The worst thing to happen to my economic idealism was to go to business school. How ironic that every time I graduate from a university it is at the brink of a severe economic downturn (the first time was in the early days of the Dot-com collapse).
If you aren't clear on the current state of the economic meltdown, I trust you to check out Bozanimal's excellent series on the subject. While every industrialized nation on the face of the Earth has been trying to rectify the problem. Unfortunately, the country most responsible for this mess seems to have the least comprehension of the consequences of its actions.
Today's economic and political leaders seem to be unable to resuscitate the economic activity to which we have become accustomed.
Behold the levels of historical borrowing in comparison to today's leveraged debt. Money borrowed (or debt) from the Federal Reserve is sometimes necessary to jumpstart normal banking and economic activity. But what if Obama's soothsayers and financial magicians are incapable of bringing back the prosperity of indulgent consumption that has traditionally driven the US (and global) economy? What of all this borrowing and investment? Is the party over? Who is the more foolish; the people who lived excessively, borrowing against the future or the people who invested wisely only to see their savings evaporate thanks to the foolishness of others? In 1996, Federal Reserve Chairman, Alan Greenspan posited the following question, "But how do we know when irrational exuberance has unduly escalated asset values, which then become subject to unexpected and prolonged contractions as they have in Japan over the past decade?"
The problem he alludes to with Japan was an evaporation of half of the equity in the stock exchange over a one-year period and a disasterous collapse of confidence in the market. That sounds a great deal like what we see today in the US. When speculation rallied US assets in the 90s, and then again in the early part of this decade, it was easy for investors to buy in at high asset prices (if they were even investing at all) only to watch an arguably inflated value evaporate over a similar one-year period. Today's trading just about brings us back to the point when Greenspan asked if we knew the full consequences of speculation. As reported from the major news sources of the country, The Dow (one of the principal market measures of US corporate and economic strength) has fallen below 7,000.
![](http://chart.bigcharts.com/custom/wsj-com/charts/big.chart?symbChange=aaaaa%7E0&sid=1000001643&time=all&freq=1wk&compidx=aaaaa%7E0&ma=1&maval=100&lf=1&lf2=4&lf3=1024&type=64&standardChartURL=%2Fmdc%2Fpublic%2Fnpage%2F2%5F3050%2Ehtml%3Frnd%3D7055&javaChartURL=%2Fmdc%2Fpublic%2Fnpage%2F2%5F3051%2Ehtml%3Frnd%3D5334&page=us&symbDropDownValue=1643&ClientID=46140&mocktick=1&chartSid=1000001643&doChartIV=0&size=1&style=2100&rand=622)
I'm not saying Greespan was prescient, but he asked the right question. Many people were ready to stone Peter Schiff ten years later for suggesting there may be negative fallout, but it is somewhat amusing to see he has been vindicated, despite nobody listening to his voice of warning about US financial investments. Greenspan made a mistake, the seeds of failure were sown in the Clinton years, the Bush administration only delayed the inevitable by ratcheting up a call for consumption, and the Obama administration really only seems to care about either short-term solutions or rewarding the private contributors who donated him into office. If our own foibles have brought us to this point, I can only wonder what will happen when debt-soaked, possibly starving foreign banks decide they want to repatriate the US dollars they have been sitting on. What will happen when the dollar dives during hyperinflation (thanks to all of the borrowing we are doing today) and once high-grade investments offer little more interest to investors than a shelf full of Big Rigs Over the Road Racing? The good news is you still own whatever you invested in (assuming the company has not entirely collapsed). The other good news is there is a possibilitythat asset could increase in value. The bad news is the best years may be behind us.
We have seen some of the fattest years on record, and frequently I hear questions along the liines of how long will the years of famine last before our day of deliverance? Some liken these days to that of the Roman Empire just before the conquerers came. Personally, I doubt anybody in this current administration has a clue (since they can't even pay their own taxes), but I hope one day the people of America will learn how to wisely cover their money and properly manage their asse[t]s. I should probably get to that myself.
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