Is the Crisis the Story or is the Story the Crisis?

TV, newspspers and the internet are full of stories about the impending financial crisis. The stories questioned whether or not consumers and markets will surrender to their fears about high gasoline prices, the falling dollar and the sub-prime mortgage crack-up.

As I watched the reports, I could not help but wonder how much of the anxiety consumers may have been feeling was caused by the media roiling the waters. One story on NBC had the correspondent at the Woodbury Outlets in Central Square, NY. The pictures showed parking lots full to bursting and shoppers lined up, even pressed up against the doors of the various stores, waiting for the 4,5, or 6 o'clock openings. A shot of the toll booths on the NY Thruway at the Woodbury exit showed a lineup of cars that gave the appearance of refugees fleeing from an advancing army. When the doors opened, the customers stampeded through to get at their bargains, in the manner of groupies at a rock concert.

Later in the NBC report one "expert" discussed his concerns about the possibility that a drop in consumer spending could lead to recession. He actually said that "some consumers are choosing between filling their gas tank, paying their mortgage or buying Christmas presents". Frankly, if anyone in that situation decides to buy presents, he or she should be hospitalized. Seriously though, is that what passes for expert analysis?

Later, on Kudlow & Co., somewhat more credible analysts were asked their views. None of them gave rosy forecasts, however, they made a number of points about why we should not quite yet take the pipe. One analyst pointed out that because of changes in incomes and the uses of oil in the US economy, gasoline prices would have to approach $6.00/gallon to have similar recessionary effects as occurred in the 1970's. Others gave similar notes tempering fears of the effects of the weakness of the dollar and the mortgage banking industry.

As I noted, they were not suggesting that there were no problems, but they pointed out that there were still many strengths in the US economy that should not be underestimated. They also worried that bad news itself could lead to bad results. This is something I learned in economics class. If people believe something is going to happen in the economy, their actions tend to cause it to happen.

As such, I wish the mainstream media would stop reporting the economy like the National Inquirer reports the "news". We may find that if the media keeps predicting the worst, we may get it.