Civil Unrest: Where's Mom?

I will not be as those who spend the day in complaining of headache, and the night in drinking the wine that gives it.

~ Johann Wolfgang von Goethe

Capitalism’s 3 Children are at it again, and this time it’s much more serious. We’re no longer talking about name-calling and spit balls. We’re dealing with molotov cocktails and fatalities now. This is for real folks. The scenario that’s unfolding before us is exactly the type I feared when I wrote 2010 What Ifs and 10 Reasons to Be Cautious Right Now. Blood in the streets is no longer just a trader’s euphemism for falling markets.

Back then, I said that sovereign debt would be a huge issue this year and warned that we have not fixed the root problems that led to the financial crisis. I urged caution with your investments and care with your personal finances.

The markets proceeded to go on a tear over the next few months. I didn’t change my position because I regarded that rally as fueled by stimulus fumes and the stimulus as fueled by debt fumes. I’ve read it and said it a hundred times before and I’ll say it again: You cannot solve a debt crisis with more debt.

If you’re interested in one person’s economic forecast, I humbly suggest you read or re-read Cloudy With a Chance of Hurricanes. I wrote this back in February. It outlines a vision of the next decade or so and offers some tips on how to navigate your personal finances in this volatile environment. You might also want to check out my guest article on The European Sovereign Debt Crisis & Your Investments posted at The Digerati Life on Monday.

Don’t Take My Allowance!

It’s Mother’s Day this Sunday and boy, if we ever needed a global Mother it’s now. It seems the kids have been left home alone and some of them threw a wild party. Now we’ve got a giant mess on our hands. Heirlooms are missing. Treasured artifacts have been broken, and trust, destroyed.

But not all of the kids participated. There were a few shouting over the gleeful yelps of their intoxicated siblings: “It’s too much, too loud, too fast!”, they exhorted. “This isn’t going to end well! If we stop now, it’ll be much easier to clean up!” These admonitions were largely met with scornful laughter and dismissive grumbling about nerds, sticks-in-the-mud, and Chicken Little.

Well, now we’ve got quite the mess to clean up, haven’t we? The profligate debtor nations and consumers who gorged on debt are effectively being asked to take a cut to their allowance in order to help the creditor nations pay to clean up the party that they thought was a bad idea in the first place. (Please see John Mauldin’s mini-rant on how global taxpayer money is funding the Greek bailout courtesy of the IMF. It’s not just the Germans who are being asked to support their prodigal brethren.)

Now everybody’s mad. The party-goers are complaining of a giant debt hangover and they don’t want to give up any of their allowance. The party naysayers are angry because they have to spend their hard-earned money to clean up the mistakes of others. It’s the old grasshopper and ant parable all over again.

Capitalism’s Missing Links In the Spotlight

Integrity, co-operation, failure, and leadership. These are the factors that I cited as Capitalism’s Missing Links. All of these deficits are pretty evident in the current iteration of the financial crisis. Recent allegations against Goldman Sachs are the tip of the iceberg in terms of the integrity deficit. Congressional hearings in the States and political machinations world wide are emblematic of a widespread lack of cooperation, and failure has been very selectively determined by public policy decisions rather than capitalist principles.

But the focus of this article, in light of this Sunday’s tribute to mothers, is the lack of leadership. Where is the gentle, rational, calming voice that will rise above the fray here and say, “That’s enough now. Let’s sit down and sort this out.”? Where is the impartial, trustworthy peace broker who can make sure each sibling pays their fair share? Where’s Mom?