Friday, October 24, 2008

The US doesn't make anything

My brother, a really smart guy, has long chided that by shipping jobs and manufacturing overseas over the recent decades, the US "no longer makes anything," or, in other words, doesn't contribute but only consumes. While this is of course not 100% true, (we produce a huge portion of the world's food, for instance), there is something to it. He has always said this would lead to a massive depression, if not the ruin of the US.

One metric for what a country produces might be GDP. Will Hutton of THE OBSERVER, LONDON has an excellent article on How to survive the market meltdown that brings this together very well. Hutton suggests that there isn't enough money in the world to pay for the "dark heart of the global financial system" or the US$55 trillion market in credit derivatives: "This is a market more than twice the size of the combined GDP of the US, Japan and the EU."

Try to imagine that: a $55 trillion market now at risk of complete destruction. Even the derivative debt owed by individual institutions stands at nation-wrecking levels. For example, a single bank in Britain, Barclays again, holds more than $2.4 trillion in credit default swaps. This is more than the entire GDP of Great Britain. If all this paper goes bad, there are not enough assets in the entire country to pay it off. And that's just one bank, in one country.

Hang on. This is going to be a bumpy ride.

1 comments:

Barry said...

What a fine house of cards unregulated capitalism has made for its self. Ya can't keep loaning the same money over and over and make believe the debt is wealth. This "make believe" is what the idiots call a strong economy. The simple fact is there is very little backing up the original cash and nothing backing up the debt. When they wake up stop believing in "make believe" things fall apart. I think they woke up quite a few years too late.
If ya spend money making a bomb, when ya blow the bomb, the money goes with it. Yes, I know that is not completely true but like all disposables, there is nothing left to back the money spent. All ya get is to use that money again if we can keep in circulation. If we don't export as much as we import we can't keep it in circulation. Gee and now we owe more than we make. What a surprise.