Sense on Cents

Are we there yet? What parent does not hear those words ringing in their ears? Well, in regard to our economic trail, let’s revisit an insightful piece of economic analysis put forth by Professor Kenneth Rogoff of Harvard and Professor Carmen Reinhart of the University of Maryland.    

I initially reviewed Rogoff’s and Reinhart’s treatise in my January piece, “Time, Why You Punish Me?”  Let’s revisit and review if we’re there yet, and if not just how much further we may have to drive. I wrote at the time:  

In the midst of ongoing reading and research, I was fortunate to come across a presentation prepared by Professor Kenneth Rogoff of Harvard University and Carmen Reinhart of the University of Maryland, entitled “Aftermath of Economic Crises”

This work reviews a total of 18 banking crises which led to economic recessions since WW II. They put particular emphasis on 5 of these crises: Spain in 1977, Norway 1987, Finland 1991, Sweden 1991, Japan 1992. Each of the crises they studied share three characteristics:

1. Asset Market Collapse
Housing price declines averaged 35% over a 6 year timeframe. Equity price collapses averaged 55% over three and a half years.

Our housing markets are widely divergent with the major metropolitan cities within CA, AZ, NV, FL, and MI down anywhere from 25-35% over the last 12 months and down approximately 10-15% the year before that. Other markets have held up much better and are down approximately 10-15% in the last year. The national average declined 19% in the last year.   

Our equity markets are currently 40% off the highs having declined slightly north of 50% at the March lows. (more…)