Off To The Next Bubble

Sorry for the doom and gloom, but I have lost patience with those seeking hope and those regurgitating rah-rah political platitudes about re-surging American greatness. I over hear conversations all the time about how our economy seems to have turned the corner. Things are getting better. Perception is reality, after all. If we wish it hard enough, maybe it will be true. In all things, we believe what we want to believe, what is convenient, what suits us best. Confirmation bias makes us instantly recognize those things that confirm our beliefs and subconsciously ignore those that contradict. So goes the economy.

The improvements in our economy remain nothing more than mis-perceptions because we ignore these simple truths: our economy is based on debt rather than equity; we concentrate too much on spending rather than producing anything of value; and, we ignore that real value is created from intelligent labor, not a printing press.

It is becoming obvious we have learned nothing from our past bubbles because we ignore how they came about in the first place. Therefore, we are destined to repeat them.

We want things to get better. Unfortunately, we spend so much time trying to convince ourselves that things are better without recognizing the errors that got us here in the first place. Rather than fix anything, we would rather create another bubble -- this time in the US Dollar -- and rebuild our economy on more false premises, rife with new forms of malinvestments. I greatly fear this new bubble will dwarf our preceding tech bubble and housing debacle.

As a country and a society, we have a choice to make: we can take our current path and delude ourselves that it is possible to borrow our way to prosperity, or, we can take the more difficult path and recognize that we must roll up our sleeves, spend less, pay off debt, save more, and use our labor to produce things of actual value.

It scares me that some of the smartest are betting against our ability to make the right choice. As Nassim Taleb put it recently in an interview with the guardian.co.uk: “I also have an exit strategy that others don’t: I make bets against US Treasury bonds. People lecture Greece about debt, but the Greeks are not in debt in comparison with America; in America debt is uncontrollable.”

Unless we are willing to recognize that our love affair with debt is creating our next bubble, we, as Americans, may have seen our better days.