(noun, etymology Dutch from ‘boedel’: estate, possession, inheritance, stock.). 1. Crowd, pack, lot, as in ‘the whole boodle.’ 2. a. Counterfeit money b. Money acquired or spent illegally or improperly, particularly when used in bribery for political purposes. 3. Slang for money in general.

The Glass Poker Table That Is Global Economics

Posted on: Oct. 12, 2010  |  By: Ronnie Kahn  |  Category: General

As it is today, “the economy” is a poker game played on a table of glass, in which confidence or lack thereof is key to who wins and who loses. Then there’s also the matter of who’s holding the hammer.

What happened to Bear Sterns in 2009 epitomizes the breakdown in confidence of the financial companies that contributed to our recent Great Recession. Bear Sterns played a common high stakes financial game known as overnight lending.  They would borrow billions of dollars under the agreement that it would all be paid back the next day.  One day, those they had been routinely borrowing the money from questioned the type of assets on their books.  These bad assets were those financial instruments that caused the chain reaction behind the financial meltdown.  The lenders said to Bear Sterns that, due to these types of assets on their books, they would either need more collateral or need to borrow less.  In this sense, the illusory confidence was broken. The party was over. The marker had been called in.

Not only companies, but countries too, can experience the repercussions of a break in confidence.  Certain countries, such as Bulgaria, say, get used to borrowing money from the International Monetary Fund in order to help pay for the basic services offered their citizens.  If the IMF decides it is too risky to keep loaning the country money on the same terms, the country can be in for a rude awakening. Bulgarians may be clamoring for ways to find potable water, continuous electricity, and adequate housing.

This same dynamic is at play in the much-in-the-news relationship between the United States and China. (Check out NPR’s 11/13 story “As US Power Wanes, China Considers Its New Place” at http://www.npr.org/templates/story/story.php?storyId=120360427&ps=rs as just one example). The United States is a pane of glass and China is sitting fumbling around with a hammer in its hand.  China owns massive amounts of U.S. debt.  With the budget deficit climbing ever higher in the U.S., China, it is feared, will lose confidence that our debt is still valuable or that we will be able to continue paying up.  If China sells off the debt or stops buying it, this will give us no way to pay for our deficit spending and will set off its own chain reaction. If China calls in the U.S.’s marker, the U.S. dollar will be negatively impacted. Just how and when the fragile glass will break is a matter of speculation. The U.S. needs China’s investment in our bonds and China needs Americans to buy their goods.  At the same time, each country tries to tease out a trade advantage, complaining about unfair trade practices, protectionist strategies, quality and safety issues, or price wars.

But it gets even more complicated. Not only does China own a lot of U.S. debt, but U.S. debt and the U.S. dollar underlie the world’s financial stability.  Many foreign currencies are unstable and the more stable greenbacks are in global demand. This demand, based on perception, is in large part what help to keep the dollar stable.  When global instability hits, investors tend to buy U.S. debt the world over. Americans, after all, repay their debts, right?  How long can this go on? is the million dollar question.  When will the United States’ bonds and dollars no longer be needed?  In the case of China, U.S. consumers buy so many Chinese goods that we still need each other.  One day though, the hammer will hit that pane of glass and the glass will break. Where will we be then? What can we do to prevent it?

One idea is to start producing something other than debt, and to stop being a debtor nation. If we could get out of debt individually and as a nation, we might find ourselves playing an entirely different, much less dangerous game.

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