I’m looking at your lists and I am under the impression that, in addition to the industrial/productive overcapacity, many of your exporters also have banking systems under stress.

It would seem that too much of world “trade” has been built around the exchange of “stuff” (goods) for promises (debt/credit). Both parties to many trades should have been more skeptical of both the promises and the long-term real utility value of the “stuff”.

P.S. Also eagerly waiting to hear what happens to John Davidson in the next installment!

The next item is Japan: why is it on the list of third world and commodity export nations? China was third world and is only very recently risen to second world and now, just entering first world status. Japan, on the other hand, has been first world status for a very long time!

I would like to point out, the G7 nations which includes Japan, never bothered to stop Japan’s barriers to trade and the deliberate weakening of the yen. Now, the yen has risen in value to the great fury of Japanese industrialist exporters.

Elaine Supkis, EMS News

This is a great post and a great analogy. It is, of course, a little simplified (much of the financing–at least of risk assets, of course, is held on the “importers” side of your diagram, resulting in significant pain of its own. Additionally, there was a build up of excess capacity (much of it service-based) on the “importers” side. But those examples notwithstanding, your analogy provokes some deep thought. For instance, the exporters, while financing their industrial capacity, a al, Cisco in the tech bubble, substantially only did that through purchases of treasuries and other sovereign-linked debt. As you noted, the way forward for the Cisco’s involved significant writedowns of those receivables. Although, there have been certain foreign currency effects to date and losses on the small amount of risk assets those exporters took back (think losses on equity investments made by SWF’s), overall their writedowns have not been nearly enough to move the situation forward. And with China, for example, back to its peg and now chafing over newly identified risk in its receivables, one would think that we are a long way away from resolution. Thanks very much.