Responsible Parties

Who’s at fault for the lousy economy we have?

It’s fashionable to blame the 1% for the financial crisis, or to blame economists, or the credit rating agencies, or Barney Frank. Some people even blame it on solar flares and sunspot cycles. But the real culprit in the crash was a set of expectations that came from a couple decades of relative macroeconomic calm.

It was fashionable prior to the crisis to refer to the “Great Moderation,” the period of economic stability that began in the mid ‘80s. Prior to then, we’d had recessions every 4-5 years. From 1983 to 2003 we only saw two recessions—one every ten years. At the same time, inflation had come down dramatically and unemployment fell even has the workforce expanded.

This period also corresponded to a general trend of deregulation and falling marginal tax rates. So it’s easy to blame these for the market crash of 2008 and the economic malaise we see today. But the case for deregulation and free markets was never that markets are perfect. The case for free markets is that government control has always been worse. Free markets are the worst system ever devised—except for all the others.

During the early 2000s we thought we had tamed the business cycle so we could all take on more risk. We were wrong; there is no free lunch. Our expectations need to be realistic: human nature hasn’t changed, and markets will fluctuate, sometimes violently.

Blaming others for our problems may seem to feel good, but it’s really counterproductive. The best way to get out of a hole is to look for a ladder.

Douglas R. Tengdin, CFA
Chief Investment Officer
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By | 2014-09-12T10:40:26+00:00 November 10th, 2011|Global Market Update|0 Comments

About the Author:

Mr. Tengdin is the Chief Investment Officer at Charter Trust Company and author of “The Global Market Update”. The audio version of each post can be heard on radio stations throughout New England every weekday. Mr. Tengdin graduated from Dartmouth College, Magna Cum Laude. He received his Master of Arts from Trinity Divinity School, Magna Cum Laude and received his Chartered Financial Analyst (CFA) designation in 1992. Mr. Tengdin has been managing investment portfolios for over 30 years, working for Bank of Boston, State Street Global Advisors, Citibank – Tunisia, and Banknorth Group. Throughout his career, Mr. Tengdin has emphasized helping clients manage their financial risks in difficult environments where they can profit from investing in diverse assets in diverse settings. - Leave a comment if you have any questions—I read them all! - And Follow me on Twitter @GlobalMarketUpd

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