“My Two Cents”
By Andy Sutton

5/22/2006

I was out and about the other night with a buddy doing some people watching and overheard some college age folks arguing about the best way to deal with a hangover. Aspirin, two glasses of water before bed, Goody's Headache Powder etc etc. We've all heard of these 'fail-safe' remedies. Being the eternal inquisitor that I am, I asked them if perhaps the BEST cure for a hangover would be not to push themselves to excess in the first place? The reaction was predictably obtuse. I've come to the almost undeniable conclusion that young minds are so cluttered with visions of sports cars, cell phones, and other material some such that they are no longer capable of rational thought.

However, it gave me an excellent way to model exactly what is going in today's economy. Really? Come on, Einstein, you've really done it this time. No way. What does a hangover have to do with the economy?

In economics, we have a term for hangovers. Its called a recession. And then we have another term for that REALLY BAD hangover that we've all had; we call that a depression. We'll get back to the hangovers later. The whole darn thing really isn't much different from a Saturday night in July. The party will last as long as the booze does. When the booze is gone; the party is over. In our example, the booze is money of some sort. When the money is gone, the party ends. Now for the fun part. The degree of the hangover is directly proportional to the quantity of alcohol, minus the insignificant effect of any miracle elixirs. The more we drink, the more we regret it the morning after. And what always accompanies a hangover? The undying promise to oneself NEVER to do THAT again.

Not much changes when you apply the analogy to money. In the 'roaring 20's', we had excess after excess. Bread and circuses ad nauseum. And we paid. In a BIG way. For almost a decade we languished in that hangover. And the alcohol we drank at THAT party was alcohol that was paid for with our hard work, productivity and economic strength....

Fast forward.. America 2006

The party is still on. Long ago we ran out of our own booze and started borrowing it from others. The FED is the hero of this event, the suave, debonair guy (every party has one) who always has a 'connection' that can get more booze. The punch bowl continues to be filled. We continue to drink and get more drunk. Drunk on credit, drunk on excess, drunk on gadgets, cars, and electronics. Drunk on the stock market, drunk on bigger, better, faster. We can't pay for it, but we buy it anyway.

You get the picture, don't you? You've all seen the typical 'partygoer'. He's the guy in the little sports car on the highway with a cell phone in one ear, an iPod in the other, a $6 Cappuccino in his cupholder and that smug look of someone who's got everything written all over his face. And when you toot the horn at him for cutting you off to the point of nearly ripping off your front bumper, all he does is give you the international 'peace sign' and leave you in a cloud of dust. This is his world.

Keep in mind that all Americans are not partygoers. There is a small minority that still does things the 'old fashioned way'.

The good news (or the bad, depending on how you want to look at it) is that the party is almost over. We're having to make promises of bigger paybacks for the money we're borrowing. We're manufacturing credit, and for now the world is buying. But they want collateral. Do you think its just a coincidence that our infrastructure is being taken over by foreigners? We make little by which to pay them. So we have have to promise them future revenues from our infrastructure. And the list goes on..

Yes readers, the party is almost over. I hope everyone has a lot of their favorite hangover 'cure-all' handy.

Andy Sutton holds an MBA in economics from Moravian College and is a member of Omicron Delta Epsilon International Honor Society in Economics.