I found a link to an excellent if very sobering article called “The Quiet Coup” by Simon Johnson, ex-Chief Economist of the IMF, to be published in the May 2009 edition of the Atlantic Monthly, which I highly recommend. It’s long reading but quite thorough and does a good job of explaining a very complex situation in understandable terms.
In the article, Johnson describes what’s happening in the US as akin to the crises he’s seen happening in various emerging markets, details what he believes is one of the root causes of the current crisis (the recent ascension of the financial industry into a favored and powerful position in the US and globally), and his view of the likely outcomes. Johnson also writes a blog called The Baseline Scenario, which I subscribed to this morning. It’s kind of like Leopoldo Abadia’s blog (an economist’s view on the global crisis). Johnson has also appeared in interviews on popular programs like NPR’s Fresh Aire and the Colbert Report. He is critical of he current administration’s approach toward solving the crisis but also believes we are at least doing more than Europe; nevertheless, his outlook for the global economy is pretty negative.
I admit all this is not light (or necessarily enjoyable) reading. Some readers might be either tired of reading about this or wondering why I seem to spend every other post writing about the economic crisis. It’s because I think what’s happening really merits people’s attention even though everything is very complicated and difficult to understand. Personal finance bloggers always write about how the average American needs to be more educated about personal finance, so I’m basically taking my own advice.
Given that I have a physics degree, an MBA, and work in corporate finance, you’d think I was someone who should have a better grasp of what’s happening around us and their implications, and yet I still struggle with understanding it all. (As I’ve said before, I’ve always found economics a hell of a lot harder to grasp than physics.) And it’s not getting any easier given how quickly things change every day. So, I spend time reading these long articles and publicizing (in my own small way) the ones that I think do the best job. If you know of any others, feel free to leave a comment below.
What I haven’t figured out is what all this means for the average individual investor (e.g. someone like me). I know that the market doesn’t necessarily move in sync with the economy and usually leads it by a decent margin, but I still find the whole situation pretty perplexing. If the global economy tanks further and we head into a deflationary long-term state, does that mean cash is king? What do you think?