It is a useful analytical concept, and I think that you would be surprised by how quickly the concept would spread if you inked it out in something with a letter greater academic significance than ET.

The thing I keep coming back to in moments of clarity, when the milieu of the rhetoric being exchanged in the current crisis subsides, is wondering precisely how much of the "real", wealth producing, economy has been cored out by the speculative nonsense that the financial sector has been playing.

If what you're hinting at here, is on the ball, that the "prosperity" of the last decade was "fake" because it was achieved through financial tricks rather than the creation of items of use value to soak up the money value created by the financial sector, then if we properly account for these things and discount the value of derivatives and the like accordingly, the size of the economies of Western Europe and the US may be considerably smaller than we have been led to believe.

Now if the extent to which the pool use value (sorry to employ Marxist terms here, I can't think of a better way to put it) in the economy does not match the money value created by the financial sector becomes apparent.  Then, the question is the extent to which the proportion of money value to use value must increase, i.e. inflation?

Or, is it going to be a matter of large amounts of money value created by the financial sector being allowed to go puff?  This is essentially what happens when you have the collapse of these banks, yet the call to rescue them is, at least in part, a call to save the financial sector's funny money from being rendered worthless.

And look at the measures of US money supply.  The M1 measure has mushroomed over the last month so the question is whether the use value of money outside of the financial sector is being diluted to preserve the existence of this massive facade of wealth built up in derivatives and other games?

Are we allowing the purchasing power (this may be a better term than use value, but is problematic because we are talking about its use in reference to the standard frame of reference.) of grandpa's 401K to be diluted through inflation?  (If it costs $2 to buy what it used to take $1, then we've effectively cut purchasing power for the same quantity of money in half.)  

And all this is to preserve the false value created by Wall Street so that the trillions of dollars of derivatives and other exotic financial instruments are not converted to millions of dollars through returning their value to the realm of reason?  Isn't this s massive redistribution of wealth from the productive sectors of the economy in order to buoy the financial sector?  Wasn't it always so, but now the Ponzi scheme has been exposed for what it is? Isn't this the essence of the "Anglo Disease"?

Why not just let them lose their shorts (at the same time employing a strong, nay, dirigiste state presence in the economy to stamp out the financial tricks and ensure there's a semblance of a match between the purchasing power of production in the economy, and the amount of money that is being created in the financial sector), so that this funny money is drained from the system?

If we drain the cesspool at the same time that we have the government step in to provide capital directly to industrial sectors to maintain production, in the short term of course, don't we have the power to take money out of the hands of those that played the system, and put it back into the hands of working people?  To achieve in the medium term another of what Paul Krugman called "the great compression" in which economic inequality was rapidly reduced in the period between 1933-1950?

And I'll give my consent to any government that does not deny a man a living wage-Billy Bragg

Fundamentally, people in the western hemisphere lived above their means. Together, these policies created an appearance of prosperity for all (gross domestic product was up, on the back of strong income growth at the top) while effectively organising a vast transfer of wealth from the many to the few.

Bravo Jerome! One couldn't put it better then this!
It'll soon be visible how fake it was...
But where is the wealth? Where is the money from those prosperous times? All we ordinary people have is a mortgage and huge debt on credit cards and other loans.
We all were lead to think that we are making our wealth through ever incising value of our real estate. What now?

Well done.

A vivid image of what should exist acts as a surrogate for reality. Pursuit of the image then prevents pursuit of the reality -- John K. Galbraith

Good work Jérôme (and ET peanut-gallery editors)!

Now that you've got all this free time on your hands, I expect at least one of these masterpieces a week....  ;-P

Thanks for all the hard work, it's paying off!

What does he know differently from what you stated that he could be disagreeing with. The truth, the telling, unfortunately will be in the future.

He can't be disagreeing with the dereliction of duty point. Or can he? Just a few bad apples? The rating companies are supposed to be in bed with the companies they rate?

The west hasn't been feeding and taking advantage of the policies of the east; 1) Japan to shake out their 80's bubble and China and others to build infrastructure in lieu of gain fantastico? That Greenspan didn't keep rates too low too long? That these bubbles weren't a desired result, allowing the economy to be sucked dry lest everything stagnate.

That the income of the lower 90 or 95% hasn't stayed roughly the same since the 70's?

What is he disagreeing with?

The economy has been falsely on fire since the tech-bubble 90s. It appears that the following bubble (housing) was meant to disguise the fact that a shake out of the previous one hadn't fully occurred. But they knew that they couldn't go through a 3 year trough like Reagan did and survive.

Then the Amp'd Economy of the False Trade-bubble spun the housing-bubble to another dimension - the shake out will have to be gi-normous.

To bet that Dow 9,000 is the end of a shake-out is to bet that everything is up from here. We have seen the last of it. The recession is over. 750 billion thin-air-created dollars, promised but not yet thrown into the pool, has inoculated us from the 30 trillion dollar false economy of trades on fake trades. Everyone can jump right in, the chlorine that is coming -being loaded on the truck right now - has cleaned the feces from the pool. It is safe now. Get your shopping on~!

One wonders if Martin Wolf can post to other sites - perhaps he would like to explain or defend his disagreeing statement.

Never underestimate their intelligence, always underestimate their knowledge.

Frank Delaney ~ Ireland