Despite record government intervention we haven’t actually fixed much. Sure, we fixed the bank balance sheets, but they weren’t the real problem. They were just a symptom. What remains are the incredible imbalances in the global economy with continuing trade imbalances, debt imbalances, etc. I really enjoyed this line from Todd Harrison at Minyanville who explains how the imbalances remain to this day and the crisis looks more and more like one wasted:
“Society is a sum of the parts and the stock market is supposed to be our thermometer. When the chasm between perception and reality becomes untenable, a seismic readjustment inevitably occurs, as we saw a few short years ago. The current juncture is further complicated by the state of corporate credit — which bodes well for higher stock prices — but there are so many fragile elements and assumed conclusions that it’s difficult to separate what we’re feeling vs. what we’re being programmed to believe.
I’ve written about the two paths so often that I sometimes assume they’re ingrained. There are drugs that mask the symptoms and medicine that cures the disease. The drugs — giving the drunk another drink with hopes he sobers up — will carry us for only so long before social mood sours to the point of deterioration either domestically, internationally, or both. The medicine — debt destruction or reorganization — would be a bitter pill for asset classes but a strong step towards true globalization.
The government bought time, literally, by reflating markets and allowing corporate America to roll out debt and issue stock. Risk wasn’t destroyed, it simply changed shape. It migrated from one perception to another, from one balance sheet to the next. I don’t know how to be any clearer; we can run but we cannot indefinitely hide. Sometimes I feel like I’m taking crazy pills. The imbalances are cumulative still and the lessons learned from the previous crisis have been squandered.”
We keep running from our real problems which is exactly why they keep coming up.
Mr. Roche is the Founder and Chief Investment Officer of Discipline Funds.Discipline Funds is a low fee financial advisory firm with a focus on helping people be more disciplined with their finances.
He is also the author of Pragmatic Capitalism: What Every Investor Needs to Understand About Money and Finance, Understanding the Modern Monetary System and Understanding Modern Portfolio Construction.