Sunday Funnies: Market Reruns Not Returns

Everything matters but to varying degrees. The worst of the news is not economic, although that is a very close second. The most important issue is the human condition, the emotional degradation, psychological anguish and fear.

What does it mean to lose your job with fading hopes of finding one soon? What does it mean when you're living hand to mouth and you hear that reduced government spending and austerity plans are required. You have already maximized your austerity -- what now?

Now there is fear and uncertainty. This can only reinforce volatility. This will be the environment that the stock market rests its future in. If governments around the world spend less, combined with the public spending less, the result will be that companies will have less revenue and less profit. Less profit can only lead to slower growth in the stock market.

This does not mean business will not thrive in certain quarters, but the measuring stick will change. Our standard of living will stagnate and real growth will advance very slowly until the excesses of the past twenty years are wrung out of the system.

For years our deficit spending and reduced savings rate has sustained unrealistic expectations, here and abroad. We all knew where this would lead, with consensus that we have borrowed from our children's future. The future has arrived sooner than we thought, and we are going to have to deal with it.

Among our many unrealistic expectations is that unemployment can return to 5%. This level was sustained by unusually low interest rates combined with high government spending, which created phantom dollars. This allowed us to pay for things that created jobs that vanished back to the never never land where they came from. We may have to settle for 7.5% to 8% unemployment as normal.

If the government is able to reduce spending and people continue to increase savings then the volatility we are experiencing will hopefully diminish with the stock market growing slowly in tune with the rate that we remove our excesses.

Since our excesses are great and our governments are slow, it could take a decade to see significant economic growth. 2010 may be the blueprint for the decade. A lot of movement but no progress, like rearranging the furniture in the room faster and faster. The stock market will grow at a rate that looks relatively flat compared to what we are used to. The stock market may have more reruns than original plots.

Sheldon Liber is the CEO of a small private investment company and the principal for design and research at an architecture & planning firm. He writes the columns Chasing Value and Serious Money. Disclosure: He own shares and options of BP.