A recent CNBC article by Catherine Boyle has some classic quotes from Sean Corrigan:
The euro zone’s banks, seen by many as the source of the region’s debt crisis, will ultimately be bailed out by “vested interests,” Sean Corrigan, chief investment strategist, Diapason Commodities Management, said.
“There may be one or two forced to merge or to fall by the wayside, but all the vested interests will come back together,” he said. “We don’t allow for the market or competitive forces to come to their full severity, and when these guys act like bandits in the good times and come with begging bowls in the bad, we criticize capitalism.”
On the euro zone deal:
“They have averted a collapse this way, but they themselves don’t know what they have put in place,” Corrigan said of the EU leaders. “There’s this idea that it will conduct some little bit of magic, that these guys in the financial markets, who we hate, have been conducting and this will simply make Italy’s debt lower and Greece competitive. Yet nobody knows what the details are.”
On policy closer to home:
“Whether or not you believe the government should be setting banking policy rather than bankers, the issue is that the government didn’t take any executive control,” Corrigan said. “If that’s going to happen, there should be a clear program of forcibly putting the bank back in the hands of the market in a set time. I don’t see that happening in Britain.”
Sean of course had more to say that didn’t make it into the article, but even so, it’s great to see our message relayed in the mainstream press.
It is at times like these that we in the financial sector are humbled in the presumption of our own importance and of the meaning of our works. Daily, we chase the ebb and flow of symbols and numbers across the screens and ticker tapes of the world, seeking to distill from them a fleeting pattern, or to recognize within them some more enduring form.
Rarely, if ever, amid the hubbub of the trading room or the raw intensity of the Pit, do we reflect on the power of such symbols. We crane for each flickering change in a terse alphanumeric—USZ1, DELL, CPI +0.2%, DAX +150—each of us striving uselessly, but compulsively, to see it before our peers do, or, with a little more purpose, to interpret it more quickly than they.
These electronic lights represent a stock, a bond, a currency; of that much we remain aware. But the stocks or bonds themselves are but symbols: a claim to the ownership of a minuscule fraction of some sprawling enterprise, or a right to receive payment from it in days to come.
Again, that payment—in dollars, or euros, or yen—is another symbol: a sign that men have “laboured the earth,” in Jefferson’s trenchant phrase, and that they seek to exchange the fruits of those labours for our own.
This is where the chain of ciphers and sigils leads us at last, then—to the efforts of ordinary men and women going about their daily lives, working at one thing, the thing at which they are most competent, in order to swap their efforts for other things, for a whole diversity of things, made, in turn, by countless, faceless others doing what they are good at, too.
By such free and open exchange, best conducted using fair and honest chains of symbols so that no man is unwittingly deluded or knowingly defrauded in the act, we each seek to serve our enlightened self-interest and satisfy both basic needs and wider aspirations. We find the opportunity where we are most rewarded, and we send out our labours into the vast, teeming, immaterial, immanent Market that is our world.
And—O Mirabile—what things come back, in what profusion, pouring in from all corners of the globe, from people we have never seen, whom we will never see, and who equally are oblivious to our very existence also.
This is the majesty of the free market, of capitalism, this self-organizing scheme that most fully utilizes our jewelled planet’s greatest resource—humanity itself—so that the masses of today live better than all the fearsome khans and haughty emperors of old.
But on Tuesday, out of a clear autumnal sky, all this was put at deadly hazard by earnest men, albeit men whose earnestness had been twisted into suicidal hatred by the potent brew of fanaticism and despair. By their intricate assault on the good people of the U.S., these men showed that they were versed in the power of symbols all too well.
To attack the Pentagon—a cabbalistic form, if ever there was one—was shocking enough, displaying what guerrilla fighters have shown from time immemorial: that all of Caesar’s legions cannot guard against the man who fears nothing but to fail, and who holds his life most gloriously spent in depriving his enemies of theirs.
But far more shocking yet was the strike deep into the very heart of trade, of commerce, and of finance that those few crammed canyons of soaring steel and glittering glass at the tip of Manhattan represented, not just to America, but to the entire world. This was not just an abomination: in many ways, it was a deliberate act of sacrilege.
In tens of minutes, before unbelieving eyes staring from the streets below or gazing in horrid fascination at TV screens across the globe, fireball billowed into smoke and then collapse: crushing, utter, complete and roaring collapse.
