Economics and the mid-life crisis have much in common: Both dwell on foregone opportunities

C'est la vie; c'est la guerre; c'est la pomme de terre . . . . . . . . . . . . . email: jpalmer at uwo dot ca

. . . . . . . . . . .Richard Posner should be awarded the next Nobel Prize in Economics . . . . . . . . . . . .

Wednesday, September 28, 2005

What Will Happen in the Economy?

Jack sent me this, which summarizes the huge drop in consumer confidence.
"Hurricane Katrina, coupled with soaring gasoline prices and a less optimistic job outlook, has pushed consumer confidence to its lowest level in nearly two years and created a degree of uncertainty and concern about the short-term future," Lynn Franco, director of The Conference Board's Consumer Research Center, said in a statement. "Historically, shocks have had a short-term impact on consumer confidence,especially on consumers' expectations."

Franco added, however, that as rebuilding efforts in the aftermath of Katrina take hold and job growth gains momentum, consumers' confidence should rebound and return to "more positive levels by yearend or early 2006."
This analysis is consistent with the fact that despite the drop in consumer confidence, stock market indices increased. And yet, there are so many other reasons (besides the hurricanes and rising gasoline prices)for the decline in consumer confidence.

The housing bubble seems on the verge of breaking; US gubmnt debt is considerably higher than is healthy; foreign central banks are buying up lots of US paper, supporting the consumption binge in the US; and personal savings seem to be at an all-time low. It looks like a house of cards, ready to collapse. If so, is it time to rebalance one's portfolio?
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