Everything that is wrong can be explained away. The list is long and sobering...Record Oil Prices, Exploding Twin Deficits, The Eroding Value of the US$, The Flattening Yield Curve, The Escalating War on Terror, The Bankrupt Social Security System, The Coming Demographic shifts, The Exuberant Real Estate market, and The Consumer Debt Balloon. All of these daunting problems are but mere headwinds for the ever rising potential of the United States.
While each of the above mentioned economic, geopolitical, & sociological problems alone would normally be seen as a major challenge, together they pose what I believe will be the demise of the current economic expansion and will expose the serious underlying structural problems that are now embedded in our financial, political, & sociological systems and need immediate attention.
Over the past few years, the Bush Administration, along with the valiant and patriotic assistance of the Chairman of the Federal Reserve Alan Greenspan, has been able to push off the inevitable economic downturn using tax cuts and historic low interest rates as the tools, yet leaving no repair strategy for the aftermath of the unprecedented campaign which has spawned huge imbalances in the economy. The result will be a downturn that will rival that of the Japanese.
Each problem listed above has been rebutted ad naseum in the financial media with the various pundits, wall street gurus, political propaganda, and the CNBC cheerleaders proving over and over that people will believe a lie as long as it feels better than the truth.
To the optimists, nothing really matters. The problems that seem so daunting when examined and understood, are so easily explained away with rosy forecasts of ever rising economic health and prosperity. Most of the intelligent and in-depth analysis of these issues is way too much for the average investor who can only really digest buy, sell, or hold.
The only risk that is ever mentioned and elaborated on is that of not being fully invested in the stock market. I mean, you know the mantra, stocks are the best place to be...especially for the long term. What else can you do with your money...earn 2% in a money market or 4% in some bond. Stocks are the default investment. And if stocks are too risky for you, real estate has become the hot IPO. I hear more and more stories of regular guy types liquidating stocks to buy some pre-construction condos and flip them before the Grand Opening!
The Fed, in its effort to support the country, has in fact inflated its biggest and probably most dangerous bubble yet. And this one is going to really hurt. None of this short and sharp correction stuff that can be fixed with some financial engineering. No two year bear market. This slowdown/depression will be long, hard, and deep. Real Estate takes a loooooooooooooong time to correct. Lots of debt will have to be written down and lots of banks will feel the pain. Homeowners and speculators alike will suffer steep losses of equity.
The War in Iraq, aka The War on Terror, continues to rage on with seemingly no end game or exit strategy. Terrorists continue to launch increasingly fatal attacks in Iraq & around the world. Many believe it is merely a matter of time before another catastrophic attack is carried out in the United States. Meanwhile the American people have become angered & frustrated by the war and its costs, and the rest of the world has become more opposed to U.S. policy in the Middle East. Oil has more than doubled in price since the invasion of Iraq proving again that the Bush Administration had no idea of the consequences of the War in Iraq...whether it be the reason for the war, the justifications for the war, the way the war was planned, the way the war was fought, and the way the Iraqi population would react to the U.S. occupation.
Some of the other issues like Social Security and the Deficits are problems that have built for years and the time to rectify what is wrong was a long time ago. Now the fix will be critical and destructive...there is no other way to fix long term structural problems. Politicians and pundits may try to make you believe differently, but the common sense facts are that it is impossible to painlessly and quickly fix these problems.
Yet, the optimists hardly acknowledge the fact that these problems are serious and for the most part being left to resolve themselves. Some will mention the problems, but then they wax into the virtues of the omnipotent United States of America, and the strength of our military forces and our financial systems. To the optimists, none of these real problems matter.
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