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Daily Speculations The Web Site of Victor Niederhoffer & Laurel Kenner Dedicated to the scientific method, free markets, deflating ballyhoo, creating value, and laughter; a forum for us to use our meager abilities to make the world of specinvestments a better place. |
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James Sogi
03/13/2005
Reports of the Credit
Markets' Imminent Collapse Greatly Exaggerated
The 2 million man-years used to build the pyramids were lost as a nonproductive use of capital, wrote Garet Garret in "Where the Money Grows" (Wiley, 1997). It was lost capital not put to use for improvement of society. Today, credit is more powerful than the pharaohs, yet are pyramids still being built? Credit put to productive use amortizes itself, literally puts itself to death, and is retired. The capital saved by many labors creates even more production and from the profits comes advance in the wealth of the world as the profits pyramid. But when bad judgment applies the credit to nonproductive uses, it is not amortized, and like the pyramids is lost. Is spending credit on wars and consumerism pyramid building?
But wait. In the process of building pyramids, technology is developed, businesses thrive as capital flows. Credit is free to move, unlike the pharaoh's slaves. Why does the world's capital flock to the US where pyramids are a-building? The answer is that we are exporting confidence. We have a stable and healthy system. The US is the sole power capable of waging a war in the world today. While many disagree with the current wars, just as many abhor police tactics, they feel comfortable having the police there. We export freedom and prosperity, in short a persona, an aura, a feeling. And the world is buying into it. They want it.
Not everyone wants it. The Taliban didn't want it. The Ayatollahs didn't want it. Send in the the ultimate marketers, the US Army. Follow up with Wal-Mart. Export democracy and capitalism, by force. Nothing new here. Disagree or not, it is wielding confidence and power that equal success.
At its most basic level, money and credit are nothing but confidence. In this sense the trade balances omit the most important column: Good will, Blue sky, equity. The US is not a debtor nation, it is not based on credit. It is based on freedom, on health, on prosperity, more valuable commodities than any material thing yet invented or discovered. As such the imminent collapse of the credit markets is vastly overstated. What the world is buying from US is Truth, justice and the American Way, prosperity, health, nothing short of the potential of the individual to achieve and succeed.
James Sogi is a philosopher, Juris Doctor, surfer, trader, investor, musician, black belt, sailor, semi-centenarian. He lives on the mountain in Kona, Hawaii, with his family