[caption id="attachment_22936" align="alignright" width="209" caption="Chris Thornberg"][/caption]

NAPA -- The good news from economist Christopher Thornberg is that it is very unlikely there will be a "double-dip" recession this year.

The bad news delivered to nearly 300 attendees at the Aug. 18 Impact Napa conference is that the recovery is likely to continue to be very weak, with economic growth earlier this year likely to be revised downward to just 1.3 percent from 2.2 percent.

Nonetheless, said Dr. Thornberg, the founding principal of Los Angeles-based Beacon Economics who is widely quoted on the economy, the recession is over. “It ended over a year ago," he said, in July 2009.

Dr. Thornberg urged the audience to pay less attention to trends than to fundamentals, especially in matters of asset values.

“How did we get in this mess in the first place?” Dr. Thornberg said. “Housing is just part of the puzzle.”

“The problems in the U.S. economy today stem from a trend that began back in the mid-1990s. And that trend was a substantial increase in the rate of return we were seeing not just in housing, but on our entire financial portfolio,” he said.

Like the price-earnings ratio on stocks as a measure of value, “the U.S. economy also has a PE ratio. The key here is, ‘America Incorporated,’ if you will, has a pretty straightforward growth rate. We have been growing at 3 percent a year in real terms, and as far as I know we are going to grow at 3 percent a year for the next 40 years,” he said.

But in the mid-1990s, “we saw a substantial increase, much faster than GDP growth,” Dr. Thornberg said. First there was the tech boom, which was followed by a boom in prices on real estate.

“By 2007 you could argue that the U.S. economy was overvalued by $20 trillion,” of which 30 percent was housing, he said. The rest was in other kinds of debt.

The loss in asset values, said Dr. Thornberg, is a “return to reality.”

In fact, he said, when he is asked when housing is going to recover, he responds that the “housing market already recovered … when house asset values went from ridiculous levels to normal levels.

“That’s the recovery. Now we are in the post recovery,” he said.

 Dr. Thornberg said the shorter-term risks to the economy are stock market volatility, interest rates and federal debt.

To see his slides and hear his talk, visit the Business Journal's Resources page for events online materials.