US On an Economic Rollercoaster

The United States economy has been through a lot during the past few years. For those of us in our younger years, it's hard to believe that an economic crisis such as this could ever occur during our lifetime. From the things we've heard about the Great Depression, it would be our hope that the US wouldn't get close to that again. However, when a nation's financial system is in need of bailouts in the range of trillions of dollars, it's hard not to believe that our recession is only to get worse. Yet the famous billionaire Warren Buffet thinks the opposite. Buffet takes an optimistic view on the situation and believes that "America's best days are still to come." How can this be? How is it possible for the US to regain its powerful position again? Is it just wishful thinking? Buffet states that he realizes the US economy did "fall off a cliff", but still believes that the US has the ability to regain its position and move forward on this economic wave.

As a realist, Buffet has acknowledged some activities that are most likely to occur in the future, such as higher unemployment and an inflation. These things seem more evident has large corporations continue to let go masses of people. Still, through all of the negative events that happen, Buffet remains true to his opinion that we shall see success in the future. Addressing the financial system, he notices that more citizens are improving their spending and saving techniques. Being the owner of over 60 companies including the large car insurance company, GEICO, he noticed that while his jewelry industry suffered a loss, GEICO became more popular as people wanted to save more money. But is that enough? Is switching to another car insurer to save around $500 a year enough to make Americans feel more secure? No. Buffet believes that Americans must have faith in the entire nation's banking system. "Most banks are in good shape. The banking system largely will cure itself," says Buffet. But most banks like who? How are we (as Americans) supposed to feel when banks such as Washington Mutual, Merrill Lynch, and even Wachovia can go under? Can we really have hope that a better economic stance is coming soon?

Keith Fitz-Gerald of NuWire Investor takes the opposing view of Buffet. Instead of a better economic situation to head our way, Gerald believes that the US's recession is worse than Japan's "Lost Decade". (Japan's "Lost Decade" represents the economic turmoil during the 1990s that Japan experienced. This turmoil included a rising unemployment rate, failing financial systems, homelessness, and a Japanese stock market crash). Gerald states that the current US situation is nothing more than a replay of the "Lost Decade", maybe worse. If we take a look at the following similarities between the two eras, it's hard not to believe what he says.
1. Rising unemployment rate
2. Failing financial systems
3. At the beginning of each country's recession, large deficit. (In fact, US had a larger deficit than Japan)
4. Economic problems starting long before results actually appeared

So who do we believe? Do we look at our current situation and follow in Fitz-Gerald's thinking? We can see how our economic and financial instability is a mere future representation of Japan's "Lost Decade". For a long time, we've noticed the downward spiral of the US economy. Having to bailout major corporations and implementing a billion dollar stimulus plan, both of these requiring citizens to cough up more money. Or should we be thinking positively like Mr. Buffet? Start thinking about the future and how the tables can be turned with a little hope and faith? Of course he is speaking as a billionaire who might be able to sustain his financial status during this economic time, but his attitude does remind me of a popular saying; "As low as we are now, there's nowhere else to go but UP!"

Sources:
1. Associated Press. "Warren Buffet says economy fell off a cliff." Contra Costa Times. 9 March 2009. 9 March 2009 <http://www.contracostatimes.com/business/ci_11872501?nclick_check=1>.

2. Fitz-Gerald, Keith. "US Recession Could Be Worse Than Japan's Lost Decade." NuWire Investor. 3 March 2009. 9 March 2009 <http://www.nuwireinvestor.com/articles/us-recession-could-be-worse-than-japans-lost-decade-52647.aspx>.