The Light At the End of Tunnel - Is That A Train?

One of the inevitable and profitable consequences of aging is wisdom. Younger observers might characterize an elder's sagacity as cynicism. In Texas, we used to say that the young man who knew no fear believed he was "7 feet tall and bulletproof." It is a fact that no one in their youth can adequately describe the effects of aging, nor can they witness the world with a seasoned eye. Time and experience is a great teacher. It must also be pointed out that all of those who grow older do not gain wisdom. That is a gift of learning through properly assessing the consequences of one's actions. Borrowing from a threadbare adage, he who does not learn from the mistakes of history is destined to repeat them.

This whole rambling missive is brought about by economic doldrums we now find ourselves in. If anyone had told me that we would be in the worst recession in our lifetimes during this decade, I would have been dismissive, or at least, doubtful. Though everyone now possesses 20/20 hindsight, it is suspicious that almost everyone today knew this was coming. Of course, there are always those who continually prophesy the apocalypse. And to be fair, there were a handful of prescient, thoughtful spectators of all things financial that did correctly advise that we were not able to sustain the leveraged and heady times we enjoyed. The most distinctive, to me, was Warren Buffet. For 15 years, he foretold of reaping the whirlwind of synthetic, complicated debt instruments and the overall bubble of consumer debt.

The question for most of us is when will this all end. The answer is not uncomplicated. For many, their jobs continue and little has changed, leaving them at the most, more cautious with their money. For 16 million Americans, who are unemployed or underemployed, the outlook is grim for a sustained recovery that will begin adding net jobs to the economy. There are other financial shoes to drop, which are just now coming into focus. Consumer debt, commercial real estate and the second wave of troubled mortgages, those of the unemployed, are beginning to show signs of trouble ahead. It is most likely going to take years, not months, to show resilience in our banking and business enterprises.

How does one survive with their sanity? For me, it's the inevitable conclusion that at least for a generation, the American dream, as we knew it growing up, has changed. Our economy has been based on the consumer for 50+ years. That consumer has been bludgeoned into a stark reality that leverage, or debt, is bad. As long as real estate values escalated at a rate greater than inflation and the debt service on that property, wealth was created. As long as auto makers and home builders could use debt to entice buyers to continually ride the roller coaster of parlaying perpetually increasing values, or equity, into more expensive homes and cars, the heady days of trading up every few years was a dream most of us bought into. Eventually, the chickens come home to roost and now everyone is tiptoeing over the droppings.

From our parent's time of paying as you go, we boomers became a group that both sowed and reaped the consequences of profligate spending. Our creation was a synthetic world of buy now, pay later. When the music stopped, the chair of rolling up the debt for future accountability was missing. So, are we now becoming cautious consumers or a nation of savers? My guess is that we will be both. It is hard to conceive of our peers delaying gratification by paying cash for their automobiles and houses. On the other hand, many undoubtedly will do so. What that means for an economy based on endless spending by the populace is an economist's nightmare.

For some, the answer is a moot one. Having lost employment, their homes and in some cases, their cars, the climb back to solvency will be an arduous one. For the rest of us, based on the conversations with my peers, caution is the least we can expect for the near future. I suspect this goes further than opting for a 37" television rather than a 52" one. It is also more complex than simply limiting the per bottle cost of wine to $10., rather than $20. Decisions to spend money will be more deliberate, thoughtful and protracted. The greatest challenge for the entrepreneurs for tomorrow will be to anticipate just what the needs of our fellow Americans can be met more efficiently and economically.

The American entrepreneur will undoubtedly find a way to enjoy success within this changed landscape. One thing's for sure, though, it will not be found by simply throwing money at it.