Knowing and Making

Driving through the US it is slightly hard to believe that a place with such a vast and humming industrial economy could have a recession. But it's all relative, and it is entirely possible that the $60-70,000/head GDP of this region could decline by $2,000/head in a year or so. I was provoked to wonder about how the US economy can sustain what appears to be a much higher level of consumption and infrastructure than the UK. On the surface there are no great insights or mysteries here - the US has more natural resources and space, therefore needs to spend fewer resources on working around those shortages; it spends proportionally less on public goods, and (arguably) its infrastructure is of lower quality - built quicker but also decaying faster. People work more hours and therefore create more resources (which are included in GDP), but spend less time on leisure (which isn't). But I wonder to what extent this is not to do with explicitly differing preference, but with multiple e...

If the leveraged financial structures supporting the operations of the world economy are unravelling, what will happen? In the short term, it's dangerous. Today, according to the FT , banks are refusing to lend to each other. Soon that will start to have knock-on effects for exporters, and soon after that for domestic business too. They can't borrow money because their banks' risk models require the loan to be laid off to other parties who will no longer play. So companies won't be able to get export finance, and won't be able to take on domestic projects that require financing either. Why is that? If the money is out there but the banks won't lend to each other, people who need it are going to have to start finding new financial suppliers. Let's say that bank A has a strength in lending foreign exchange to manufacturers, and usually finances this by swaps with banks B and C in the forex markets. The money is spent by the manufacturers and comes back into th...