As though struck from where they stretched unto the very portals of some jealous god to choking dust and stumbling rubble, they fell in ruinous descent, and Hope itself seemed perished.
The Twin Towers, standing symbolically over Wall Street, were a 1,300-foot rendition of those two, short verticals that transform a mere “S” into a dollar, transmuting it to a symbol for work and wealth and well-being across the Earth.
The enormity of the towers’ swift destruction has been such as to suspend analysis. We have yet to truly register what has been done, how many lives have been lost in screaming (if mercifully brief) terror, how many countless other lives will bear the mark of what was wrought, shivering in the cold snatch of fear each time they see the suddenly naked skyline of New York.
It would be heartening to think that sober wisdom will now occasion restraint in the councils of the powerful, that the understandable desire for retribution, for lex talionis, to be invoked neither will lead to rash and unjust acts that only serve to excite more hatred, nor open up the way for the ever-eager State to intrude more insidiously in people’s lives at home, while snarling ever more belligerently at foes—real or imagined—abroad.
It would be heartening to believe that in America of all nations, the brash, young, self-confidence of its people will swiftly reassert itself, that temperance will season justice, and that this brief, vicarious brush with mortality will give rise to a more measured outlook on life.
It would be heartening to think that, having been shocked by just how fragile is the framework on which we build our dreams, we will become less prone to forcing them upon others. Our fear must be that, in a world already made fractious and divided by the inexorable, UN-inspired, left-liberal-sanctioned politicizing of race and creed and gender, a world made insecure by the erosion of freedom and the imposition of alien values by the Guardians of our global Platonic republic, yet more discord is sown.
We must also fear that, in a world made resentful by seeing the fruits of its labours channelled to vainglorious corporate demi-gods who strut the stage like Achilles simply because a hyperactive credit system has grossly inflated their stock price, Capitalism is made to take the blame.
Capitalism is about the better production of wealth and its distribution through unrestricted exchange. It is about the multiplication of output that comes about by the division of labour. It is about the preservation of capital—those mental and physical tools that build each successive flight on our long stairway out of penury and deprivation—and it achieves that preservation only by the common virtue of thrift and the duty of stewardship on one hand, and by the banishment of envy and the sanctity of property upon the other.
Capitalism is about “labouring the earth” more fruitfully so that fewer men go needy, so that the next fanatic finds less willing recruits, so that amid bustling commercial intercourse, barriers of class and race and ignorance are dissolved into mutual respect and benefit.
Capitalism is nothing to do with the agents of the Crown who sail alongside the honest argosies of trade. Capitalism is nothing to do, either, with the forced acceptance of any creed or code of law, save that of the honest self-interest by which both buyer and seller achieve an increment of value in their exchange.
For we must realize that Capitalism, this most certain route to prosperity devised by man, is also the victim of the exactions of the State and the depredations of the credit system. Why else, even before yesterday’s barbaric deeds, were we increasingly in peril of our livelihoods, our investments, and our savings?
Sadly, that is a verity too rarely glimpsed when the battle ensigns of the fleet and the Jolly Rogers of the corsairs are concealed amid the merry, ingenuous bunting of the mass of ordinary merchantmen seeking innocently to ply their trade.
From this passing meditation on these matters, which this week’s dark happenings have prompted, we shall soon return to the business of chasing symbols and trying to make sense of them. That is, after all, our modest craft in the rich whirl of the market.
For today, we pray for the maimed and the bereaved. We are anxious for the path of the economy and our immediate prosperity. We fret that liberty will once again be the most enduring loser.
Sean Corrigan is a good friend of TCC. Yesterday, he appeared on CNBC where he provided a masterful overview of current events on the markets. You can see him in action here.
Another great interview with Sean Corrigan on CNBC
Airtime: Mon. Jul. 18 2011 | 7:00 AM ET
Big US banks should have been allowed to fail, Sean Corrigan, chief investment strategist at Diapason Commodities Management, told CNBC Monday. “The privileged few clustering around the Treasury Secretary and the Fed have eaten everybody else’s lunch,” he said.
Sean Corrigan’s latest appearance on CNBC is well worth watching (3m 42s).
Mon 27 Jun 11 | 02:00 AM ET
The Chinese economy reflects the ‘Vampire Economy’ of Germany in the 1930s where the state controlled prices at the expense of profit, Sean Corrigan, chief investment strategist at Diapason Commodities Management told CNBC Monday. He added Chinese inflation figures were “not realistic of the stress in the system.”
