Money? We don’t need no stinking money.

My grasp of economic theory and financial markets lies in that gray area between tenuous and risible. I am at the mercy of theorists and pundits and the guy beside me at the bar for an understanding of our current conditions. (I was born during the Great Depression, but was extremely young at the time and remember very little about it.)

However, if I may be permitted a goofy analogy (and as it’s my blog, I may) one need not be an electrician to suspect, as the lights get dimmer and dimmer, that the power company is experiencing difficulties, and that the lights could quickly go from dim to out.

And I am not the only one. Increasingly, articles like these are appearing in the press.

USA 2008: The Great Depression

We knew things were bad on Wall Street, but on Main Street it may be worse. Startling official statistics show that as a new economic recession stalks the United States, a record number of Americans will shortly be depending on food stamps just to feed themselves and their families.

Emblematic of the downturn until now has been the parades of houses seized in foreclosure all across the country, and myriad families separated from their homes. But now the crisis is starting to hit the country in its gut. Getting food on the table is a challenge many Americans are finding harder to meet. As a barometer of the country’s economic health, food stamp usage may not be perfect, but can certainly tell a story.

As you probably noticed, that article was from a British newspaper. For whatever reason, the foreign press seems to be looking at this as a more serious problem than are the domestic media. Here’s an exception.

Dreams End With Collapse of Tinker Bell Market

We’re suffering the aftereffects of the collapse of a Tinker Bell financial market, one that depended heavily on borrowed money that has now vanished like pixie dust. Like Tink, the famous fairy from Peter Pan, this market could exist only as long as everyone agreed to believe in it. So because it was convenient — and oh, so profitable! — players embraced fantasies like U.S. house prices never falling and cheap short-term money always being available. They created, bought, and sold, for huge profits, securities that almost no one understood. And they goosed their returns by borrowing vast amounts of money.

Yesterday, Tex Lameduck hustled Treasury Secretary Henry Paulson in front of the microphones to explain

how his administration was dealing with the situation. Neither Paulson’s explanation, nor its interpretation, provided much in the way of reassurance. Here’s how it looked to the Canadians.

U.S. OVERHAUL COULD TAKE YEARS

U.S. Treasury Secretary Henry Paulson, who laid out details of the plan yesterday, said the proposals weren’t intended as a solution for the housing crisis and that any changes would stay on the back burner “until after the present market difficulties are past.”

“Our first and most urgent priority is working through this capital-market turmoil and housing downturn, and that will be our priority until this situation is resolved,” said Mr. Paulson, a former chief executive of Goldman Sachs.

I read through Paulson’s statements several times without finding anything more substantive than, “This blueprint addresses complex, long-term issues that should not be decided in the midst of stressful situations and should not be implemented to add greater burden to a market already under strain.”

Translated into people-speak, Paulson appears to be saying, “The shit is in the fan, and don’t expect us to wipe up the floor until we figure out how to unplug the fan.”

Okay, how do you unplug the fan? It may just be that you steal a page from the play-books of those reprobate dissolute freebooters in Scandinavia.

Fed eyes Nordic-style nationalisation of US banks

The US Federal Reserve is examining the Nordic bank nationalisations of the 1990s as a possible interim solution to the US financial crisis.

The Fed has been criticised for its rescue of Bear Stearns, which critics say has degenerated into a taxpayer gift to rich bankers.

A senior official at one of the Scandinavian central banks told The Daily Telegraph that Fed strategists had stepped up contacts to learn how Norway, Sweden and Finland managed their traumatic crisis from 1991 to 1993, which brought the region’s economy to its knees.

….

Norway ensured that shareholders of insolvent lenders received nothing and the senior management was entirely purged. Two of the country’s top four banks – Christiania Bank and Fokus – were seized by force majeure.

Can you imagine that happening here — shareholders receive nothing, and senior management entirely purged? Don’t think about it too long. It will make the inside of your head hurt.

Finally — and you’ll be asking yourself why this wasn’t first — look at this headline from more than two years ago. Granted, it may be a somewhat different situation, but the consequences are profoundly similar. And the treatment: research, analysis, therapy, and probably some bitter pills.

Report: Depression draining U.S. economy

Depression is wreaking havoc on American productivity, accounting for $83 billion in costs to society each year, according to a report released Wednesday.

“The bottom line is the state of depression in America is a national tragedy,” said Lydia Lewis, DBSA’s president, during a briefing Wednesday at the National Press Club in Washington.

“This is not a trivial annoyance. This is the most disabling illness in the United States,” she said.

All right, you get the point (and the joke: it’s April 1). Still, you might want to glance at the full article for other parallels, such as my favorite, “Don’t be fooled by three-piece suits and briefcases.”

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2 thoughts on “Money? We don’t need no stinking money.

  1. I can’t stop thinking about how crazy we Americans are for wanting so much stuff. Why can’t we just be satisfied with the overabundance that most of us have? I have just purged my bedroom, not to simplify, but because I am adding a bathroom, which I could probably live without. So I am as guilty as anyone.

    God forgive us!!

