Yes, Christmas and all that turkey derailed our 2008 review / 2009 preview series, so yesterday’s scheduled piece on Venture Capital will be published later rather than sooner. But speaking of venture capitalists, this morning I was reading Fred Wilson’s piece called Bits of Destruction, in which he argues that while the causes of the economic meltdown “have more to do with risky lending and owning securities that are toxic than anything else” he argues that the consequence will be the death of many doomed industries whose days are numbered due to the Information Revolution.
It is a fascinating argument, but an incorrect, or rather, incomplete one. The truth is, what we are seeing is mainly the destruction of American industries and companies. After all, while Toyota (TM) did post its first loss in decades, the company is anything but doomed. Toyota’s problems are short term and very different than the ills facing General Motors (GM), Ford (F) and Chrysler. While some European financial banks have suffered losses, few are doomed and none look like Citigroup (C) or JPMorgan (JPM).
In other words, I am not even sure if all of the industries that Mr. Wilson thinks are doomed are in fact doomed. So what we are now seeing is not a wanton destruction of companies around the world, but a systematic dismantling of American industries, institutions and companies: housing, financial, automotive and potentially now also technology and many others. Ultimately, these are interdependent industries that all tumbled like a house of cards after a largely household-related bubble burst.
But to answer the question “why” the answer is plain and simple: the war.
Vladimir Lenin argued that war serves as an accelerator of history. In 1917, he wrote:
this required a great, mighty and all-powerful “stage manager”, capable, on the one hand, of vastly accelerating the course of world history, and, on the other, of engendering world-wide crises of unparalleled intensity — economic, political, national and international. Apart from an extraordinary acceleration of world history, it was also necessary that history make particularly abrupt turns, in order that at one such turn the filthy and blood-stained cart of the Romanov monarchy should be overturned at one stroke.
This all-powerful “stage manager”, this mighty accelerator was the imperialist world war.
In fact, the 21st century was to be a century that saw America start to share power with Russia, China and India. But during George W. Bush’s reign, the US imploded due to a foreign policy which can be described at best as greedy and arrogant and at worst criminal.
Regardless of your thoughts on the war, the simple result of combined
a) increased spending on the war and
b) tax cuts for the wealthy
resulted in loose money, easy credit which then in turn led to the housing bubble.
To this day, mainstream media starts the story on Chapter 2: the Housing bubble, easily forgetting that Chapter 1 of this history is in fact this illegal and immoral war that is costing Iraqi civilian and US soldiers’ lives for no reason. We can say all that we want about greed on Wall Street and whatnot, but the real cause goes back to Washington DC for setting such a poor example for everyone else to follow.
Prediction: In one year's time, many of the global industries and companies will tower over their American counterparts, who will have either shut down or been sold to foreign institutions and become subsidiaries. After all, the US Currency has yet to decline the way most economists predict that it will, and many companies’ projected earnings have yet to be downgraded to really reflect the future. Once these two things happen, the impact on company valuations will be severe and foreign companies will trade at a premium.