spark plugTwo years after Lehman Brothers collapsed in a $639 billion bankruptcy and the short-term financial markets seized up with terror, we've backed away from the brink. But skittishness in the financial markets hasn't gone away. It's just taken a different form -- for instance, driving gold prices up 56% from $805 an ounce on Sept. 3, 2008, to $1,253 Sept. 3, 2010.

Of course, that run-up won't lead to economic revival. To get that, the U.S. needs a new, business-productivity-boosting technology, among other things.

While the roots of the financial crisis dated back to the summer of 2006, it took two years for it to reach its peak in September 2008. That summer was when subprime mortgage issuers started collapsing. I remember it well because in a Dec. 18, 2006, post on DailyFinance's sister site, BloggingStocks, I recommended short-selling shares of subprime lender Novastar Financial (NOVS), then at $106. By Sept. 3, 2010, the stock was trading at 66 cents.

Downward Spiral

At the risk of repeating the obvious, subprime mortgages were the raw material stuffed into a range of poisonous financial sausages -- known as mortgage-backed securities (MBS) and collateralized debt obligations (CDOs) -- that Wall Street foisted onto yield-hungry institutional investors. And thanks to the AAA-ratings that ratings agencies supplied for those securities, the institutions felt safe in buying them.

We all know what happened next. Millions of unqualified borrowers who got the subprime mortgages couldn't make their payments. And as soon as the housing price bubble began dissipating, borrowers could no longer sell their properties at a profit to pay off the loans. Thus began the downward spiral that nearly brought the global economy to its knees.

The capital markets have recovered nicely since then. But fear has not left the building, and today the U.S. economy is at a crossroads. The good news is that job losses are way down from the nearly 800,000 shed in January 2009 at the recession's peak. Corporate profits are strong, and cash balances at $1.84 trillion are at a near record high. Moreover, the economy has been growing since the summer of 2009.

What America Needs Now

Unfortunately, if left to its own devices, the economy appears poised for stagnation. Consumers are more concerned about saving than spending, and business demand for credit appears to be down as banks have gotten a lot tighter with their money.

With roughly 70% of economic growth coming from the overall consumer category (which is a broad catch-all that includes far more than retail spending), it's hard to see how that spending will rise enough to get the economy moving again until businesses start hiring larger numbers of workers again.


To get to that point, the economy would need to be growing faster than 2.5% annually and creating at least 300,000 jobs a month. How can the U.S. achieve that? One way is to go back to what I think of as America's greatest strength: its ability to turn new ideas into robust entrepreneurial ecosystems. That's a topic Professor Srini Rangan and I addressed in our June 2010 book, Capital Rising: How Capital Flows Are Changing Business Systems All Over the World.

The nation can generate economic growth if it can create such ecosystems that would draw capital investment from the corporate sector into new technologies that boost business productivity. The U.S. has done it before, in the 1960s (mainframes), 1970s (minicomputers), 1980s (networked PCs) and 1990s (Internet).

The question of the moment is: "What powerful new idea will spur such capital investment in the 2010s?"

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jlf0425

Looking back to 1935 thru 1940, the next big thing was World War 2 when we had a debt:GDP ratio of some 120%. Because of a large manufacturing sector and vast numbers of returning GI's we kicked off mass higher education and fed the consumer segment dramatically. We had inventory correction-recessions several times from 1947, two oil crises,a crash in 1987, S&L bailout in 1988, Tech Crash of 2000, 9/11 followed by the AFghan-Iraq fiasco's and now the great Bush Depression. I think we need to look at our Export:Import ratio to see where we must go for a reprise of our economy. Oil cost us approx. $18 billion today or about $6.5 trillion annually. Lets get off the stuff or reduce it via other energy sources. We import vast crap from China, VietNam, Taiwan, Japan, Germany, et al. Why not raise a tariff on this stuff, especially China who is a proven currency manipulator. Lets put our people back to work making physical items that the American consumer will buy. For you worry warts: There is a ready market out there for our Treasury debt. My guess is that the other nations will jump for joy if we do these things. course 9/11 followed by the Afghan-Iraq wars

September 17 2010 at 6:56 PM Report abuse rate up rate down Reply
customlawnil

What this economy needs now is for all clear thinking conservative voters to kick out the trash come November.

