Most of us were brought up to understand that discussing either politics or religion in public was, at best, bad manners, and discussing either in a business setting was strictly taboo. Since I’ve already violated the ban on politics in this space (and expect to do so repeatedly over the coming months), I decided that I’d try to get away with a religious reference. After all, this is a season when at least three religions refer to their chosen sacred texts, so a brief reference on my part might not be out of line.
What I have in mind is Joseph’s famous prophesy in the book of Genesis, which foretells how long famines will last when they follow unusual periods of prosperity. I haven’t seen a version of the Bible that makes a specific reference to asset bubbles, but the idea that inflated views of perpetual good times were as dangerous in ancient Egypt as they are now certainly comes through any reading.
In addition to the warning, however, the text also reminds us that bad times don’t have to last forever, either. In fact, economic historians who have studied the aftermath of major financial crises estimate, as did Joseph, about seven ensuing lean years. If we judge the latest financial crisis to have begun in the third quarter of 2007, Fed Chairman Bernanke’s expectation that the central bank can begin raising rates in late 2014, seven years later, carries more weight than most things economists predict.
So what’s next? By my reading, the Bible underscores the benefits of thrift during good times and shows us how Joseph resolved his family problems, but it doesn’t say much about the eighth year. Of course, agricultural slumps can simply end with a season of good weather, whereas financial slumps require a more gradual repair process. I’d argue that we are in such a process now. Although the highly important, but typically lagging, employment trend has recently disappointed, consumers’ confidence and willingness to buy have strengthened. Business and consumer borrowing is gradually reviving, and the largest emerging markets appear to be growing at sustainable paces.
We shouldn’t expect seven fat years to follow the current run of lean years, but I think most of us would settle for a period of moderate growth, improving employment and an opportunity to refill our financial storehouses.
So, while it’s true that the ill winds still blow through the economy, I’d argue that some healthy showers will soon appear on the horizon.