Tentative thanks in a turkey economy

Long-term rates fell again during the week of Thanksgiving as concern for the economy deepened: the 10-year Treasury fell to 3.27 percent, taking mortgages a hair under 5 percent.

However, much of the new data in the holiday-shortened week was quite favorable: new claims for unemployment insurance nosedived to 466,000 last week, a huge drop from the prior 505,000 threshold and 200,000 below the worst of last winter.

Another happy surprise: October sales of existing homes surged 10.1 percent, sales of new ones by 6.2 percent, and even purchase loan applications showed a little life.

So why the long face? Orders for durable goods dumped 1.3 percent in October, canceling a positive trend, and the 3.5 percent U.S. gross domestic product growth in the third quarter was chopped to 2.8 percent.

The greatest concern flowed from national finances. More than 10 percent of U.S. mortgage loans are now delinquent, with that share on the rise; and the FDIC reported that bank loans fell by $210 billion in the third quarter, the biggest decline since data began 25 years ago -- a 12 percent annual pace.

As for Thanksgiving, a positive tone is in order but I can't quite make it to give-thanks-because-everything-will-be-OK, nor can I avoid a holiday sermon. However, I can offer hope and solutions available mostly from each of us, to each other.

For an alternative to runaway deleveraging here, see China. Bank loans in China during the first half of 2009 grew by a little more than $1 trillion, roughly equal to one-half of China's GDP (half of our GDP would be $7.5 trillion), and about the same loan-growth as in 2007 and 2008 combined.

Authorities in China told bankers to lend, and they did. Novel concept. This burst of lending is undoubtedly excessive and creates bubble risks throughout South Asia. However, it also reflects the absolute determination of China not to be derailed by a little problem in the West.

Here at home we flipped, flopped, "TARPed" (see Troubled Assets Relief Program)  and fizzled altogether because we don't trust our bankers to loan wisely, and the bankers don't trust us as capital-supplying co-owners. Sensible policy lies somewhere between China's binge and our puritanical shutdown. ...CONTINUED

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