Bursting balloons

Russell Wangersky
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“Although Congress and President (Barack) Obama have agreed to raise the debt ceiling, a majority of Americans say that the debate has made them less confident in the nation’s economic recovery.

“More than half (54 per cent) of Americans surveyed say that the debt ceiling debate has made them feel less confident in the economy, and 42 per cent say that it has made them less confident in their own finances and investments, according to the August RBC Consumer Outlook Index. The RBC survey was completed immediately before the resolution of the debt ceiling negotiations.

“Indicative of Americans’ concern with the state of the country, the number of Americans saying the U.S. is on the wrong track spiked in August to 76 per cent, up from 63 per cent last month, and the highest rate since July 2008. Only 24 per cent of Americans say the country is headed in the right direction.”

— from a press release issued by RBC Capital Markets on Aug. 4.

Imagination gets a bad rap. Have too much of it, and you’re accused of going around with your head in the clouds. Few parents are tolerant of monsters under the bed, or being called to a child’s bedroom for the fourth or fifth time that something goes bump in the night.

You can understand why other kinds of imagination get tossed in the same basket: get caught up in someone’s imaginary and far-fetched money-making scheme, and you can find yourself in big fiscal trouble. There they go, off to the next money-maker, and you’re left with the scraps that didn’t really ever fit together — even though they sounded good — and the corresponding wreckage to your bank account.

Still plenty of pretending

But the thing is, even if we don’t realize it, we live most of our financial lives depending on imagination — both our own imaginations and the collective imagination as well.

So, just imagine that you’re looking at a big red balloon. A huge red balloon. A red balloon that is your retirement savings or your net worth or something. Bigger than that: all of our retirement savings and net worth, all of it getting net-worthier every day.

As long as we all imagine it can get bigger, it can get bigger. And look — it’s getting bigger. Oh, bigger balloon, we love you, bigger balloon. Imagine it can always get bigger, that its beautiful shiny red latex shell can stretch and stretch, stretch beyond any limit it’s ever had.

That’s one big red balloon, isn’t it? Heck, forget 55. Maybe I’ll cash out and retire tomorrow. Maybe I’ll just hold onto stuff, because that old big balloon is bigger still.

Don’t — no, stop that. Stop your thinking that the imaginary sky-

balloon’s getting smaller. It can get bigger and more valuable forever, just don’t be thinking about smaller.

Oh, darn, someone out there’s thinking smaller. And the balloon? Smaller too. Too many people thinking that way. Oh, puny, puny balloon.

Taken for a ride

I can’t help but think we’re all being taken for a ride — not by giant international financial conspiracies or anything like that, but by the people who make money on the margins. The ones whose commissions are made on every sale, buy and initial public offering. Because in that world, it’s all about imagination.

It’s one thing for a company’s fortunes to move around based on its individual success — because it’s found gold in some untracked Labrador wilderness, or because it happens to have developed the latest “it” toy just in time for Christmas. Pick that company to invest in, and you deserve to reap the available rewards.

It’s something quite different for markets to move simply on the nebulous basis of “consumer confidence,” for dollars to be made or lost — millions upon millions of dollars — based on how many people have their imagination all wrapped up in a red balloon they neither know very much about, nor even vaguely understand.

Consumer confidence is consumer confidence because, well, it just is. Doesn’t matter if the consumers involved don’t have a clue why they feel the way they do — doesn’t matter if they have no information at all, just a vague unease about where things are going. (“Is this really the road to Aunt Martha’s house? It doesn’t look like the road to Aunt Martha’s house.”)

It’s kind of like house prices: they go up because people think they’re going up and try to jump in quick — “sure, it’s more than we wanted to pay, but there’s room in the pre-approved mortgage.”

Then the bubble inexplicably bursts, and prices dip for little more than because people think they should be dipping.

Now, imagine if someone were to come along and point out that the financial emperor actually doesn’t have any clothes — or more to the point, that the red balloon is all in your imagination, that things don’t actually get more valuable every day, and that, essentially, every time someone makes a real dollar, someone else is giving it up.

Oh, wait.

That already happened, and not that long ago, either. Banks blew apart, economies plunged, companies built on paper and trust in

our financial imagination simply tanked.

Thank goodness we all learned a lot.

Russell Wangersky is The Telegram’s editorial page editor. He can be reached by email at rwanger@thetelegram.com.

Organizations: RBC Capital Markets

Geographic location: U.S., Labrador

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