Making money in the ether December 14, 2008
Posted by wonderingin in Business, Finance.add a comment
For years, my children would ask me, “What exactly do you do [for work], Daddy?”
I never had a good answer for them because I worked in so-called knowledge worker service professions such as consulting and management – activities which provided services rather than making products. I did not make or sell anything which my children could see or touch.
There are services and then there are services. Service industries come in three varieties. There are the physical service industries such as retail workers, technicians, and janitors. These service workers earn poor to ok wages with no real opportunity for significant economic advancement. Then there are the professional service workers – doctors, lawyers, accountants, scientists, managers, etc. – who earn solid, even comfortable, middle and upper middle incomes but we are not talking about people getting rich doing this stuff.
Finally, there are the Wall Street types – investment bankers, traders, money managers – who have figured out a way to make money – gobs of money – by manipulating and multiplying the invisible computer bits which make up much of the wealth in the modern world. Expand the bits and trillions of dollars in new wealth is created. Let the bits contract and trillions of dollars in wealth disappear.
Making money in the ether* took on new meaning for me, however, when I recently realized that the financial sector (banks, brokers, money managers, etc) made up 40% of the total capitalization of the U.S. stock market!
Can any of this stuff be real?!
Apparently a lot of it was not – we were just fooling ourselves.
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UPDATE 12/19/08 – While I am not routinely a Paul Krugman fan, his column in today’s NYT – the Madoff Economy – does add more grist to this debate.
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* There is even a web site (http://www.ether.com) where you can sell what you know.
Our standard of living is in jeopardy December 12, 2008
Posted by wonderingin in Finance, Politics, The Economy.add a comment
The American standard of living is in jeopardy as never before.
Our collective historical economic success has been built on the hard work and personal responsibility of the free enterprise system. Personal saving and investing were hallmarks of that success.
Now, however, we are a nation of debtors as well as a debtor nation. And the proceeds of that debt have been spent on consumption (by individuals) and transfer payments (more consumption) by government.
There is a limit to how much we can borrow. The Wall street investment banks have reached that limit and are contracting rapidly. Consumer borrowing and spending have also contracted sharply in recent months.
Only the Federal Government seems to have unlimited borrowing capacity as every economic sector queues up for its own rescue. But the government’s borrowing capacity is also finite, and we may in fact be approaching that limit faster than we think.
The Federal Government has committed approximately $1 trillion of borrowed money to various bailout and rescue schemes, and the federal budget deficit for fiscal 2009 may exceed $1 trillion in a total economy of less than $15 trillion.
And that’s before President-elect Obama’s administration tees up regulatory reform, energy reform and healthcare reform. Any time a Democratic administration legislates “reforms,” higher spending and taxes are usually involved.
How will we pay for all of it? More taxes on the rich will not cover the bill. Sounds like more borrowing.
And yet our principal lenders have increasing concerns at home. China’s $500 billion domestic stimulus package will reduce the amount of their foreign currency reserves available to buy our debt, and the rapid decline in oil prices below $50 will surely reduce Treasury purchases by the oil states.
Sooner or later, we must learn to live on what we earn. That time may be sooner than we think.
