By Carl Hegelman
Back in the days before the great bull market began to charge in August of 1982, there was a soothsayer called Joe Granville. He was the Mad Money Jim Cramer of his day, a showman and exhibitionist whose performances included walking on water (across a swimming pool in Tucson, dressed in a tuxedo) and a piano-playing chimp. Despite that his demeanor wasn't what you would expect of a great financial brain, he attracted a large following of investors for his $250-a-year financial letter (about $615 in today's money), partly because, as People magazine explained, he had called four major stock-market turns in two years. His reputation grew to the point that when he issued a "sell everything" fax to his premium subscribers in January 1981 the market dropped 2½% on its busiest trading day to that point in history.
For every big financial turn, there's at least one hero who saw it coming. It's not surprising, when you think about it. Given the number of promoters airing their opinions, it would be surprising if someone, somewhere, hadn't called it, maybe even three or four times in a row. It's like the monkeys with the typewriters. The surprising thing isn't the occasional masterpiece. It's when the same lucky monkey who wrote Taming Of The Shrew then proceeds to peck out Two Gentlemen of Verona and Love's Labour's Lost. And, sure enough, Joe Granville's reputation didn't survive the Great Bull. Apparently, he's still in business, but I read somewhere that over the past 25 years his recommendations have lost an average of 20% a year. No word on his piano-playing chimp.
There are various heroes for the financial crunch of 2008-10; such as Robert Shiller of Yale, who called both the dotcom and the housing crashes, and Meredith Whitney, the banking analyst formerly at Oppenheimer who first exclaimed, in October 2007, that Citigroup was wearing no clothes (and who, by the way, is now predicting a meltdown in the municipal bond market). Perennial doomsayer Nouriel Roubini of NYU is also often cited, although he was already something of a stopped clock by 2008, more focused on the trade deficit with China than on the exponential rise of house prices.
Lately, the economic duo of Kenneth Rogoff and Carmen Reinhart have become talk-worthy because of a series of studies of past financial crises focusing on the dire consequences of having too much debt. Their most recent paper on "The Aftermath of Financial Crises" caused a stir because it's telling us that running up bigger deficits will only prolong the problem, a prescription that goes against the current policy of deficit-financing backed by both political parties—whatever they may say to the contrary—in the recent tax-cut-extension act. Probably nobody disagrees with Rogoff and Reinhart that our debt is a problem, but how big a problem is it and why is it a problem?
Well, if you add up $14.5 trillion in mortgage debt, $14 trillion of national debt (Treasury bills and bonds), $2.5 trillion in consumer debt (credit cards, student loans, car loans, etc.) and $3 trillion in state and municipal debt, you get to around $34 trillion. Given that we have about 140 million people working right now, that works out to about $240,000 for every working stiff in the country.
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