It was Saturday the 14th — the day after we normally expect the Universe to throw us a curve. My brother-in-law and I were day-hiking Mt. Whitney. It’s a 22-mile scramble from 8,360 up to 14,496 feet and back, not the most relaxing way to spent a day but (normally) a fun challenge.
Before long, we came across two brothers and their best friend. We took turns passing each other, sharing words of encouragement and speculating about how hot the waitresses serving margaritas at the summit would be. At about 14,000 feet, my brother-in-law’s hypoxia forced us to rest while the others pushed ahead. Unfortunately, none of us could see the huge thunderstorms racing in from the blind side of the mountain.
That which has been is that which will be,
And that which has been done is that which will be done.
So there is nothing new under the sun.
Ecclesiastes 1:9, 200 BCE
The weather went from 50 degrees and sunny to sleet and snow mixed with lightning — lots and lots of lightning. At that altitude, we were in the thunderhead. Just above us on the summit, the others took refuge in a tin-roofed stone observation hut. As the storm raged around them, one of the brothers tried to lighten the mood. Don’t worry, he laughed, when he was young he was hit by lightning while boating. Everyone knows lightning never strikes twice.
He had intimate knowledge of the dangers of lightning. He knew not to be out in the open and exposed when a thunderstorm came along. He was even in the company of several people trained in CPR and survival skills who would stop at nothing to save one another. None of this changed the fact that they were nearly three miles high in the middle of a thunderstorm.
The more things change, the more they stay the same.
Alphonse Karr, 1849
An average lightning bolt carries 30,000 amps and a trillion watts. The oxygen in the air literally explodes as it’s heated to 36,000 degrees — three times that of the surface of the sun. During this particular storm, hundreds of lightning bolts registered in a couple of hours. There was nowhere to run, nowhere to hide.
Moments later, the hut was struck by a bolt so massive that a ball of lightning appeared inside, floating around the ceiling for thirty seconds until it exploded, shocking everyone in the hut. The brother who’d been joking went into cardiac arrest and, despite five hours of CPR by his brother and his best friend, died that day. Despite his experience and a well-worn idiom, he could not avoid the inevitable.
A short distance away, I was working on my brother-in-law, who had also gone into cardiac arrest when we were struck. After I finally got his heart beating again, we were struck a second time. Yes, lightning had struck twice twice.
The Federal Reserve is not currently forecasting a recession.
Ben Bernanke, Jan 2008
I think about that day from time to time, especially when contemplating our economic situation. Our Fed Reserve chairman, a renowned expert on the Great Depression, has assured us that depressionary lightning won’t strike twice. But, he’s the same guy who didn’t exactly nail it in 2008.
In 1933, when Roosevelt took the US off the gold standard, loosened monetary policy and greatly expanded federal spending, markets soared. Federal expenditures tripled, but GDP kept pace. Federal debt to GDP maxed out around 40%. Employment dropped below 20% and deflation abated. The country turned the corner and sentiment improved, much as it appears today.
In 1937, however, the wheels came off the recovery express. Unemployment jumped from 14.3% to 19%; industrial production and the stock market both plunged over 30%. The causes are subject to great debate. Depending on whom you believe, monetary policy was either too accommodative or restrictive; taxes were excessive or regulation was too lax; spending was too high or not high enough.
First comes spring and summer but then we have fall and winter.
And then we get spring and summer again.
Chauncey Gardiner, “Being There”
Like storms, economic cycles have always been a fact of life. We can try to prevent them with stimulative monetary policy, deregulation and lower tax policies. But, we invariably overcorrect or undercorrect; we take wrong turns and run down blind alleys. It’s hubris and human nature at it’s finest. As anyone who’s ever ducked into a tin-roofed hut to escape lightning would tell you, unintended consequences can be a bitch.
Witness the continuing fallout from overly lax real estate lending. Despite Bernanke’s March 2007 analysis that “problems in the subprime market seem likely to be contained,” real estate went through a historic deflationary spiral. Nearly five years later, amid a meltdown that saw his own boyhood home sold at foreclosure, prices are finally back to 2003 levels. Is the worst over?
Personally, I’m not sure we’re out of the woods. I think we’ve come to a cyclical clearing which could precede a denser, darker, scarier forest than anyone can remember. I question whether issuing more debt can cure a debt problem any better than buying a guy a scotch can cure his alcoholism. So, forgive me when I question Bernanke’s repeated assurances. To me, it sounds like a plan to reinflate all those bubbles that burst a few years ago.
The national debt is currently around $16 trillion (equal to GDP) and we’re running a $1 trillion dollar deficit. At the current rate of growth, debt will top $20 trillion by 2017 and $25 trillion by 2020. Can the Fed continue to keep inflation and interest rates at levels that won’t sink the economy, essentially breaking the bond market a la Japan?
Bernanke and his cheerleading counterparts at the Fed, the White House, Congress, the ECB, the BoJ, the IMF, the WSJ and CNBC all insist there’s nothing to worry about. Would they really tell us if we should be worrying?
See, in my line of work you got to keep repeating things over and over
again for the truth to sink in, to kind of catapult the propaganda.
George W. Bush, 2005
As a wise man once said, question everything.