2 - THE ECONOMIC NEWS ISN'T ALL BLEAK

What happened since the collapse of Lehman on Sept. 15 was a global, synchronous cessation of all but nondiscretionary economic activity in the wake of the near-collapse of global credit markets. And it happened over the course of weeks, not years. But if things came to a halt more quickly than ever before, they could also restart more quickly than ever before. So writes Zachary Karabell, president of River Twice Research, who calls attention to some positive signs.

First, we haven't seen war, revolution, the collapse of states and governments, or massive demonstrations sweeping the globe. It is remarkable how relatively stable things are in light of what has happened.

Second, consumers in many parts of the world are in relatively good shape. A third of American households have no mortgage. The savings rate in China is 50%. The accumulation of wealth is still massive in the US, Europe, Japan, China, the Gulf region, Brazil, India and Russia. Even at its most promiscuous, the credit system didn't allow consumers to take on the obscene leverage that financial institutions did.

People have also reacted swiftly to the current problems, paying down debt and paring back purchases out of prudence or necessity. That's a shortterm drag on economic activity, but it will leave consumer balance sheets in good shape going forward. Low energy prices and zero inflation will boost spending power. Even if unemployment reaches 9% or more, consumer reserves in the US and world-wide are deeper than commentary would suggest. Household net worth in the US is down from its highs but is still about $45 trillion. As the credit system eases, historically low interest rates also augur debt refinancing and constructive access to credit for those with good histories and for small business creation in the year ahead. Entrepreneurs often thrive when the system is cracking.

In addition, corporations generally have very clean balance sheets with little debt and lots of cash, unlike the downturns in 2002 and in the 1980s. And government has more creative ways to spend, which both the current Federal Reserve and the incoming Obama administration intend to do.

The last months of 2008 will go down as one of the most severe economic reversals to date, and on a global scale. But it is foolish to assume that this period provides a viable guide to what lies ahead.

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