Learning economics the hard way

The economy and what is left of it continues to be the most enthralling day-to-day story of the 21st century.

We’re all tuned in to see what happens next, how far the stock market will fall, how high the price of oil will rise after its most recent collapse, whether Americans face inflation, deflation, or lifetimes of stagnation.

Not long ago I could count on one hand the number of times I ever listened to NPR’s Market Place segment. Then the economy tanked. When the feds moved in a year ago to salvage securities firm Bear Stearns after the company began its freefall into infamy, I started listening to Market  Place every day.

Now, I can’t get enough economic news. I still don’t understand the big picture, or how to use hot new economic statistics, but I’ve amassed reams of information about the collapse of the global economy, the General Motors debacle, the scandalous sub-prime housing scandal, and rise of socialism in government.

It should not be surprising that many Americans know more about today’s economic situation than a Phd economist could have known ten, five or even two years ago.  We’ve been living on the rollercoaster economic ride and the economist would have been working primarily from theory.

When the Spectrum Group reports that the number of millionaires in America fell 27 percent last year, what does it mean?

Most of the disappearing millionaires were part of a group that made up what is called the “millionaire boom” of the last five years.

So maybe they were not really millionaires at all, but part of the stock market paper millionaire crowd that rode what appears curiously like an orchestrated rise in the market over the last five years. When the stock market evaporated, so did the wealth of many new millionaire households who found themselves on the wrong side of the market’s free fall.

Who ever thought Donald Trump would go bankrupt again, or that Kirk Kerkorian would be on the verge of losing his Las Vegas gambling empire, including the MGM Mirage?

Kerkorian’s shares in his company were worth $14.9 billion in late 2007. Now the same shares are worth about $500 million. Kerkorian’s company reportedly has $1.27 billion in bond payments due this year, plus about $674 million in current existing interest payments.

This economic math is simple. Kerkorian’s empire is part of a industry built around gambling and hotels that is wildly overbuilt - and overleveraged.

Very few industries borrowed more money and are choking with more debt than America’s biggest casinos. Investing conventional wisdom held that gambling, like liquor sales and the mortuary business, was recession proof. So much for conventional wisdom in unconventional times.

Now a quick look at U.S. imports, which fell 6.7 percent in January, the sixth month in a row of decline, and a fall since August 2008 of close to one third. January imports amounted to $160.9 billion in goods from around the world, but the falloff is causing great pain on foreign shores. The Commerce Department reports that U.S. exports have dropped 5.7 percent and will negatively affect U.S. growth in 2009, so there is enough pain to go around.

What does it all mean? Perhaps that the world financial system is in a mess, the U.S. is the best place to weather the storm and nobody is going to bail out the gambling industry.

The big question remains,  how to get out of this global quagmire? Despite all the experience in the economic ways of the world that I’ve gained in the past year or so, I still don’t have an answer.

Guess you’ll have to ask a Phd in economics.