The Chinese will have to “come back to the party again pretty soon” and raise interest rates in the face of rising prices, Sean Corrigan, chief investment strategist at Diapason Commodities Management told CNBC Monday. He said Chinese money supply has been decelerating, but not as rapidly as authorities may have anticipated.
Ever since Chairman Bernanke’s infamous Jackson Hole speech in August, markets – previously beginning to wilt under the weight of relatively poor economic numbers – have been on a tear. Greatly reinforced by the decision taken at the next FOMC meeting to buy US Treasuries as the Fed MBS portfolio ran off, the period since has been a veritable wet dream for such a committed inflationist as Blackhawk Ben. Assets prices have soared and the dollar has crumbled, dropping more than 6% on its TWI, taking it to within a percent of its modern-era lows.
One still wonders whether the academicians who populate the world’s most important monetary council fully understood the feedback loop that seemingly technical decision to buy Treasuries would spark by lowering yields to the point that more mortgages would repay, generating a need to hedge convexity and replace duration by MBS holders everywhere, as well as driving more Fed purchases and so on round and round.
Fig 1: MBA Refinance Index (orange) v FNMA 15yrs (2005-td)
With around 80% of all mortgage applications currently taking the form of refinancings, the instability introduced here must be evident to all.
One must also look askance at the sheer intemperance of the Chairman’s words – backed up on several occasions by other senior figures, just in case we had not received the message – in an environment where market participants, already drunk on the heady liquor of near-zero interest rates, were begging for a profit-making, year-end boost to prices and so very ready to jump on the first momentum bandwagon to come their way.
It also remains unclear to what extent the Fed realizes that while all this loose talk may have seemed a costless way to jawbone some brighter ‘animal spirits’, it has also delivered an enormous hostage to fortune. Such has been the violence – and near unanimity – of the action that the FOMC can hardly now risk NOT setting off some pretty spectacular fireworks at its November meeting (something we are not quite sure if the few remaining voices of sanity – Messrs. Plosser, Lacker, Fisher, and Hoenig – fully comprehend either).
Moreover, even if the panel does light the blue touch-paper and retire, the need to overtop sky-high market expectations means it still risks setting off a damp squib and defeating its own aims.
Meanwhile, the US monetary crank-in-residence at Threadneedle St. – Adam Posen – is off singing a tune for which the increasingly unanchored coalition government is handing out the hymn sheets: more monetary ease should be delivered to soften the blow of a looming fiscal restriction which already resounds to the squeak-squeak of a bicycle beginning to be pushed backward.
A measure of this man’s understanding is that he appears to have told the German press that the best solution to their country’s problems is that they should immediately add to the expense of employing anyone there by raising wages. Reducing competitiveness and throwing people out of work in this manner would be of ‘help’ internationally, he argued. Is the ruination of one country at a time not enough for this man – yet another Harvard-educated, career servant of the state who does not appear ever to have made an honest living satisfying private customers’ needs in a competitive marketplace?
In the intervening seven weeks or so, since Ben opened Pandora’s Box, the dominance of this new, inflationary bent to policy has seen the previous belief system of Risk ON (buy ozzie, sell yen; buy euro, sell dollars: buy bonds, sell stocks; buy industrials in preference to gold) and Risk OFF (do the opposite) repudiated in favour of simply buying everything with gay abandon in order to get out of the dollar and – to a slightly less avid extent – out of sterling, too.
Thus, the dollar has begun to follow US real yields as they plumb new lows – with TIPS as far out as mid’17 now below zero after a 70bp drop. For its part, the S&P has come into tight phaselock with break-even inflation rates. So close has this latter relationship become over the past two quarters that the levels have an r2 of 0.83 and the daily percentage changes one of 0.43.
Fig 2: US Trade-weighted index (orange) v UST 5-yr index-linked, last 12m
Fig 3: TWI-adjusted S&P500 (orange) v US Break-even inflation rate (Mar’10-td)
As for those BEIs themselves, they have moved appreciably higher, gaining 40bps at the front of the curve and around 65bps five years out, surpassing those in Europe for the first time since May and moving the two to their largest differential since before the crisis broke open in 2008.
Fig 4: UST 5-yr zero coupon rates: spot (black) and 10-years forward – post-LEH
Nominal yields have also diverged smartly across the maturity spectrum, with 5-year zeros shedding 27bps to reach an inordinately low 1.07% while their equivalent bucket, ten years further up the curve, have added 75bps, pushing the spread between them to seven year highs and the ratio off the chart.
