No, my father was not an Assistant Treasury Secretary or a Federal Reserve governor or a partner at Goldman Sachs. So, he didn’t have very much impact on the global economy before dying in 1973 (at a too-young age of 50). But if he were here today, he could pinpoint exactly where all the trouble in today’s economy had come from. <\/p>\n
Dad was a very pragmatic kind of guy. He always tried to think ahead, tried to keep trouble from happening. And he knew that there would always be trouble that you could not presently anticipate. So he always left some room for an unexpected turn of events. His early death was devastating for my mother, but he left her with a house fully paid for and no outstanding bills. We got by, thanks to his financial philosophy.<\/p>\n
So I’m sure Dad would be rolling in his grave if he could keep up with our current global economic situation. About 12 years after his passing, when inflation rates, interest rates and unemployment rates finally dropped, the world fell in love with debt. Since the Great Depression of the 1930s, when my Dad was growing up, governments and businesses learned to treat debt with respect, and used it only when sufficient margins for error were in place. After 1985, that rule was increasingly tossed aside. Businesses interests borrowed incredible sums in takeover bids, households borrowed more and more to \u201chave the home of their dreams\u201d, and governments cut taxes while increasing services and defense measures. <\/p>\n
All this took massive borrowing. But for whatever reason, there were plenty of people and interests willing to make those loans. Everyone wanted to make it all happen. So the borrowers stretched the envelop in coming up with the best possible scenarios to feed into the due diligence analysis, and the lenders didn’t ask questions. <\/p>\n
But in 2008, the debt bubbles started popping in the American housing market, and the process goes on still with European sovereign debt (and maybe eventually, American sovereign debt). If only someone like my father could have asked all the commercial lenders and hedge fund managers and finance ministers and credit insurance underwriters and mortgage debtors and central bankers — if only he could have asked them, \u201cdo you have any room for error here?\u201d <\/p>\n
Obviously they didn’t. Obviously that was an old-fashioned idea that had seemingly become an anachronism. It was a notion that passed with \u201cThe Greatest Generation\u201d (my Dad was in the Navy towards the end of WW2), something no longer needed by sophisticated Baby Boomers with their quant-based MBA training, and then the new breed of sophisticated, high-tech Gen X managers and political leaders. <\/p>\n
So here we are, stuck in a long economic downturn caused by a debt collapse and all the fighting that necessarily takes place thereafter, as everyone involved scrambles to avoid \u201cthe big haircut\u201d. Capitalism and democratic politics are wonderful human innovations, but they do have built-in self-destructive tendencies when things go bad. With some luck, the industrial nations will eventually get out of this economic funk, and the next generation of leaders will hopefully learn once more to have respect for what they don’t know, for the \u201cunknown unknowns\u201d as Donald Rumsfeld put it. Hopefully, it will become fashionable again to build in some leeway for the down-side. As my father would have told them. <\/p>\n","protected":false},"excerpt":{"rendered":"
No, my father was not an Assistant Treasury Secretary or a Federal Reserve governor or a partner at Goldman Sachs. So, he didn’t have very much impact on the global economy before dying in 1973 (at a too-young age of 50). But if he were here today, he could pinpoint exactly where all the trouble […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[13],"tags":[],"_links":{"self":[{"href":"https:\/\/jimgworld.com\/blog1\/index.php?rest_route=\/wp\/v2\/posts\/2380"}],"collection":[{"href":"https:\/\/jimgworld.com\/blog1\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/jimgworld.com\/blog1\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/jimgworld.com\/blog1\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/jimgworld.com\/blog1\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=2380"}],"version-history":[{"count":3,"href":"https:\/\/jimgworld.com\/blog1\/index.php?rest_route=\/wp\/v2\/posts\/2380\/revisions"}],"predecessor-version":[{"id":2383,"href":"https:\/\/jimgworld.com\/blog1\/index.php?rest_route=\/wp\/v2\/posts\/2380\/revisions\/2383"}],"wp:attachment":[{"href":"https:\/\/jimgworld.com\/blog1\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=2380"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/jimgworld.com\/blog1\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=2380"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/jimgworld.com\/blog1\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=2380"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}