This is no mere recession we are entering; rather, it is a darkening prelude to hard times whose eventual depths may lie beyond imagining. Since August, the U.S. has thrown more than a trillion dollars of rescue money at the banking system in a desperate attempt to restore confidence. This effort, while unprecedented in scope, if not to say in recklessness, has failed miserably. Lenders and borrowers alike have completely lost their appetite for credit, with the result that yield spreads between government and corporate paper have ballooned to twice their pre-bailout size. Lenders have turned niggardly, consumers have begun to save as though there actually were going to be a tomorrow, and debt deflation is about to wring from the economy the final gasp of speculation-induced commodity inflation. Although the U.S. and global economies are headed into a perilous void, it is nonetheless possible to see the broad shape of things to come. For one, Americans can put aside any notions about emerging from the downturn as a financial powerhouse. There won't be much need for financial titans during the next boom, since the very idea of sophisticated financial products will be dead for at least a generation. A back-to-basics simplicity will prevail in the banking business, and lenders will find ways to profit by doing things the old-fashioned way ' i.e., by making loans to purveyors of goods and services that consumers actually want and use. Shunning reverse floaters, eurodollar swaps, synthetic put options and other arcane types of financial derivatives, we will be forced to become, once again, formidable producers of widgets and better mousetraps. Only Three Possibilities Of course, this implies that U.S. workers will have to become competitive with the most efficient widget producers around the world. Only three things can bring this about: 1) a big pay cut for
LATEST TRADES