September 14 2010 at 9:25 PM Report abuse +1 rate up rate down Reply
sunstpools

everytime you have down turn in the economy you have that next big thing, only going back to downturns in the economy. In the 90's, the big thing that pulled us out was the internet boom and in the 00's downturn it was actually the deregulation of banks that allowed every tom, dick and harry to be approved for mortgage, thus the blue collar workers sparked economy and the trickle up effect, (like its always been, not trickle down), so whats the next big thing, you want a quick fix legalize pot and tax the shiz out of it and its being eco friendly since paper, clothes, rope and bio-fuels can be made lessing the need to cut trees and dependency on foreign oil. A lot of people don't want this but it would be that lighting bolt

September 14 2010 at 8:20 PM Report abuse -1 rate up rate down Reply
mcmosbaug

WE NEED MORE THAN A SPARK PLUS GUYS...WE NEED A BIG BOLT OF LIGHTNING TO STRIKE THE WHITE HOUSE AND SET THEIR "ASS" ON FIRE...AND CHARGE IT WITH RESULTS AND NOT BULL **** AND SMOOTH FAST TALKING.....

September 14 2010 at 7:32 PM Report abuse +1 rate up rate down Reply
1 reply to mcmosbaug's comment
customlawnil

Tonight, I ask God to send us that big lighting bolt.... soon.

September 14 2010 at 7:47 PM Report abuse +1 rate up rate down Reply
mcmosbaug

I WOULD SAY THE THE NEW ECO SYSTEM FOR 2010 AND BEYOND NEEDS TO BE ENEGERY... SOLAR .....WIND...NATURAL GAS.....PLUS TO GET THE 20 BEST CEO's IN THE MANUFACTURING SECTOR TOGETHER TO BRING BACK SOME FARMED OUT MANUFACTURING TO OTHER COUNTRIES...START WITH MEXICO FIRST...FORD MOTOR HAS ALREADY STARTED ON THEIR OWN....THEY ARE MAKING MORE TRANSMISSIONS IN AMERICA THAN IN 2009 AND THEY ARE NOW MAKING ALL THEIR OWN DIESEL MOTORS IN THE US.

September 14 2010 at 7:29 PM Report abuse +1 rate up rate down Reply
customlawnil

We are now living in the nanny state that Obama wanted. His dream came true...did yours?

September 14 2010 at 7:18 PM Report abuse +1 rate up rate down Reply
CHADMAN

The economy has been growing since the summer of 09? Really?! That was when I was layedd off and my employer later shut its doors for good that Fall. Since then, the job market is horrible; either very few are hiring or if they are, the pay and work hours per week are sub-par by far. So wtf are you talking about, Mr.Cohan?

September 14 2010 at 6:39 PM Report abuse +1 rate up rate down Reply
Tina McCaffrey

AFTER ALL IS SAID AND DONE, WE HAVE NO IDEA OF BUDGETS,SAVINGS AND TIGHTENING OUR BELTS. WE ARE ARROGANT AND THE ATTITUDE OF THE PEOPLE IS SIT BACK AND GIVE ME. CHECK-OUT THE RISE AND FALLOF THE ROMAN EMPIRE. COMPLAINCE = OUR WAY OF LIFE.

September 14 2010 at 5:43 PM Report abuse +1 rate up rate down Reply
albert

OK this is for everyone who is blaming Bush and Republicans for our current situation. This was a response to a story about the stock market rising mor eunder Obama than any other President in history. Lets just think though that it nowhere else to go but up. For those who are listening to the liberals propagating the fallacy that everything is "Bush's Fault", think about this: January 3rd 2007 is when the Democrats took over the House of Representatives and the Senate, the start of the 110th congress. The Democratic Party controlled a majority in both chambers for the first time since the end of the 103rd Congress in 1995. January 3rd, 2007 was the day the Democrats took over the Senate and the Congress: At the time: The DOW Jones closed at 12,621.77 The GDP for the previous quarter was 3.5% The Unemployment rate was 4.6% George Bush's Economic policies SET A RECORD of 52 STRAIGHT MONTHS of JOB CREATION! Remember the day... January 3rd, 2007 was the day that Barney Frank took over the House Financial Services Committee and Chris Dodd took over the Senate Banking Committee. The economic meltdown that happened 15 months later was in what part of the economy? BANKING AND FINANCIAL SERVICES!!! THANK YOU DEMOCRATS for taking us from 13,000 DOW, 3.5 GDP and 4.6% Unemployment... to this CRISIS by (among MANY other things) dumping 5-6 TRILLION Dollars of toxic loans on the economy from YOUR Fannie Mae and Freddie Mac FIASCOS! (BTW: Bush asked Congress 17 TIMES to stop Fannie & Freddie - starting in 2001 because it was financially risky for the US economy). And who took the THIRD highest pay-off from Fannie Mae AND Freddie Mac???? OBAMA And who fought against reform of Fannie and Freddie??? OBAMA and the Democratic Congress So when some one tries to blame Bush... REMEMBER JANUARY 3rd, 2007.... THE DAY THE DEMOCRATS TOOK OVER!" Bush may have been in the car but the Democrats were in charge of the gas pedal and steering wheel they were driving. When Obama took over the economy had been at rock bottom for a while and historicall when the market hits rock bottom it goes up quickly. It was Clinton/Franks that lowered the credit scores for people that had no business buying a home (and allowing those that could to speculate on 2), which in turn created the housing bubble, which in turn crushed the banks and the market followed. Let's get the facts straight....

