back to blog homepage

“The Times They Are a-Changin’”

Below is an article I was asked to write for a local publication. I thought I'd share it with you as well.

When Bob Dylan sang “The Times They Are a-Changin’” I doubt he had the vision to see the mess that our government and our largest financial institutions have made of our economy and the world’s financial systems. Changes galore are being implemented and debated (often in that order) that are costing an estimated $1.8 trillion so far. There are a number of reasons for which we find ourselves in the current situation, but the purpose of this article is to look at the present and the future but not at the past.

I am philosophically opposed to government intervention, but pragmatically the Keynesian actions were necessary to stave off a worldwide financial disaster. Credit markets had seized up and lending between financial institutions as well as to large corporate clients was near an end as financial institutions were hoarding their cash-on-hand. The world was truly on the brink of financial disaster that would have led to prolonged recessions, escalated unemployment, and hyper-inflation as the value of paper money deteriorated with the world’s banking systems.

The U. S. Treasury and Federal Reserve acted decisively over the past few months to attack the problem. The Fed has taken on all sorts of collateral, including some junk, to provide liquidity to our financial system. The Fed and Treasury engineered the take-over of Bear Stearns by J. P. Morgan to keep the derivatives market functioning. The government assumed Fannie Mae and Freddie Mac so that our housing market could continue to find financing. The government took over AIG so that the Credit Default Swap market could function. The Treasury formed the Resolution Mortgage Trust to acquire the bad debt on the balance sheets of our financial institutions so that the banks could raise equity capital and begin to lend again.

Keynesian government intervention of this magnitude comes at a price: higher inflation, higher taxes, and reduced spending on social programs. The doubling of our national debt from the take-over of Fannie Mae, Freddie Mac, and the sundry other rescues – paired with Social Security and Medicare funding deficits fast approaching – means that the government will need to print a lot more dollars to pay the principal and interest on the bonds they issue to fund the intervention. The only way to service the debt on these bonds is for tax payers to pay more and for recipients of government services to receive less.

Now is the time to utilize the talents of a professional investment manager who understands what is happening in the financial markets and has the vision to manage your portfolio accordingly. Yes, the times they are a-changin’ and if you are not satisfied with your investment manager’s ability to navigate this difficult time, you need to be prepared to change as well.