Monday, August 8, 2011

What's the Worst that can Happen?

It’s easy to sucked into a pit by all the doom and gloom in the news.  The S&P dropped about 6.5% today, on top of big losses last week.  The debt deal has many unknowns, except the light it shed on our unfunded liabilities that tower into the trillions of dollars.  Unemployment remains stubbornly high at over 9.0%, and GDP growth was an anemic 1.3% last quarter and almost non-existent in the first quarter.  So, what’s the worse than can happen?

Why are still slogging along two years after the Great Recession?  This was to be the summer of recovery (or was that last summer?  I forget).  We are seeing rising food prices, rising energy prices, flat or dropping home prices, but (except for the last 4 days) rising equity prices.  Interest rates are practically zero (which sucks for savers like me!) and mortgages are cheap, if you can get one.  We seem to be stuck in a persistent state of malaise.

Is all this mess due to uncertainty?  Uncertainty about,
·         2014 – main provisions in Obamacare kick in, or
·         2012 – huge presidential and congressional election, or
·         2012 – tax rates will revert back to 2001 levels?

But what’s the worst that can happen?  Is there a scenario where the US and world fall into financial ruin?  Would the trigger be hyperinflation or Europe goes bust?  And are these likely scenarios?  I often wonder what my great-grandfather thought as he toughed it out during the Great Depression, or my grandfather who fought in WWII.  I’m sure they occasionally thought they were living in the end times.  But they survived.  Will we?

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