Third World Asset Allocation

An editorial in the WSJ today points out the great crisis facing us in another way: When measured in euros the real US per capita GDP is down 25% since 2000. Germany's is up 4% and is higher than the US per capita GDP. The US, measured in currency other than the dollar, is experiencing a decline in wealth.
25% is a big decline. I watched a TV show the other day following two British women house hunting in Cyprus; they were state employees who were evaluating properties I could never consider. The immortal state financial reservoir aside, how did this happen? How has this slow strangling of the dollar been tolerated? Certainly the economists advising on a national level see and know what is happening.
I think they see and know very well. They have decided--wrongly, I think--that the competitive capitalistic system, with its winners and losers, creates enough social instability--or the threat of same--that various distinctive products and services in the country must be homogenized, regardless of the decline in both lifestyle and quality they know will follow. Growth and development will be left to other countries.
This can be very tricky. Declining GDP allows for less and less internal competition as money leaves the system for better rewards elsewhere. Money is created instead of wealth and the currency falls further. The currency continues to flee the country or goes to hard assets (usually augmented with borrowing.) Finally a sad, subsistence-based culture emerges with its inevitable militarily uniformed elite.
It is easy to give the Olympics to Rio; Chicago is old news.

Field of Dreams

My concern over the economy is greater than the obvious impending debt crisis, it is the peculiar management of it. No individual economist, if asked, would suggest the expansion of a household budget with more debt in order to meet an impending insolvency; the economist would examine the budget, the expenses, the assets and the liabilities and start making sacrifices. An expansion of credit, like a bridge loan in business, would be reasonable as an intermediate step towards something definitive--a step to gain time or leverage for some solution--but never as an end in itself. This country's gigantic leverage is clearly dangerous; these economists know this. Yet they suggest more leverage. They give more money to the banks with the hope they will lend more and that the citizen will borrow more. And they increase the money supply to facilitate all this. The argument against the efficiency of a government--big or small--as an angel investor, a venture capitalist, a businessman is glaringly obvious. But these are side points. The real problems are debt and production; government bureaucracies are subplots. Why experienced, knowledgeable economists are behaving this way is inexplicable, as is the almost pathological ignoring of this behavior. How any organization in this much debt trouble could even consider expanding its financial responsibilities into the huge areas of medical care and environmental management--regardless of how misguided or effective--is simply mind numbing.

Debt and GDP

This graph haunts my days and nights. It compares the ratio of total U.S. debt (credit) versus U.S. GDP (Gross Domestic Product). It spiked off its norm during the Depression because of a fall in GDP (not a rise in debt) and has bounced in a stable range below 200% (the green circle) until the middle 1980's when it shot up and continues to climb (the red circle).
Imagine you deal only in cash, your twin deals in debt. (Remember, he may be doing this for a good reason. If he thinks he can borrow for 4% and buy an asset that will grow at 10% he will gain 6% a year.) You both make $100,000 a year. So you save your money and buy a $50,000 house for cash; your twin takes his $50,000 and uses it as a down payment for a $350,000 house. Amazingly, both your house and his debt-financed house are classified as assets, as growth in the GDP. He looks rich but his debt ($300,000) and yours ($0) are both maintained by the same income, $100,000. You have $100,000 to provide basics, invest, consume; your twin has a large interest bill which comes out of his income first. You are China; your twin is us. If he buys more, or if the interest rate rises, more and more of his income gets shunted to interest payments.What this graph shows is that debt is growing steadily, climbing until it is unsustainable.
At some point only three possibilities exist: Default on the debt, pay down the debt (which means a fire sale in assets or a contraction in spending elsewhere), or inflate the currency the debt is paid in. All those options will result in economic, and probably social, chaos.

The Offending Hand and Eye

The gospel this Sunday was Mark's "If thy right hand offends thee..." selection, always a fascinating tract on so many levels. How is a body part an actor without the brain? With motive so important in Christian thought, how does attacking the directed organ and sparing the motivator make sense? If it is advice on how symbolically to become more spiritual, where does one stop the operation? And what in heaven's name does the fundamentalist do with this passage?
Indeed the positioning of the miracle worker "who is not one of us" with this passage is crucial here. Christ makes it clear that the message, the idea of Christianity, is the important point. Keep your offending eye on the point; the circumstances are distractions. He is much more forgiving than the apostles about the way the message is given. (Imagine the god of Muhammad saying that.) The god of Muhammad would speak of mutilation as a sacred act; Christ offers it as symbolic of a way where subtraction enlarges the whole. But what is being shed is the limiting physical circumstance of the spirit; no New Testament surgery is implied.
Houseman had a poem with the line, "If it chance your eye offend you, cut it off, lad, and be whole.." Ralston, the mountain climber who amputated his own arm after four days of being trapped by it on a rock face, said: "My self-amputation was a beautiful experience because it gave me my life back."
Harming oneself is not an issue here.