  2. Phil, I came across this post as the result of a Google Blogs Alert.

    I share your concern with the economy. As someone born during the Great Depression, you’ve seen it all – economic bust, the worst war in history, economic boom and bust again, perhaps.

    You mentioned at the beginning of your post, “I am at the mercy of theorists and pundits and the guy beside me at the bar for an understanding of our current conditions.” I used to feel the same way. My interest in economics ran about as far as my bank account. All that changed fifteen years ago when, while touring the St. Louis Science Center, I saw a graph of the human population for the past 2,000 years. It really disturbed me and got me thinking about where all of this is headed.

    The result of those years of contemplation and research lead me to a new economic theory, which I’ve laid out in my self-published book, “Five Short Blasts: A New Economic Theory Exposes The Fatal Flaw in Globalization and Its Consequences for America.” If you read this book, you may find that it’s the economist sitting next to you at the bar who is at a loss for words!

    To make a long story short, my theory is that, as population density rises beyond some optimum level, per capita consumption begins to decline. This occurs because, as people are forced to crowd together and conserve space, it becomes ever more impractical to own many products. Falling per capita consumption, in the face of rising productivity (which always rises), inevitably yields rising unemployment and poverty. Per capita consumption data from around the world supports this relationship.

    This theory has huge ramifications for U.S. policy toward population management (especially immigration policy) and trade. The implications for population policy may be obvious, but why trade? It’s because these effects of an excessive population density – rising unemployment and poverty – are actually imported when a nation attempts to engage in free trade in manufactured goods with a nation that is much more densely populated. Their economies combine. The work of manufacturing is spread evenly across the combined labor force. But, while the more densely populated nation gets free access to a healthy market, all we (the U.S.) get in return is access to a market emaciated by over-crowding and low per capita consumption. The result is an automatic, irreversible trade deficit and loss of jobs, tantamount to economic suicide.

    One need look no further than the U.S.’s trade data for proof of this effect. Using 2006 data, an in-depth analysis reveals that, of our top twenty per capita trade deficits in manufactured goods (the trade deficit divided by the population of the country in question), eighteen are with nations much more densely populated than our own. Even more revealing, if the nations of the world are divided equally around the median population density, the U.S. had a trade surplus in manufactured goods of $17 billion with the half of nations below the median population density. With the half above the median, we had a $480 billion deficit!

    Our trade deficit with China is getting all of the attention these days. But when expressed in per capita terms, our deficit with China in manufactured goods is rather unremarkable – nineteenth on the list. Our per capita deficit with other nations such as Japan, Germany, Mexico, Korea and others (all much more densely populated than the U.S.) is worse. In fact, our largest per capita trade deficit in manufactured goods is with Ireland, a nation twice as densely populated as the U.S. Our per capita deficit with Ireland is twenty-five times worse than China’s. My point is not that our deficit with China isn’t a problem, but rather that it’s exactly what we should have expected when we suddenly applied a trade policy that was a proven failure around the world to a country with one sixth of the world’s population.

    Our enormous trade deficit is rightly of growing concern to Americans. Since leading the global drive toward trade liberalization by signing the Global Agreement on Tariffs and Trade in 1947, America has been transformed from the weathiest nation on earth – its preeminent industrial power – into a skid row bum, literally begging the rest of the world for cash to keep us afloat. It’s a disgusting spectacle. Our cumulative trade deficit since 1976, financed by a sell-off of American assets, is now approaching $9 trillion. What will happen when those assets are depleted? Today’s recession may be just a preview of what’s to come.

    Why? The American work force is the most productive on earth. Our product quality, though it may have fallen short at one time, is now on a par with the Japanese. Our workers have labored tirelessly to improve our competitiveness. Yet our deficit continues to grow. Our median wages and net worth have declined for decades. Our debt has soared.

    Clearly, there is something amiss with “free trade.” The concept of free trade is rooted in Ricardo’s principle of comparative advantage. In 1815 Ricardo hypothesized that every nation benefits when it trades what it makes best for products made best by other nations. On the surface, it seems to make sense. But is it possible that this theory is flawed in some way? Is there something that Ricardo didn’t consider?

    Ricardo’s principle of comparative advantage is overly simplistic and flawed because it does not take into consideration this population density effect and what happens when two nations grossly disparate in population density attempt to trade freely in manufactured goods. While free trade in natural resources and free trade in manufactured goods between nations of roughly equal population density is indeed beneficial, just as Ricardo predicts, it is a sure-fire loser when attempting to trade freely in manufactured goods with a nation with an excessive population density.

    If you’re willing to consider a new economic theory that has originated beyond the hallowed halls of academia, one that sheds new light on how trade actually functions in the real world, then I invite you to visit my web site at OpenWindowPublishingCo.com where you can read the preface for free, join in the blog discussion and, of course, buy the book if you like. (It’s also available at Amazon.com where you’ll be able to have it shipped outside the U.S.)

    Please forgive me for the somewhat “spammish” nature of the previous paragraph, but I don’t know how else to inject this new theory into the debate about trade without drawing attention to the book that explains the theory.

    Thanks for your time and attention. Keep up the good work on a nice blog and on raising concern about our economic crisis!

    Pete Murphy
    Author, Five Short Blasts

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