Economic Insights - March 2011

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“It’s an ill wind indeed that does not blow someone some good.”  That old saying is certainly worth keeping in mind as we encounter the “winds of change” violently assailing our world at this moment.  In just two years, we’ve moved from the financial hurricane of 2008 to an epidemic of geopolitical tornadoes touching down in hotspots everywhere from Cairo, Egypt to Madison, Wisconsin. The last time we saw anything like this was the S&L Crisis followed by the meltdown of the Warsaw Pact and the first Gulf War.  We can clearly learn from the past, but we must also recognize that the current situation is not just a repeat of the recent past. Most importantly, by acknowledging that discontinuities like these are precisely what enable “creative destruction,” we can position ourselves to avoid catastrophe and seek opportunity. For instance, true globalization would not have been possible without the collapse of the Warsaw Pact and the dismemberment of the old USSR, which formed its core. The break-down of the cold war paradigm opened the way for the enormous changes that have happened over the past 20 to 25 years. That’s why we have to analyze and understand the earth-shattering “inflection points” we’ve encountered over the past year.  The two mega-shifts already in play — restructuring of Mideast geopolitical realities, and redefining America’s social contract involving taxes, entitlements, and public employees — will have enormous medium and long-term implications.  And it’s quite possible that the kinds of stresses involved in these two upheavals will pave the way for other economically important shock waves.  Given that, our challenge is to balance risk and reward at the societal, firm, and individual levels. As always, we’ll leave it to our sister-publication, Trends Magazine, to sort out the long-term implications.  Our job at Business Briefings is to tell you what’s likely to happen to the economy in the next 12 months or so, so you can make informed decisions about investments, careers, and business strategies. Our view is pretty consistent with that expressed by Warren Buffett in his just- released annual letter.  As Buffett put it,...

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