The world *has* changed: Why we should be afraid

This is a sort of rebuttal to optimists, who believe "it will blow over". I believe the world has fundamentally changed. It is not merely a financial crisis. It is a fundamental economic crisis. The last two weeks brought the crisis to full focus, but we have been building up to it for several years.

Here are a few things that happened in the last 10-20 years that have brought us to this point:

1. Debt became fashionable, even prestigious, world-wide. The most storied names in business became debtaholics. This includes the financial players like Goldman Sachs and Morgan Stanley, but industrial-companies-that-became-financial-companies, like GM, Ford, GE and so on. This level of comfort with debt is unprecedented in history, and the historical parallels are dark.

2. The most prestigious nation on earth piled on debt, and other nations copied. US Debt/GDP is at 320%, much higher than even the great depression peak. Derivatives further magnify the leverage - as an example, AIG went down because of the magnified leverage not captured on their balance sheet.

3. US savings rate dropped from 10% in the mid 80s to near zero today, and it even went negative for a period.

History teaches us that such toxic debt episodes are followed by a prolonged hang-over, followed by a social aversion to debt and eventual recovery. The patient has just passed out - the hanger over hasn't even started. It is way too soon to talk about a recovery.

So it is very appropriate to be very concerned and fearful for our collective futures. What can we do as individuals? Swear off debt, live very frugally, lower our expectations.

To paraphrase, just because a lot of people are panicking doesn't mean we shouldn't be really afraid!