.bodytext {float: left; } .floatimg-left-hort { float:left; margin-top:10px; margin-right: 10px; width:300px; clear:left;} .floatimg-left-caption-hort { float:left; margin-bottom:10px; width:300px; margin-right:10px; clear:left;} .floatimg-left-vert { float:left; margin-top:10px; margin-right:15px; width:200px;} .floatimg-left-caption-vert { float:left; margin-right:10px; margin-bottom:10px; font-size: 10px; width:200px;} .floatimg-right-hort { float:right; margin-top:10px; margin-left:10px; margin-bottom:10px; width: 300px;} .floatimg-right-caption-hort { float:left; margin-right:10px; margin-bottom:10px; width: 300px; font-size: 10px; } .floatimg-right-vert { float:right; margin-top:10px; margin-left:10px; margin-bottom:10px; width: 200px;} .floatimg-right-caption-vert { float:left; margin-right:10px; margin-bottom:10px; width: 200px; font-size: 10px; } .floatimgright-sidebar { float:right; margin-top:10px; margin-left:10px; margin-bottom:10px; width: 200px; border-top-style: double; border-top-color: black; border-bottom-style: double; border-bottom-color: black;} .floatimgright-sidebar p { line-height: 115%; text-indent: 10px; } .floatimgright-sidebar h4 { font-variant:small-caps; } .pullquote { float:right; margin-top:10px; margin-left:10px; margin-bottom:10px; width: 150px; background: url(http://www.dmbusinessdaily.com/DAILY/editorial/extras/closequote.gif) no-repeat bottom right !important ; line-height: 150%; font-size: 125%; border-top: 1px solid; border-bottom: 1px solid;} .floatvidleft { float:left; margin-bottom:10px; width:325px; margin-right:10px; clear:left;} .floatvidright { float:right; margin-bottom:10px; width:325px; margin-right:10px; clear:left;} The current home financing crisis is “a mile deep, but only an inch wide,” says James Paulsen, an economist who has the ear of some of the country’s top business publications.

Speaking at the 49th Annual Wells Fargo Business Trends luncheon last week, Paulsen, chief investment strategist for Wells Capital Management, a Wells Fargo & Co. subsidiary, painted a reassuring picture of the national economy’s resilience.

“The thing that stands out to me more than anything else is fear,” Paulsen told a group of about 450 business leaders at the Des Moines Marriott Downtown. “People are pretty much OK, but they read the news and by the end of the day they’re scared to death. I think at this point, it’s fear more than anything else.”

Prior to joining Wells Fargo, Paulsen was senior managing director for Investors Management Group in West Des Moines. He has been named a top economic forecaster by BusinessWeek and BondWeek and became a member of Barron’s magazine’s 12-member panel of elite economists in 2002.

The current housing slump won’t drag down the rest of the economy, Paulsen said, because consumer spending and housing have been moving independently for about the past 10 years, thanks primarily to the effect of homeowners’ borrowing against their home equity.

“I think as (mortgage equity withdrawals) continue to dwindle, the relationship between housing and consumption will eventually reconnect,” he said. “So far, we’ve had two years of housing collapse, but consumer spending hasn’t been hurt.”

Consumer spending rose 0.3 percent in September, the Commerce Department announced last week, just slightly below August’s rate of 0.4 percent. Retailers are concerned that consumers will hold back on spending during the critical holiday shopping season, however.

Paulsen said he believes the U.S. economy may slow to a 2 percent annual growth rate this quarter, following two consecutive quarters of 4 percent growth. “But I think the first quarter we’ll be back up again,” he said, “and in the latter half of (2008) we’re going to be growing too fast.”

A number of factors will spur a quick recovery, Paulsen said, among them a strong international economy and an abundance of corporate liquidity.

“We came into this crisis with a lot of momentum,” he said. “Probably the only other time we had this kind of momentum was before the stock market crash of 1987, and the economy was again ‘wunderbar’ in 1988.”

Additionally, the Federal Reserve Board normally tightens down several key interest rates “before something blows,” Paulsen said. “This time, short-term rates have been the only rate tightened. This is the only recovery in which long-term rates haven’t gone up in the past 10 years.”

Paulsen said he often hears that the current credit crisis is due to a liquidity shortage, which he said is “bunk,” considering the number of “vulture funds” that have been established to buy distressed companies.

Additionally, “the U.S. has never had a crisis when the world’s been growing at 5 percent. We’ve never had that kind of health; I think that offshore growth is going to help a lot,” he said.

Paulsen also said he believes the worst of the housing crisis “is behind us.”

“I can’t believe (housing prices) are going to continue to fall at an annualized 20 percent rate,” he said. “The real question people have: Can housing go down without consumption going down?”

Two years of a collapsing housing market have so far shown that consumer spending can hold up, he said.

Sumner Worth, president of Gilcrest/Jewett Lumber Co. in Waukee, after hearing Paulsen’s presentation, said he believes the housing industry should begin to improve next year.

“I do agree with him that there are so many factors in our favor that weren’t in our favor 25 years ago,” he said. “I didn’t disagree with his analogy with the trough being a mile deep and an inch wide. If all the fundamentals are there, housing should begin to improve, no doubt. Will it get back to the level of 2005? Probably not, because of the reasons he mentioned.”