Bloat, I agree with you on one point: things do run in cycles, and history does repeat itself. But I think you are being overly-optimistic in focusing only on doom and gloom periods of the past 50 years. I think we need to dig a little further back to find a parallel to what’s going on today. The Perfect Storm of a crashing housing market, a volatile stock market and a credit crisis have happened only once before in American History: in 1929.
What makes the crisis especially frightening in this go round is that the dollar has never been weaker. During the Great Depression, the dollar was a safe haven, which allowed us to weather the storm better and help us get back on our feet more quickly. This is primarily because we lacked staggering levels of debt, and our currency was tied to gold.
And don’t fool yourself: the ugliness that is about to be unleashed will not be worse for China, 3/4 of its 1 billion people having never owned a car, a house, an iPod or a pair of designer shoes. The standard of living of the average Chinese citizen has not risen so far during this boom that they will be completely devastated when the crash comes.
No, the real pain will come to the indulgent, self-entitled, complacent American who has never experienced real pain, suffering, shortages or severe unemployment; the American who will have trouble adjusting to the fact that they may not be able to afford gas to get to work — and may have to walk or bike; that they may not have money to indulge in Christmas shopping or eating out; that they may not be able to buy a new car simply because they are bored with the 4-year old model in their garage; who won’t be able to take a trip every year or two to “get away from it all: that they may never be able to buy their own hope again or keep the one they have; that they may never be able to afford to send their child to college, because that is already becoming a luxury reserved for the upper middle and upper classes. Make no mistake, the coming “adjustment” will be much worse for people who are used to having it all.
History does and will repeat itself, yes. But just which bit of history we are about to repeat is the question. Personally, I believe that we will know by January 2008 whether this is crisis is one that most of us have lived through before, or whether we’re about to see something that only our grandparetns and great-grandparents have had the misfortune of experiencing.
Moreover, there’s not a damn thing that the next administration — Republican or Democrat — can do to reverse this crisis, unless they somehow harness the power to turn back the hands of time, maybe 30 years or so, before we accumulated massive debt, entitlement programs we no longer have the ability to pay for, and before we decided to import 70% of the goods we consume. I fear that the damage that has been done is irreversible, at this point, and that the 2008 elections will be largely about peddling a sense of false hope and denial. Denial is largely what got us into this mess. How long have we known about the looming deficit crisis and entitlement crisis and thought, “Well, things are still fine. So there must not be a problem, right?”
The wise American is one who will be prepared to accept the fact that their standard of living is about to be lowered (unless they take action and make investments now to prevent that from happening to them), as has happened to populations of formerly powerful civilizations through world history. As Americans, we are neither special or unique in this regard.
Again, I truly hope that my predictions are wrong. But we will know soon enough. Let’s return to this thread in 4 months…
PS — I’m sorry if this is perceived as too much “doom and gloom” for most, but it just seems to me that “this time it IS different”, fundamental changes to our world are happening, we need to be honest and recognize this instead of hoping and praying that this will be just a blip in a cycle that will end in continued prosperity for the US.
I don’t think there is any harm in being prepared for the worst.
