Will things get better, or worse? Round two.

According to google analytics, one of my most popular posts to this blog came back in May when I posted an article called "Will things get better, or worse?" I looked at some of the various forces I thought might push the world closer to paradise, versus equally powerful forces I thought might push us into an apocalypse.

This morning, listening to the BBC, the trumpets of the apocalypse seem to be sounding. Financial markets around the world are in full blown panic. No matter what happens in the long term, the fact is that we are going to enter into next year with significantly less wealth in the world. So, I find myself on a rainy Friday morning looking out over the gray gloom of the day and thinking, "Is it time to fucking panic? Seriously, should I be drawing the last hundred bucks out of my 401k and go shopping for some sort of semi-automatic weapon? Maybe stock up on canned goods to better wait out the rampaging hordes of looters that may start wandering the streets any day now?"

Fortunately, any fan of science fiction knows that the wisest advice ever offered is: "DON'T PANIC!" Instead of shopping for guns, I'll spend my morning instead washing my towels. (If you aren't getting the reference here, you are dead to me.)

And now, three reasons to panic:

1. We are governed by idiots, thieves, and madmen. If you're not willing to go that far, I still think you would have a hard time arguing that any major political figure of the last twenty years has covered himself in glory. No one, either democrat or republican, has shown any willingness to tackle our economic problems in a responsible fashion. Last week's presidential debate was astonishing in it's shallowness. Both McCain and Obama, when asked if this current crisis was going to change the way they would approach the office, basically pretended not to have heard the question. No one is showing even a sliver of honesty or wisdom. Obama has chided McCain for his "erratic" behavior, but Obama, too, got behind a trillion dollar bailout bill within hours of hearing it proposed and, having impulsively decided to support it, still stands behind it. Do you know how the $700 billion figure for the initial bailout proposal was arrived at? Pure guesswork. Nothing more than a nice, round figure that Henry Paulson thought was lucky because there was a "7" in it. There were never any hearings where independent experts were invited in to propose a true cost and show the mathmatical logic of how they arrived at the cost. Instead, we're going with a number picked with the same care people bring to picking numbers on a roulette wheel.

2. The significant chunk of the world's economy was built on stupidity. About twenty years ago, someone in the banking industry realized that credit cards could be a cash cow if they gave the cards to people who wouldn't or couldn't pay them off quickly. There was a time when, if you had a credit card, it meant you were an affluent member of the monied elite who regularly made purchases of items such as diamond rings, jet planes, and small island nations. If you were a person with a million dollars in the bank, said bank would issue you a card with a credit limit of upwards of ten thousand bucks. Today, if you have a credit card, it indicates you have a pulse. You are more likely to be buying pizzas than diamond rings. Pizza! PIZZAS! There are people in this world who go into Pizza Hut and go into debt for PIZZAS!!!! YOU MORONS!!!! Get the hell out of the gene pool, now!!!!

Ahem. Excuse me. {Wipes spittle from chin.} Deep breaths. Find my happy place.

Okay. Look, I'm not coming at this from some holier than thou position. I've put some amazingly stupid charges on my own credit cards. But, credit card companies have given consumers an amazing amount of rope because it's profitable for them to have people hang themselves. Banks want people to run up large debts with no plan on how to pay them off, knowing that while most people are lousy at math, they are also fundamentally honest and 90% of people will pay their monthly minimum payments, which are designed to have the debt paid off in roughly a century. People could live as if they were making $60k a year when they were, in fact, making only $40k a year, because every year banks would send them more credit cards with $20k limits. This can't go on forever. And, when it does stop, you're going to see a lot of empty parking lots at malls and shopping centers. An entire economic model has grown up out of people spending money they don't have. Once this house of cards collapses, it will take years, even decades, to build a more sound economy.

3. Even if you don't panic, you're surrounded by people who will. Remaining calm in the middle of a frightened mob is a good formula for getting trambled to death. So, I can sit here and calmly say I will be resolute and firm and not touch my 401k in a time of panic. But, the collective panic of even 10% of the populace invested in the market is enough to slash the value of my investments by half. Last year, the stock market was at 14k. If trends hold, we're going to see it hit 7k. Whether or not I panic, my single largest asset outside my house is in freefall, and what can I do about it?

Well, one thing I can do is think of three reasons not to panic:

1. People don't like being poor. I don't think that most people in America are going to switch to a diet of beans and oatmeal any time soon. We are still going to demand our pizza and sushi. We are still going to want our televisions and cell phones and GPS navigation in our cars. And, we're willing to work to get them. The world is full of carrots that will continue to motivate people to get out of bed and go to their jobs. People who lose their jobs will find new ones. You know all those jobs that they say American's won't do any more, jobs that require an influx of a few million people a year illegally to get done? We may even start doing those jobs again. The fundamental truth is, while American's are foolish consumers, they are also highly motivated and adaptable workers. We will keep things rolling through sheer worker inertia.

2. Every sale is a buy. This one requires a little thought, but, if the stock market plunges to 7k, it's going to be because people have sold a lot of stock in a panic... and other people have bought this stock at firesale prices. Let's say a speculator bought stock in North American Widget Corporation when it sold at $200 a share. The speculator went into the stock because it had been climbing like crazy in recent years, and he thinks that since it rose from $100 a share to $200 a share in two years, in two years more years it's going to be $400 a share! Now, in the panic, NAWC stock has fallen to $100 a share and the speculator is jumping out. Someone out there is buying that stock, hopefully becaused they've looked over the balance sheets and saw that NAWC is leading manufacturer of widgets with a good reputation and a highly trained workforce. NAWC stock didn't have a price to earning ratio that supported $200 a share, but it does support $120 a share, and the new buyer just make an INVESTMENT as opposed to a gamble. Panic punishes gamblers, but creates opportunities for the financially savvy.

As for the fall in house prices, we are now going to enter a market where cautious, careful people can buy houses for their true value, or even under their true value, as opposed to buying a house on the premise that it was a lottery ticket. Cable TV was full of shows on "flipping," where people would buy an old house for $400,000, paint it and put in new appliances, then sell it two months later for $600,000. Maybe now people will return to a more fundamental approach to houses... buying them as places to live instead of places to turn a quick buck.

3. Maybe... just maybe... we'll actually learn something from all this. This is, admittedly, my shakiest proposition. But, maybe we'll come out of this downturn uniformly smarter as a nation when it comes to money. People will realize that the government isn't going to save them and will sit down and take out pen and a notebook and start writing down their expenses and their income and start making some genuine financial plans. We had two decades where we've had bubble after bubble that offered easy riches. Now, perhaps people will stop and set financial goals appropriate to their income--or, set income goals appropriate to their desires and go out and get the training they need to get what they want. We could be in for five years of intense pain, but come out of it smarter, leaner, and tougher.

Right now, I'm slightly more optimistic than pessimistic. This isn't the next great depression, just a long-needed market correction that the average person will simply tough out. Just the same... don't lose track of your towel.