Hold the Hysteria

Paul Samuelson says to hold the hysteria, and for once, I agree with him.

Samuelson is famous for saying that just because Milton Friedman claimed something doesn’t mean it is automatically false. While I usually find Friedman’s writings much more original and insightful than Samuelson, in this case, they agree.

The core of our problem is housing. People who view the economy as inherently unstable see lower prices leading to more foreclosures leading to more supply leading to more foreclosures. Just as in the depression, the resulting vicious cycle will spread the slump through the economy.

By contrast, Samuelson notes that if lower prices bring more buyers to the market, as appeared to happen last month, then the cycle will be self-correcting. So far, the correction in housing has been unexceptional. If disaster strikes, it will probably come from some source we haven’t yet imagined. I’m betting that it isn’t so different this time.


Douglas R. Tengdin, CFA
Chief Investment Officer
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