Admittedly not the best story to read while having trouble sleeping:
Finance will be costlier and investment weak, so the stock of physical capital, on which prosperity depends, will erode.
…Before the crisis the overpriced assets held by banks and households were accompanied by vast debts. After the crisis their assets were shattered but their liabilities remained standing. As Irving Fisher, a scholar of the Depression, pointed out, “overinvestment and overspeculation…would have far less serious results were they not conducted with borrowed money.”
…Fisher, again, put it best: “I fancy that over-confidence seldom does any great harm except when, as, and if, it beguiles its victims into debt.” There is no better example of that than American consumers.
As they say, “hope is not a strategy.” To which we must add “debt is no sure tactic.” I think the financial experts have had a come to Jesus moment about leverage. I’m not sure the American consumer has yet to fully embrace the lie of the last decade – or two. That moment of truth will necessarily be political. It always is.
I’m optimistic about the foundations of our nation. Our political culture is a complex yet elegant mechanism. It has allowed us to travel so very far so very quickly (what’s two hundred years, really?) It will be an interesting next decade.