2008 was some year, huh? Think of how many monumental events happened this year:
- Trillions of dollars of government bailouts
- $6.9T lost in stock markets!
- Election of the most socialistic president ever
- S&P 500 index down nearly 40%
- Housing market in freefall
- Fannie Mae, Freddie Mac, Bear Sterns, AIG, Lehman Brothers all belly up
- Oil to $147 and then collapsing more than $100 from the peak
- “Big Three” on the verge of bankruptcy
- … and many other big events
Every other year looks boring in comparison, no? All of these earthshaking economic events are due to excess leverage. Risk was priced too low, which spawned a credit bubble. Federal, state, and local governments overspent. Businesses borrowed and lended too much. Individual consumers borrowed too much. In short all sectors of society lived beyong their means. Now we must pay the price for living too large. A lot of pain has gone around and a lot more will be experienced in 2009.
Despite the damage that has been done I am optimistic for the future. Recessions are a great feedback mechanism that are built into capitalism, analogous to pain sensors in our body. Pain isn’t fun but it often prevents one from doing even more damage. We need to live within our means. The economy needs to get back to fundamentals and move away from speculation. Our governments must spend less and reduce debt levels. Businesses need to focus on providing value instead of catering to affluence.
Don’t let the constant gloom and doom get you down. Your 401(k) is going to eventually get back to its previous value. If you’re out of work, you will eventually find something else. This is America- what are we going to do, sit around and wallow in self-pity? We need to get up, dust ourselves off, adjust our attitudes and behaviors, and then move onwards!