MyFunnyValentine

Today we feature my exchange with, Brad, about the potential future of our economies. In featuring this we have edited for space and use of expletives, mostly on my part. I apologize for our not being more loving on Valentine’s Day!

“Tony:
Well...I am not sure who predicted what...but I know that every time you beat the war drums I came back with four paragraphs on the economy and got nowhere--you called it "pragmatism" and "cynicism"...defeatism, etc. America's top spook came out today with something interesting: the top threat is no longer terrorism but the economy. …--That’s been true for six years. Things have been bleak in America for at least six years--this is what I kept trying to tell you--but only if you were in a city--I mean really in a city, teaching in urban schools or hanging around industrial America. Anyone with a credit card and credit line was basically skating by--but the scale of the homelessness and misery was staggering. The cost of these wars is also largely hidden--you have to go to towns around here that have actually sent a significant number of troops--where just about everyone is in the national guard because there is nothing else to do --it's been hardcore for years.

I would say that things were also bleak in the Reagan era if you lived in Hollywood and saw the mental patients that Ronnie let out of the asylums after canning federal money for mental health--the immigrants, the uninsured, all of those shut out of the emerging "bubble" economies that are now bursting around our ears. The "economic downturn" is not just a matter of a change in the weather...it's a touch bigger than that. Things aren't the same in this country, and haven't been for some years now.

Those were the Ronnie Reagan eighties--for me at least. Having said that, I think your recent stuff on the economy is interesting, and I am glad to learn. I've been reading heavy criticism of Obama along the lines that he should essentially be nationalizing the banks and every month that he dithers on this is a month closer to Japanese-style decline. Does that make sense to you?

Hello Brad,

On the economy, banks and Obama, and I would add the UK and Brown. Yes, we're heading, if we're lucky, to stagflation a la Japan just a little while ago. I was there for a few weeks in that period and it was hard to understand……..there seemed no way out even though they had a huge balance of payments surplus and were manufacturing like crazy, and on the surface it should have worked out fine.

The problem there, as it is here and in your neck of the woods, is that the structure of our economies is false, and can't work longer term. That's because the whole thing was based on smoke and mirrors and now that they've been removed we can all see the little green man, and we know he knows nothing and is incapable. Like the bankers in the UK this week who turned out not to have a single banking qualification or experience between the lot of them.

What I'm saying, somewhat clumsily, is that the whole trick could only work with the good faith and blind gullibility of the masses and that is now gone, possibly forever. Once that cat is out of the bag there isn't much that can work properly in a market capitalist society. The problems have not yet really begun, and I'm afraid, unless we get very lucky it is going to be truly awful for all of us.

I have already predicted that the banks will have to be largely nationalized both here and in the US, and I'm sticking with that view. One of the banks here, Lloyds TSB, was 45% nationalized a month or two back when it was encouraged by our Prime Minister, to take over HBOS to now have about 30% of all British retail banking. Lloyds TSB, announced that the taken over bank had a bad year, it lost £10 billion, in one year; in fact its about £1 billion worse than that according to my brief computation of their figures!

This doesn't spell immediate disaster for Lloyds or the government, because the bank is presently pretty well capitalized, but if things go wrong at all, then the only way back would be for this bank giant to be totally nationalized, which would mean more than half of our giant retail bankers were now publicly owned, in less than 3 months.

It is a huge and bloody disaster but next will come the printing of money, (probably in both the USA and UK) and who knows how that will work, but what else can they do now that the interest rates are effectively zero, what tools are left to our governments to energize our economies? Then we might be choosing between stagflation and hyperinflation and both are poisonous.

Hold on to your hat it’s going to be a very bumpy ride!

All the best,

Tony