There is a thought provoking post from David Rosenberg posted at The Business Insider this morning regarding the 2008 to 20?? Great Recession resembling the 1930s and the Great Depression.

One quote hit me particularly hard because I’ve thought about it a dozen different ways, but never managed to put it on paper so bluntly:

Now we are in the process of unwinding the excesses of a parabolic credit cycle of the prior decade, the first of the boomers are now retiring with nobody around to buy their monster homes and the Fed is now fighting a deflation battle that is prompting comparisons to Japan for the past two decades.

As anyone who’s bought and sold equities as an investment, or any volatile asset for that matter, you will know firsthand that it’s not the present day sales price that factors into the decision making process as much as what the future value is perceived to be.

We see this all the time, and even use forward looking, price predicting tools to justify our decisions (which are usually included in the sales pitch):

1. The forward price to earnings (P/E) ratio.
2. The historical ROI trendline of many different types of real estate.
3. The predicted resale value of any antique or collectible.

The thought process usually starts out innocently enough:

Hey, XYZ could really be worth something a few years from now. Maybe it’s worth jumping in now, sitting on it a while, and cashing out down the road?

Only problem is, for assets whose sales price is solely dependent upon a future buyer paying a higher price than the original buyer paid, you’re taking a calculated risk this will or will not occur. Said another way, you’re taking upon risk that your (sure thing?) investment, whatever it might be, will be worth more than you paid for it at a later date, or at the very least, never be worth less than you paid for it (e.g. underwater).

And therein lies the very real problem with U.S. real estate, stock market, and many other investment vehicles for the soon to retire baby boomers, in which the U.S. Government is doing almost everything in it’s power to prevent by taking on extreme amounts of national debt to prop up these markets. In effect, they are hoping to allow anyone who fell victim to the Greater Fool Theory an opportunity to cash out by using borrowed money.

Only problem is, each transaction needs both a buyer and a seller. Due to a large number of factors, those individuals who didn’t take the bait in the last cycle of investment bubbles are, arguably, not going to take the same bait as those currently sitting on the seller’s side of the transaction.

Therefore, we’re stuck in economic purgatory: an arbitrary point where sellers have a high ask price, a place where buyers have a lower priced bid, and a no man’s land in between. Until they meet, sellers will be forced to remain standing in line at the cash out window of the boom and bust cycle casino.