Monday, December 28, 2009

The Economy 2010 and Beyond

Is it a bounce or a bull market? We’ll stick with the bounce hypothesis a while longer; until we’re proven right…or people start laughing at us, whichever comes first.

Meanwhile, the man on the street is not taking chances. While he probably believes the claptrap from Washington and Wall Street, he also knows that his house has lost 30% of its value and that if he loses his job he’ll have a hard time finding another one. So, he’s cutting back – just like he should...

The economy can’t go back to the Bubble Epoque. That period was irreproducible. Consumers were able to live beyond their means by borrowing against their houses (or, ‘taking out equity,’ as they liked to say.) Those days are gone forever...

Depressions take time to express themselves. Remember, they are not pauses in the life of an otherwise healthy trend. They are what happens after the trend drops dead. Then, the economy needs to reinvent itself. At first, people don’t want to believe it. They try to revive the old business model. They bet that the old companies will quickly return to robust health; they buy their stocks. They demand that the government do something to save the poor, ailing economy.

But it’s not that simple… You can’t revive a dead economy. And when you realize the old economic model is, in fact, a corpse…it’s depressing.

The US economy (and much of the rest of the world economy) can no longer depend on increasing consumer debt. We need a new model…a new business plan… The sooner we find one, the better off we all will be.

read the entire essay

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