Skip to content

(P&I) The New Wealth of Nations

October 22, 2014

There is a recovery, but … IMF Chair Christine Lagarde

Drama. “Trade Productivity” is the primary determinant of the success and longevity of a sovereign nation regardless of what culture or social “ism” the people of that nation might have.

Nations that cannot compete, or will not compete, or are excluded in global trade, will always wither and die at great expense to its people (Reuters, October 2, 2014, IMF head warns against ‘the new mediocre’).

Obviously, the times have changed and the 18th-century circumstances of Adam Smith (1723-1790) are long forgotten in our day-to-day.

But we have cause to wonder why the great nations of Tonga and Samoa, among others in their time and place, are not yet in the same league as Great Britain, Brazil, France, Germany, China, or the United States, for example, which were hardly them, then; please see Exhibit 1 below for more information, but before we can do that, we need to talk about “money” so that we’re clear on what it is.

How The New Mediocrity Will Affect The Currency

Figure 1: The Currency

Figure 1: The Currency

In our previous Post “(P&I) World Trade & Trade Productivity“, we noted that what goes on inside a nation is none of our business, but because the government is the source of its currency, we know that the government will tend to have the Company D modality, α = 1/e =0.368…, or typically less (please see Figure 1 on the right).

And the more or less will be determined by how much debt the government has to service outside of itself in order to “stay in business”, so to speak, because the funding for that debt comes only from the funding and enterprise provided by its people, in taxes, tariffs, fees, and loans, for example, and its success in global trade, even if the trade balance is zero, but there must be trade.

A sovereign nation will print its own currency, but the “value” of that currency depends entirely on the success of the nation in foreign trade, and both the funding provided by its people, and its success in global trade, will be determined by the “productivity” of its people in producing an excess of consumer goods and services that they might be able to sell, and on its success in acquiring foreign goods and services that might enhance the productivity and well-being of its people.

It’s a simple equation but there’s denial all over the world, and regimes of conquest, terror, or confiscation, are not an exception to that rule.

Tonga et al

Courtesy: The Kingdom of Tonga

Courtesy: The Kingdom of Tonga

In Exhibit 1 below, we’ve graded the Capital Productivity and Trade Productivity by the “capitalized Gross Domestic Product” (GDP*), and despite the “noise” (which we’ll talk about), we see that the nations in the “northwest quadrant” with the least GDP*, from less than $1 billion in Samoa (WSM) to about $20 billion in Namibia (NAM) and Mozambique (MOZ), have a more or less “random” Capital Productivity” (blue line), which is like every other region of the chart when graded by GDP* – it doesn’t seem to matter how much money they have – but a decidedly low Trade Productivity (orange line), that is much lower than that of those countries that are “in the money”, so to speak, and of course, differences in the Trade Productivity between near neighbors in the Capital Productivity raise some questions (for them) about what’s going on in their trade business, and what might they do about it; please see Figure 1.1 below and click on it (and again) to make it larger if required.

Exhibit 1: Trade Productivity and the Keys to the Kingdom

Figure 1.1: Capital Productivity & Trade Productivity

Figure 1.1: Capital Productivity & Trade Productivity

For more information on the “Five Equations of State”, and an introduction to the terms that we have used here, please see our Post “(B)(N) Through the Looking-Glass“, and for the really hard rocks, the Theory of the Firm which is based on The Process.

And for more information on real “risk management” in modern times and additional references to the theory and how to read the charts and tables, please see our Post, The RiskWerk Company Glossary and “(P&I) Dividend Risk and Dividend Yield“, and our recent Posts “(P&I) The Profit Box” and “(P&I) The Process – In The Beginning“; and we’ve also profiled hundreds of companies in these Posts and the Search Box (upper right) might help you to find what you’re looking for, such as “(B)(N) TLM Talisman Energy Incorporated” or “(B)(N) ATHN AthenaHealth Incorporated” or “(B)(N) PETM PetSmart Incorporated“, to name just a few.

And for more applications of these concepts please see our Posts which rely on the Theory of the Firm developed by the author (Goetze 2006) which calibrates The Process to the units of the balance sheet and demonstrates the price of risk as the solution to a Nash Equilibrium between “risk-seeking” and “risk-averse” investors within the demonstrated societal norms of risk aversion and bargaining practice. And for more on The Process, please see our Posts The Food Chain and The Process End-Of-Process.

And for more on what risk averse investing has done for us this year, please see our recent Posts on “(P&I) The Easy (EC) Theory of the Capital Markets” or “(B)(N) The Easy (EC) Theory of the S&P 500“, and the past, The S&P TSX “Hangdog” Market or The Wall Street Put or specialty markets such as The Dow Transports & Utilities or (B)(N) The Woods Are Burning, or for the real class actionLa Dolce Vita – Let’s Do Prada! and It’s For You, Dear on the smartphone business.

And for more stocks at high prices, The World’s Most Talked About Stocks or Earnings Don’t Matter – NASDAQ 100. And for more on what’s Working in AmericaBig OilShopping in America or Banking in America, to name just a few.


We are The RiskWerk Company and care not a jot for mutual funds, hedge funds, “alternative investments”, the “risk/reward equation” and every other unprovable artifact of investment lore. We have just one product

The Perpetual Bond
Alpha-smart with 100% Capital Safety and 100% Liquidity
With No Fees and No Loads on Capital

For more information on RiskWerk, please follow the Tags or Categories attached to this Letter or simply enter Search for additional references to any term that we have used. Related data may be obtained from us for free in a machine readable format by request to


Investing in the bond and stock markets has become a highly regulated and litigious industry but despite that, there remains only one effective rule and that is caveat emptor or “buyer beware”. Nothing that we say should be construed by any person as advice or a recommendation to buy, sell, hold or avoid the common stock or bonds of any public company at any time for any purpose. That is the law and we fully support and respect that law and regulation in every jurisdiction without exception and without qualification to the best of our knowledge and ability. We can only tell you what we do and why we do it or have done it and we know nothing at all about the future or the future of stock prices of any company nor why they are what they are, now. The author retains all copyrights to his works in this blog and on this website. The Perpetual Bond®™ is a registered trademark and patented technology of The RiskWerk Company and RiskWerk Limited (“Company”) . The Canada Pension Bond®™ and The Medina Bond®™ are registered trademarks or trademarks of the Company as are the words and phrases “Alpha-smart”, “100% Capital Safety”, “100% Liquidity”, ”price of risk”, “risk price”, and the symbols “(B)”, “(N)” and N*.

No comments yet

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

%d bloggers like this: