- By Bill Bonner
We are delighted with all the back talk we got from our Diary on the "living wage." The responses were lively...and entertaining. We laughed. We cried.
Many people thought that we had given priests too much money and prostitutes not enough. We could go either way on that.
Still, we got no complaints from prostitutes themselves but many from doctors. They wrote in too to tell us how hard they worked and how outraged they would be if they earned less than nurses. They may not have noticed how far our tongue had reached into our cheek. But what fun it is setting other peoples' wages!
We even got a letter from a former resident of communist Yugoslavia who had actually participated on a board charged with setting salaries for different job classifications. He was so disgusted by it he immigrated to the US.
Finally, one reader probably spoke for thousands saying:
"This is the most idiotic article in the history of articles."
We are too modest to believe it. But if it is so, it is certainly an achievement! After all, even Larry Summers and Paul Krugman write articles. So do doctors! It is hard to believe that we could top them all.
But enough of this. We have to turn to other things...
Such as the collapse of the whole world economy!
Yes, it seems to be coming. Our friend, Hense Ellis summarized:
Yesterday, we showed how this liquidity bubbled up in the mortgage finance market. As money was easier to come by - thanks to low rates and rampant securitization of mortgage debt - people bought more houses at higher and higher prices. This pushed up the value of the collateral - houses - which enabled people to borrow even more and the industry to build more and sell them to more marginal (subprime) buyers. Debt and equity raced each other higher and higher until both collapsed in '07-'08. House prices fell. And housing debt along with it. And today, thanks largely to the Fed's bubble, homeownership levels are back to where they were nearly half a century ago.
Now, we see the same phenomenon happening in other sectors. Student debt, auto debt, and corporate debt are all headed for trouble.
And the bigger picture is that the pumps just aren't working the way they used to. The growth of the last 20 or 30 years came largely - maybe entirely - from expanding credit. Banks lent. Consumers, business, and government borrowed. Many of the orders went to developing markets, where costs were lower. This left these economies and their central banks with lots of foreign cash, which reinvested in US assets. Mike Dolan at Reuters:
While China was the main driver, accounting for about half of that increase, its economic boom created a commodity supercycle that flooded the coffers of resource-rich nations from across Asia to Russia, Brazil and the Gulf.
As the vast bulk of this hard cash was banked in U.S. Treasury and other low risk, rich-country bonds, they were at least one critical factor in the halving of U.S. Treasury and other Group of Seven government borrowing costs over the same period.
So you could track the whole growth binge by looking at foreign currency reserves. As they went up, more and more people were borrowing and more and more money was available for investment.
But woe, woe, woe...for now those reserves seem to have peaked out. Dolan:
Deutsche Bank estimated on Tuesday the high water-mark of almost two decades of reserve accumulation had now been reached and central banks will by the end of next year dump as much as $1.5 trillion to counter capital outflows.
Bill Bonner is the President & Founder of Agora Inc, an international publisher of financial and special interest books and newsletters.