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Ambrose Pritchard: America Slides Deeper into Depression
Howard Richman, 1/11/2010

In an analysis that parallels my own, British journalist Ambrose Pritchard wrote a commentary yesterday (January 10) which concluded, based upon the housing market, that the American economy is in a depression. Here are some of the statistics that he cites:

Realtytrac says defaults and repossessions have been running at over 300,000 a month since February. One million American families lost their homes in the fourth quarter. Moody's Economy.com expects another 2.4m homes to go this year....

It takes heroic naivety to think the US housing market has turned the corner (apologies to Goldman Sachs, as always). The fuse has yet to detonate on the next mortgage bomb, $134bn (£83bn) of "option ARM" contracts due to reset violently upwards this year and next.

US house prices have eked out five months of gains on the Case-Shiller index, but momentum stalled in October in half the cities even before the latest surge of 40 basis points in mortgage rates. Karl Case (of the index) says prices may sink another 15pc. "If the 2008 and 2009 loans go bad, then we're back where we were before – in a nightmare."

The US government has spent hundreds of billions of dollars in an attempt to stabilize home prices above their normal levels. But that huge bet may be about to come up bust, as I predicted at the end of a July 31 2009 commentary (Why House Prices will Resume Their Fall):

The victory of Bernanke and Obama over the forces of economic nature in April and May will be as short-lived as a sand castle built on a beach near the water line while the tide is coming in.

Historians will look back at it as an illustration of the fact that you can't fight the forces of economic nature. It will be paired in the economic textbooks with President Nixon's failed attempt to fight inflation through wage and price controls.