It's Not as Bad as You Think (eBook)

BRIAN S. WESBURY is Chief Economist at First Trust Advisors LP, a financial services firm with over $23 billion under management. He writes frequently for the American Spectator magazine, serves as the magazine's Economics Editor, and is often a contributor to the Wall Street Journal editorial page. Wesbury was ranked as the nation's number one forecaster by the Wall Street Journal in 2001, and USA Today ranked him as one of the nation's top ten forecasters in 2004. Wesbury received an MBA from Northwestern University's Kellogg Graduate School of Management and a BA in economics from the University of Montana. His most recent writings can be found at www.ftportfolios.com.

Foreword ix

Introduction 1

Chapter 1 Getting the Right Perspective 9

Fear and Anger Are Understandable 12

History versus Emotion 18

Buck Up and Remember History 22

Chapter 2 Capitalism Wins (Again) 23

Demand versus Supply 24

The History of the World 29

Inventions and Innovation 32

Entrepreneurship 33

The Turning Point 35

Capitalism Wins--It's Not Over 36

Chapter 3 Creative Destruction 39

The Big "X" 41

The Industrial Revolution 44

The Call for Change 47

A Wrong Drift, but a Cool Wind 49

Inflation, Creative Destruction, and the Crisis 51

Chapter 4 A Government-Sponsored Recession 53

The Housing Boom 56

The Crisis Begins 57

The Acceleration 60

Why in the World Were They Doing That? 61

So Why Blame Capitalists? 64

Chapter 5 Who Makes Your Glasses? 67

Are Consumers Rational? 68

What Is the Natural Rate of Interest? 70

Calculating the Natural Rate 72

The Nominal GDP Rule 74

Money and the Interest Rates 76

The Fed-Induced Bubble 77

We've Been Here Before 79

Stupid Bankers, or Not? 81

It Always Ends Badly: Volcker to the Rescue 82

Then . . . 84

. . . And Now 85

Chapter 6 Mark-to-Market Mayhem 87

Government Failure versus Market Failure 89

Some Mark-to-Market Accounting History 92

Mark-to-Market Creates Volatility 93

Suspend Mark-to-Market 99

A False Feeling of Control 101

A Miracle Happened 102

Chapter 7 Panic and the Speed of Money 105

What Recession? 107

The Panic of 2008 110

Mark-to-Market Mayhem 115

AIG, Credit Default Swaps, and Derivatives 117

The V-Shaped Light at the End of the Tunnel 120

Chapter 8 It's Not as Bad as You Think 125

Consumer Spending 129

Debt 131

Growth, Debt, and China 135

Deleveraging 138

Unemployment 142

Savings Rates 143

The Economy Will Recover 144

Chapter 9 It's Boom Time Again 147

Don't Fight the Fed 150

1975 -1976 Redux? 151

Can It Happen Again? 153

Panics End 153

It Won't Stay Down Forever 155

Undervalued Markets 156

Productivity and Profi ts 159

But Government Is Growing . . . 161

Chapter 10 Investing in the Midst of Mayhem 163

The Super-Easy Fed 165

Buy U.S. Stocks for the Short to Medium Term 166

Stocks for the Long Term: Small Cap, Value, and Momentum 169

Infl ation Plays for the Medium and Longer Term 171

Foreign Equities 174

Fixed Income 176

Emotion and Investing 180

Chapter 11 The New Normal 183

Big Government Hurts 188

Keynes and Government 190

How Bad Can It Get? 191

Roosevelt, Carter, or Clinton 192

The Future Still Looks Bright 195

Notes 197

Acknowledgments 203

About the Author 205

Index 207

"Compared with most of his peers, Brian Wesbury. . . looks like a raging bull. The economy, he boldly predicts, will grow . . . the stock market remains grossly . . . This is the opportunity of a lifetime for those buying a house. . . The author rightly makes the case that the current financial crisis was totally unnecessary. Its prime cause was the imposition of mark-to-market accounting rules. . . Wesbury also explains that the potential losses from subprime mortgages and exotic financial instruments in 2007 were less threatening to the system than was the banking crisis of some 20 years ago. . . Wesbury deals decisively and persuasively with other misconceptions. The big one: that it was the collapse of the housing bubble that led to panic in the fall of 2008 . . .As for the economy's current growth, Wesbury makes it clear that he doesn't think it's soundly based. In other words, investors have opportunities for big gains, but they'd better be nimble. Expansions fueled by excesses of Fed credit always end badly." --Forbes magazine