I still think the airlift of tons of $100 bills into Baghdad was the ultimate score.
Weren’t captains given suitcases full of cash to distribute to the local villagers?
It’s no wonder that billions of dollars have disappeared. On the positive tip, the IRS is too broke to investigate anyone. Looks like Billmon was right (May 6, 2005):

And when the dollar bubble finally bursts . . oh man. If you’ve ever heard the joke about the pig, the monkey and the cork, you have some idea what to expect. Which is why hopeful talk about a “soft landing” or a “smooth adjustment” makes me laugh. By now it should be obvious: We’re not going to stop until somebody or something makes us stop – just as a jumbo jet in vertical descent doesn’t stop until the ground makes it stop.
But the part of Roubini’s post I found more interesting – and the reason why I wrote this one – is his heated rejection of the Federal Reserve’s official (or at least, semi-official) explanation for the jam the global economy now finds itself in.
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This may seem like a dry and arcane squabble over economic terminology. But it raises some issues that go to the very heart of the question that most interests me: Why is the global capitalist economy in such a state of disequilibrium? Is it really just a function of U.S. fiscal recklessness and Asian mercantilism? Or is there a deeper structural malady at work?
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Ever since I first started writing about international economics back in the early ‘90s, I’ve heard the same points lobbed back and forth: The world is forcing America to run huge deficits. If you would just liberalize your economies, we wouldn’t have this problem. No, no America is forcing others to run huge surpluses. If you saved more, we wouldn’t have this problem.
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next Billmon post:
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the question of whether the huge U.S. deficit – and the yawning imbalance it has created in the global economy – is the product of excessive savings [in the rest of the world] (the chicken) or excessive U.S. demand for those savings (the egg.)
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Even our Chinese creditors seem to think the label on the problem should read “Made in the USA” – which hasn’t stopped them from continuing to provide the massive amounts of vendor financing needed to keep the problem from turning into a crisis.
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At some point the providers of that support – the central banks of China, Taiwan, Korea and Japan, or as I prefer to call them, the Organization of Dollar Importing Countries – will be forced to pull the plug.
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How did we get into this fix? In a world filled with poverty and scarcity, how could there possibly be an excess of savings? And why is so much capital flowing to the world’s richest nation, instead of remaining in the developing world, where it could presumably earn a much higher rate of return?
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This is not to argue – as our reality-challenged vice president likes to do – that deficits don’t matter. They clearly do matter, particularly when they become so large they can no longer be financed by foreigners at rates of interest consistent with a non-imploding economy. But it’s difficult to make the case that deficits have created a global shortage of savings.
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They [“China, Taiwan, Korea and Japan, or as I prefer to call them, the Organization of Dollar Importing Countries”] are propping up the market because they, too, are afraid of the deflationary wolf and so far haven’t figured out another way to generate the kind of growth rates they need to stay one step ahead of it.
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More competent analysts than I – such as Roubini and his colleague Brad Setser – have addressed the problems and perils of running a Keynesian monetary policy in such a fragmented system. What interests me, though, are the structural causes (if any) of the steady decline in savings and investment rates in the industrialized countries – and why those trends have saddled the global economy with such enormous imbalances. So that will be the subject of the next installment in this series.

Interesting stuff.

Posted by: jonku | Oct 30 2006 9:59 utc | 1