Yikes...

It was only a few days ago I was lecturing in my economic development class about the Asian financial crisis of the late 90s - real estate speculation, bad loans from poorly regulated banks aided and abetted by a central government eager to see the good times keep on rollin'... Hmmm, sounds familiar doesn't it? Why, we even have the quickly depreciating currency! The only thing that keeps us from looking like a developing country we are so often quick to criticize is the fact that the US Dollar is still a hugely important world currency and with so much outstanding US debt in the coffers of European and Asian central banks, they can't afford for us to tank. Still, it is a little creepy how much our current situation mirrors the Asian crisis.

The canary in the coal mine (which many are suggesting is currently the role that Bear Stearns is playing) may actually be the Northern Rock bank in the UK, which was nationalized after facing a liquidity crisis. While Bear Stearns is not being nationalized, much of their risky debt is. So what is next? I remain relatively optimistic (but that is not saying much) - it appears liquidity is creeping back into the long-term mortgage market (see graph), thanks to the feds unusual recent efforts, but they may run out of ammunition soon. That fiscal stimulus plan is still set to roll out, but now you see why many economists think such measures are usually too little and too late to do much good - and at an enormous expense.

What of the state of Oregon? Well today we learned about the unemployment picture - the unemployment rate is unchanged but the state has shed 1,400 jobs so far this year, which is not a good sign. The leading economic indicators are not looking good either. The housing market is OK relatively in Portland, but is no so hot in Bend and Medford. Even if it were going to remain strong overall in Oregon, there is no natural buffer from the national economy. Decreasing demand for what Oregon makes will hurt. The one bright spot is in exports, where the low dollar will make Oregon products more competitive abroad. But this is only a fraction of the market for Oregon's products.

Buckle your seat belts, this one could get rough...