It seems lately we have been inundated with crises. The recession, unemployment, the subprime lending crisis¹, the house price crisis, it seems economic news is dominated by talk of crisis. I have written before that I think this is somewhat ideological, talk of crisis seeming to predominate during Republican administrations, but, as I have also said, the media is also just prone to finding disaster around every corner, as it makes better copy than saying everything is normal.

So, why all this talk of crisis? If things aren't so bad, why does the press write about crises. Or, to use an old cliche, isn't it true that where there's smoke, there's fire? If there is no crisis, how does the press get away with claiming one?

To which I have to respond that "crisis" is simply a matter of perspective. So, yes, there probably is a real "crisis" where the press finds one, but it is more a matter of taking a very narrow perspective.

Allow me to provide one example. The housing crisis.

The news has been dominated by stories of sudden depreciation of houses, of sad tales of people finding that they owe more on houses than those houses are now worth, of people in rising adjustable mortgages who cannot refinance thanks to a lack of equity, even attempts to make people feel sympathy for house flippers who got caught out when the housing market tanked. And, yes in many markets housing prices have seen a rapid and substantial drop.

But that is half of the picture. The other half is that in the past seven or eight years those same markets saw an unprecedented growth in housing prices. In fact, the degree to which the market crashed is almost always the degree to which it grew. Markets that saw 200% or 300% growth since 2000 are now seeing 20 or 30% drops. Those markets which did not see that rapid growth are also suffering far less decline².

And why is this important? Because it shows that this is not a "crisis", but part of a normal cycle. We happen to have seen massive growth, so the eventual adjustment is equally dramatic, but it is still nothing more than a normal adjustment to an over valued market. And while we have seen drops, those who bought houses in, say 2000, are seeing not overall losses, just less impressive gains³.

Now, those who bought more recently are in worse shape, as they did see real losses, but on the other hand most of them bought their new homes with the proceeds form selling their overpriced previous homes, so they still ended up ahead. In fact, the only people who lost out were those who bought recently for the first time and those who bought homes recently for investment, perhaps along with those who sold in less inflated markets to buy in more inflated ones. Those groups did lose money, that is undeniable. But the question is does that constitute a "crisis"?

The market in any commodity always moves up and down, those who buy at the absolute bottom and sell at the absolute top make the most. Those who buy at the peak and sell at the bottom lose the most, and the rest fall somewhere in between. There will always be some who bought at the peak, because there will always be those who sold at the peak. Thus there will always be some "winners" who sold at the best time, and some "losers' who bought right before prices fell. That is simply a fact of the market, and does not constitute a crisis.

But let us look at this another way. Let us look at both sides of the chart, let us look at the market with rising prices and the market with falling prices, and ask how they could both be spun by the press, should they so choose.

When the market falls, as it is now, we know the press spin on the negative side. The stories are on people losing their investments, being unable to refinance, and so on. But what if the press wanted to make it sound good? Then all we would need to do is focus on first time home buyers, who do not have a home to sell to finance a new purchase. We could write about how the falling prices are finally putting new homes within the reach of the average couple. Or how declining prices are allowing renters to finally become property owners. It is very easy to spin.

On the other side of the peak, we have the rising market. The positive spin is easy, the way that the rising market makes land investment profitable, maybe with a plethora of "flipping" shows, such as we saw over the past few years. On the other hand, we can easily spin it into a negative story. We could write about the rising prices putting homes out of reach of the average buyer, that we will see young couples unable to ever buy a first home, of the creation of a hereditary propertied class, with no one else able to afford land, and how we will not know the standard of living enjoyed by our parents.

See how easy it is to create a crisis if you want to do so? All it takes is a narrow focus on one group or one aspect, to the exclusion of all else. Seen through a sufficiently narrow lens almost anything can be made a crisis.

So, is there nothing to worry about?

Of course not, the economy is hardly without flaw, and the housing and mortgage market is showing some signs of distress, but it is hardly the crisis the press portrays. If anything, the previous boom was more distressing than the subsequent crash. Coming as a result of both stupid "smart growth" policies and excessively low interest rates due to monetization of too much debt, the rapid appreciation of property was a sign of economic trouble. The fact that the market is finally correcting is a positive sign that things are getting a little better.

But such cycles are inevitable with a managed currency, not to mention government meddling in various markets. Despite popular myths, the "boom bust cycle" is not inevitable, it is the result of meddling in the money supply, without a government managed currency there would be some small waves of expansion and contraction, but no general cycle such as we see now⁴.

But for the moment, commodity money, such as the gold standard, is a dead issue, as is laissez-faire economics, so I suppose we have to learn to live with such cycles. And the first step in doing so is to abandon our tendency to call every adjustment a crisis. Yes, for some it is , but for others it is positive. It is only the desire of the press to push an agenda, as well as sell more ad space, that allows them to turn every fluctuation into a crisis.

------------------------------------------------------------------------

1. The subprime "crisis" is the most peculiar of the lot. After years of government pressure to make risky loans to dubious borrowers, the lending industry finally did so, with the expected results, and the government asks why it happened. Have they forgotten all the programs they developed to force lenders to make such risky loans?

2. As I wrote in another essay, in March I could not find a housing market which saw a net loss over a five year period. I have not repeated the experiment with current numbers, but I have not seen sufficient depreciation since March to believe that has changed.

3. The home I bought is a perfect example. It went from $230K in 2003 to $435K last year when it went on the market. He eventually had to sell for $370K, but that still comes out to 10% appreciation per year. Admittedly, without the "crisis", and assuming his original list price was fair, he would have seen 14% per year, but 10% per year is hardly "crisis" material. I only wish my investments performed so well over the same period.

4. Without government intervention, fractional reserve banking would allow monetary expansion, but it is remarkably unlikely in a truly free banking system that all bankers would over inflate at the same time. Thus, the more conservative banks would act as a check on the more inflationary banks. We may still see some very minor expansion and contraction cycles, but nothing on a scale comparable to what we see today.