I really can’t think of a better place to spend a global financial semi-meltdown than in the cozy bar/cocktail lounge of the Parkhotel Silvretta in Klosters (a sweet little resort town just down the hill from bigger, less-charming Davos). Outside it’s snowing. Inside it’s warm, and I’m sitting in a comfy chair, partaking of an excellent (if expensive) Wifi connection while the Young Global Leaders of the World Economic Forum (a group to which, thanks to some kinda big-time clerical error a couple of years back, I belong) learn about competitive strategy in a changing world in the next room.
Oh wow, now a waiter just stopped by to ask if I want anything to drink! A mineral water, please.
There’s a Wall Street guy a couple chairs away from me, also skipping out on the meeting for obvious reasons, e-mailing and yakking away on the phone. He seems to be keeping pretty calm, though. Oh, and a Canadian politician just walked by and said he told his broker to sell all his stocks last week (the guy raised his cash position, but couldn’t bring himself to sell out).
I’d feel silly relating such trivialities, except that coverage of stock market craziness like today’s and yesterday’s is always an assemblage of trivialities. It seems pretty obvious that the market drop of the past couple of days has something to do with fears of a deep U.S. recession and fears that ever more sectors of the global debt market will follow the steep downward path blazed by subprime mortgages. Beyond that, who knows?
And it seems to me that the Fed’s 75 basis point rate cut today will steady things a bit but won’t end the debt problems or the talk of recession. Beyond that, who knows?
As I’ve written before, consumer indebtedness in the U.S. has been rising since the early 1980s. Then, starting in about 2001, it absolutely exploded. In fact, let’s replay that chart (I put it together in November):
Now we’re dealing with the unraveling of that. It’s going to continue for a while, and at times it will be ugly. And it’s really not the Fed’s job to stop it. It’s the Fed’s job to try to keep the financial system from freezing up along the way.