Executive Summary

• Adapting our behavior is a must at this point. We really don't have the option not to.
• The number of claims on real wealth is increasing. How much of the "real wealth" do you own?
• Our economy is now truly a confidence-based system. What will be the fallout when that confidence falters?
• What are the key knowns & unknowns we need to be addressing now?

If you have not yet read Part I: In a Bad Spot, available free to all readers, please click here to read it first.

What is completely unknown at this point is what will happen to our very complex and interwoven financial system when it finally comes to grips with the idea that old-style growth is never coming back.  One worrisome idea is that it will experience something akin to cardiac arrest and simply break down one day. 

Maybe this will happen, maybe not.  I will note that the degree to which the central banks have set themselves up as the ultimate saviors of the system has both an upside and a downside, and it is the downside that worries me the most at this point.

While all the trillions of dollars of intervention have stabilized the system, which I consider to be a good thing, the downside is that the central banks have placed themselves in a position where they had better succeed.  If not?  Then we discover just how important confidence is to a monetary system built, owned, and operated on trust.  My guess is "very."

On the plus side of the ledger are the behavior and the results achieved by the Japanese people in the aftermath of the earthquake, tsunami, and resulting loss of nearly 30% of their electrical production power as the result of closing down their nuclear plants.

In the first few days after the earthquake, I was certainly impressed with just how calm and willing to share the populace seemed to be.  Where Boston, Massachusetts saw scrums in the checkout lines over the last cases of bottled water after a water main broke, Japan saw people facing a much direr situation and uncertain future with acts of sharing in the checkout line. 

Now, more than a year later, the concern I had over the impact of the loss of 30% of the electrical generation power on the Japanese people and economy are much more muted than I had expected.  Yes, there was quite a bit of 'fat' in the system that could have been cut out, like brightly lighting the night in city centers with advertisements, but the Japanese cuts went deeper than that.  And you know what?  They changed their behaviors and simply kept moving along, getting the same amount done with less electricity. 

I know that Japanese culture is vastly different from other cultures out there and they may well have an advantage, but I truly think that when the times call for it, people will buckle down and do their best.  Oddly enough, it may well be that people are at their worst when the least is on the line, as in the case of university or small-town politics, and/or in the earliest stages of a crisis before the new social norms have settled in and allowed people to behave differently.