Panic – or Laugh?

“This is no time to panic. There’ll be plenty of time to panic later.”
– Groucho

So far this year the S&P500 has lost 100 points (5%). Where did they put them? Isn’t hard to lose something that is pointy? Despite looking under every sofa cushion the search has so far remained pointless.

It may not seem like the time for humor, but the US market reaction to the meltdown in China is purely comical in many ways. It shows how much the market is responding to emotion rather than reality – and the prevailing emotion is fear. Run away!

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A Critical Weekend

Monday is Labor Day.  This is a critical day for labor in America because its success is about to define our economic future, at least for the next few months.  By the time you read this, you may know how many jobs were officially created in August.  If it was 220k or more a September increase in the Fed Funds rate is likely.  If it was under 180k there probably will not be a rate increase.

The ADP Employment Report, which is less prone to noise in the first place, came in with a middling 190k gain in jobs.

What’s great about this is that Labor’s success in the last month could kill the stock market, pitting labor directly against investment.  There’s nothing productive about that arrangement, but it highlights how strange the world has been.  This oddly critical holiday is a good time to recap some of the topics that Barataria has gone over the last few months.

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The Economy of People

The economic teachings of Pope Francis are a hot topic. People feel a need to weigh in on what he said whether they understand it or not. But it’s the simple fact that so many don’t understand where this comes from that is probably the most important point in the public debate.

To sum it up: Money should work for people, and not the other way around. That shouldn’t be controversial, but having forgotten this way of looking at things is may be at the heart of economic and social cycles. The simple answer is that it’s time we remembered. More to the point, that philosophy is at the heart of American tradition going back to our earliest days.

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Pope Francis Teaches Another Way

“There is no class so pitiably wretched as that which possesses money and nothing else. Money can only be the useful drudge of things immeasurably higher than itself. Exalted beyond this, as it sometimes is, it remains Caliban still and still plays the beast.”
– Andrew Carnegie

It may seem strange to open a discussion of Pope Francis’ Apostolic Exhortation Evangelii Gaudium (The Joy of the Gospel) with a quote from an icon of capitalism and a self described atheist. But a deeper understanding of message requires a step back with greater context. Francis is not decrying capitalism – far from it – but he calls for wealth to serve the human spirit and be a genuine force for liberation. The distinction is not academic but is a theme  Barataria has elaborated on as well.

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Wealth is How You Feel

Around the world, two stories have been consistent since 2008 – the developed world is struggling with a depression while the developing world largely charges ahead.  The two worlds have never been so far apart as the careen towards similarity.  But in this hemisphere, three stories have come to show where it all comes together – how “wealthy” is what a nation feels more than how it is.

Forget how Japan and Europe are wallowing in desperation for a while – on this side of the big ponds things are happening.  It may be slower than anyone wants, but change is happening.  The reactions to that change show that my favorite saying is still true – that while people are people, cultures are cultures.  Wealth, or at least the feeling of wealth, is a state of mind.

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Inequality Becomes Intolerable

How bad has wealth inequality become in the US?  Thanks to a video that is becoming viral, a new discussion about inequality has fired up – sadly, just after our election cycle.  It takes off from work done 6 months ago by Dan Ariely and Mike Norton, first reported humbly in a simple blog.  But thanks to new graphics and explanation it’s lighting up the ‘net in a way not seen before.

As discussed previously, income and wealth inequality is the best indicator of a future slowdown in economic growth around the world.  More attention to this problem is certainly a good thing.  But the context of how this comes to be and what can be done about it remains elusive.  Let’s take a long view and see where the problem came from – and what can be done about it as we work to set up the next period of expansion that comes after the Managed Depression we are in now.

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Money is a Tool

What is money?  Your answer may depend a lot on how much of it you have.  Ultimately, the main purpose of money is convenience.  A system of barter works pretty well when two people have things each other need – someone with chickens meets up with someone else who recently slaughtered their pig and both have bacon and eggs.  But if you can also exchange those eggs for money you can save it up to buy something different or bigger.

As we’ve concluded before, Adam Smith was right – money is a matter of belief.  Whether it’s gold, Euros, or Canadian Tire Money it’s worth whatever you believe it is worth.  Our own US Dollar is backed by the “Full faith and credit of the US Government”, which is scary if you think about it.

But money is more than convenience and faith – it’s what it takes to make things happen.  And that’s worth thinking about some more.

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