Our Economy: How did we get here? (Breaking down the question)

Sitting at my unemployment headquarters (Opening Bell @ Southside - in case some need reminding), I am constantly reminded of the state of our economy. On many an occasion, friends and family alike have wanted to know, "what's going on with our economy?"

A fair question, no doubt. Most of the time, the people that ask this question do so with an air of pure unadulterated frustration - seeing the values of their respective portfolios dropping like a rock. Meanwhile, the same money-making practitioners that had steered them to their lackluster portfolios now are the beneficiaries of a $700B 'bailout'.

So - what gives?

The voices behind the questions are similar to a crowd singing along at a concert. Most of the lyrics come out as garbled noise, but the chorus always rings clear. In this case our chorus is "So - what gives?"

Like the song, it is necessary to understand the lyrics in order to understand the true meaning of the chorus.

Akin to the crowd, it is necessary to break down the competing voices if there is any hope to explain the song.

So, in this series, I plan on breaking down the question into the following consumable sub-questions:

1. How did our economy get to the credit-crunch we find ourselves in? (This is intended to be a strict structural examination of the US liquidity issues which led to the $700B bailout)
2. What proceeded the crunch that allowed us to get here in the first place? (I will examine both sides of what has largely become a political argument)
3. What can we expect from our economy at this point?

As always, I have high hopes that readers will benefit from my personal itch.

On Hope and Change...

Unless there is a major bout of rampant racism tonight (a la the Bradley Effect), the president elect will be Barrack Obama.

While many of you know that I am a conservative at heart, I have a hard time being bummed about this result. The reasons are thus:

1. It would be difficult for anyone to debate the fact that Barrack has made people excited about entering into the political system. The very fact that he has been able to amount such a large sum of money for his campaign suggests it. And I believe the results tonight will confirm it. Whether it be because of him, or because of the country's disposition towards GW (who, for the record, I believe is an extremely under-rated president), doesn't change the fact. Even if only marginally better informed than before, the people of this country have left the politicians held mostly unaccountable for a long time, and I have hope that a measured accountability could be on the horizon.
   
2. When a populous believes (as it does right now) that the ruling political party does not have its best interest in mind, the economy at large ultimately pays a price (though, admittedly, one can argue that this is a chicken-vs-egg argument). Remember that the dollar came off the gold standard in the early seventies. In embracing the fiat system of currency, there is a notion that the value of the currency is imbued in the "lawful force and legal tender laws of the country." When a government is not trusted, generally the economic environment weakens. Coupling this idea with the credit inflexibility we've seen this year - has lead to a market-volatility that in and of itself is shaking the core of the economy (or - Main Street, as it is popularly referred). One of the few saving graces is an international belief in the dollar, which has rebounded due to mass injections of international capital into US treasury bills since the credit crisis began. A popular president, with the confidence of the country, instills a belief amongst its people. That confidence must be coupled with actual asset value in the individual corporate entities in the long term, obviously. As I write this, the Dow is up more than 300 points. Needless to say, I don't think that an Obama presidency means that we are just going to jump out of the pit we've dug (don't be surprised when the dow drops the rest of the week to make up for today's surge), but the means to dig ourselves out will probably be better embraced.
3. In terms of foreign affairs, I believe that a Democratic president will allow us to wipe the slate clean. Remember that most other countries are involved in a parliamentary system, whereby whole political parties are shifted within the houses of government. As such, a movement to the Democratic will redeem the view of the United States in many foreign eyes.

All that being said, I'm still hoping for the republican filibuster to be intact at the end of the day.

...Having just read this post (never felt more populist), I feel like I need a shower...

Liquidity of markets, liquidity of time, and the ongoing pursuit of happiness

October 22nd, 2008. Layoffs today, I'm afraid. Everyone knew they were coming, but few had access to 'the list'. Today - I wear a full tuxedo for the event - after all, companies tell you what to wear your first day of work - but I've never heard any of them what to wear the last day. I decided better safe then sorry - better to assume formal attire.

For months now, market analysts have warned about our current 'credit-crunch'. In a very basic sense, the inordinately high number of homeowner payment defaults have narrowed the cash-flows for some of the biggest banks in our country. In some cases the reliance on this bad debt has caused some major banks to have to file for chapter 11 bankruptcy (read Lehman). This in turn, many banks have now become cautious of lending money to other banks. Hence the federal government has stepped in with an unprecedented bailout.

You've heard this all before, and while I will probably detail the internals of why this was allowed to happen, and how I believe this will affect our economy in future posts - that is not the point of this post.

The point of the post is instead to point out a redeeming quality of the layoff. As it turns out - as liquidity in the market decreases, the overall liquidity of people's time increases. Whereas I was working 12-16 hour days, I now have plenty of time to 'loan' out - so to speak.

While this does not come as much of a saving grace for many people that recently find themselves unemployed, it probably should. When taken as a positive, life only shows itself during these periods of time-liquidity. Use the time well my friends.

So in this, the second week since the layoff, I look to re-educate myself about, well, everything I've wanted to know, but never had the time to learn. In doing so, perhaps others will find solace in my discoveries, personal as they may seem at times.