Back in the 1930s, the United Kingdom was the declining economic power of that age, as the United States is today. During those turbulent early '30s, the Brits were having some trouble balancing their accounts, and they didn't have enough gold reserves to back up the money demands being made on their financial system. So they forsook the gold standard as a means of backing up their currency, the pound.
About that time, as this 21st-century yeoman internet-reader (me) hath been able to ascertain, the Brit economist John Maynard Keynes figured out that, even though the currency was no longer backed up with gold, folks were still passing money around and doing business as if nothing had changed. This discovery became, by and by, the basis for all monetary activity throughout the world for the last eighty years or so.
Money is money, whether there's a vault full of gold.gov somewhere in England or in Fort Knox or anywhere else in the monetized world. That's the point. We're still passing the stuff around as if it had real value, even though there's no gold backing it up. People love spending it, and the love getting it. Perhaps they always will, even when money becomes mere electrons.
Now we are running out of money again, so the financial markets and the stock markets are obsessing about whether the Fed will bail out our money system yet again, for the third time, since the big thrill roller coaster ride of 2008.
This morning, I encountered an article online by a fellow, Joseph Stuber, who seems to actually know what he's talking about, and can explain the current ramifications of this money dynamic better than I can:
Mr. Stuber mentions, right off the bat, one morsel of truth that John Maynard Keynes left behind; it is this statement:
"The market can stay irrational longer than you can stay solvent."
That's basically what happened in '29.
These days, the whizzbangs who run the markets will work hard milking profits out of the system for as long as they can.
In fact, every stock trader will wheel and deal and play chicken with their suckerish counterparties right up until the time that the whole money machine runs out of fuel (imagined value), in hopes that he will be able to exit the game before the house falls and somebody else is left holding the bag of severely devalued assets.
Some of the perceived value of this market pertains to what Congress and the Fed will do, or not do, to retain the integrity of our currency and, therefore, the value our entire economy.
Mr. Stuber offers two possible scenarios of what may happen when Congress attempts to (or pretends to) deal with the fiscal cliff that awaits us, come January. The so-called fiscal cliff is the deficit debacle that Congress shelved for a year so they wouldn't have to contend with its difficult choices before the election.
My layman's rendering of Mr Stuber's two scenarios (extreme paraphrasing) goes something like this:
If Congress make a deal, like they did last year, to extend the expiring "Bush" tax cuts, then we will muddle through the next year or two just as we have been doing. High unemployment will become the new paradigm, a semi-permanent steady state of dysfunction and financial misery for sizable segments of our population, and nothing much will change, or maybe, who knows? it will all get worse.
If Congress doesn't make a deal, and the tax cuts expire, and the so-called "automatic" austere cuts of last year's sequestration deal are put into effect, then the long-awaited economic correction that we've been forestalling since fall of '08 will, at last, take its toll on our high-on-the-hog standards of living, and it will not be pretty, and recovery will probably not roll into effect until, say, 2017, or so, when our overvalued economy tumbles to a new (lower) foundation for true growth to get a foothold.
Someone should mention this to Mr. Romney before he makes as many vain promises as his predecessor did.
We shall what happens on Nov. 6.
And we shall see what happens when Congress re-convenes after the election.
In Charlotte on Labor Day, I heard Chris Matthews mention that the Dow, which was at around 8000 when President Obama took office, is now hovering around 13,000. Chris' implication was that the President must be doing a good job, or the Wall Street crowd would have pulled their rug out.
Perhaps that is true. I think that Mr. Obama has done as well as can be expected of any Democrat, under the circumstances that were passed to him.
But the question arises: what has the level of bubblish value in our stock markets got to do with anything that is happening in the streets and factories and households of our country?
Meanwhile, back at the ranch, or the apartment, as the case may be, what about you, Mr. America, Ms. America? What will you do this week to pitch it and help solve the problem?