September 14 2010 at 5:09 PM Report abuse +5 rate up rate down Reply
1 reply to albert's comment
ruthsgardens

Actually all of your posts have been spot on.To learn in the future is to learn from the past.I am older than dirt so I can say what I want.What is different now than the great depression? Not much.I was young then but remember it well.There were rich and poor.Sounds like nowadays why? During the great depression there was no middleclass.Nowadays there is barely a middleclass.In order for a capitalistic democracy to grow, there has to be a middleclass.So now you have to look at constants.What is constant between the great depression and now? You have rich and poor.There was no minimum wage then and now it is around 7.65 bucks an hour.Back then the best paying jobs was around 28-30 cents an hour.And that was the equivalent of slave labor.And yes the rich got richer and the poor got poorer.So how did our country spring up to be rich and powerful from that?American workers began utilizing their right under federal law to unionize for better wages,pensions and benefits.The 10% set aside to pay for labor by management was demanded by the union worker signing a contract with their employer.They then distributed those funds towards their wages,benefits and legacies as they seen fit and voted on.What happened is that the union worker had a little money to save,little money to invest and a little money to spend on the economy.This built up banks,their companies and others.Companies expanded hiring more workers building every doodad known to man.Plants sprung up everywhere hiring people to run them.And america became rich and prospered while our companies became rich and prospered.What happened?The rise of corporate america is what happened.When companies got to big for the owners to handle,they hired corporate america.They hired ceos and management firms,consultant and lawyer firms to run their companies.This consumed 25-35% of an owners profit.To condone their own costs, they began to destroy the unions and their 10%. The owner still lost 25%.So corporate america kept destroying unions,moved wages as close to minimum wage as they could.Corporate america ceos offered owners a tax ststus as an owner making taxpayers pay their corporate tax and shareholders to utilizing corporate tax loop holes.The result is only 12% of working americans are union now.The trade agreements allow these corporations to move our jobs overseas utilizing cheap labot abroad.Then sell the same product back to americans.009o

September 14 2010 at 4:28 PM Report abuse +2 rate up rate down Reply
1 reply to ruthsgardens's comment
Tina McCaffrey

RIGHT-ON. NOT ONLY UNIONS WERE BLAMED FOR OUR DEPRSION, BUT WE THE REMAINING TAXPAYERS (THE WORKING 12%) HAVE THE BURDEN TO SUPPORT THE NATION'S BILLS, NOT THE RICH, THE CONGRESS, WALL STREET, OIL CO. & ALL THE LOOP HOLES. ANYONE MAKING OVER 200,000. DOES NOT CONTRIBUTE TO SOCIAL SECURITY. FICA (FEDERAL INSURANCE CONTRIBUTION ACT) IS PAID FROM DOLLAR ONE WE EARN, WHETHER I'M 16 WORKING PART-TIME OR 70 TRYING TO SURVIVE ARE CONTIBUTING 7.65% OF OUR EARNINGS DEDUCTED EVERY WEEK UNTIL, IF, WE ARE LUCKY, WE REACH THE 200,000 MAXIMUM. OUR SMALL EMPLOYER MATCHES THE 7.65% PAYS IT WEEKLY TO THE IRS. MOST OF THE TIMES I DEPOSIT MORE FICA THAN FED. W/H. OF COURSE THE GREEDY CONGRESS SPENDS OUR INSURANCE MONIES ON WARS, PORK, AND THEIR EXPENSES, BECAUSE PUBLIC WORKERS DO NOT PAY FICA TAXES, YET THEY RECEIVE RETIREMENT BENIFITS FIT FOR A KING.

September 14 2010 at 5:34 PM Report abuse -1 rate up rate down Reply