Extreme Money has moved on from ontology to economics. The big question over the past couple of centuries, apparently, is about whether an economic system can take care of itself or not. There are those who believe that the occasional recession or depression, like forest fires, is needed to clean up the economic ecosystem. The weak are removed and what’s left is stronger, which is better for everyone.
There were certainly elements of that in the recent economic downturn here. Walmart took the opportunity to clean out poor performers who might otherwise have stayed on board forever, doing little, and other companies probably did the same. People lost jobs and moved on to things that suited them better. It was like the Google Panda update.
On the other hand, there are those who believe that part of a government’s job is to keep the economy stable. These folks felt that there is now enough knowledge about economics that we should be able to predict and control market fluctuations. Allowing people to play fast and loose with money — and there’s a lot of that going on — causes extreme peaks and valleys in the economy. The peaks make the governments look good, so they tolerate them even though they lead to the valleys.
It was interesting to me to read about how much of the cut and thrust of high finance is entirely about money, and not about business at all. Apparently, people buy a company with borrowed money, squeeze enough cash from that company to pay off the debt, and then sell the company again at a profit. For the five or ten years during which the debt is being paid off (and investors may not even wait that long to sell), the company is run at minimum cost and maximum production.The authors suggest that this can be good for a company, making it clean up its act. However, this isn’t a long-term view, and companies that experienced this often go under completely and get sold off in bits.
So much of modern finance is like this, at least in the U.S., that we end up with much of our economy being completely separate from anything we produce — anything with value at all, in fact. Our economy is now based almost entirely on people’s faith that people in the future will pay more than people in the present for financial products like bonds and shares. I didn’t know this. Apparently, the butchers and bakers and candlestick makers are almost completely insignificant in economic terms. This doesn’t sound like a good thing.
#2 son is studying economics, so I plan to discuss this with him once I get far enough into this book to feel as though I really get the idea.
The picture here is of summer top #10, completed. This brings the Summer Top Project to a close, with ten new summer tops for just under $60. Financially, nothing at all compared with a leveraged buyout, but at least I produced something.