Wednesday, September 5, 2007

Even A Child Can Understand Economics

"In the present iterations of Aesop's fable, American consumers are the grasshoppers and Chinese (and other Asian) savers are the ants. The trouble is that Asians have put their savings into the balance sheet of US consumers. ... In the case of US mortgages of poor quality ... derivatives technology sought to make a silk purse out of a sow's ear, but it is a purse that still goes 'oink' when opened. ... After instructing China for years on the benefits of free markets, Washington, Brussells and other Western governments have imposed the strictest sort of mercantilist barriers upon the free movement of capital", Spengler in, 4 September.

Yes, the parable of the grasshopper and the ant shows more economic understanding than held by our quants. Or our Treasury Secretary or Fed Head.

The US has engaged in mercantilism before. In about 1973, ostensibly to fight inflation, Nixon embargoed the shipment of soybeans to Japan. The result was: the Japanese learned the US will do whatever it can to get foreigners to subsidize domestic consumption. When the Chinese learn this it's "look out below" for the dollar and long-term Treasury bonds.

I recommend reading Keynes' The General Theory, 1936. 365 pages of obfuscation. When I read it Keynes had me confused up to page 336, when I realized that Keynes was just recycling previously exploded mercantalist policies with new terms.

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