IT ALWAYS WORKS UNTIL IT DOESN’T

Listening to financial anchors, analysts and pundits on CNBC the past month or so since the Wall Street shit hit the fan I am struck by two phrases which are uttered excessively. The first is that this stock or that sector will be well positioned when the Economy recovers. The second is that every time the Dow advances more than three points for more than three minutes some yahoo is saying that perhaps we have just seen the bottom. There have been approximately 700 billion calls of the bottom starting with the collapse of Lehman Brothers.

Has it occurred to any of these people that perhaps the question is not when the economy will recover but if the economy will recover? The logic of the optimistic sages seems to be that the US economy will recover because it always has before. Perhaps that is so but perhaps also the world has changed and the structural components that have always allowed a recovery no longer exist.

To illustrate this phenomenon allow me a short anecdote. One day shortly after I first became a part of the computer using population around 1994 my new device would not boot up. The computer would not turn on. I had a friend who was an IBM PC tech who was teaching me computer basics in return for tennis lessons. He came over to examine my machine and as he was beginning to look it over I stated that I could not understand why it would not work because it had always worked before with no problem. He replied “that is usually the way; they always work until they don’t.” Of course in retrospect this made perfect sense. No one would call someone to fix their computer while it was working. Much like you always find a lost item the last place you look. If this is not true I suggest you seek professional help because no one should go on looking for a previously lost item that has been found.

The point is that my computer did not stop working randomly. Something had fundamentally changed in its hardware, software or power structure. For example a change in the computers power structure would occur if the power cord was unplugged as mine embarrassingly was on that day in 1994.

In my next entry later today or tomorrow I will explain why our economy has become unplugged and why even if it gets plugged back in, which it will, it will not ever again in the foreseeable future operate at the same level as it had previously. We have not reached a bottom and when we do there will not be a substantial rebound as in the past but rather the economy will simply stop contracting.