Too Much Doom and Gloom

There is a lot of doom and gloom about the global economy that is well justified. I don’t think anyone can disagree that we are in a very difficult situation that can get even uglier. However, at the risk of appearing to view the world through rose-colored glasses tainted with conspiratorial overtones, maybe there are some other considerations (not to say these are original thoughts of mine).

You may recall early last summer, there were quite a few foreign leaders (from countries with the some of the largest global economies) who were relieved that their economy was at long last delinked from the US economy. They commented with certainty that even if the US economy went into a downturn, it didn’t matter anymore to them since the US was no longer the dominant industrial driver. Much to their chagrin, when our economy began to slow, it was clearly apparent they were mistaken. To the extent that the US is responsible for close to 25% of the world’s GDP (IMF and World Bank 2007; 27% in 1990), I guess this shouldn’t have been a surprise. Now we hear from many of these same people a kind of delight in the potential demise of the US as a leading world economic power. While we can’t say it is impossible, no one is too convincing about who is going to replace the US as the driver for the recovery. Many of the countries that are so critical of how the US has conducted itself in the affairs of finance and commerce(and rightfully so in many cases) are in much worse shape. It is difficult to listen to the Putin’s, Wen’s, and Chavez’s of the world when they have such glaring socio-economic imbalances that you can safely say are far worse than anything we see in the US. These countries should be thinking, “what the hell are we going to do without the US to boost world demand?”. The US had 29% of world GDP in 1970. While the explosive credit debacle may be partially responsible for recent US and global economic expansion (in real dollars), sound economic fundamentals have been primarily responsible for past US GDP expansion.

The prosperity we have experienced throughout the last 150 years, with its inevitable ups and downs, has been based on something that may not be so easily achieved by others. There are layers upon layers of cultural and economic developments that are uniquely insinuated throughout our country, and no matter how far we may stray from these fundamentals, there has always been a recalibration that brings us back. The work ethic, individual responsibility, limited government, regulated capitalism, and the ability to align so many people in the proverbial melting pot are reasons for the success of the US. While other countries have attempted to replicate some or all of this, they have never been able to sustain it. The question is, are we moving too far in another direction to where we cannot recover?

Finally, there are many reasons to worry about the future when we hear so much that is negative, and prognostications are so pessimistic. Not to take away from the seriousness of the situation, but could there be ulterior motives of those that encourage this sense of doom and gloom? The fact is that the Kennedy’s, Rothschild’s, Rockefeller’s, Howard Hughes and other families all made massive fortunes during the Great Depression. When I see some of these people who still have huge sums of capital parked safely (and sometimes clandestinely) somewhere being so pessimistic in a public forum, it makes me wonder if their motives are pure. I have talked with more than one private equity person that told me directly they have 100’s of millions of $’s (and in one case more than 1 billion) available and are waiting for the bottom to fall completely out so they can but things on the cheap. From a political perspective, the Great Depression allowed the Federal Government to make significant strides in expanding its power while encroaching on individual liberties. As we witness the current approach from DC to resolve the crisis, the move to a more powerful and invasive Federal Government is obvious. So when I hear politicians or financiers talk down the economy, it makes me wonder.

As for when will there be a reversal of the downward spiral, only a few contrarians will get this right. I think everyone would agree that once the herd starts to move one direction, the momentum builds quite rapidly. A change in direction is never realized by the majority until the evidence is overwhelming.

Fred Young,
Dallas, Texas