The End of the Beginning?

I consider myself to generally be an optimist, but there are times where optimism can't be blind to the facts. I fear that the Bear-Stearns collapse may only be the end of the beginning rather than the beginning of the end.

One commonly-mentioned facet of the US economy is that it is driven primarily by consumer-spending. One commonly-mentioned aspect of modern consumers is that they are drowning in debt. Now, it appears that era of ignoring the debt and confidently continuing spending is over. As a result, the economy could be in for a seriously long-term struggle.

When you read a statistics like the one below, you begin to understand the predicament we are in:

Over the last seven years, every new job that has been created has resulted in
$1.8 million of new public- and private-sector debt. That's obviously not
sustainable. That's way too inefficient. It used to be about 50 cents of new
debt was required to generate $1 in gross-domestic-product growth. Now it's
$9 for $1 of GDP growth.

This is from an interview in Wired with investor Eric Janszen, who recently wrote in Harper's about the decline of the financial, real estate, and insurance markets as the bedrock of the American economy. Janszen offers a plan: invest in clean energy (even nuclear). I would agree, if I were an investor. I would also bet on biotechnology and nanotechnology.

But, at the Singularity Summit last fall, PayPal founder Peter Thiel presented an interesting theory about the volatile boom & bust cycles of the past thirty years. He explains (his presentation is available on iTunes) that the due to our technological innovations markets we should expect that the markets would be less volatile and more predictable. Instead, we have had the exact opposite.

He said that this is a reasonable outcome of the markets trying to anticipate the ultimate singularity, when ever-increasing value will be possible and investors will not want to miss on that. Thiel states that one of these booms will eventually pan out as the singularity or it will signal the end of the world. He suggests that we should anticipate many more cycles of boom & bust leading up to the singularity and the next cycle will not be easy to predict.

Technology is changing the rules and the technological change continues. Nobody knows anything.