The Big D
Well, I'm glad I got out of debt, but I'm also glad I didn't do it early enough to sink any money into "the market." While I'm sure many funds will still do well and long-term investors have little to fear, the current economic trajectory is pretty ugly. The dow is headed towards 52-week lows, and there's more bad news to come.
This is what happens when you run things like the Soviets. It's increasingly obvious that our economy, beyond being unsustainably debt-based, is also build on a series of consensual hallucinations that don't map well to reality. Because our made-up-prowess is in "financial products" rather than steel and wheat production, we can get by for longer than they did in the USSR -- and we get hit with mortgage defaults rather than breadlines, which is an improvement -- but the books are no less cooked, and CNBC is a propaganda outlet, not a news channel.
The Big D may indeed be coming, although a new bubble/rally may emerge around alternative energy and infrastructure instead. Here are the fundamentals:
- Most major banks and financial firms are facing serious losses of capital and credibility as a result of the housing bubble. The "correction" for this will go on for several years, and though the effects will likely be mitigated by a bailout and other activity, the bottom remains a ways off.
- Consumer spending -- which is to say people buying shit -- has been the main thing keeping the boat floating, but has been based on second-mortgages and credit card debt.
- The falling dollar has been boosting exports, but is also driving inflation and exacerbating energy costs.
- The occupation of Iraq probably prevents any meaningful Federal action, cost-wise. It's also not doing anything to help out with the energy cost situation.
A boom in infrastructural renewal based around a new energy policy could turn things around (possibly generating another bubble in the process), but it's still kind of unlikely in my opinion, even with the odds favoring a Democrat as president next year.
Regular people are starting to come around -- last year, the Toyota Prius outsold the Ford Explorer -- but in general consumers are tapped-out, and anyway not in a position to drive significant changes just by altering day-to-day purchases.
Depending on how things shake out, a little economic slowness could be just what the doctor ordered. People work too hard for too little in this country, and the pie is really inequitably divided. Maybe this crunch will reverse that trend.