Boulder to London

It’s been a tough couple of days on the stock market and I’m glad I still have a day job so that I don’t have to live off of my battered retirement account.  I thought the 100 and 200 point daily swings were a wild ride, but it now seems like we need 500, 700 and a 900 point swing in the Dow Jones to get people excited.  I am an amateur investor at best, but do take a healthy interest in the economy and understand the fundamentals of business quite well.  I guess what troubles me is that eventually the market will stabilize (I hope) and we’ll return to some form of business as usual.  When we do that, I think we can expect that corporate output and earnings will generally be lower next year based on reduced demand due to lower consumer spending, reduced investment by businesses and general uncertainty in the market.  I think it is also safe to say that tax revenues will be lower due to declining housing prices (property tax), high unemployment (income tax), lower corporate profits (corporate income tax) and reduced consumer spending (sales tax).  This leaves a GDP gap that can only be made up by government spending fueled by debt or exports.  In either case, I think it will be several quarters before we see a healthy and growing economy.

So what does the new economy look like?  I recall during the dot-com craze people said that the new information economy was vastly different than the old brick and mortar industrial economy.  Fundamentals were no longer valid and companies didn’t actually have to make money.  During the credit fueled real estate boom, similar comments were made.  As with previous booms, this one has ended with the inevitable bust and post-party hangover.  What seems troubling this time around is the vast government debt that is being taken on to fuel the recovery.  This is probably required as a short term measure, but it creates a much bigger problem down the road.  Eventually, the USA will be leveraged beyond what is considered reasonable by the rest of the world.  If that doesn’t cause some sort of collapse in our currency, the interest payments alone will consume significant portions of tax revenues for years to come.  This leaves little for healthcare, education, social security, infrastructure and national security.

The saying goes, “Live to fight another day”.  Unfortunately, future generations may be fighting blindfolded with both hands behind their back.