Hey Wall Street, Don't Worry

So an interesting piece in the Wall Street Journal bemoaning the glum spirits on Wall Street.

There is no denying that the current financial morass is deep and painful. But taking the long view, there is something both startling and disturbing about the gloom that has settled over Wall Street and the country in general. In fact, looking back over the past century, it would be a stretch to rank the current problems as especially notable or dramatic. Something else is going on – namely a cultural rut of pessimism that is draining our collective energy, blinding us to possibilities, and eroding our position in the world.

Most people know I am probably one of the most optimistic people in terms of long term prospects for global growth as well as general progress in the world as a whole. However, financial services is a huge portion of America's economy and drives much of its competitive advantage and even seeps into its ability to exert influence on all sorts of areas people don't even realize.

The high levels of leverage that sustained the business models in financial services does not appear to be sustainable. An adjustment is going to have to be made that will have implications for these businesses and the industries they finance.

I remember my own early days when I worked in the trade office of the White House and I'd put out monthly blurbs on our trade deficit number where I learned 20 different ways of saying "hey don't worry, this looks really bad but isn't". Back then, the twin deficits were a much larger % of GDP but the big difference here is real alternatives as to where foreign capital can be placed. We are not the only game in town anymore. That has huge implications for our own macro policies and what we can and cannot afford to do. We have limits and thats going to take getting used to.

To me that means, the trade deficit has to finally come to a reckoning point which means further deleveraging, less foreign borrowing, and Americans need to start producing more and consuming less.

In short, sometimes it's good to be a little worried.

Link to full WSJ editorial here.