The Death of Kings
I didn’t see much mention of Nick Paumgarten’s May 18 New Yorker piece The Death of Kings (audio available here). Overall a useful, if sobering, perspective. He talks to Columbia University Prof Bruce Greenwald:
He explained that we are, in some respects, the victims of a structural imperative reaching back to the waning days of the Second World War. The Great Depression in Britain, he said, started in the late 1920s, owing to structural deficits in the nation’s balance of payments, a result of the pound sterling’s traditional role as the world’s reserve currency. Breton Woods, the global economic conference in New Hampshire in 1944, repalaced the pound with the dollar.
This meant that debts tended to be denominated in dollars, and other nations had to hold dollars in reserve, to pay them off. Not having dollars would expose your country to the risks of currency fluctuation. And so other countries coveted dollars. Toget them, they sold goods. There was, therefore, in the Bretton Woods arrangement, a structural demand for current-account surpluses, and for someone to eat up all those surpluses. We had to be the consumer of last resort. “We’ve been living beyond our means for the sake of the world,” Greenwald told me. “Where else would all that crap go?”
They make, we take. And then, we find ways to pay for it all. Our prime asset, over time, became our financial acumen. It represented an ever greater part of our economy, our political system, and our interaction with the world. “What’s our best export?” Leib said (Barclay Leib, derivatives trader and hedge-fund consultant). “Scrap metal? No. Hedge-fund managers. Financial creativity. We’re good at it. We keep the cycle of money going.”
Ultimately, Paumgarten looks at both sides and seems to edge efficient market-ward:
The market scolds saw the positive signs (in stock market prices) as jabberwocky, or else mere accounting tricks. The skeptics worried that the crisis was mutating into a virulent strain of delusion, a pretext for the preservation of the old status quo. The presumption was that staving off near-term pain would lead to ever more spectacular collapse. But who knows? Maybe it won’t. Divination is fraught, fact being merely what we make of them.
Our dreams of normalcy are just that. We will have to create something new; propping up what exists in hopes of reclaiming what was isn’t going to work. But I think we all know that, or I hope we do.
