Stein looked pretty smart for a while, with stocks rallying back from that month's selloff to post all-time highs in mid-October. I couldn't help but to recall Ben Stein's summer 2007 article, as pundits were this week dismissing that tiny little Portugal could have any bearing on the juggernaut U.S. Some smart, brave people will make a fortune buying in these days, and then we'll all wonder what the scare was about." Ben Stein, "Chicken Little's Brethren, on the Trading Floor," New York Times, August 12, 2007 But for now, the sell-off seems extreme, not to say nutty. To be sure, terrible problems lurk in the future: a slow-motion dollar crisis, huge Medicare deficits and energy shortages. The world economy is exploding with growth. The value of the stocks listed in the United States is very roughly $15 trillion to $20 trillion. The total wealth of the United States is about $70 trillion. So now we are down to losses of about $33 billion to $34 billion. Of this amount, according to my friends in real estate, at least about half will be recovered in foreclosure. Of this amount, about 5% is actually in foreclosure, or about $67 billion. Of this, nearly 14% is delinquent, meaning late in payment or in foreclosure. Of that, a little over 13%, or about $1.35 trillion, is subprime - certainly a large sum. Here is the first instance in which proportion tells us that something is out of whack: The total mortgage market in the United States is roughly $10.4 trillion. First, when the story of this turbulence is reported, the usual explanation mainly has to do with some new loss in the subprime mortgage world. So, because I am an economist, among other duties, here is a little perspective on the recent turmoil in the stock and bond markets. "The job of an economist, among many other duties, is to put things into perspective. Action at the "periphery of the periphery."
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