Sunday, May 29, 2005

US dollars are melting away

In this Financial Sense audio file Credit Collapse and Will The Dollar Hold? Douglas C. Noland makes a very interesting point. The US economy, after transitioning from a manufacturing economy, and then to a service economy, has now become a financial products economy. Most of our GDP, he says, is from profits from real estate loans, and from 'hybrid financial instraments' such as derivitives and structured trades.

The derivatives thing reminds me of Enron, but on a vastly larger scale. Enron was a well run, if aggressive, oil and gas company. Then they sold off all their oil and gas properties to raise the capital to create a Virtual Energy Marketplace. and they set up their business to be so complex that no one could figure out what they were really doing. And of course the executives turned out to be crooks. Well this sounds similare to 'hybrid financial instraments' to me. If it is so complicated that no one really knows where the money is coming from or going to, and all you can see is that there sure is a lot of it sloshing around, then beware.

BTW, I own shares in one of Enron's old discarded oil and gas businesses: EOG resources. It is the only US stock I own at this point. I think it is still a well run energy company. They have significant oil reserves, and, even better, significant gas reserves.

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