The Great Reset


A recent New York Times headline read:

“Consumers Increase Savings While Spending Less”

That sounds like a GOOD thing doesn’t it?

It used to be that savings and thrift were basic, core, American values. Check out Tom Brokaw’s the Greatest Generation if you can’t remember a time when Americans valued thrift and savings. The media is so focused on “reviving” the economy that it is now seen as a negative sign when saving increases and spending declines. I know the economy as we have known it over the last 10-20 years depended on consumer spending, but the problem was THAT WAS MONEY WE DID NOT HAVE!

Part of the problem is that we are still viewing this as a recession. Hopefully this is not a recession. Hopefully this is the GREAT RESET.

The word recession implies that it is a temporary decline and that things will return to “normal.” If we define normal as the last 10-20 years, “reviving” that version of the economy would be the definition of insanity (doing the same thing and expecting a different result). That version of of the economy was not REAL. That version was on the wicked, performance-enhancing drug LEVERAGE. That version was not sustainable.

The most basic measure of what I call the “Real Economy” is the total value of all goods and services produced (key word: “produced”). That seems to work just fine. You produce something (widgets or the new design for widgets), and you get paid. You take what you get paid, you save some against the future, and you live off the rest. It’s sustainable and healthy.

Then, for whatever reason, we decided that it was not enough, and we put some very smart people, who should be working on cancer research in a back room, and had them “engineer” complex tools to leverage what we were producing, so we could spend more. This is where we got the “Real Economy” on top of a giant expanding cloud of “Leverage.” But we were not actually increasing the total value of goods and services produced! One day something happened, and the “Leverage” went away. Just like that we are back to the “Real Economy.”

Now in real life this GREAT RESET is a very painful process, but to ignore the reality won’t help. We can’t go back to the levered up version because it is not REAL. As Thomas Friedman said recently, “…there is no easy escape here, except taking our medicine, getting our fundamentals right again and working our way out of this, brick by brick…”

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