On Sat, 11 Oct 2008 15:36:05 -0400, "Ed Huntress"
wrote:
snip
Iggy, a couple of years ago I was reading some background material for a
trade article and I kept being hit by the fact that 40% of US corporate
profit was coming from the financial sector. Then I looked at the dollar
numbers in the financial sector and said to myself, "self, what the hell
does all this 'money' represent? Where is it? Where did it come from"?

Self said, it seems to represent nothing but a circle of obligations; it
exists on hard disks; and it fell from the sky. Of course, I look at these
things from an economics point of view, with very little understanding of
finance. But I think I recognize an economic circle-jerk when I see one.

I never thought we were remotely as wealthy as the numbers suggested. I
still believe that Adam Smith had it right, and by no stretch of the
imagination could these financial "services" be labelled honestly as things
of value. They were tricks of multiplication.
snip
========
Indeed, now follow through.

When we consider the Financial and the "real" economies as
separate although overlapping entities, it becomes useful to
consider that they may have different currencies/"money of
account."

This leads to a useful conjecture. It appears that both units
are called US Dollars, but other than this highly misleading
name, there is little connection. We can call one $USR [for
real] and the other $USV [for virtual] but to insure clarity I
use the term "spondulick"
[http://www.urbandictionary.com/defin...rm=Spondulick]

Within the Spondulick economy there is the additional
complication that a "standard" Spondulick does not exist, but
rather a number of Spondulicks issued by every financial firm,
and as Ed and several other people have noted, when the major US
corporations are evaluated by their sources of net operating
profit and free cash flow, they are all financial operations,
with some sidelines such as making cars, appliances, retail
sales, etc. In this, the Spondulick economy resembles the US
"real" economy during the period of "Free Banking" [1837-1863]
when every bank issued its own bank notes against the specie
[gold and silver], which they may [or may not] possess.
http://en.wikipedia.org/wiki/Free_banking
http://unenumerated.blogspot.com/200...nking-era.html
http://www.federalreserve.gov/BoardD...8/19980502.htm

If closely intertwined $US/Spondulick economies are assumed,
several apparent contradictions that occur when a single
economy/currency are posited disappear.

Note there is a significant conversion fee between US$ and
Spondulicks, charged by the banks and brokerages.

The current economic problems become more understandable if these
are regarded as exchange rate problems between the US$ and
Spondulicks, amplified by the historical problems of "free
banking" among the various Spondulicks.

The exchange rate problems appear to parallel those of the 60s
when the Bretton Woods fixed exchange rates began to break down.
http://en.wikipedia.org/wiki/Bretton_Woods_system
http://www.canadianeconomy.gc.ca/Eng...ton_woods.html

With the collapse of Lehman and the examination of the "real" set
of books, it has become possible to establish a clear exchange
rate between the "Lehman Spondulick" and the US$ as determined by
public auction.
1 Lehman Spondulick = 0.0825$US.
http://www.marke****ch.com/news/story/lehman-derivatives-auction-described-smooth/story.aspx?guid={A5ACF291-FC4D-478D-845D-8713E50448B3}&dist=msr_4
snip
Roughly $400 billion will be paid out on Lehman CDS, but, once
all positive and negative positions are "netted" out, about 2% of
that money will actually change hands, Pickel estimated. Payments
are due on Oct. 21 to settle Lehman CDS in cash, he said.
snip
==
Of concern to the other Spondulick issuers is that Lehman was
thought to have issued about 225-250 Billion Spondulicks, but in
actuality issued 400 billion Spondulicks against actual assets of
about 32 billion $US. This greatly alarmed the other Spondulick
based organizations, and has seriously impacted Spondulick
denominated trade in the Spondulick zone.

The US Federal Reserve Bank and to a lesser extend the US
Treasury can influence TO A DEGREE the value of the $US, but have
minimal influence on the internal value and exchange rates of the
Spondulicks, indicating that their efforts to correct problems in
the Spondulick economy will have minimal results [and maximum
costs].

Note that the FRB/Treasury task is enormously complicated by the
ability of literally thousands of organizations to issue and
recall effectively unlimited amounts of Spondulicks at their
whim.

It should also be noted that nominally denominated Sterling,
Euro, Yen, etc. Spondulicks also exist, with all the valuation
and exchange problems this implies.

The small first step of controlling the US Spondulicks economy by
requiring the use of the US$ as "money of account" for asset
valuation through the "Mark to Market" requirement of
Sarbanes-Oxley is widely blamed to causing much of the current
economic distress and huge market break [crash].

The Spondulick $USV denominated economy appears to dwarf the real
$USR economy. The real GDP is estimated at 13+ trillion [10^12]
$USR per year, while the Spondulick economy is estimated to total
over 10 times that amount [c. 170 trillion [10^12] "$USV"]

John, Ed, and everyone else -- comments?


Unka' George [George McDuffee]
-------------------------------------------
He that will not apply new remedies,
must expect new evils:
for Time is the greatest innovator: and
if Time, of course, alter things to the worse,
and wisdom and counsel shall not alter them to the better,
what shall be the end?

Francis Bacon (1561-1626), English philosopher, essayist, statesman.
Essays, "Of Innovations" (1597-1625).