March 22, 2004
A Gathering Storm

John P. Hussman, Ph.D.
All rights reserved and actively enforced.

Near the peak of the stock market bubble a few years ago, as many technology stocks were soaring, Yale economist Robert Shiller appeared on CNBC, detailing his views about the overvaluation of the U.S. stock market. Answering a question about what investors or policy makers could do to avoid the consequences of the bubble, Shiller noted that while certain investors could defend themselves, it was impossible for the market, in aggregate, to do so. Summing it all up, he said, “It's just an unfortunate situation.” I'll never forget that phrase, and the baked-in-the-cake inevitability that it implied.

Examining the condition of the U.S. economy with regard to personal, corporate, federal and international indebtedness, the same conclusion is unavoidable. It's just an unfortunate situation.

Amid the glib opinions of CNBC guests that the economy is expanding, the unrelenting déjà vu that jobs are just around the corner, and the misplaced confidence that stock prices will follow corporate earnings higher, there is only faint recognition of how profound the U.S. debt problem is, and how ineffective standard fiscal and monetary policy tools will be in escaping its consequences.

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