The Break, When it Comes, Will Come Swiftly
Board: Macro Economics
2pm. The sun is still high in the sky, only recently having begun its slow drift towards the horizon. The heat and the humidity hang there like a blanket, seeming to hold the gray smoke that now drifts with a slow interminableness along the open fields. The cannonading just finished, seeming to go on forever, has been the most amazing thing. So many guns. So much thunder. So much fire and smoke. Men on both sides marveled at it, knowing surely it was a prelude to something momentous.
Just east of Seminary Ridge, down in Spangler’s Woods, there is an awful, unspoken anticipation among the men lying in the shade of the trees, their stomachs empty because they had no appetite for lunch. Even for an army proud of spirit, one now long-used to victory and with an unflagging belief in their commander, this thing seems an impossibility. Peering out across the vast expanse of open ground – nearly a mile – they are gripped by thoughts of how this thing must unfold. They cannot escape wondering of their own mortality. Those who have caught a glance of Longstreet’s countenance cannot have been heartened.
And then come the orders. The men stand quickly to arms, forming up in their regimental lines. Standing shoulder to shoulder with their brothers and neighbors and friends, their bowels churning. And suddenly they want to just be on with it. To get it over with.
And so begins the long, terrible march. My great grandfather is among them.
A hundred and forty-eight years later, we all know how it turned out, of course. An unmitigated military disaster for the South, Pickett’s Charge gave proof that even the most exalted of generals sooner or later make a mistake. They fall victim to their own hubris. They are consumed once too often by their own confirmation bias.
With the benefit of hindsight, it is obvious to even the very least of military captains that Longstreet’s plaintive beseechment to Lee that “no fifteen thousand men ever arrayed for battle could take that position…” was utterly correct.
How was it then that Lee could have been so blind? How could he fail to see a picture so utterly clear, one without even a hint of mystery or obfuscation?
Sometimes you just shake your head.
Indeed. And so it is, yet again. Markets turn on one thing more than any other… confidence. The confidence which comes from a tomorrow that unfolds in a predictable arc, based at least loosely upon what happened today. The days turn into weeks. And the weeks into months. And the months into years. And after awhile there it is – the willful certainty of what the future holds. We pretend we don’t know. We tell others that we harbor no such belief, that we are as open to whatever the future might bring as is an eight-week-old puppy. But in our heart of hearts, where the truth lives, the certainty holds its candle up high. It is the monument upon which our hubris is built.
In something much less than a hundred and forty-eight years, people will look back upon us in wonder. They’ll look at the landscape that lay before us, like we today do of that long-ago field in Pennsylvania, and shake their heads.
They’ll see the 1960’s and an American economic Goliath attempt – unsuccessfully – to fund both a long, drawn out foreign war and a vast expansion of social programs at home.
They’ll see the 1970’s and the object lesson that came from that attempt. They’ll see, notwithstanding the savaged economy that was part of that lesson, an increasing belief that economics had been mastered. They’ll see the removal of the last vestiges of a gold standard.
They’ll see the 1980’s and the start of something strange called supply side economics. They’ll see, written in the numbers, the first bump in the graph, the first bit of intellectual snobbery, the notion that debt doesn’t matter.
They’ll see the 1990’s and the beginning of two decades of economic malaise that would grip the world’s second most powerful economy. They’ll see the rise of activism by central banks, an accelerating belief that economies can be engineered, that recessions no longer need be part of the picture. They’ll see the curious transformation of a central banker from geek… to rock star.
At the dawn of the millennium, they’ll see it all pick up steam. They’ll see the advances in communications and technology which suddenly ushered in a multi-generational labor arbitrage. They’ll see free money and a flood of liquidity and the sudden strangeness of home values rising faster than wage rates. They’ll see the odd, incestuous business model via which rating agencies make money. They’ll see the unfettered explosion of unregulated derivatives, synthetic vehicles whose notional values dwarf the world’s real economies – yet which remain an opaque maze. They’ll see leverage, everywhere, on a breathtaking scale. They’ll see the loosening of regulations which allow banks to do pretty much anything they want.
More than anything else, they’ll see debt. Debt everywhere. They’ll see whole peoples, entire societies, who for two generations had lived beyond their means. Who consumed more than they produced.
They’ll see the Euro and instantly see the flaws in its concept. How it could not endure.
They’ll see the demographic tsunami that approached.
And then they’ll see the first cracks, the first fissures in the firmament: Iceland, Greece, Ireland, Portugal, Spain. They’ll see the rating agencies, newly chastened, floating sovereign ratings towards junk.
They’ll see broke states and broke municipalities.
They’ll see the largest bond fund in the world dump Treasuries.
They’ll see commodities reach generational highs.
From the periphery, they’ll turn their gaze towards the center, to the major economies of the world – and find it even worse. They’ll look around for a bastion of sanity in the developed world – a single society that did not choose recklessness, one economy that was managed with prudence and care – and not find one. They’ll look for the outrage and the opprobrium that ought to attend that fact, and find it scant.
In the end, they’ll look at the numbers. The simple math behind it all. The inexorable truth that lay before seven billion people, ignored.
And from that, more than anything else, they’ll shake their head.
The history will be clear to them. The break, when it came, was sudden and swift. Like an earthen dam crumbling away in a flood, inevitability made manifest.
It will be so obvious to them. What they’ll wonder is how it could possibly have not been so utterly obvious to all of us.
And there will be no answer