Fig 5: Junk (orange) and EMBI spreads – last 12m
As for ‘risk’, the ITRAX Crossover index lost a quarter of its 200bps starting point before recouping some of the loss; VIX levels declined almost 40% to stand a mere 250bps above their post-Crisis lows; junk spreads have fallen 85bps, and EMBI’s 50bps. EM equities have finally regained their pre-Tequila highs v MSCI World ones.
All this has not only meant that the Value Line index has climbed 18.5% – with small caps outperforming mid and mid, large – but that the NASDAQ 100 has surged to its best since Xmas 2007 – reaching its highest v the S&P since the Tech Bubble burst. The furore has also been enough to push commodities up 17.5% with the four main sub-sectors (base & precious metals, energy, and agri) all participating with similar levels of gusto.
Fig 6: MSCI EM v World – 1991-td
It has also seen renewed, breathless coverage of junk bond markets in the press – just like Michael Milken days, according to one recent story. Highly-leveraged, private equity buy-outs are also making the headlines; hedge funds are again attracting big money; while the stampede to chase the emerging market bandwagon has already led to more inflows in calendar 2010 than in any previous full-year period, adding greatly to distortions and, hence, dangers there, too.
In short, every single one of these developments demonstrates that Mr. Bernanke’s campaign against deflation has been succeeding only too well of late, with consequences to come at which we can only shudder for, when this next bubble bursts, it will all too probably collapse what little reconstruction work has taken place atop the rubble of the previous one.
Sean Corrigan sent me a link to a great article by Alen Mattich in the Wall Street Journal blogs section. He described it as “far too aggregative for this Austrian’s liking, but nonetheless an incisive demolition of the BoE in general and Posen in particular”.
It’s brilliant stuff:
Mervyn King, the Bank’s governor, has argued that even were he inclined to restrain the British debt binge, he couldn’t have done so without forcing up unemployment by a percentage point or more–something that would have been politically unpalatable. He didn’t want to hike rates because that would have meant writing letters about why he’d allowed inflation to undershoot the Bank’s 2% target. And yet he’s been more than happy to write letter after letter about why it’s been allowed to overshoot the target.
And:
Posen’s arguments are informed by his academic specialization on Japan’s lost decades and the Great Depression. Like Princeton’s Paul Krugman, that’s the prism through which he interprets everything. Remember, Krugman and other arch Keynesians argued vociferously for the reinflaton of other bubbles in order to escape the “catastrophic” economic consequences of the tech and telecom bust in 2001.
And like Keynesians are wont to do, Krugman is happy to use inflation to engineer a massive transfer of resources from those who save to those who borrow. This, by the way, is an element of redistributionist social engineering. Posen isn’t likely to be very far away in his thinking.
For Posen, an American, this is a nice little exercise. An experiment on a smallish economy that might produce some interesting academic work. If it fails, if it ends up destroying the savings of the minority of Britons who actually pursued a course of prudence during an era when central bankers kept filling the punchbowl, well, too bad. Sometimes sacrifices need to be made in the pursuit of knowledge.
Etatiste Nobel winner Stiglitz rails that ‘austerity’ (wherever THAT is being practised) is an economic ‘disaster’; étatiste Nobel Prize winner Krugman warns that we are repeating the ‘mistakes of 1938’ by withdrawing stimulus prematurely; étatiste Nobel winner (anyone would think there was a bias here) Obama trails a nakedly opportunistic package of tax shuffles (whose cuts may be funded by rises on, e.g., energy companies) and infrastructure boondoggles ahead of a lost-looking election; étatiste (non-enNobeled) journo Wolf wistfully looks forward to a domestic German credit boom (i.e., another housing bubble), and our favourite swivel-eyed, étatiste doom-monger in the Telegraph unleashes a harangue on the ‘dangerous defeatism’ evident in a US ‘elite’ still reluctant to man the printing press again.
‘Damn the rest of the world if they (sic) object,‘ he fulminates. ’They have been free-loading off the US for too long!’
As we wrote last week, as far as the nomenklatura is concerned, no stimulus is so big that its evident (and largely foreseeable) failure to promote the re-ordering of misallocated capital and to accelerate the retraining mis-skilled workers – i.e., to enhance the healing process needed for a monetarily-misdirected economy – can not be trotted out as an argument to do more of the same – to intervene à outrance, as their evil Daemon once termed it, from the comfort of his Bloomsbury lodgings.
