I have been following Nouriel Roubini's writing for the past couple of months and I am convinced that at present, he's got the best grasp on what’s going on and where things are going. Roubini believes that we need to see at least another 10-20% decline in the housing market. I am more bearish, but who am I to go around questioning a PhD economist? At present, there are 8 million households upside down on their mortgages and probably another $150B in write downs to come. Roubini believes the number of people who are upside down on their mortgages will easily double and quite possibly triple. Combined with the up coming resets in 2010/11, I don't see how only 20% declines in housing will be enough to clear the excess inventory from the market. Roubini sees a pretty good chance that all forms of credit coming to a grinding halt. I am not sure we'll see a grinding halt, but credit is certainly becoming difficult to get. Roubini sees a slim chance of the US hitting a 1929 style depression. I probably agree with him on that account. While unemployment is ticking upwards, credit and liquidity are on skid row, I think that there is enough strength in the economy to provide sufficinet employment to stave off another Great Depression.
My definition of a depression is when a recession hits you, it becomes a depression.
For now, I don't see much reason for optimism. Hard choices have to be made, perhaps even Volker-esque choices, however we lack the leadership anywhere in Washington DC to make those choices, so for now, our leadership has chosen this course of action which has taken us to this recession, and we're not likely to be changing courses any time soon.
Good luck and baton down the hatches.