitor (Germany.) Therefore, a weak dollar is only a huge impact on our global economic standing if you look at it from where we are, at the top. In addition, it affects our purchasing parity, meaning we can't buy as many foreign goods. To look at it another way, it makes domestic goods a better choice than imports. To simplify that we have to compare apples to oranges, the American apple vs. the Global orange. Apples still cost us the same amount, but an orange is now more than an apple. This also means that American apples are less expensive globally than oranges; more global consumers can buy apples too. You see what I mean, a weaker dollar means that we import less and export more, doing very good things for our trade deficit.
Second, the complaint of rising unemployment. We have an unemployment rate of 4.6%. In theory, this puts at just about the minimum rate, due to job fluctuation. Also, compare that to a worldwide average of 30% and it looks even better for us.
Last, I want to take a look at the much maligned housing market which my real life job is very dependant upon. The worry we all hear about is the rise in foreclosure rates, with one number I saw saying that foreclosures are "up 30%." But what does that mean? It means that now 1 out of every 172 loans defaults, primarily in the segment of loans which would never have been approved by conventional loan methods. However, the latest measurements also state that the rate would have dropped if it weren't for large spikes California, Florida, Nevada, and Arizona. While we have seen a market slowdown in development and home sales, they still sell and they still develop. Its a slump driven by overproduction and will self correct given time. Thank you, Adam Smith.

1 comment:

  1. One other claim from the Doom and Gloom crowd: The AJC actually claimed, on the front page, that we're in a recession. The simplest definition is two quarters of the economy shrinking, and so far we haven't had one month yet. Either the reporter doesn't know the definition of the word she used, or she's suffering delusions of prophetic ability.