What a mess we are in.
I’m not quite sure where to start with this post, simply because there is so much good information available about what is happening out there today. I can say however, that I am not looking forward to the next few years of economic developments.
The house of cards is tumbling down. We are in the midst of a global, massive, de-leveraging unlike anything we have seen before. What is really frightening about that, is the simple fact that no-one really fully understands what that will do to our economic system. Banks around the world are being propped up by governments and hoarding any and all assets that they can get there hands on. Consumers (globally) are tapped out, and we are staring down the face of deflation, a really, really bad thing to be staring down when your saddled with debt.
Let’s assume for a moment that for the next few years ecnomic activity falls off a cliff (very likely) and we experaince a bout of deflation across the globe. The problem with deflation is that generally earnings go down during deflationary times, however debt doesn’t get forgiven with the deflationary index. Meaning, if I owe $100,000 today, that may feel like $105,000 tomorrow and possilby $115,000 in just a few years (in today’s dollars). The payment for this debt doesn’t go down either, further tapping the consumer and of course further straining the economy.
Just about every one out there belives that we are headed into a deep recession, and sadly I have to agree. The years of easy money, extreme growth and stupid risk are behind us; hopefully, we will learn from this and de-leverage as a whole generation. The abuse of credit in the United States is sickening, from families to the Government.
So, what happens from here? Well, the good news is that I’m pretty sure the world isn’t going to end tomorrow. Your friends are still your friends, however your 401k is probebly a little lighter! My prediction is that we have 2-5 years of hard core recession. This could be horribly understated pending the results of our upcoming election and policy implementations over the next few years. I expect unemployment to continue to grow, drastically.
Housing should begin to recover, sometime in the next 2-3 years. This could of course change dramatically if the Government decides to come in and tweak with the system.
After the recession, I think we have a fantastic economic boom. This will likely be fueled by an across the board growth of “Green” technologies and the efficiancies gained from them. Hopefully, during the time before the next boom we are able to develop a modern regulatory framework for our financial system. Something that can respond to new financial instruments, however something that also allows the market to function.
Off balance sheet items must be removed. The “CDS” Market must be centralized and cleared properly. Accounting standards must be solidified and transparancy must be restored. Transparancy in finacial markets = trust. Our system is built on this and until it can be restored we are in for a world of hurt.
Anyhow, just my quick thoughts. I’ll try to rant some more about this on the blog. I talk about it all day to folks in the office and at school. By the time I get to the keyboard, by brain is drained of ecnomic babble