Lehman Brothers -- Just Another Domino?

There seems to be great concern that Lehman Brothers might go the way of Humpty Dumpty. This, aghast pundits warn us, may be a sign that our credit structure, our very economy may be in trouble.
Yeah, it might be.
But that didn’t just start today. It didn’t start last year or even seven years ago when the dot coms and the World Trade Center all went to smash. It didn’t start with Reaganomics (Voodoo economics, anyone?) or with the stagflation of the 1970s.
It didn’t start with the devaluation of the dollar in 1971 and 1973, when we went completely off the gold standard and allowed Americans to start buying the stuff. It didn’t even start in 1968 when I was leaving for Europe and fellow staffers in the Office of the White House warned me that the dollar was likely to stumble badly while I was abroad. (It didn’t.)
It didn’t even start in 1960 when I first looked at the dollar as a college kid and concluded that its “fundamentals” were long ago flushed down the toilet. (I felt at the time that that only real issue before the Kennedy Nixon campaigns was the health of the dollar – as opposed to the specious issues that were raised in that election.)
The dollar, like the British pound before it, was our chief source of economic and military power. Not our missiles, our carriers or our Green Berets. The dollar was our serious muscle. And it looked about as healthy back then as an old man with pneumonia.
No, the dollar and the economy have been in trouble since long before I was ever born.
A simplistic way of putting it might be that in 1938 – after government New Deal spending stimuli were withdrawn by an essentially conservative FDR – we had over ten million unemployed men. Out of a nation of 135 million people.
We had no hope of putting them back to productive work. Not a glimmer. Hitler and Tojo rescued us. By 1945 we had those same men in uniform and millions more working in war production. That same year, the war being over, we disbanded our military with almost reckless speed.
By 1949, we were back to stagnation and recession. It took the Cold War to put enough people back in uniform and back to work to give us our enormous postwar prosperity. Initially we could afford this kind of spending – we were using the incredible proceeds of our victory.
By any economic standard, World War II was a “good war” for us. We stripped Japan, France, Britain and Holland of nearly everything – and then allowed the juicier parts of their empires to fall into our lap. It was like winning the lottery. We invested about a third of a trillion and won back many times that amount.
Then, in a stroke of inspired brilliance, we used some of those winnings to rebuild Europe under the Marshall Plan and get more customers. For a time, the dollar replaced gold. European governments literally kept stacks of American bills in their vaults as backing for their own currencies. They were called “Euro-dollars”.
But that couldn’t last. Eventually we spent our lottery winnings, and we began to live off the cuff. Somewhere around 1960 or so. We should have fallen back to 1938, with huge unemployment and little production. But we didn’t. Why?
I spent a lot of time after 1968 wondering why the dollar hadn’t crashed as predicted. Then the obvious hit me: because of our highways and vast retail chains, we had become the only place on the planet where a foreign firm could dump anything it overproduced.
It was worrisomely apparent, already by then, that the American dollar – standard of the world though it might have been – had little intrinsic strength. There was quite a bit of smoke and mirrors involved.
To keep their own economies humming, foreign producers were willing to fund any amount of deficit the American consumer might run up. They were addicted to the American market – even though the money we spent to buy their products was theirs in the first place.
That kind of circle cannot go on forever. As Mr. Ponzi found out. As Lehman Brothers is learning. Eventually somebody runs out of money, gets scared and pulls the plug, or simply has to stop buying.
That question the Lehman debacle raises is: how many more Christmases does the American consumer have left in him? What happens when all those foreign producers, bereft of their markets here, decide they need their money back?
You think things are tough now!