Thanks for the valuable comments.

It helps to not think too much in terms of the technical aspects and look at old fashion human psychology. When people are scared, markets seize up.

Ed: Yet I am supposed to vote on some candidate this November who will be responsible for fixing this mess. If I don’t understand the problem, how am I supposed to
pick a candidate to fix it?

When picking a politician, you don’t need to look too much at their technical skills, since politicians can hire economic advisers to do the technical work. The reason that democracies ultimate work is that the qualifications for the people at the top are common sense, good judgment, and character, and that is something that you don’t need much technical skill to be a judge of.

“Churchill died several decades ago.”

So did Mao. I hear Deng Xiaoping isn’t in such great health either. I certainly hope China will come up with a more creative political vision than “Middle Kingdom Redux” with an engineer cast as “Son of Heaven.” You have too important a role to play to settle for such a cramped, limiting vision.

good post. i think it reverts back to your earlier post on the need for restructuring the financial globalization infrastructure. it is a failed experiment. Vendor financing to the US has worked for the peggers, but the game seems to have met its natural limit. Note the comments coming out of Australian that they are headed for a massive recession with markets and house prices correcting 50%. The problem here is that incomes are not rising and the Fed is desperate to preserve asset inflation for puroposes soley of the banks/financial system. Thus we have a bifurcation of system verus served, with the system (TBTF) winning the day. The problem is the system hasn’t served the constituency very well as per your post.

The market needs to find a clearing price and “wealth” will (and should be) destroyed as easily as casually as it was created. Wage stagnation is merely a syptom of financial complex rotting from the inside out. Strap in, this is the ultimate value trap.

If you don’t like median family income, look at median real wages for production workers (no demographics there — a worker is a worker). The basic story is the same. There is a ton of data on this point. real wage growth hasven’t matched productivity growth.

much less (that is my answer to what fraction of the debt has been issued to finance the expansion of us firms abroad). US firms have financed most recent investment abroad with reinvested earnings. and the tax treatment of foreign profits encourages financing new investment out of that revenue stream rather than repatriating the profits. finally — setting aside the LBO sector and us firms that borrowed to increase their dividends to avoid being a PE target — the us corp sector has been fairly cash rich and not a big net borrower. the borrower in the us has been the household sector.

Fannie Mae (FNM) could be under more pressure when trading opens Monday in New York. Shares fell almost 3% in Europe after an article over the weekend in Barron’s suggested the giant mortgage lender could need a government bailout if the housing market continues to swoon. “Its balance sheet is larded with soft assets and understated liabilities that would leave the company ill-equipped to weather a serious financial crisis,” Jonathan Laing writes. “And spiraling mortgage defaults and falling home prices could bring a tsunami of credit losses over the next two years that will severely test Fannie’s solvency.”