When Ernest Hemingway published his memoirs, he called Paris “a movable feast.” He was lucky enough to live there as a young man during the ‘20s, and the intellectual fellowship he experienced then remained with him for the rest of his life. He could always reflect back on that time and feed, as it were, on its nourishment.
Leverage has become our economy’s movable feast. But it seems to feed crisis after crisis. Five years ago it was individuals who borrowed funds they didn’t have to purchase overpriced homes on the assumption that house prices would always rise. The resulting boom and bust threatened the global financial system. Fifteen years ago stock market day-traders drove the equity markets to unsustainable valuations, in part based on fairly generous margin accommodations..
Now the government has been levering up, borrowing about 10% of the economy even as individuals and corporations pay down their debt levels. The resulting fiscal crisis threatens the United States’ top-tier credit rating. It was entirely predictable that we would run up against our statutory debt-ceiling. If the political brinkmanship on display in Washington isn’t curbed, another crisis will ensue.
The essential thing to know about a movable feast is that it comes up again and again, but the specific circumstances change. Hemingway’s movable feast nourished an amazingly productive writer. Let’s hope our economy’s movable feast doesn’t overwhelm us.
[display_podcast] A Moveable Feast