World Financial Crisis: The Death (and Rebirth) of an Economy

Call it the economic equivalent of the circle of life: What we are witnessing is the death of one era in our economic history, and the painful birth of our next economy.

Fire Sale on Our NationThe nerve-wracking aspect of it is that while we know what is dying—the long-running bull market, the housing bubble, and runaway consumer spending and easy credit—the new economy that will be born out of the current economy’s demise of is the great unknown.

Our last deep recession in America occurred in 1980, when salaries slumped and retail sales went into reverse. The pattern for that happening again is clearly in place. In fact, the median American take home salary that was $50,600 in 2000, and it slipped to $50,200 in 2007. It is likely to slip lower when the numbers come in for 2008. That slippage setup a landslide win for Ronald Reagan in 1980, and may be forming into a tidal wave of votes for Barack Obama less than three weeks from now. To a lesser extent, Bill Clinton rode a similar wave of discontent into the White House in 1992.

Like Reagan, Obama is unlikely to have an easy go of it for at least the first two years of his presidency as the US economy will not bounce back from this far down in simply a matter of months.

While there is great uncertainty in this new emerging economy, I’m willing to wager that just as the 1994 economic resurgence grew out of the expanding high tech boom, the new wave, I suspect, will emerge from the green technologies. From auto manufacturing to solar and wind farms, there are tens of thousands of new jobs incubating at this moment in this new arena. You may not see this new economy emerge until 2010 or later but a progressive Obama administration might well push the process along and help it get an earlier start.

Americans are an impatient lot. What is perhaps our most important trait is also our most maddening. But this persistent drive, ingrained in the American experience to build with exuberance, over indulge, witness its collapse, and emerge from the wreckage with our eyes fixed on a new approach, fills the pages of our history.

Today’s turmoil is the painful part of that process. But for all the gut wrenching drama as we watch our financial world teetering on the brink, we simply need to hold on. This bumpy ride, like so many that have come previously will, in the end, bring us to a better place.

Martin Brown – Money Channel

Cartoon Credit : Mike Luckovich, Atlanta Journal-Constitution