On yer bike

Thus Denninger:

Bernanke clearly thinks ... that he can "restart borrowing." ... This is causing the dollar to get slammed - at least for a little while... These sorts of actions ignite wars. Choose between a trade war (about 75% chance) and a shooting war (the other 25%).

The dollar weakness, by the way, won't last. Either sort of war puts every other nation in the world in worse shape than us, which over time leads to the same place - "we're screwed but they're screwed worse."

He's not wrong. Total US debt, foreign and domestic, has recently been calculated as 392% of GDP; but alas for us Brits, UK external (foreign) debt alone is running at 400%. I just don't know what a like-for-like comparison would show.

The TV news here tried to put a merry gloss on sterling's collapse, reporting how it helps exporters like a bicycle firm they visited. A bit desperate: the start of the 'Oxford Automobile and Cycle Agency’, this isn't. You know you're in trouble when they tell you to "smile, smile, smile."

Unstoppable

From an engineering standpoint, I think that this crisis was unavoidable. Once we de-coupled the concept of wealth from production, we generated a positive-feedback loop. The profits from manipulating money were greater than could be made in manufacturing, and so even more money flowed in.

I cannot help but think of Douglas Adams' 'Shoe Event Horizon', where eventually every shop becomes a shoe shop.

The answer is blowing in the wind

I said on Friday, "I think 2008 will be seen in retrospect as the year that the global balance of power underwent a sudden tectonic shift, from West to East." I forgot to add, "...and from North to South, too"; but Michael Panzner is not alone in seeing America's exclusion from the Brazilian summit as a straw in the wind.

In the news

Conservative leader David Cameron is making noises about prosecuting crooked bankers. Nice to see he's getting with my program.

Also in the Daily Mail, Alex Brummer says Madoff has queered the pitch for hedge funds generally. Damn: I had started to look at how to set one up, using links supplied by Jim from San Marcos. If I'd started a couple of years ago, I'd have got everyone into cash and made a packet for them and myself. 2 and 20, 2 and 20.

Odds on the bankers and hedgies Getting Away With It? Pretty fair, I'd have thought - especially when you bear in mind (as Denninger points out - and Jesse, too) all the others who could be implicated. To quote Oscar Wilde: "The good ended happily, and the bad unhappily. That is what fiction means."

On Competitiveness

Consider a group of players in a game of chance. If all conditions are equal, the long-term results will be randomly distributed, with some big winners, and some big losers.

Change the conditions so that some players have an advantage, and eventually those players will be the only winners. How long this takes depends on the size of the advantage.

This is the basis of the mutation and natural selection portion of evolution theory.

For a generation after World War II, the US had a huge advantage: capital, undamaged manufacturing capacity, cheap energy, and most of the scientists and engineers. Thus, we 'won' the economic game, and it was attributed to Americans being 'better'.

We failed to notice that many other nations were catching up in education and technology. That the government and industry chose to dis-invest in research in the 1980's just accelerated the process.

As the playing field is now level (or even tipped against us), we should carefully consider how to gain back that advantage. We have done so before in the short term: arming in World War II, the Manhattan Project, the Space Race.

Do we have the will to do this when not faced with war, but with long-term economic decline?

The elephant in the room?

In 'Great Expectations', Charles Dickens wrote: "Annual income 20 pounds, annual expenses twenty pounds and sixpence, result misery" (or words to that effect).

In the 1960's, the US undertook an orgy of spending on the Great Society and the Cold War (including the Vietnam War and Space Race). At the same time, the typical middle-class American lived an extravagant lifestyle, relatively speaking. This was all fueled by cheap American oil, gas and coal.

By 1973, we had used so much that OPEC had us over a barrel, and by 1975 we had our first large trade deficits, which have grown every year.

Since about 1980, not much has come out of our industry that the rest of the world seems to want to buy.

Did we go broke 30 years ago, and are just now noticing it?

There's more truth in humour ...

Today's 'Non Sequitur' cartoon strip:

C.E.O. talking in his palatial office talking to a man with a wrench in his hand:

"We crunched the numbers over and over on where we could cut back, and it kept coming down to whatever it is you guys do on the assembly line..."