a simple analogy

Let me share with you an analogy that I think illuminates what is going on in the economy right now.

If the economy is a body, then money is the blood circulating through that body, and financial institutions are the heart pumping the blood through the body. Right now the overall body is very healthy and there is plenty of blood to be pumped through the body. But the problem is that the heart is refusing to pump the blood. This is leading to an atrophying body.

So the question is why is the heart refusing to pump? The leaders of financial institutions have lost so much money (blood) that they are very frightened and they are holding their resources tight in an effort to stabilize themselves and to wait out any storm. The problem is that the perception of a large problem has become a self-fulfilled prophecy. Yes, the heart has been damaged to some extent. But largely the heart refuses to pump because the brain, in a fit of self-protective paranoia, has shut the heart down.

So any solutions to the financial crisis need to focus on restoring the confidence of the brain in the heart so that blood is allowed to pump forth from the heart.

I hope that everyone has a great weekend!

Jason