Editor’s Letter : Value Judgment

Dear Reader

There is no doubt that the people entrusted to find the solutions to the worlds economic and financial problems have been fighting valiantly both to contain the crisis and to solve the underlying problems. But, as with all conundrums, it is essential to understand the scale and the nature of the problem before a viable solution can be found. Amid all the noise and confusion of the past 20 months, many involved have lost sight of the true nature of the problem.

At the core, this crisis is all about value. In the debt-fueled, momentum-driven frenzy that was the global economy over the past decade, bankers, investors, economists, politicians, analysts and even those sages of the modern world, New York City cabbies, lost sight of true value. The cascade of cheap credit swept aside the understanding of the importance of fundamentals. With it went the perception of valuefrom the value of a days work for a company chief executive to the value of an acre of land in the Texas panhandle, from the value of an unpolluted stream in Guangdong to the value of an ounce of gold or a barrel of oil.

Few, if any, of the attempted solutions really tackle the underlying issues. The US governments efforts to stabilize the housing market, for example, are laudable, but propping up prices with any form of subsidy will only delay the markets return to realistic valuations. And, as we have seen time and again during the past 20 months, directing a fire hose of cash at a struggling industry will not wash away its underlying problems. The banking industries on both sides of the Atlantic are painful illustrations of that unpalatable truth.

However you characterize the current state of the world economy and the problems that bedevil ita house of cards, a giant game of musical chairs, a colossal Ponzi scheme reliant on ever-growing consumptionit is the participants lack of confidence in the value of their investments that is preventing its recovery. The sooner the various components of the global economy are allowed, cajoled or forced to return to their true value, the sooner the economic gears can begin turning again. After all, the fundamentals required for a healthy global economy are already in place. Manufacturing, transportation, finance, construction, energy production, healthcare and education, even politics, have all reached a level of unprecedented sophistication. When we understand once more what they are all really worth, we can begin to build genuine, lasting value.

Until next month,

Dan Keeler