There are lots of things one gets used to after living in the United States for more than one year. That everybody asks you how you are, but nobody wants to know. That a “7” in handwriting doesn't come with a dash in the middle. Even this stubborn resistance against the metric system.
What I haven't got used to, though, is the overwhelming presence of economic excess.
At least in this part of the country, where a seven-year-old boy once expertly asked me whether we were paying for our car "on a monthly basis", an automobile with less than six cylinders simply doesn't seem to feel right.
When my neighbor D. was pregnant with her second child, her girlfriends gave her huge gift bags full of expensive clothes at her so-called baby shower. My son, who turned eight this month, got a couple of hundred dollars' worth of birthday presents from his friends (or rather from their parents).
On a larger scale, law firms and enterprises of the financial sector compete for graduates from elite colleges by offering six-figure salaries for their first year on the job. Getting rich and retiring by the age of 35 has become not an unrealistic goal among twenty-somethings at Wall Street.
As we have also learned during the past few months, a lot of people with no financial resources whatsoever were given - and accepted - hazardous mortgages from major banks. Mortgages they could never seriously be expected to pay back.
And why shouldn’t they go for it? Didn’t even some politicians and NGOs actually embrace subprime mortgages as a means to give poor people the chance to own a home, too? Didn’t the whole country get used to living with huge deficits in its federal budget as well as in its trade? And hadn’t everybody lived quite comfortably with spending, on average, more money than he or she actually earns? The national savings rate has been in the negative since 2005. But why bother if one had got used to the value of homes growing at a double-digit rate every year?
Now, Americans watch the mortgage crisis expand and the stock markets crash. Their's, and those of other countries around the world. Concerns grow that a major recession is going to follow suit.
And not only do the wealthy lose money. Middle class people and families with low income stand to lose their homes and investments they rely on for their old age. Cities face bankruptcy because of the real estate market collapsing in whole districts.
Not that there hadn't been warnings in abundance. For someone coming from a part of the world where economies tend to suffer from over-regulation (and where people tend to put their money into savings accounts with ridiculous interest rates, rather than either spending or investing it), it was fascinating to watch the mortgage crisis evolve with the Fed, the government, and other institutions looking the other way. While the financial industry turned ever more creative in "redistributing" risks as if they could make them dissappear.
As a student of American history, I had already marveled at the excesses of the so-called Gilded Age towards the end of the 19th century, when “robber barons” like Rockefeller, Carnegie, and J.P. Morgan dominated the scene until these early financial heydays ended with the Panic of 1893.
Since then, America has become even more of a “Bubble Economy”, as Eric Janszen, founder of the investment website iTulip, argues in the February issue of Harper’s Magazine. (Janszen, and iTulip, became famous for predicting and commenting on the burst of the dot.com bubble in 2000.)
And no end is in sight, according to Jantzen: He writes that what he calls the FIRE sector – Finance, Insurance and Real-Estate businesses – has successfully replaced the business cycles which had at least been connected to the economy’s fundamental value and health, with a cycle of “shared speculative hallucinations”. Helped by media, governments and legislators, they pick out a certain sector and inflate it with capital, thus creating a perpetuum mobile of rising assets for as long as the hallucination lasts.
To cover their losses after one bubble bursts, the author concludes, financiers will have to create an even bigger new one. And a new bubble might already be well on its way: Janszen predicts alternative energies and infrastructure to be the next target. Not that those sectors didn’t need investment, he writes. But odds were that the lion’s share of the bubble trillions would end up in shares and not in actual new industries or infrastructure.
Janszen doesn’t leave much hope for any “change” of this system from the political side; on the contrary: Following Al Gore and the latest media hype, presidential candidates like Hillary Clinton have already begun to embrace alternative energies as a political key topic, thereby only delivering one more crucial ingredient for FIRE’s success in creating a new bubble.
One might add that financial sector’s powerful grip on the US economy does also result from the simple fact that alongside the bubbles, the sector itself has grown into huge dimensions. FIRE nowadays stands for more than 20 percent of America’s GDP.
Last but not least, the sector has been extremely successful in luring a major part of the country’s intellectual talent into its own system. Take the example of Princeton University: Six out of ten undergraduate students go from this university straight to Wall Street. Needless to say that the best get hired in advance, before they even graduate.
At least right now, it seems hard to imagine a way out of the vicious circle of bubble economy. Or, as Janszen laconically puts it: “Given the current state of our economy, the only thing worse than a new bubble would be its absence.”
