Got Some ‘Splaining to Do

Print Friendly, PDF & Email

Pundits are now sitting around concocting elaborate explanations for the poor performance of their beloved capital markets. I remember watching Wall Street Week, listening to Louis Rukeyser’s clever, acerbic monologue. He rambled on about the bond market and the transportation sector, blah, blah, blah. Then, they’d interview some CEO, and finally the “elves,” the technical analysts, made their picks. It was the ’70s, the market was flat, we had one fairly major recession, rampant stagflation, (coming soon in the current debacle), an oil crisis, and a big, fat war debt. The economic woes of the ’70s were arguably less severe than today’s crisis, but they were spread out over a decade, and the cumulative effect and enduring damage to the economy may rival this”depression.”

Oh, and we ain’t any kind of done with this one, yet. But somehow banks and hedge funds being a half a trillion dollars overleveraged is much more interesting than the U.S. government being more than $10 trillion overleveraged. Maybe there isn’t an obvious, direct correlation between the War on Terror expense and the housing bubble or credit default swaps, but any engineer should recognize that the world economy is an insanely complex feedback system. Stress on one part of that system may have profound repercussions in a seemingly unrelated remote component. Take an already inefficient, bloated, deficit-spending government that piles on a half trillion dollar additional debt, with an already overstressed financial system teetering on the brink. Now tell me the effect is insignificant. What if that “tiny” stress was the trigger that caused cascade failure? In the end, I suppose well never know, but I’ll bet the “experts” will be inventing reasons for years to come.

Leave a Reply

Your email address will not be published. Required fields are marked *