Such a wilful perversion of the truth and such stubborn blindness to contradictory evidence leads us to think that perhaps the only doodling in history to rival the ISLM diagram for its encapsulation of false logic, Lysenkoism, and intellectual pandering to the State is Michael Mann’s damnable Hockey Stick!
As an alternative to this drone of under-consumptionists, we could cite the following snippet, lifted from a later reference to the 1980 annual conference of the History of Economics Society, which neatly sums up a lesson learned long ago by our forefathers, but discarded in favour of the specious calculus of Keynesianism since then:
The English and French governments learned from the South Sea Bubble and Mississippi Bubble, following the previous quarter century of warfare, that the only remedy was to lower taxation by reductions of military spending [then the single biggest outlay by Leviathan]. Such a remedy would permit the capital accumulation necessary to increased industrialization.
Indeed!
Meanwhile, there seems to be some confusion over just whom the Fed has helped and over whether or not its ‘creditism’ has kept money in circulation at a time of contracting private sector bank liabilities, with some charging that by ‘buying from the banks’, no-one else has been able to sup from this supposed Spring of Life. To our mind, this is to confuse the mechanics of the Fed’s debt buying (conducted perforce with its institutional counterparts in the market) with the wider consequence of its monetization of a large block of both de jure and de facto government debt.
In fact, if we take the five quarters from the end of 2008 (when the Panic was at its height) to the end of March this year (by which time Fed security purchases were being frozen), the following facts emerge:-
The US Treasury issued a net new $1.9 trillion in securities of which:-
The Fed bought $300 billion
Foreign Central Banks bought $600 billion
Banks, Brokers & Thrifts bought $115 billion
Households bought $473 billion and
Non-financial Businesses sold a net $17 billion
(NB: the latter two categories include the effects of their pro rata ownership of assets included in money market & other mutual funds)
So, while the Fed clearly competed with others in taking up the huge new slew of supply, it is hard to argue that it did this by placing the newly-minted proceeds directly and exclusively in the hands of banks, especially since these were themselves happily adding to their holdings of a zero risk-weighted, remunerative asset in a positive yield curve/falling rate environment.
If we now turn to the programme of absorbing Agency and MBS debt, matters become much clearer. Here, the stock of such paper actually fell by $392 billion over our reference period as housing continued to contract. This time:-
The Fed bought a mighty $1210 billion
Foreign Central Banks sold $70 billion
Banks, Brokers & Thrifts bought $22 billion
Households sold $700 billion and
Non-financial Businesses sold a net $30 billion
(NB: again, changes relating to pro rata ownership of mutual funds are included)
It is therefore glaringly obvious that though the Fed may have conducted a good deal of spread-earning business with its cabal of banks and brokers, it also doled out an enormous pool of money to the public-at-large, as was its avowed intention.
We cannot end there, however, for money is nothing if not fungible. The first step to constructing a more comprehensive view should be to add these two operations together. Now, it can easily be argued that households undertook a rather sizeable asset switch, turning almost $1/2 trillion of claims against the troubled GSEs into the direct obligations of Uncle Sam and, in doing so, left themselves with only $225 billion in new Fed money of which to dispose (which immediately begs the question of what the US Treasury did with its receipts, and so on, and so forth…)
Looking further down the list of their holdings, we find that the sum of money (cash & demand deposits) and quasi-money (time and savings deposits) rose by $130 billion so that much, for now, has stayed put within the sector, if not necessarily in any given individual’s pocketbook for any length of time. The remainder (some $100 bln), together with money saved from income, seems to have gone toward paying down liabilities (especially mortgages, to the tune of $260 bln). Is this the dreaded ‘deleveraging’? Certainly. But who can argue with a straight face that this is not a part of the cure which we should encourage to proceed faster, not the symptom of a disease we should try to hold in check?
Incidentally, that augmentation of bank money could be thought of as providing the funding for those same banks’ roughly equivalent increases in UST & Agency purchases, meaning they did not ‘lie idle’ even if it implies that those still able to save are not building up any substantive kind of nest-egg or ‘rainy-day’ reserve, but merely financing the welfare payments handed out to be spent by their ailing corporate and individual neighbours, as well as to foot the wage bill of the relatively sheltered souls who are engaged by the State to do the handing out on its behalf.
Once again this shows that it is not the phantom of ‘liquidity preference’ we need to fear, but the very real phenomenon of capital consumption.
