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Economics and commerce, all built from scratch.
It came as a shock – the pleasant kind of surprise that sent the stock market soaring to levels not seen in a long time. The January employment report, released last Friday, showed a growth of 240k jobs last month. It was good news for everyone, but especially for President Obama. The story of the first three years of his Presidency has now been written in the job reports:
One year down, two years back up. We’re back to even and working to get ahead.
Modern finance has seen many innovations in the last 20 years. The Black-Scholes-Merton theory promised risk-free investment if it was properly hedged, or insured through market based options. That spawned a whole new category of investment in derivatives, or re-selling of insurance that nearly anything might go wrong. There were always new places to put money through the last generation as new concepts of “investment” were created. But through it all, there was one constant: there is a time value to money, which is to say that money today is paid for tomorrow plus a little bit more – call it “interest”.
No longer. Debt from large, secure nations is being sold at net negative interest rates, meaning that those with money are actually paying to lend it. Money today is worth less than money in the future. The implications of this are staggering.
There is a deadline – March 20th. There is a plan – 70% default, much higher than what’s been suggested before. The Greek Crisis has everything it needs to conclude after two and a half years standing on the edge of a cliff. Left to negotiate is whether or not Germany will have a man in place in Athens to oversee the Greek budget process as what the Guardian calls a kind of “Viceroy”. It probably won’t fly but it does beg the question, “What if we had a German overseer to our budget process here in the US?”.
Nevermind, there have been enough diversions. At the EU summit this week the details should be finalized and the process for bailing out Greece will be in place. The world can move on to other worries. There is even the chance that the European Central Bank (ECB) will have some authority to print more Euros shortly.
Don’t care? You should. This is very important news to the US for astonishing reasons. The bigger problem, brewing for generations, is that we have lost control over our currency and have no chance to get it back unless Europe gets its act together.
The challenge came in a moment of weakness born of a position of power. I was up giving a quick talk on the essence of storytelling to a group of students learning about marketing techniques, particularly focused on blog writing. It’s a hot topic lately, but my approach is, as always, that there is really nothing new about it at all. Just as the thought-out schtick was winding down, my friend and very capable professor Sara slipped the story sidewise.
“You say that storytelling can be used for anything. You write about economics. How does storytelling work in economics?”
The short answer is that there are many amazing stories to tell, but how can it be boiled down to a simple explanation? The short version escaped me at that moment, but eventually it came back – it’s essentially the same as storytelling itself. Things go along wonderfully until we somehow forget the lessons our grandparents learned the hard way and then have to call on another round of “experts” to tell us what should be obvious. And that brings us to the concept of a “Debt Supercycle” – how Depressions have come and gone since ancient times because we lost the big story about the economy.
Back in October 2010, job creation was at a complete standstill. The bottom of total employment was hit in February of that year and little had changed since. A simple analysis came through Barataria from Gary Shilling designed to predict when the turnaround might possibly occur – sometime after the economy (as Gross Domestic Product, GDP) started to grow at a rate of 3.3%.
Since that time, 2M jobs have been created in the economy and the headline unemployment rate has fallen to 8.5%. It feels like some improvement, if not much. Yet many people feel it can’t be a real decline in unemployment in part because the economy itself is not growing much (running an estimated 1.8% GDP growth in 2011).
Is there real job growth, or is the regression line from all the postwar data presented by Shilling telling us it can’t be real? My own analysis, which at the time pessimistically showed that higher growth might be necessary to grow jobs, may actually be telling us that job growth is indeed real – because it was so anemic over the previous decade of the Managed Depression, starting in 2000.
Barataria - The work of Erik Hare 