Well, that was a fun ride that stock market had today. Looked like the outline of a rollercoaster at 6 PM when I looked at it.
However, the interesting thing that was yet again made clear today is the distinct difference between perception and reality. We were told that as soon as the credit rating of the US would downgrade, as soon as that would happen, we would see investors run for the hills. Now, I'm not one to use one day of trading as a benchmark, but the interest rate on US bonds did go down while the stock market plummeted.
This, combined with the announcement that Verizon has not been able to arrive at an agreement with the bulk of its union workers made me think of a few things and I thought I would share there (on a side note: Hello union workers, how about you come over to this side of the field where performance and the observance of stated policies relate to pay and benefits, not job title and seniority; I look forward to your letters).
First, I'm not so sure that a temporary plummet in prices of stocks would be all that bad. I know, many of you might say that this would destabilize the world economy and then fire and brimstone will rain out of the sky as we all put our heads in between our knees and kiss our...but I digress.
I am referring to a correction in what we have considered normal. In 2008, we had a crash. Wait, no we didn't. Yes, unemployment went up and a lot of people lost a lot of money, but let's be serious, that was not a crash (look up 1929 if you want to see a crash, 89% of value lost, that's a crash). Unemployment is at roughly 9.0%, call it 15% if we include all the people that have basically given up and the ones whole are no longer counted because they have been out of work so long that they cannot apply for unemployment. This is a bad thing, but that's still just 1 in roughly 9 people (fuzzy math here) that is out of work. By comparison, Spain's unemployment stands at close to 20% with the traditional core of the workforce, young people, being unemployed at something close to 30%.
I would like to make reference to a certain generation that could really tell us some stories of some bad times. I am of course referring to the people who lived through the Great Depression and who really knew what it was like to be in trouble. Now, most of the people that I have met who lived through those times are tough as nails, work twice as hard as I do and generally could probably teach most younger people a thing or two about frugality and what it teaches you.
Hard times make for hard people. While I do not claim that the current generations (sorry baby boomers, but you're starting to retire so you're not in this count) are not as tough as the people who lived through the great depression, I will say that the current generations are a lot less willing to live without comfort. I know people in my social circle (yours truly included) start losing their minds if the electricity or internet goes out (and the internet is really just a luxury when you think about it).
So, where am I going with all of this? I believe that we need to let the market correct itself. Yes, that will take 1, 2, 5 maybe 10 years. And in that time, we basically all have to tough it out. There is some silver lining in the last few years and that is simply that personal debt is dwindling, people are paying off their loans. That to me is a start, but we need to go further, even if it inconveniences or even threatens the livelihoods or even lives of certain groups of our society. We need to cut and cut and cut the budget at the local, state and federal level to a point where paying off all our debts is an achievable goal.
Why pay off the debt? Simply put, when you don't have debt, you have more disposable income, and people with disposable income tend to dispose of it, especially in our society. So, if we as a people, as a town, as a state or as a nation had more disposable income, we could use said income (aka real money as opposed to credit cards, bonds, IOU's and so on) to buy things, which are produced by other people, thus creating an economy. And that economy, the one based on real money, has some legs in it, while the thing that we call an economy has this bad tendency to overeat and then vomit toxic assets all over its participants periodically.
As a side note, I refer to an achievable goal as opposed the pile of garbage that I've heard spewed from our politicians over the last few months. Cutting 1, 2 or even 4 trillion out of the budget over the next 10 years is basically like a shopaholic only running up 2 credit cards to the limit per week as opposed to 3. Yeah, it's a start, but it doesn't really cut to the heart of the problem.
I look forward to your letters.