That aside, an even more dramatic development was to be found taking place among non-financial corporate balance sheets over these same five quarters. This time, money holdings can be seen to have risen by $265 bln and near-money ones by $210 (partly offset by a $75 billion combined drop on the books of non-corporate businesses, a real-estate/construction heavy sector clearly still struggling to hold its own).
On the face of it, this $475 billion quasi-money ‘hoard’ in the hands of the nation’s corporates partly absolves the Fed from the charge of failing to inflate properly, but instead seems to add weight to the case of those who bring up the hoary old bogie of the ‘liquidity’ trap.
Don’t forget, however that somebody, somewhere, always has to hold whatever money and near money is in existence and that the fact the Feds clock you on camera putting it in your till says nothing about the avidity with which you will relieve yourself of it once the official bean counters move on to their next act of snooping.
Thus, the fact that more of what is, after all, the medium of circulation has been found in the hands of those who also generate the bulk of the nation’s $33 trillion odd of annual transactions – and who may temporarily be using fewer money substitutes to conduct them, in these straitened times – is not necessarily a bad thing. For a start, at least $100 billion in inventories (depending on which of several official estimates you use) have been usefully realized as part of this total, as have perhaps $50 billion in accounts receivable.
Moreover, corporates, as a class, have not been ‘deleveraging’ – or, more accurately, paying down much in the way of debt, since they have clearly been taking steps to reduce operational gearing. On balance, liabilities have continued to rise, masking both the usual ESOP equity-to-debt anti-dilution scam and a more opportunistic change of emphasis away from bank finance and CP funding to a greater reliance on longer-term bond issuance. Additionally, FDI has also been strong; all of which is to say that some of that increase in corporate ‘liquidity’ has been transferred in from people successfully seeking to reduce their own holdings of the stuff – people who, moreover, have a clear vested interest in seeing those to whom they have entrusted it put it to lucrative employment rather than letting it sit festering passively in a bank account backed with a sterile Federal Reserve credit.
Fig 1: US Business Net Investment
One thing that, incontrovertibly, has been lacking in that regard is physical investment. No, we want no spurious ‘multipliers’ creeping in here, but, nonetheless, net new investment does represent a capital deepening and hence holds out the hope of sustainably higher real wages in future. The fact that this crucial measure recently plumbed depths not seen in at least the last fifty years (falling uniquely behind estimated depreciation schedules) is one reason why some corporates have simultaneously managed to build up their near-cash position: the reduction in payroll they have undertaken is another.
Such prudence, however, cannot persist indefinitely if a competitive stance is to be maintained and, indeed, the evidence is that the tide has begun to turn over the past twelve months – understandable entrepreneurial uncertainty, notwithstanding.
Given, too, that capex is not only one man’s (largely unexpensed) outlay, but another’s top-line revenue, the rise in both aggregate sales and aggregate profits reported over the year is suggestive of the fact that firms’ capital means (including their increased monetary assets) were being put to work on an increasing scale, even if there was still a long way to go before anything of the intensity of the Boom could again be attained.
At least, that was arguably the case up to the start of the summer and the hints of a renewed pause which was ushered in along with its first swallows. Whether that deceleration passes, persists, or degenerates into something more worrisome, is, of course, the burning issue of the moment.
One thing that is certain is that while both individuals and private businesses have spent the last two years reducing the large net borrowing position they had built up over the previous two cycles by a round $1 trillion each, good ol’ Uncle Sam has been swelling his promises to pay to the tune of a cool $3.1 trillion.
And who has been taking up the slack? Well, everyone else in the world, naturally, as the equal and opposite size of the cumulative current account deficit makes plain.
And the main agents in this ‘recycling’ of the ‘deficit without tears’? Correct again: those kindly foreign central banks which have effectively financed $8.50 out of every $10 of US imports, or $1 out of every $5.50 of contemporary retail sales.
Fig 2: Uncle Sam – Buyer & Borrower of Last Resort
In conclusion, note that, had the US government NOT expanded its outlays based upon the false reasoning of the worthy gentlemen with whose opinions we started this piece, the painful, but largely necessary contraction in private credit would have gone a long way toward restoring that illusive ‘balance’ everyone seeks so avidly in international trade flows. The simultaneous hit to the exporters would also have been hard to bear, but would have taught them to reduce their over-reliance on deadbeat customers in future – not an unmitigated evil, one presumes. Ahh, well – maybe next time…
