A recession's import: the economic troubles were not made in America.

MUCH unnecessary confusion arises from using such phrases as "housing crisis" and "financial crisis" to mean "recession." That confusion is compounded by wrongly equating the phrase "financial crisis" with the alleged contraction of bank loans.

Conventional wisdom has it that the world recession was precipitated by the unexplained collapse of a U.S. housing bubble, which resulted in massive loan foreclosures, thereby turning mortgage-backed securities into toxic assets that, in turn, caused bank loans to dry up.

There is some truth in all that, but there are also some glaring omissions.

Consider, first, the infamous housing bubble: The latest Organisation for Economic Co-operation and Development "outlook" calculates that inflation-adjusted U.S. housing prices rose by 5.4 percent a year in the U.S. from 2000 to 2006--meaning 5.4 percent on top of the general rate of inflation. This rapid escalation of home prices produced ephemeral windfalls for those selling or refinancing homes, but rising prices became increasingly problematic for new-home buyers. Yet that 5.4 percent U.S. figure pales in comparison with housing inflation in other countries during the same years: 6.7 percent in Canada and Sweden, 8.8 percent in Britain, 9.5 percent in France, 8.3 percent in Ireland, and 11.2 percent in Spain. By Dec. 6, 2007, The Economist feared that "America's housing malaise is slowly spreading." Strangely, The Economist tried to blame falling home prices in Ireland, Britain, and Spain on the far-less-boomy U.S. market--a marvelous example of the trend to blame all the world's economic troubles on the United States in general and on U.S. bankers in particular.

Some economists boast of having been quick to notice that the real-estate market was overpriced and overbuilt in Las Vegas, Phoenix, and the exurbs of California and Florida. Seeing that required little prescience, though, since housing starts had already fallen by more than half--from an annualized rate of 2.3 million in January 2006 to 1 million by late 2007--before the recession began. Shrinking home construction subtracted only a bit more than half a percentage point from GDP during the last three quarters of 2008, compared with a full 1 percent loss during much of 2006 and 2007.

Auto sales too were falling long before the recession began--from an annualized rate of 17.5 million in January 2006 to 15.3 million in January 2008 (and, lately, to below 10 million).

Growing U.S. exports kept real GDP increasing through the second quarter of 2008, but this could not be sustained, since the economies of our major trading partners were falling sharply. Indeed, by 2008's fourth quarter, real GDP was just 0.8 percent lower than a year before in the U.S., but 1.7 percent lower in Germany, 2.9 percent in Italy, 4.3 percent in Japan, and 4.9 percent in Sweden. Only one of those countries (Sweden) was among those with roaring housing booms before 2006, so housing busts were not the fundamental problem. And neither were the subsequent bank troubles: Very few of the hardest-hit economies (aside from those of the U.K. and Ireland) were plagued by serious bank failures.