海角大神

Probably the strangest things of all are the conclusions and advice given by some of the smartest economists in the business. We mentioned it on Friday. But our mouth is still open and our eyes are still glazed. In the run-up to the crisis of 鈥�07-鈥�09, almost everybody made mistakes. The spenders spent too much. The savers over-did it too. They built too much capacity.

Both need to make corrections. That鈥檚 what a Great Correction is for.

But the advice given Martin Wolf, Paul Krugman and others is the kind of thing that is hard not to laugh at. When the bubble blew up, everyone lost. But some lost a lot more than others. The spenders were in debt and broke, while the producers had money and factories (they didn鈥檛 know what to do with). So what do Wolf and Krugman suggest? They advise the winners to act more like the losers. Germany and China (the countries with savings鈥�) should spend more money and stop working so hard.

Readers will note that Krugman is an American economist. Martin Wolf, the lead economist at The Financial Times, is English. They represent the losers, of course.

Wouldn鈥檛 it make sense to follow the winning strategies, not the losing ones? Wouldn鈥檛 it make sense to listen to the winning economists 鈥� those in Germany and China, not those in the spendthrift economies?

Nah, those economists may not understand the secret to a healthy economy 鈥� spend, spend, spend. That鈥檚 the secret鈥�stimulate spending. Consumers spend. Government spends. Business spends. Everyone spends until they run out of savings鈥�then, they spend till they run out of credit. And then they鈥檙e busted.

Hey, what kind of secret is this? Well鈥�that鈥檚 what鈥檚 so strange about it.

Now, there鈥檚 a new federal program.

鈥淓xpanded mortgage aid should cut foreclosures,鈥� says another headline. The new aid program requires lenders to reduce mortgage payments when a borrower loses his job.

Now the feds are using their brains. Let鈥檚 see, if you lose your job your mortgage payments go down鈥� But what happens to the money you were supposed to pay? Wasn鈥檛 it owed to someone? What are they going to do?

Well, one thing they鈥檙e going to do is to be a little more careful before making any more mortgage loans.

But the number of foreclosures is still going up anyway. There are now 4.5 million houses in the process of foreclosure or 90 days delinquent.

A Great Correction takes time. Stocks go down. Revenues go down. A business gets in trouble. It sends out dismissal notices. Then, the ex-employees get unemployment comp. They run down their savings. And then they fall behind on their mortgage payments. And then, with their house worth less than the mortgage, they give up and move out.

And then the house price falls.

Patience鈥�dear reader鈥�patience.

Maybe Porter is right. Maybe we鈥檙e wrong. Maybe there鈥檚 no voluntary de-leveraging going on, after all. The most recent numbers show the savings rate in a decline.

Maybe that鈥檚 the way it works. Maybe nobody ever really tightens his belt unless he absolutely has to. Maybe it takes a crisis鈥�a catastrophe鈥�a disaster. Maybe that鈥檚 the way of the world. Maybe thinking doesn鈥檛 matter at all. Maybe markets make opinions after all.

In the businesses where we鈥檙e directly involved, in 2009 we paid down debt, stopped making capital investments, reduced the payroll and saved every penny. Now, we鈥檙e starting to lighten up again. We鈥檙e considering new investments. And the payroll has climbed back almost to where it was before the crisis.

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