Ali’s blog

Mostly quant stuff with occasional digressions

Kevin Phillips’ new book, “Bad Money”

Posted by alifinmath on April 23, 2008

Bad Money, by Kevin Phillips, came out last week. Phillips is one of the more perceptive American commentators and I think I have all his books except “American Theocracy.” His latest book — “Bad Money” — is riveting because it attempts to place recent financial and economic events in a theoretical framework. And a framework to understand what’s been occurring is exactly what’s been lacking in discussion and coverage so far. I’ve been attempting some such framework myself but haven’t got further than some inchoate insights and dimly-felt intuitions. A couple of essays I’ve found helpful have been Foster’s The Financialization of Capital and the Crisis and Arnold’s Sub-Prime Crisis Moves US Toward a Different Future.

I can’t attempt a synopsis or critical analysis of Phillips’ book because I’ve just begun it, but I’d like to quote a bit from the preface:

1) This transformation (declining value of the dollar) intensified during 2007, overlapping with the high-profile emergence of the housing, mortgage, and credit crisis. Both situations, I believe, related to what the United States in recent years had ceased to do — produce enough of its own manufactures and oil — as well as what it had started to do: fantasize about military and financial imperialism, about exporting mortgage-backed securities and collaterized debt obligations to a grateful world. Few miscalculations have been so tragic.

2) (The book) is about the insecurity of America’s future as the leading world economic power, given a debt-gorged and negligent financial sector, and the vulnerability caused by the nation’s expensive dependence on imported oil.

3) Part of what Bad Money deals with that I have not touched on before is the financial sector’s massive use of private debt and leverage during the 1990s and then again in the first decade of the twenty-first century to expand its size, global reach, and extraordinary profitability. This is less a market-based Adam Smith brand of triumph than a mercantilist joint venture with U.S. government authority, strategic direction, funding support, and periodic Federal Reserve or U.S. Treasury bailouts of overextended financial institutions.

If and when I finish the book, I may post my impressions and criticisms.

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2 Responses to “Kevin Phillips’ new book, “Bad Money””

  1. Red Frog said

    Phillips has an article in Harpers on the misuse of financial figures by the government. It seems to be an extract from this book. In it, he illustrates how the CPI, the GDP, the unemployment rate, the poverty rate and nearly every government/business statistic by inference, is part of a web of “Pollyanna” economics.

    I.E. – GDP overestimates economic activity. (Hence the ‘mystery’ of whether we are in a recession or not), the CPI understimates inflation by significant margins, the unemployment rate underestimates those out of work, and so on. The stats make the economy to look better than it is. If we can add the LIBOR rate to this fantasy world (where banks ‘say’ what they are paying for loans, and no one actually checks…) then the pattern is complete.

    Completely fiddled with, I’d say.

  2. alifinmath said

    Yes, I came across the Phillips article in Harpers a few days ago (by chance, since I’m not a subcriber). Since official stats are mostly garbage, Phillips refers to a website where (more) reliable stats are on offer: http://www.shadowstats.com. Unfortunately one has to subscribe to this service. One can, however, visually see how much, say, $100 in the past would buy today. Thus, according to offical BLS, $100 in 1985 would buy what $200.94 buys today; according to the BLS, however, it would appear to be about $550. (http://www.shadowstats.com/inflation_calculator).

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