- By Bill Bonner
The Dow fell a little yesterday, halting an impressive bout of insanity. Asian and European markets show weakness this morning. We have a feeling the Dow will cross back below 17,000 today.
With little excitement in the markets, we turn to the 'pink paper' for entertainment. The Financial Times always brings us something to laugh at - usually on the editorial pages. Chief economist Martin Wolf is an unwitting comedian, always ready to give prime editorial space to the most subprime ideas that ever nested in a Ph.D. dissertation.
From his pulpit at the FT, he is said to be one of the '100 Most Influential' people in the world. We hope that is an exaggeration, but we fear it is not. The absurd and disastrous policies followed by central banks and governments are often front-run in some loopy editorial written by Wolf. So we pay attention, partly for amusement and partly for advance warning.
In today's paper, we find Mr. Wolf is at it again. Full of hope. Full of advice. Full of...well, never mind.
"Demand deficit," signals the cover, with Mr. Wolf's picture front and center. "Why policymakers must induce a global investment boom."
Uh oh...here it comes. Not content to mess up a single economy, or even a continental economy, like Europe, he is going after the entire world.
China is slowing down, he notes, and the world "has lost its last significant credit-fueled engine of demand." This leads to a slowdown...and presumably to things too awful to mention in the most financialized city in the world. (Pssst....falling asset prices!)
Sniff. Sniff. China is no longer buying copper, oil, aluminum, and other commodities the way it used to. This is a big problem. Because it will surely exacerbate the "savings glut" challenge. Or, as his rival in confident simplemindedness, Larry Summers, says, it will make the problem of "secular stagnation" worse.
In other words, hard cheese for the financial industry. Why? People just aren't willing to continue spending money they don't have on things they don't need.
If you ignore the nonsense packed into the "savings glut" phrase, it makes sense. And it makes us wonder, how come people were borrowing and spending so much in the first place? And, how come people don't have more real purchasing power? We note, in passing, that the typical American household now earns $53,000 per year. That is not a penny more (adjusted for inflation) than it earned in 1989 - a quarter century ago. How could you expect it to spend more? If we were asking how come Americans do not buy more goods from China, wouldn't that be a good place to start wondering?
But no. Mr. Wolf is not one for wondering. With scarcely a pause to puzzle over the gap between cause and effect, he rushes to a solution.
"How should one manage a world in this sort of condition," he asks.
Our head spins. Our knees buckle. We reach for a glass of Henry Downes' #9 whiskey to steady our balance. We have trouble managing our email account. Managing the family farm is a challenge. Managing the family itself is hopeless. But Mr. Wolf proposes, with a straight face, to manage the entire globe - with its 6 billion people, 7,000 languages, thousands...no millions...of local and regional economies...
What bread doth this man eat? What air doth he suck into his lungs? What asylum is looking for him?
When we recovered our balance and collected our wits, we read on!
"It is now vital to avoid a significant slowdown," he says. What? Everything slows down sooner or later. Traffic. People. Markets too. How could it be vital to stop something that is inevitable? Mr. Wolf doesn't say.
More "unconventional policies" are needed, he goes on, without specifying what they might be. Then, he lets it be known what he has in mind.
" [A] world with such low real interest rates offers huge opportunities for investment..." he says.
But if that were so, wouldn't question marks spring up like mushrooms? Wouldn't you want to ask yourself why the millions of serious business people...and millions of imaginative entrepreneurs...weren't taking advantage of these opportunities? If that 'glut of savings' were really available at 'such low interest rates' waiting for someone to borrow it, why doesn't the market discover the price at which buyers and sellers of credit can make a deal? Don't markets readily and easily solve 'glut' issues?
If you are Martin Wolf you don't trouble to think about it. Instead, he laments: "The world has run out of large economies ready and willing to let lending and spending rip."
What? Is that all there is to it? Is that the solution? More of the same? For the last 2 decades world debt has grown at about twice the rate of world GDP. It's up from about $40 trillion in 1994 to about $225 trillion today. Letting her rip has gotten us into the situation we find ourselves today. Should policymakers simply let 'er rip some more?" Should they borrow more? Spend more? And call it 'investment'? Say they are 'managing' the world?
FT, thanks for the laughs.
Publisher's Note: Vivek Kaul, the India Editor of the Daily Reckoning, just made a bold call - Real Estate prices are headed for a fall. Well, if you are someone who is looking to buy real estate, or is just interested in the space, I recommend you read Vivek's detailed views in his just published report "The (In)Complete Guide To Real Estate". To claim your copy of this Free Report, just reconfirm your Free subscription to the Daily Reckoning...
Bill Bonner is the President & Founder of Agora Inc, an international publisher of financial and special interest books and newsletters.