Some of us — especially those under 60 — have always wondered what it would be like to live through the kind of epochal event one reads about in books. Well, this is it. We're now living history, suffering one of the greatest financial panics of all time. It compares with the big ones — 1907, 1929 — and we cannot yet know its full consequences for the financial system, the economy or society as a whole.The key take away from Zakaria's essay is that we have no idea how long this will last or how deep it will go. My gut hunch is that most Americans (yours truly included) are oblivious to exactly how hard things are going to get. Perhaps we won't see the soup lines and 25% unemployment of the Great Depression, but I think we're all about to get knocked on our asses...hard. After three decades of living beyond our means, all of us are about to get a crash course in living within them, and I suspect for many (again...yours truly included) that will come with a severe case of shell shock.
I'm betting that, in the end, the world's governments will win this battle against fear. They have potentially unlimited tools at their disposal, especially if they act in concert. They can nationalize firms, call bank holidays, suspend trading for weeks, buy up debt and equity, and renegotiate home mortgages. Most important, the American government can print money. All of these tools have long-term effects that are extremely troublesome, but they are nothing compared with the potential collapse of the financial system. And Washington seems to have recognized that it must do whatever is required to shore up that system. Big questions remain. What will it take to stop the fall? How costly will it be? How long before the rescue plan starts to have an effect? But at some point, the panic that gripped world markets last week will end. Of course, that will not mean a return to growth or a bull market. We're in for tough times. But it will mean a return to sanity...
Since the 1980s, Americans have consumed more than they produced — and they have made up the difference by borrowing...
In 1990, the national debt stood at $3 trillion. (That sounds high, but keep reading.) By 2000, it had almost doubled, to $5.75 trillion. It is currently $10.2 trillion. The number moved into 11 digits last month, which meant that the National Debt Clock in New York City ran out of space to display the figures. Its owners plan to get a new clock next year.
Update: Andrew Sullivan is thinking along similar lines:
The abandonment of any sobriety in this moment is disturbing. Everyone is acting as if the worst thing that could possibly happen is that we should all feel the full impact of the massive fiscal recklessness of the past decade.Update 2: Nobel prize-winning economist Paul Krugman is glad the grown-ups are back at the table to sort out this mess:
...The truth is: we had this coming. We deserve it. And we deserve leaders who are able to tell us that.
Seriously, isn’t it amazing just how impressive the people being named to key positions in the Obama administration seem? Bye-bye hacks and cronies, hello people who actually know what they’re doing. For a bunch of people who were written off as a permanent minority four years ago, the Democrats look remarkably like the natural governing party these days, with a deep bench of talent.After eight longs years of incompetent and adolescent leadership, the Obama administration will be a greatly needed breath of fresh air.
