America's Lost Decade: You Lived It

America's lost decade -- you lived it, you just did not know it.

In the past year, investors and market observers have witnessed events that many believed to be unthinkable.

They have seen the collapse of Bear Stearns and Lehman Brothers, and the bailout of such belletwether companies as AIG(AIG Quote), Bank of America(BAC Quote), Citigroup(C Quote), JPMorgan Chase(JPM Quote), Wells Fargo(WFC Quote), General Motors and many more.

During the past several decades, defined benefit retirement plans were replaced by 401(k) plans, and U.S. citizens have been exposed to the stock market like never before. This crisis was different from 2000, because back then, most market participants were aware of the speculative fervor.

Whether they believed it or not, investors heard the constant bubble talk surrounding the equity market in 1999-2000.

After 2000, even as the housing bubble inflated, responsible citizens usually participated only reluctantly. For those looking for warning signs, there was enough discussion of bubbles to keep doubt in the minds of the prudent. This crisis caught Americans by surprise. Not only had most Americans never heard of a collateralized debt obligation (CDO), a large portion of Wall Street hadn't either.

It is no secret now, although it was often overlooked then, that the recovery from the 2001 recession and the 2000-02 bear market in equities was fueled by massive household borrowing in this country. This borrowing boosted consumer spending, helping to mask the ongoing weakness in the U.S. economy.

The underlying weak fundamentals of the U.S. economy did not go wholly unnoticed, however; the adjustment appeared in a place where Main Street America does not often look, the U.S. dollar. The dollar index is an index created to measure the performance of the dollar vs. a basket of currencies consisting of the euro (57.6%), Japanese yen (13.6%), British pound (11.9%), Canadian dollar (9.1%), Swedish krona (4.2%) and Swiss franc (3.6%). The dollar index lost 40% of its value between January 2002 and March 2008. During that same time period, the S&P 500 rallied 17%.

U.S. Household Debt Growth Source: Federal