It was their collective position that we are in (their words, not mine) a credit crunch.  According to them, banks won't lend to each other or to businesses, and therefore once that gets fixed, economic activity will continue to grow.  Therefore, in her view, we should not get out and simply ride out the storm.  Since we have 25 years or so to go to retirement, this is not insane advice over the long term, and she pointed to the (market) recovery from 2000 as an example.  I responded that this was very different from 2000, in that right now there is no broadly appreciating asset class that creates (as a consequence of that appreciation) tons of ancillary economic activity.  In other words, when real estate was booming, people built kitchens--they needed lots of things like  faucets, plumbers, hardware, etc.  That is no longer true, nor likely to become true. In addition, much of the underlying economic activity that supported the middle class lifestyle no longer exists--manufacturing is gone, and it ain't coming back unless things radically change.  That's point one.

Point two is that the gap between a "middle class" lifestyle and what wages will support has been filled by debt, which has to be paid back.  The average consumer is not only overleveraged, but his most important asset (the home) is still historically way too expensive for most people to afford.  That means that in general, one would think that home prices have a bit farther to fall, and that consumer spending will continue to drop. That's 70% of the American economy.  

Point three is that, as I've come to understand it--it's not that we have a credit crisis.  The reason that banks won't lend to each other is that they don't know if they are solvent (See, e.g., citibank), which is very different.  So in order for economic activity to have a real shot at resuming, the borrowers and lenders have to have a real sense what each other's assets are at an institutional level, and that doesn't exist right now.  All we have is the walking dead, and a political culture that's poisoned against making these institutions own their failures--though that seems to be changing.

And point four--and this may not be entirely fair--is that part of the reason that the economy got into this mess is because of the over-reliance on intermediaries, and the belief that these intermediaries create wealth.  Their employees genuinely believe this masters of the universe nonsense (See Thain, John).  Thus, when figuring out how we're going to recover from what is essentially an economic singularity (I hope), their intrinsic bias is going to be "We're masters of the universe.  Fix us and all will be well."  The problem, on a basic level, is not that they rolled up toxic loans into leveraged securities.  The problem is that a person with no salary was trying to flip half-million dollar homes.  When basic rationality returns to the financial system, then it seems to be we would be on our way up.  And that point is at least (give or take) a year away, and I could see things getting considerably worse.

I'm therefore not sure that I buy their position.  At all.  So--have I missed something?

Note: This is not a "should I reallocate and if so how" question.  This is a "am I misreading the general economic picture" question.  (In short, I'm not looking for free financial planning--I'm looking for free macroeconomic analysis. :-)).  And I have no doubt I'll get exactly what I paid for.

  

Sanford's interview on NPR has to be heard to be believed.  His concerns over unemployment insurance (which seem to me to screw his constituents long and hard, on the theory that unemployment taxes may, at some point in the future, rise. (He does not, however, sat that they would rise to a level that would drive businesses from the state.).  

Sanford then really says that "spending" isn't "stimulus", and that he'll turn it down, et cetera.  The southern governors are effectively adopting the House minority's position on the bill (minus the grandstanding for bringin' home the "bacon.").  The problem with that position is that it's the one that the House minority adopted and people don't like it.

And yet, there is a building narrative in the media that the future of the party is on hotshots from "outside the beltway."  The media reports on these "dissenters" because (1) they still have a republican hangover from the last eight years and (2) the republican party really has nothing else.  Now, it may be that in certain (Southern) states, there are enough mouth-breathers that might vote to keep these people in power on "values" issues and fears of the Great Black Socialist, but as a national party they are cooking themselves a la flambe.  And it really is fun to watch.

Updated:  In my wildest dreams, I didn't think it would be that much fun.  

Gerson has to be read to be believed.  This is up there with Broder's "Bush poised for comeback."  Can these people do anything right?  (Gerson was a former W speechwriter).

Breaking: McCain Loses Election.  Still Bitter.