V, W, U, S or . . . L: The Shape of Things to Come (Nov. 16, 2009)
Everything that goes down must go up, they say. It is one of Newton’s or Van Braun’s laws. Some are saying that the performance of the economy will resemble the letter “V.” Down then up. Some say a “W.” Down then up then down then up. Some say a “U” with perhaps a long trough then up. Some say an “S” because the fundamentals are so squirrelly. The logic undergirding the arguments is that the economy will recover because it has always recovered; that is what economies do.
What if the economic performance will be reflected by the letter “L?” Lima. Loser. Down then flat then flat then flat. What if the economy never recovers or only partially recovers? Past economic recoveries are explained by scrutinizing the economic fundamentals at the time. The problem now is that the American economy is fundamentally broken. None of the optimists can posit a model that reflects the actual fundamentals in the economy. Everyone would like to see a recovery, yet there does not seem to be anything that will drive and sustain the economy in the intermediate run.
The federal government owes staggering sums to the Chinese, etc.; corporations owe staggering sums to their bond holders; Americans owe and owe and owe staggering sums. The threats to the economy are far greater than they were in the Fall of 2008 when everyone got apoplectic. Uncollectable credit card debt, growing housing foreclosures, vacant commercial real estate and hollow corporations obligated for trillions in debt are among the coming economic tsunamis.
Invest in a wheelbarrow. To haul your bread (money) from your banker to your baker to buy a $100 loaf of bread.
[See the “e-ssay” dated Oct. 22, 2007 entitled “Greed on Steroids” that discusses among other matters the looming intermediate term problems with leveraged buyouts and the consequences for the economy in particular employment.]
Bumper sticker of the week:
“Everything that goes up must come down. But there comes a time when not everything that’s down can come up.” George Burns