Wednesday, September 23, 2009

What Fundamental Change to the Economy Has Been Made Lately?

I keep asking myself the same question while others talk so glibly about economic recovery.

What fundamental change has been made in the economy recently that would cause what just happened over the last two years in the economy from ever happening again?

In other words, if the financial world stumbled, how can we make sure it won't stumble again soon, or even stumble even worse?

I don't see any changes. Honestly, I don't. I keep looking but I don't find any.

I see the very same people on Wall Street and Washington running the very same shows, perhaps some just swapped jobs from one firm to another or from the public or private sector. The same actors on stage playing essentially the same roles.

Everyone keeps waiting for the bubble to inflate. It was the tech bubble first, then the real estate bubble, maybe next it will be the gold bubble or the commodity bubble or the energy bubble, but please give us another bubble. With interest rates hovering near zero and the Fed creating dollars like rabbits make babies in the springtime, another bubble is imminent if not sooner. Even a Treasury bond bubble is brewing.

Bubbles are not economic growth. They are not a substitute for real investment profits. They represent inefficiency, not productivity. Lots more people lose money in bubbles than make it. It's not a zero sum game due to leverage, and lots of that is used in bubbles.

So what fundamental change in the U.S. economy has happened in the last two years to give me confidence that the economy won't stumble again, and again soon? After all, the real estate bubble was the second bubble to burst in just ten years. How many tens of trillions of dollars of more investor losses must the average person with a home, a 401(k), and an IRA must suffer at the hands of the Bubblemakers in Manhattan and on Capitol Hill?

A reasonable question, I think.

So what if the patient gets better on a Tuesday but falls more seriously ill on Saturday?

Some people say I'm too pessimistic on the economy. But then again, I'm not a cheerleader either. I'll leave that to CNBC and CNN. I'm a realist and you don't suffer through the greatest economic downturn since the Great Depression, do virtually nothing to address the causes of the downturn, and then proclaim it is all over and will never happen again anytime soon seems a bit apathetic to me. I like to ask questions as an investor, and as a citizen with an profound investment in the future of the United States.

I would like to have a sound concrete footing to stand on, not just the illusion of one.

Robert J. Abalos, Esq.