Among all the numbers surrounding the current economic crisis–$700 billion for the bailout of the toxic mortgages (or will that be used to buy stock in the banks?), or $70.3 billion (the amount, as of October 9, that AIG has drawn down from the Federal Reserve loan to keep it afloat), or $410 billion (the budget deficit projected by the White House before factoring in the effect of the $700 billion bailout), or my personal favorite, the $58 trillion notional amount worldwide in credit default swaps–the one that might be the most instructive of all is 90%. That’s the percentage of Americans polled by Gallup and reported on October 10 who believe the economy is getting worse. Ninety percent. That’s after Congress passed the bailout bill, that’s after the coordinated move by central banks around the world to cut short-term rates.
In its droll commentary on the findings, the Gallup organization noted that “the problem seems to be that the freeze-up of the credit markets and the debate over the Treasury bailout may have taken the crisis of confidence in the banking sector on Wall Street to Main Street,” before pointing out that the next president will “have an important opportunity to reinvigorate consumer confidence.”
You may have other things occupying your time these days, like reassuring your clients that this is not the end of the world, but all of us have an important role, I believe, in injecting some context into this debate over how bad things really are, and will be, and why having long-term faith in the markets is not misplaced. My favorite quote on that topic came from Robert Baur, chief global economist at Principal Global Investors: “You shouldn’t bet on this being the end of the world,” he told a packed hall at the FPA’s annual meeting in Boston, “because it only happens once, and it will be hard to collect.” Eschatological humor aside, Baur went on to argue that not all is “doom and gloom.” He believes the U.S. economy is in the midst of a “structural realignment” from a consumer-driven economy to an export-driven one.