I was curious to see what Friedman was writing these days, and went to Stratfor's site. Found his forecast for 2008, written last February. Here are a few paragraphs from it. He always sounds so certain of himself. 'Nuff said.
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Combine weaker energy prices (which free up resources) with a lower dollar (which boosts exports) and the U.S. economy is primed for a strong performance in 2008. A brief slowdown in early 2007 shook out some inconsistencies that built up during the post-9/11 boom, and the stage is set for another extended expansion.
Many will mourn that the subprime lending crisis is about to cause major problems — and perhaps even a recession. Stratfor sees these fears as overblown for two reasons. First, mortgages that enter default are different from other defaulted loans in that mortgages have their own built-in collateral in the form of houses. Rather than getting back pennies on the dollar, creditors likely will recoup most of their money. This, combined with the fact that not all subprime loans will go bust, drastically reduces subprime’s impact.
Second, every so often, the Western financial sector needs a shock to remind itself that it is not Asia and that loans need to be evaluated on strict economic criteria before being granted. During the 2005-06 subprime surge, this lesson had been forgotten. Now it has been remembered, and banking institutions have forced the mortgage broker industry to rate loans more appropriately. As a result, most of those brokers have gone under, and many construction projects have lost funding. Those who have been hurt worst are those who leveraged subprime mortgage assets (and should have known better).
This rationalization of risk is bad for the housing sector in the short run but excellent for the banking sector and the wider economy in the longer run. Yes, one sector has taken hits and will take more in 2008. But the primacy of economic rationality already has reasserted itself. This is a core strength of the U.S. and Western systems; without it, these economies would look like Japan’s. The knocks resulting from the subprime crisis could indeed take some shine off of growth in 2008, but that would simply change it from a banner year to “merely” a strong year. |
