The nation’s economy is in trouble. How bad it is and how long it will last is open to speculation. Economists’ prognostications are treated with a good bit of skepticism—and for good reason. Our track record would shame a weather forecaster in a third-tier media market. In our defense, the economy rises and falls for a combination of real and perceived reasons. And perception is often more powerful than reality. At the moment we confront a real problem of global liquidity that has been revealed in an ongoing series of disclosures, each more surprising than the last, often in obscure markets that are unexpectedly significant. Each new revelation erodes the sense that we really know what’s going on in the markets or, more to the point, what it all means or when this steady stream of bad news will end. It is this uncertainty and ignorance that feeds negative perceptions about the future, perceptions that may be right or wrong but influence behavior nonetheless.
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