On Monday, various governments including China, Japan and Britain asked the WHO to re-examine the criteria by which it deems an infectious disease outbreak a “pandemic.” Specifically, the WHO was urged to include the lethality or severity of the disease, not just its prevalence, in making judgments about how dangerous it is. Interestingly the United States is ambivalent on the issue although it has the greatest number of cases of Swine Flu. Perhaps this is because unlike other countries, there are national interests in the U.S. that would serve to benefit from a full-blown pandemic.

Here in Japan, you might be forgiven for thinking there was an outbreak of that mutagen that turned the world into zombies in “Day of the Dead.” Companies are giving employees detailed contingency plans in case of the worst and employees are being banned from foreign travel and in some cases asked to stay home from work if they have been recently abroad. Academic conferences are being cancelled or held only on the condition that attendees submit to daily temperature readings and health questionnaires or wear surgical masks even when speaking. Surgical masks are in short supply. Field trips, sports and group activities are being cancelled. Hyogo prefecture has closed all public schools.

I find it difficult to believe that, despite the utter corruption that has become increasingly apparent as a result of this economic crisis inherent in the banking and Federal Reserve systems and the contempt of these institutions for the long-term value of the US dollar, there still seem to be many supporters of fiat-based monetary regimes. Perhaps even more difficult to believe is the vitriol with which some proponents of this system criticize those who choose to invest in gold, let alone advocate a return to the gold standard. And yet, the gold bugs have it right. They have always had it right. Why? Because throughout history, gold has always maintained fundamental value.

The anti-gold crowd will say: “wait a minute, gold is just a bunch of shiny metal, with no intrinsic value. If you were stuck on a deserted island with a pile of gold it would be worthless.” This example, in the extreme sense is true. In such a case gold would be worthless, but so would paper fiat money, promissory notes, stocks, bonds, credit default swaps (these seem pretty much worthless anywhere these days) or more or less any other store of value except commodities that are fundamentally necessary to human existence such as food, water, clothing and shelter. (Actually Federal Reserve notes might be useful for cooking fires.) The point is “value” as a concept derives from supply and demand, which itself derives from human want and need and therefore human existence and competition within human society itself. (To some extent this phenomenon also exists for other forms of life.) Without life, value does not exist. And likewise without human society currency or mediums of exchange have no value. Therefore in some existential sense we could argue that nothing has fundamental value. But similar to the way mathematicians will tell you there are different types of infinity, there are different types of worthlessness. And paper money is far more worthless than gold could ever be.

I have been following with great interest Tyler Durden’s articles on the various cheap tricks and accounting mumbo jumbo that AIG (NYSE: AIG and Goldman Sachs (NYSE: GS) have pulled off in recent weeks in order to report profits while simultaneously being recipients of the government dole. Tyler asks the question “has the whole world gone crazy?” to which I am tempted to reply “no, just American economic theory.”

In connection with my upcoming film, China: The Rebirth of an Empire, I had a chance to interview Professor Chalmers Johnson, author of Blowback, The Sorrows of Empire and Nemesis, about China’s rise and what it means for the United States. Dr. Johnson believes that the economic crisis may ultimately be beneficial to China while exposing the flaws in the American school of economics via the failure of such firms as Bear Stearns (my former employer) and Lehman Brothers, among others.

Big spending. That’s been the Obama administration’s prescription for the financial crisis thus far. However, with a projected 2009 federal budget deficit of well over a trillion dollars, the administration’s stated desire to reduce the impact of income taxes for the majority of Americans, a decline in capital gains tax revenues, and other tax revenue sources, there will be mounting pressure on both federal and state governments to raise tax revenues in new, creative ways.

Debt Culture and Military Waste: The Fundamental Cause of the Recession

The mainstream financial media has been treating the financial crisis itself as the problem to be solved in order to avoid continued recession or serious economic depression and there remains widespread optimism that the Obama administration will somehow find a way out of it. What is misunderstood is that the financial crisis is in fact a symptom, not the cause of a sick American economy. No matter how much effort our government spends to patch up the financial system, via assumption of debt, Keynesian spending measures, tax incentives, and good-old-fashioned money printing, we will at best only defer economic hardship. And like a festering wound that is merely bandaged over without proper disinfection, the underlying conditions will continue to worsen.

As the current financial crisis deepens and talk of Chinese cooperation in bailing out the US and world economies becomes a reality, many economists and policy analysts expect the Obama administration to effectively turn a blind eye to what have previously been contentious issues in US-China relations, such as human rights, Tibet, Taiwan and Chinese military expansion. At the same time, President Bush has been extolling this crisis as an opportunity to recognize the need for increased free trade. Although there are those not only on the Chinese side, but also in industry, government and academia in the US who cheer this “maturing” of relations between the two countries as evidence of the success of the economic integration and interdependence that liberalized trade and investment has brought, it is important to consider carefully the true nature of the costs of free trade.

First it is necessary to define what is meant by “free trade.” It is used here to cover both the governmentally unrestricted and unhindered flow of goods and services, as well as what is often considered a corollary, the free flow of capital and investment across national borders. In addition, it is taken to also mean such related concepts as the free flow of information, freedom of access to markets, and the absence of any policies that function to influence, distort or limit trade and investment. To be sure, free trade in this sense is truly a derivative of laissez-faire economic philosophy. The US does not yet have what is strictly speaking "free trade" with China (there is no US-China free trade agreement), however, US-Chinese trade relations are substantially approaching that extreme.

Despite all the hype surrounding the growth of the “knowledge-based” economy and the touting of America as a service super-power, the failure to develop and maintain a high-end manufacturing sector, such as Japan’s, is proving to be a serious economic liability to the country. While some might argue that comparing the US economy to Asia’s newly industrialized economies is inappropriate, this is not true for that of Japan’s. Despite setbacks following World War II, Japan is by no means newly industrialized, and if one claims comparisons between the US and Japan are prima facie invalid, than one is effectively claiming that the US economy cannot be compared to anything.

While empirically we do know that the service sector in the United States occupies a greater portion of the economy than in Japan, and that the US is also a leader in very advanced information, software, bio and other “knowledge-based” technologies, this does not necessarily imply the conclusion that the growth of the service sector in the US is a sign of economic progress. It is possible for the majority of growth in the service sector to be attributable to non-high technology industries such as food service, day-care, hospice care, prisons, litigation, manicures and the proverbial hair cut, things that are not easily trade-able, and in some cases not even necessarily in the long-term interests of society.