Wednesday, February 18, 2009

Trouble in Russia

Check this out. Russia's two markets halted trading for an hour each yesterday. I just caught wind of it this morning. Word is the markets opened today with a 5% slide, I wonder if trading will halt again today.

This is bad. If Russia tanks then China and the remnants of the Warsaw Pact could be affected. Most of Austria, Czechoslovakia, whatever Yugoslavia is called these days, etc. are all in a death spiral right now, and might take the EU with them.

So it's not just us. Or is it?

Massachusetts is filled with Mill Towns. These cities were industrial complexes unto themselves producing textiles and shoes for the whole world in the late 19th century. We were then what China is today. Lots of resources and cheap labor to fuel Europe. But something happened, other places were more economical to produce products, so the mills closed. ALL of them. What crippled these towns is that the entire town was specialized in the production of one commodity.

When that commodity no longer was profitable, then business closed up shop and went somewhere else. Because the entire city's livelihood depended on this series of factories, unemployment skyrocketed along with crime, urban sprawl, and all the other bad things that come with cities in decline. Some cities have yet to recover. Lowell and New Bedford are prime examples along with Pawtucket, RI and Flint, MI.

So what does all this have to do with the price of child labor in Malaya? Well, everything. America sells debt. I mean when you boil it down that's what we sell. yeah we make planes and we sell ideas and services, but our #1 export or the last 20 years has been debt. Now 90%+ of economy is based on debt. So what happens when we cannot sell our debt? Just like a mill town our unemployment skyrockets, and we are a nation in decline.

But the whole world bought into this as well. Unlike a shoe, oil, or wheat, debt has no intrinsic value. So other countries cannot sell their product at a loss to recoup some of the lost money. They are stuck to us like Br'er Rabbit to the Tar Baby. So down the drain we all go.

What can we learn from this? Small business is better business. Communities need to diversify. America needs agricultural, manufacturing, and service-orientated sectors of the economy in a roughly balanced arrangement. For those that are in survival communities already, don't bet the farm on one item being of value post-crash. Grow extra food, and provide timber, and provide services to prosper. Don't put your eggs all in one basket.

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