Hold on to Your Wallet

Wall Street is not Main Street.  Not any more.  Have you noticed the stock market has malaria?  Its temperature is constantly rising and falling causing economists to hallucinate about what tomorrow will bring.  Well it’s going to be very different for some than others.  You see, the fortunes of large multinational corporations and banks are now driven by very different forces than what drives smaller American business, which employs over 90% of U.S. workers.  The U.S. economy can be like an ever-growing snowball hurtling off a cliff while big corporations are sitting in the ski lodge sipping martinis in front of the fireplace.

No, I am not saying that all large company leaders are evil wizards who don’t care what happens to the rest of our economy.  I am only stating the obvious.  These relatively few big global companies and financial institutions have their own economy.  When the dollar plunges in value, these companies are exporting faster than tourists fleeing a Tsunami.  This enables them to earn bigger profits in Euros or other currencies.  As our economy slows down, they’re expanding.  Not in the U.S. but in China or India where the consumer economics are just getting started.

None of this is secret.  Nor is it a conspiracy.  It’s simply the new economic logic of globalism.  Capital, investment, jobs all flow to countries where the greatest economic rewards will be earned.  Economics is rational, self-interested, and mostly short-term.  This wasn’t so bad when the interests of Wall Street and Main Street were aligned.  This meant economic bad news was bad for all of us.  So we could all row in the same direction to get back up river.  But it could be very bad now that our fortunes are disconnected.  Since our biggest economic institutions can be hugely profitable even when our economy is sinking, they can safely row their stockholders to the “bank.”  As for many of us, we’re speeding down river toward the falls.

Today, anyone who can face the truth looks at our true inflation rate of food, oil, education, healthcare, and housing running at over 10% and gag.  They look at our zero savings rates, our individual and national debt, the growing epidemic of foreclosures.  Gulp.  The days of using our home equity to buy Hummers like they were Tonka Trucks are gone.  According to the Economist, the ratio of household debt to income is 130%.  15 years ago it was only 80%. We are over spent.

The waterfall we’re heading for is called stagflation.  Rising prices, rising unemployment, high interest rates, and sagging pessimism.  The difference between this version of stagflation and Jimmy Carter’s in 1977-80 is that it may not matter that much to America’s biggest companies.  They’ll keep right on making money in foreign economies.  Am I overstating the case?  Well, perhaps, but consider a vivid example.  If you or I make a catastrophic investment, we go broke.  If Citibank does, they get $7.5 billion from Saudi Arabia.  This is courtesy of the $3.00 a gallon gas we buy every day.  Let’s see, we buy gas on Citibank credit cards at 17% interest sending billions to the Middle East so they can buy Citibank.  No wonder we’re hallucinating!

No, Wall Street is less like Main Street than it’s ever been.  If you have a business you better get busy with your export strategy.  For the rest of us, we need to hold on to our wallets. We’re going to need whatever’s in there.

4 comments.