Weekend Stubble

...Oh? Sorry, I was busy stuffing money into my mattress.

Pull up a chair!

Back in February, Harper's ran a piece by Eric Janszen (full text is up) that remains the most astute and useful analysis I've seen of this year's meltdown. It must have actually been written a year ago -- Harper's editing is not exactly swift of foot -- and that puts Janszen far, far ahead of the talking heads this last week. (Robert Reich's blog today is, at least, a voice of reason regarding the bum's rush around the bailout proposal.) Not only did Janszen call what's happening now, he's also the only person to make what strikes me as a good guess about what happens next.

Here's the crux of Janszen's piece, tucked in near the end.

The U.S. mortgage crisis has been labeled a “subprime mortgage crisis,” but subprime mortgages were only a sideshow that appeared late, as the housing-bubble credit machine ran out of creditworthy borrowers. The main event was the hyperinflation of home prices. Risks are embedded in price and lurk as defaults. Even after the faith that supported a bubble recedes, false beliefs continue to obscure cause and effect as the crisis unfolds....

As more and more risk pollution rises to the surface, credit will continue to contract, and the FIRE [Finance, Insurance, Real Estate] economy—which depends on the free flow of credit—will experience its first near-death experience since the sector rose to power in the early 1980s. Because all asset hyperinflations revert to the mean, we can expect housing prices to decline roughly 38 percent from their peak as they return to something closer to the historical rate of monetary inflation. If the rate of decline stabilizes at between 6 and 7 percent each year, the correction has about six years to go before things stabilize, leaving the FIRE economy in need of $12 trillion. Where will that money be found?...

There is one industry that fits the bill: alternative energy ... Supporting this alternative-energy bubble will be a boom in infrastructure—transportation and communications systems, water, and power.... Of course, alternative energy and the improvement of our infrastructure are both necessary for our national well-being; and therein lies the danger.

The good news, at least: we'll finally catch up to nineteenth century energy technology.