The Consequences of Improbability
He basically said that it was "improbable" that the housing market would collapse. Although I don't agree (and rarely do with his statements),he pointed to no facts to support his contention and again misses the point entirely (maybe he did so on purpose).
When you assign a probability to something (improbable), you must describe not only your time frame, but the consequence.
The probability of the levee in New Orleans "failing" over any short period of time was very low. The probability of it failing over a long period of time was very high; the consequence of it failing, disastrous.
The probability of the housing market "collapsing" over the next few weeks is very low, but that probability may grow over time depending on variables such as interest rates: as interest rates rise, the probability grows.
But most importantly, the prospect of the housing market collapsing, even if he considers it improbable, is in our present stage disastrous.
Even though the probability may be very low of a collapse in the housing market in Mr. Snow's "mind", his policies, our policies, must be directed at reducing the consequences of such. We cannot even take the small risk he alludes to.
This is what no one is really talking about. The low real interest rates fostered by the Fed has created the housing market as it is...over-leveraged and speculative. This is the important fact that almost everything in the economy hinges on; the continued speculation, the ever rising prices, of the housing market. It is by itself supplying almost all the job and income creation in the economy.
What Mr. Snow should be talking about is the instability of such a situation, that if it did "collapse" (and it doesn't even need to do that), it would pretty much wreck the economy because of the economy's instability.
Mainstream financial media focuses on the "low probability" part and the timing of it (which is impossible to determine). They are not focusing on reducing the consequences of this low probability. They talk about the reduction in personal income being compensated by an increase in capital gains as a stabilizing force. It is not, it is a de-stabilizing force, for capital gains can evaporate rather quickly.
Globalization has reduced U.S. personal income, which we have replaced with capital gains and speculation. In order to complete the cycle, the U.S. must be willing to sell assets in great amounts to our foreign lenders.
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