Sunday, April 05, 2009

Wisdom About Our Recession

After reviewing several books on our current recession, I discovered one that is spot on: "Contagion" by John R. Talbott publish in January 2009.

Mr. Talbott wrote three other books of note where his predictions were accurate at least a year before the events he predicted actually occurred:

"The Coming Crash in the Housing Market" - 10 Things You Can Do Now to Protect Your Most Valuable Investment: April 2003

"Sell Now" - The End of the Housing Bubble: January 2006

"Obamanomics" - How Bottom Up Economic Prosperity Will Replace Trickle Down Economics: July 2008

I don't concur with several of his philosophies and opinions, namely, that global warming is man-made and we can do something about it, we are wasting money on the war on terror, and seeking pro-life candidates results in unqualified legislators.

But when he remains in his zone of expertise, as opposed to his zone of unsubstantiated opinion, what is says is very compelling.

Here are several eye-opening observations discussed in Contagion which I believe are accurate:

* A corrupt alliance between big business and congress in the form of lobbying and campaign contributions created the lack of regulation and oversight that led to our economic debacle. Only sweeping reform to prohibit this self-serving relationship will correct the legislative and regulatory lapses that result.

* This recession will deepen over the next 3 to 5 years (2011 to 2013) - best case - if our government institutes major reforms ending the influence of big business over congress. If not, our problems will become deeper and last indefinitely. He is doubtful reforms will occur.

* A "perfect storm"-like scenario has been created by a myriad of events and circumstances that in many ways will cause our current economic problems to be worse than those during the Great Depression. Among them are:

- The retiring "productive and investing" segment of our population who will consume social security assets while producing nothing and saving and investing less.
- The younger, more productive, cheaper cost-of-production nations such as India and especially China who will continue to out produce us.
- Excessive per capita consumption in the form of over-sized housing and other consumer items that we haven't paid for and can't pay for.
- Our lack of savings and investing compared to other nations.
- The vast, unregulated morass of derivative markets and credit default swaps that were trillion dollar Ponzi schemes.
- Expected continuing incestuous relationship between big business, special interests, congress, and the regulators.

He concludes that we are a nation of self-absorbed folk compared to a generation or two ago. In part he blames this situation on the growing income disparity between the owner/executive class and the worker class. Yes, I know, he is beginning to sound like a socialist here. But the data bear this out. Income for most workers has been flat relative to the gross domestic product over the last four decades or so while income for the owner/executives has sky-rocketed. It is true that only since the 60's did most families feel the need for women to work outside the home to "make ends meet", or to consume what the ads convinced us we had to consume. In any event, he argues, we have felt less secure financially and less relevant psychologically to the point that we have drawn ourselves inward, refusing to be as altruistic as we were a few decades earlier. We have become more selfish, and obviously, less moral.

A word about Ayn Rand and "enlightened self interest." It doesn't work yet. We humans have not reached the required state of perfection needed for this concept to to be put into practice. In the meantime, "Atlas Shrugs" thinking only results in greed, corruption, screwed up government, and a screwed up economy.

A couple of other books on this topic I considered but declined to purchase were these:

"Meltdown": A Free Market Look at Why the Stock Market Collapsed, etc. by Thomas E. Woods, Jr. and Ron Paul. This is the libertarian perspective. This is the perspective that too much government interference was the cause of the meltdown. I don't buy it and I didn't buy it.

"The Great Depression Ahead": How to Prosper in the Crash Following the Greatest Boom in History by Harry S. Dent - January 2009. This book sounded promising until I learned that in 2005 Mr. Dent wrote "The Next Great Bubble Boom: How to Profit from the Greatest Boom in History: 2006-2010." His timing was way off with this earlier book. I couldn't trust his new one.

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