In a manner reminiscent of a late 90’s tech bull assuring internet stock investors that they had nothing to fear, this morning another CNBC guest analyst, reassured investors that they have nothing to fear from a weak dollar. The analyst went a step further and actually chastised Europe for its poor economic performance, warned Europeans of the risks of a strengthening euro, and declared that Europe’s “free lunch??? would soon come to an end. In all honesty, I couldn’t believe my ears!
According to this Wall Street money manager, the U.S. has been providing Europeans with the economic equivalent of a “free lunch” by consuming the fruits of Europe’s labor. In other words, Wall Street economics now defines a free lunch as getting nothing for something rather than something for nothing. Somehow, by proving Americans with goods that they do not have to produce, Europe is getting a free lunch. George Orwell would be proud and Milton Freedman would be shocked.
Such ignorance of basic economic concepts is rampant on Wall Street, and unfortunately receives unwarranted credibility from a financial media often beholden to the interests of its advertisers. Such sophomoric thinking stems for an inability to distinguish between real consumer goods, which are produced only at the expenditure of real resources, and which themselves satisfy human desires or needs, with pieces of paper, which are produced at no cost, and which themselves offer no intrinsic value.
This view was exposed perfectly over the weekend, when in a round table discussion on Bloomberg television, another money manager warned that China could not afford to allow the dollar to collapse because without the U.S. consumer the Chinese “would be stuck??? with consumer goods they could not sell. I suppose without America, the Chinese themselves “would be stuck” having to consume large quantities of clothing, furniture, toys, household appliances, and consumer electronics. What a disaster for the Chinese! They would certainly be much better of with larger piles of depreciating U.S. dollars instead. The reality is that it is Americans who will be stuck holding worthless dollars instead of consuming Chinese made products.
I certainly would not want either of these individuals managing any of my money, but I would love to treat them to a free lunch… American style that is; I order everything on the menu, they set the table, prepare the meal, wash the dishes, and pick up the check.