Hd Boom Time,
Scary Time
The economy has been on a tear, and the expectation is that things will keep smoking at least through the end of the year and most likely, for many months beyond that. The general manager of a local Lexus dealership went so far as to tell a Business Journal reporter that “for the next 25 to 30 years, things are going to be great.” Even a natural disaster would be all right, he said, because it would spur a construction boom.
This is, of course, a pretty unrealistic view, especially when you look back at several hundred years of economic history and realize that sooner or later, bad things happen to good economies. The falls are especially insidious when they come after a prolonged period of growth that leads many into assuming that what goes up will just keep going up.
No less a student of the economy than Federal Reserve Chairman Alan Greenspan has dared to point this out first several years ago with his suggestion that the financial markets were displaying “irrational exuberance,” and then the other week when he spoke of the stock market becoming an “unstable bubble.”
“While this stellar economic expansion still appears remarkably stress-free on the surface, there are developing imbalances that give us pause and raise the question: Do these imbalances place our economic expansion at risk?” said Greesnpan, who keeps hinting at the prospect of a hike in interest rates.
Normally, such sobering comments by a Fed chairman would cause the markets to roil as they did over the “irrational exuberance” line. But this time around his remarks barely caused a ripple; the market, in fact, was up that day.
Clearly, this is not a very good time to sound warning signals people just aren’t interested. And in some ways, who can blame them?
Last week, UCLA forecasters noted that the enormous amount of new wealth created in California fueled largely by Wall Street has added at least a full percentage point to the state’s growth rate. L.A. County’s unemployment rate, which had been stubbornly high for much of the expansion, stood at 5.5 percent in May down a full percentage point from just the beginning of the year. All of which is outpacing nationwide growth understandable given the fact that the local economy was jump-started much later than the United States as a whole.
It’s also creating attitudinal changes among consumers, investors and business people alike. You see it in shopping malls, where spending has taken on an almost spiritual dimension. You see it in glitzy restaurants, where some patrons think nothing of forking over $100 for a bottle of wine. You see it in the real estate market where anxious homebuyers are looking to snap up homes that are $100,000 or $200,000 more expensive than they were a year ago.
This push for more and pricier stuff greatly challenges individual values. It also puts enormous pressure on middle-income wage earners to keep up with the Joneses (even if the Jones household happens to strike it rich with an Internet IPO). And most importantly, it ignores the inevitable day when the business cycle decides to turn. That will be the day when a giant pool of cold water is thrown onto these quite extraordinary times.
