The Capital Sponge

The Capital Sponge

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The Capital Sponge by Lyn Alden

I used to write about stuff like this in the 2004-2008 time frame – in not nearly as refined a way as Ms. Alden in this piece, as I was basically learning and reporting from the vantage point of a guy with a US-based manufacturing company trying to figure it all out – before I started NFTRH, a service that does two things at once…

  1. Honors the reality that the US is and has been an economic Ponzi scheme for decades, and indeed that is the source of the ‘rabbit hole’ theme.
  2. Factors in that Ponzi aspect, playing it effectively over shorter phases as long as the game endures because there are so many pitfalls to fighting the scheme and gains to be made as well, while it is in force.

Side note: Any wonder about why a long-term value view of gold? Have gold first, play Ponzi second. Eh?

Before becoming directly interested in finance I was a schmo in the economy, trying to keep my little manufacturing company competitive increasingly against foreign sources; first Japan, then Mexico and then of course, China (I distinctly remember losing high volume business for a medical device component to a Chinese  company for something like a 40% lower price than we were able to ‘bare bones’ produce the thing (and we were fully automated equipment-wise, but the job did require hands-on human care, and hence, the cost that goes with it).

The customer – a US based home oxygen equipment manufacturer – had to pull the job from China due to shoddy quality (again, the human element) and came back to us. I raised my price from bare bones to something we could actually make a decent profit on, while still keeping it highly competitive (on an American scale). But the customer already had its taste of cheap, poor quality or not. So they must have found another cheap source somewhere and I have no idea how it worked out.

It was an oxygen service component and had to be made with 100% integrity with no way of getting around the human touch. Can you imagine just one tiny shaving of aluminum not removed within the oxygen path in a multi-ported manifold?

Ms. Alden gives some examples of how America has given the world its seed corn with the upper crust benefiting and the rest of us making ends meet to varying degrees, or worse, not able to make ends meet.

Basically, a sizable portion of the bottom 90% of Americans have been getting their jobs or wages geographically arbitraged by rapid globalization trends over the past 25 years (more so than other developed countries, many of which have trade surpluses), and the gains from this arbitrage are going towards corporate profit margins, which are 89% owned by the top 10% of the population.

US policies (under both Republican and Democrat administrations) put pressure on the working class and middle class in order to maintain US hegemon status and to enhance the status of US corporations and the US wealthy.

One thing I would add is that the Fed is right down town in this game, using inflation ever more systematically as an economic stimulant. Asset owners see their assets increase in price, asset owners get richer. Under classes see assets (and goods, services, etc.) increase in price, the gap between income and inflation widens. It’s a stacked game and it is not stacked for the vast majority of Americans.

Anyway, check out the article if you have not already. It’s got some alarming macro data graphs like this and her own portfolio structures to boot.

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