Friday, January 14, 2011

2 years of recession is wearing on the middle class. Let the markets correct already!

By Nick Sorrentino

We are at an important point in the financial crisis right now. Interestingly the stock market has climbed and climbed and climbed, which has placated many. It has been the only economic ray of light over the past 2 years for lots of us. Meanwhile many people who long ago cashed out their 401ks because they had to, or people who never had one in the first place are feeling increased pressure.

As of this moment it is estimated that 1 in 8 adults and 1 in 4 children in this country are currently on food stamps. Large numbers of people are living off of unemployment and even off of student loans.

We don’t see soup lines, because we now have virtual soup lines.

Increasingly young people are languishing unemployed. I can think of many households that are now composed of adult children and their parents or parent where 3 years ago this was not the case.

In Europe it’s even worse. In Italy for instance the youth unemployment rate stands at 28%. In Spain some estimate the unemployment rate at near 50%.

House prices continue to trend down. Food prices and gasoline are now trending sharply higher due to a weaker dollar, among other reasons.

People can take pain for quite a long time. They can adapt. They can make due with less. But economic stress causes people to act in peculiar ways.

In another life I worked in the investment world. One of the lessons I took from my time as a financial advisor is that money, if not viewed and dealt with in a healthy way, can do great damage. Nothing will break up siblings like a will written for the benefit of one and not another. Nothing freaks out a parent like a kid defaulting on a loan that parent cosigned for.

When societies feel prolonged financial pain those societies often change profoundly. Often unfortunately these changes are for the worse.

How many people in this country do you think would gladly trade their right to vote, to own a gun, or to come and go as they please in return for a guarantee of a full stomach? My bet is that quite a large percentage of folks would make that trade if given the choice. I am concerned that this percentage is growing as the economy continues to sputter.

Increasingly people have looked to the state for salvation. Who can blame them? It’s very hard to be concerned with freedom when your kids are hungry. When there are no jobs to be had how can you ask someone to get off of unemployment? You can’t.

So what do we do?

At this point the answer seems pretty obvious to me. We need to get lean and mean. We need to let the markets, the stock market, bond market, housing market, etc correct. It will be painful with no doubt. But it will be a short burst of pain, during which we can repent for our economic sins and get back to the first economic principals of this country. We then can then get on with building a new American century.

Or alternatively we can continue on duct taping whatever economic leak looks the worst at the moment until the whole system breaks apart and is then irreparable.

My suggestion will never be heeded of course. There are too many interests with too much power to allow sharp painful correction to happen. Austerity is for the little people, not people who manage billion dollar hedge funds. Right now it is still possible to make quite a lot of money with the fits and starts of the American economy. Not for most of us, but for many who have the power. They will never let the markets correct naturally because the current establishment has everything vested in the old, and increasingly antiquated financial system.

About Me

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Nick Sorrentino is the Editor of The Liberty and Economics Review and CEO of Exelorix.com a social media management company.