04/27/2009 05:12 am ET Updated Nov 17, 2011

Back to the Future

Over the last several months I have been repeatedly asked by friends and clients when the economy, the stock market, and life in general will get back to normal.

My response each time has been "We are getting back to normal every day." The challenge is that none of us knows exactly what the new normal will look like. One thing is for sure -- it will bear little resemblance to the life that many of us have become used to over the last 20 years.

I vaguely remember what normal looked like 40 or 50 years ago. A person worked until he either died or he had enough money saved up to support him for the rest of his life. If you worked for a company long enough, you got a small pension when you retired to help you out a little bit. How much you got and for how long was not up to you, it was up to your employer. The assumption was that you would spend your savings down and you hoped it would be enough.

When you bought a house, you planned to live in it for a very long time. You put 25 to 40 percent down and paid off the mortgage as fast as you could. If you were lucky, you were able to sell it for about what you paid for it. After all, it was new when you bought it and you had worn it out over all those years. People didn't have huge debts because no one would lend you enough money to get into trouble and what would you spend all that money on anyway?

That is not the scenario that most people have in mind when they ask when things will get back to normal. Most of them are talking about the expectations we developed during the last 20 years which seem less and less normal by the minute.

In recent years, millions of people worked until they had enough money to retire and would then get a second home in a warm place that was generally much more expensive and larger than the home they had raised their families in for years. They could afford it because their first homes had skyrocketed in value during the 80's and 90's.

They would travel, visit and entertain friends and family, eat out, play golf, and buy more expensive stuff than they did when they were working. And in spite of it all, their net worths kept going up and up anyway since the value of their homes and investments were rising faster than they could spend the money. Keep in mind, I'm not talking about the super-rich who have always lived this way. I'm talking about millions of "normal" people.

Between 1981 and 2001, the Dow Jones Average went from 800 to 14,000 -- an increase of more than 1,500 percent in 20 years. Real estate values skyrocketed. Normal people could buy land, homes, and condos for next to nothing down and often sell them for a huge profit before they were even ready for occupancy.

When the stock market stopped going up eight years ago, people were able to keep spending more and more using home equity loans and a seemingly unlimited supply of credit cards to make up the difference. They built up mountains of debt, but it seemed responsible because their assets, on paper, kept increasing in value.

Until they didn't.

So here we are. Now millions of normal people are deep in debt and/or have no more piggy banks to shake or equity in their homes or investment accounts to draw on. The credit card companies have suddenly pulled in the reins as well.

Everyone knows the popping of all those bubbles has helped create our current economic meltdown. The good news is even though the economy hasn't bottomed it appears that the stock market has stabilized and the credit markets have started to thaw.

We are getting back to normal. Although it may not be as much fun as the more recent version, the new normal will probably (and hopefully) look more like the normal of my youth than the unsustainable glory days of the last 20 years. We now realize that while that might have been fun -- it was never normal.