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Will History Prove Me Wrong?

October 29, 2013

We can only hope so!

As I wrote my last blog post, I couldn’t ignore just how astounded I was about what I was writing. On the flip side, I can’t believe how little the world seems to care about where we are headed. It was 14 years ago that I started writing about my concerns over our monetary policy, the toxic derivatives market and the unending accumulation of debt. I really thought that the year 2000 Dot-com meltdown was the potential reset button, but when that didn’t really materialize — thank you Alan Greenspan — I was certain that the 2008 housing/derivative meltdown would result in the reset of our economy and financial institutions. I should make this clear — if I haven’t in my writing already over the years: it is not as if I want our economy to reset, for I know that would be painful, but I believe it is inevitable and a natural effect when an economy needs to be cleansed of inefficiencies, overarching greed and extreme business and monetary practices. The longer it is forestalled the more difficult the reset becomes.

If I could have looked forward and seen the blog posts I have written since these two time periods, particularly if, while in the midst of the ‘Great Recession’ of 2008/09, I could have read my most recent blog post about how we have just increased our debt by $328 billion in a single day and have now exceeded $17 trillion in total debt, I would have never believed we could have sunk so low or been so stupid. What seems even more amazing is that the financial markets seem to be cheering on our insane monetary/economic policies. While there may be a few individuals who agree that this is complete insanity, it is readily apparent that investors as a whole think just the opposite. An all-time new high in the S&P 500, recovering prices in real estate, and treasury yields in full retreat once again, is hard to argue against. It seems there are only two options, either the entire investment world is wrong, or I’m crazy. OK, I know that is an easy choice!

I have referred to this economic recovery phenomenon we seem to be in as the monetary policy that attempts to defy gravity. The fact that we have been able to stay airborne (defy economic gravity) for so long should certainly bring my theories into question. I used to think the best hope for us to exit this mess was to hit the reset button as early as possible, even though that would be painful. Since that is no longer an option, I think the best hope for our economic future is that my strong concerns over debt, liquidity, derivatives and the moral hazards we have created with all these things are completely inaccurate.

Yet look at the backdrop to our current record-setting financial markets. We have the least number of Americans participating in the workforce in 35 years, we have a dysfunctional government, particularly as it relates to fiscal responsibility; we have unrecognizably large debts and unfunded liabilities; we have artificial interest rates; derivatives continue to flourish like mushrooms in the dark shadows; and we have undermined the essential tenets of a free-market society. But day after day those who vote with their investments, those who control financial markets and large corporations, continue to give the all-clear sign. It truly is unbelievable that we are where we find ourselves today and the financial markets remain on their upward trajectory and you are not shopping for a loaf of bread with a wheelbarrow full of money.

  1. Brent permalink
    November 9, 2013 10:00 am

    Jon, I don’t think you are wrong in your assessment of the future of our economy. I just think that it can take a long time for a large ship to sink, especially when the incoming water is diverted by closing this hatch or that hatch and some water is being pumped out at the same time. Unfortunately, I truly believe that the economic reset will be harder to handle when it hits, because we are putting off facing reality.

    • November 15, 2013 10:12 am

      Thanks for your comments Brent, and I agree with you. The question is not what is happening today, but what will we look like 5, 10 or even 30 years from now because of what we are doing to manipulate markets today. Yet in my heart I really wish the concerns and warnings I express turn out to be wrong. That I might be wrong, truly is our greatest hope of coming through this with the least amount of pain. My current frustration is that I think we are filling this sinking ship with new passengers every day and the higher we manipulate our markets skyward the further we are going to ultimately fall. Jon

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