We’re listening to the latest economic and market analysis from the smart gents at GaveKal research and during the talk we were reminded of some conditions that existed during the most intense phase of the technology bubble of 1999 and 2000.
It’s obvious that China has been financing US consumption so that they could enjoy the growth that has helped to propel their economy.Â Equally true but less obvious is that Germany has been doing the same thing for weaker countries in Europe to the tune of a few percentage points of GDP.
Some may not remember that in 1999 we witnessed some extreme business practices.Â A startup company would accept a large investment from a larger company.Â At the same time the large company would be come a “marque customer” of the startup.Â On top of that cozy mutual reward system the startup would offer the larger company payment terms, basically financing their purchase.
In retrospect it is difficult to imagine that investors tolerated this type of activity.Â But tolerate they did and until the dam broke early in 2000 many embraced it with both arms.
Right now this same type of activity is going on with respect to China and the US and Germany and many of the EU countries. Of course the scale of these operations are vastly larger than what happened in the US technology sector back in 1999.Â But it has been going on for some time and there is no way to know how long it will continue.Â Some have speculated that the Germans tolerate it because the average man on the street doesn’t realize that it is going on and those that do realize it’s a bit like a fatal embrace.Â If Germany were to clamp down, their own economy would tank.Â The same situation vis a vis China has been discussed ad nauseam.
What should one make of this?Â In the short term there doesn’t appear to be much to do about it.Â The US and the global economy has stabilized and is recovering.Â All economic players are committed to maintain easy money for some time and the current worry is more deflation than inflation.Â Nearly all the players have a strong shared interest in maintaining this broadly faith-based system of measures to keep all the plates spinning.
We thought that a piece we published back in April of 2007 “What would Godel do?” was now very much out of date but it may come in handy again.