Gold at $1,000 an ounce. Oil at $110 a barrel. Record home foreclosures. Steeply rising inflation. Worrisome employment numbers. Personal bankruptcies surging again.
Are you worried about the economy yet? Are you beginning to be very, very frightened? And if not, why not?
Bad times follow good times, just as good times follow the bad. That’s a natural process. It’s what economists call the business cycle. Or if you’re of a religious bent, it’s what the Bible was referring to with the story of Joseph in Egypt and his vision of seven fat cows followed by seven lean ones.
We were due for an economic downturn. It’s natural. It was unavoidable. A shallow recession or a deep one was in the cards one day. The fact that it arrived in late 2007 could thus have been nothing more than the coming of the inevitable.
What makes the recent arrival so terrifying is not the suddenness of the downturn, or even its apparent depth. You fly high for awhile you’re bound to fall a lot. What’s so terrifying is the fact that there seems no way to check the present downward spiral, and the mechanisms in place to keep us all from sinking much further are failing badly.
When it comes to ending a downturn, some kind of financial workout is always required. People who owe either pay, pay part of what they owe, or are acknowledged to be unable to pay anything. Once that part of the process is completed or even near completed, a new upward cycle can begin.
The problem these days is not merely the extent of what is owed, but uncertainty of who owes what to who.
The cunning rascals who have been running our markets in recent years have so thoroughly sliced, diced, parsed and parceled assets in order to artificially boost their market worth and their own “commish,” that ownership of many of these assets has been transferred to endless black holes, disappeared into the realm of the unknowable. If you don’t know who owns what, who’s supposedly insuring a given asset, there can’t be settlements between owners and lenders. And without such workouts, the debt bubble can’t shrink and a new upward cycle can’t start.
The rationale for all the slicing and dicing, parsing and parceling, was risk management. It was supposed to spread the risk. Another “sure-fire” risk management tool that was supposed to limit any market meltdown but hasn’t was the new world economy — an economy in which not only the US but countries around the world shared economic burdens. The expectation was that if worst came to worse our own defects and defaults would be compensated for by still prospering foreigners.
Alas, the simple fact here, one that is only now becoming clear, is that we haven’t so much spread economic risk with a new world economy, as exposed us all to new sources of instability. A major oil producer somewhere in the world won’t produce more, a big lender is forced to change its lending priorities for domestic reasons, competition for basic food and energy stocks by nations that can finally afford to compete for these commodities, they all work to compound rather than alleviate American spawned market problems.
On the matter of leadership to meet all these challenges, there’s Fed Chairman Ben Bernanke. An economy saving messiah? Not yet. Probably not ever. The Fed under Bernanke has pretty much shot its bolts and missed its targets by a mile. As for leadership from people in the Bush administration. Not even a bad joke. Tax cutting ideologues and special interest errand boys all.
I have no grand solutions to these problems. No grand proposals to make it all right. I merely report.
And hope, nay pray, that somewhere in the mist someone with great knowledge, compassion, and force of personality appears who can save us from the consequences of what we have all, to one degree or other, brought upon ourselves..
Cartoon by Pat Bagley, Salt Lake Tribune