These are crazy times and the hyperbole is getting more and more ridiculous with each passing day. The most galling commentary comes from both “friends” and foes overseas who are gloating as the foundations of Wall Street buckle. Whether it is the leftist German Finance Minister, the increasingly thuggish Prime Minister of Russia or smug editorial writers on virtually every continent, the U.S., its economic and finance system and the way of life of its citizens are being pilloried by commentators who can barely conceal their glee at our misfortune. Of course, you have to overlook the fact that virtually every trading nation’s economy has benefited from the surge in the U.S. economy over the past decade. Furthermore, these debt instruments which are now imploding were certainly snapped up willingly by foreign buyers while times were flush.
The U.S. economy is certainly going through one of the most traumatic periods in our history. Sadly, I would envision that the turmoil and pain will continue for many years and that life as it was a couple of years ago in many ways will never be the same. For many, many years, the U.S. tax code was designed to encourage consumption and penalize savings. While any economy needs a happy balance between spending and saving, over the past few decades the U.S. economy became too focused on consuming. We needed bigger homes, bigger cars, bigger boats and more exotic vacations. Eating out became a habit rather than a treat. Shopping malls grew dramatically in their size and selection. As a people, we were addicted to spending.
Spending is not all bad so long as there is a concomitant willingness to save. Somewhere along the line, saving went out of fashion. The long bull market for stocks which ended in 2000 did much to dampen people’s thrift. While stocks were booming, both people and businesses were able to accumulate retirement savings without really having to put much away. When the roaring stock market came screeching to a halt in 2000, it was hard for people to adjust. Our own government encouraged this profligate behavior. In the aftermath of 9/11, rather than asking for sacrifice, all our government really asked most of us to do was to go out and spend—as if nothing had happened.
In the years following the bursting of the tech stock bubble and the end of the bull market, another asset class took up the slack and began a period of sustained out-performance. This one—the house—was more widely owned than even stock accounts. New mortgage products allowed more and more people to live in bigger and bigger homes, without much consideration given to the long-term prognosis for those loans to be repaid. Average folks, being wise to these trends, began trading up and using their ever-appreciating homes as an ATM.
When the music stopped, there were way too many big homes and condos to be absorbed in many markets. Many of the loans that had been made and sold off in newfangled investment products became problematic. These loans, embedded in collateralized debt obligations which circled the globe, then triggered the first winds of what would become a financial typhoon of biblical proportions.
For years, the U.S. economy had been the envy of the world. Comparatively, sclerotic Europe looked vastly outmatched. The best and brightest products of our education system bypassed careers in medicine, engineering, rocket science and the like and migrated to Wall Street where they could make more in a decade than most folks could hope to earn in three lifetimes.
And here we are. Wall Street lies in ashes and will never be the same. Many fortunes have been either massively reduced or completely wiped out. Other scions of finance that have so far preserved their fortunes, will probably see them eroded by the drip, drip, drip of litigation in the years ahead. Some, perhaps many, will ultimately spend time in jail.
And the world, despite its own problems, stands with arms folded over its collective chest and smugly criticizes “greedy” America while predicting that the days of American financial dominance are over.
We beg to differ! Yes, we are in a bind. Yes it will require sacrifice, change and patience. Things will never be as they were. However, the real wealth of America is not in its currency. It is not in our too-big homes or our garages crammed with SUVs. It is not in our skyscrapers, our Michelin-rated restaurants or our sports venues. Our wealth is in our people—their intelligence, optimism, can-do spirit and willingness to take calculated risks. These are traits that many other peoples share, but almost never in such a combination. Indeed, it is this aspect about America that attracts immigrants from around the world who also possess this collection of traits and find something lacking in their homeland.
America, at points over its history, has faced adversity; we have been counted out before. But because of our unique national skill set, perseverance and optimism, I know that America will lead the world out of whatever financial hardship lies ahead. There will be fewer of our best and brightest flocking to Wall Street, but that is not a bad thing. They will gravitate to fields out of favor a decade ago but which offer the opportunity to solve some of the most pressing issues facing mankind. Ten years from now, I would be willing to bet that the U.S. will still be the dominant economic power on earth and that the same folks who are chortling at us now will still be green with envy.