Dear Diary,
“The rebels attacked our camp. We had to make a run for it. The government troops, who were supposed to be guarding us, ran too.”
“‘Musungu! Musungu!’ I heard them yelling. A ‘musungu’ is a white person. They wanted to capture us.”
This springs not from the fertile imagination of an early 20th century novelist. It came to us yesterday via an email from our youngest son, Edward, who was on a summer job at a mining project in the Democratic Republic of the Congo. (More from Edward in just a moment…)
Is Senegal the New Subprime?
The world is a safe, stable place. Must be. Janet Yellen says so. The bond market says so. The stock market says so.
Who are we to argue with them?
Besides, why else would anyone lend money to the Senegalese government for an annual yield of less than 6%?
And yet, the old risks are still out there. So are some new ones…
Nature – and life in general – comes with risks: Bad weather. Accidents. Bad judgment. Political risk. Market risk. Credit risk.
To these natural hazards central banks have added some unnatural ones. In the name of promoting stability and growth, central planners have slowed growth to a stall… and put the entire system at risk.
The ensemble of planet Earth’s financial and economic system is usually fairly robust.
Yes, you get some deadbeats. Some blowups. Some mistakes and some accidents. But they come one at a time… and the system absorbs them… adapts… and moves forward.
But when you control the price of credit for too long… and when you lend too much and are too sans souci about it… your margin of error narrows, as your debt increases.
No longer is the danger isolated and particular. It becomes generalized… and systemic.
All the world’s collateral comes to be overpriced. And upon this inflated collateral, the entire capital structure rests…
…until it all falls down.
Back in Africa, fish have replaced groundnuts as Senegal’s chief export. But apparently, the seas off West Africa are not rich enough in fish to allow the country to pay its bills. One-third of the government’s budget comes from international aid organizations.
As a financial risk, Senegal is subprime.
What more proof do you want?
Senegal counts on the kindness of strangers to pay its current expenses. Lenders must believe the strangers’ generosity will never flag. And the world economy – from which the strangers derive their incomes – will never fail.
“I don’t have a job. Or a passport. Or any money.”
In the Democratic Republic of the Congo the risks are more corporal than capital.
Edward continues his report from a mining project deep in the jungle:
The rebels don’t usually give us trouble. We’re mining tin. They don’t care much about it. At least, that’s what they told me. Everywhere we went we had an armed guard. But we didn’t expect trouble.
Besides, we had the helicopter. If things got hot we were supposed to just fly away.
But they attacked the camp yesterday. Everybody started running. I couldn’t get my passport or any clothes or anything. I just grabbed by laptop because I just happened to have it with me.
We couldn’t take the helicopter because they were shooting at it. So, we ran to the village. They know us there. Some of our workers come from there. And I had just been there for a party.
I was with [the mine foreman]. We thought we’d be safe in the village. Everybody had been so nice just a week before. But then the rebels attacked the village. And everybody started running again.
We ran into the bush and hid there until about 3 a.m. Then we made our way to the next village. From there, we were able to get to Bukavu.
I don’t have a job. Or a passport. Or any money.
Edward is on his way to Kinshasa, where the US embassy has promised to give him a temporary passport. From there, he’ll fly to Paris where his father will be eager to meet him and hear the rest of the story.
Regards,
Bill
