The Air Going Out of the Bubble

Did you happen to hear a big WHOOOSH this afternoon? The sound of an elevator with a broken cable falling to the pavement? The sound that you hear when you blow up a balloon, and then let it go to fly about spasmodically before it finally falls to the floor? The sound of the DOW falling 777 points, the NASDAQ 200 points, and the S&P, 106 points, was like no other sound I've heard in my lifetime.

And into the evening, the sound now resounds around the globe. In Australia, Japan, Hong Kong, and China, people are waking up to the news, finding themselves much poorer than they were on Monday, shocked that the thing that everyone was banking on, that the US taxpayers would save them yet again, did not happen. Everyone thought the bail-out was a done deal, and just now, the world is waking up to a very uncertain future.

I'm not sure what to think. On one hand, I think that pumping money that we don't have into the economy is only like inflating the bubble, and at some point, it will burst, so maybe sooner is better than later? The sooner the bottom is hit, maybe the sooner we can begin to recover? And if this is truly the end of easy credit, might this be a good thing? I know I am showing my blue collar colors when I say that borrowing in excess of our incomes has caused this problem, but shouldn't we be living within our means? And shouldn't things be valued in a way that makes more sense? In 2005, lenders told me that my house was worth a fortune, but I knew that I would never have paid that much for this place, the basement floods all the time, and I only have two really small bathrooms. And in fact if someone had bought my house for the fortune that lenders told me it was worth, I would have thought they were fools.

Maybe the air needs to come out of the balloon, people need to stop living on credit, and the world needs to understand the true value of the things we own, and the things that we buy. To inject more money into the markets for people to borrow, only encourages more borrowing, when maybe we need to encourage frugality and saving. I'm not sure how this will all play out, surely many jobs will be lost, and much pain will be felt by everyone.

But maybe the whole thing needs to burst, before we can build again.

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