Thursday, September 18, 2008

The meaning of fundamentals 

I'm trying to catch up after the book went to bed, and an avalanche of small tasks appeared this week.

But I have to note the following. It appears that some people want to call John McCain's comment that "the fundamentals of the economy are strong" a "gaffe". But what does it mean to say "fundamentals." Contemplate for the moment, please, the idea that two of the major four investment banks that existed a week ago no longer do. The large insurance company that provided credit insurance to major financial players is now in virtual receivership. And yet the stock market remains open, people wanting to withdraw money can without waiting, and we still haven't had a negative quarter of GDP (though I'll bet this quarter is the one.) The fundamentals of Russia -- which has lots of good resources in oil -- are not nearly so.

Run through the history of manias and you will find many examples of countries that experienced them. Some fail to grow afterwards, some do. The ones that do, are fundamentally sound in the structure of their institutions and laws.

An economy can have strong fundamentals while still experiencing relatively mild recessions, and calls of the recession are still speculative rather than definitive. Everybody exhale slowly, please. The end is not at hand.