J. Enriquez: Understanding The Economic Crisis

Everyone should must watch this short 30 minute clip on the Financial Crisis and the necessity for absolutely radical change.  The talk is a PopTech gtalk given by Juan Enriquez, whose spent most of his life studying similar crises around the world (particularly in Latin America).

His 5 Stages of Meltdown are:

1. Denial (Greenspan, W. Bush)
2. Borrow, Spend, Borrow More (Stimulus Packages)
3. Go Broke
4. Brutal Readjustment
5. Rebuild

The US and much of the world is at step 2. Question: When the whole industrialized world goes broke simultaneously who foots the bill? Who does the restructuring? Where does that money come from?

Without a massive change–i.e. massive cuts in defense and entitlement spending, caps in health care spending, raised taxes–the US appears headed to become Mexico (or perhaps Brazil) in about t-minus 6-10 years.  If the dollar loses its value (with 70% of debt owned by foreign entities) then there will be a global run on shorting the dollar and that’s all she wrote folks.

The Democrats are increasingly beholden to Keynesian economics, which assumes the problem is on the demand side.  Whatever is left of the Republican party thinks its Fannie Mae and some temporary credit crisis and a nice chance to apply some shock-therapy disaster capitalism (say to the Auto Unions).  I’m less than a true believer in the Obama stimulus (or the Krugman retort that it is too tax cut heavy and not enough infrastructure buildup).  Both are just variations on how best to do the Keynesian thing.  [Friedman monetary policy has failed and I think Keynesian will as well].

The right-after-the-immediacy of the credit/demand problem-is-over horizon is a solvency crisis.  It is a debt crisis–a crisis of the fundamental way of doing economic business.  That we have to be more like our grandparents (my grandparents I should say), who actually built things and saved money.  No get rich quick schemes.  As Enriquez says the stimulus at best is a torniquet, but with all torniquets if it is applied beyond the moment of aboslute need, then it will cut off the circulation, causing amputation or worse death. I’m not lauding or romaniticizing some austerity program and the good old days when everyone helped one another.  This is going to brutal.  It’s surgery–invasive, multi-organ, painful surgery–in Enriquez’s words.

It’s that or enjoying living in a post-imperial decline state.

Another related clip here from the film IOUSA

For an alternative view, see Krugman here.

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2 CommentsLeave a comment

  1. […] (vbc) vbc.style.visibility = ‘hidden’; e.style.backgroundColor = ‘#fff’ }); }); today J. Enriquez: Understanding … trackback from post […Everyone should must watch this short 30 minute clip on the Financial […]

  2. I think you’re absolutely correct. We do need a fundamental change in how we do business–save and build, throw greed on the scrap heap and re-embrace hard work and modest living. Globalization will make this process a thousand times harder, of course, and defense spending has become almost an untouchable.

    Entitlements are growing with the fracturing of society, almost at a pace with the breakdown of the family/extended family unit.

    In any case, you’re right on the money as it were.

    Cheers.


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