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January 30, 2004

Last Tango in DC: The Budget Deficit Drag

  Yesterday morning on NPR's Diane Rehm Show there was an interesting discussion on "The Budget" between Michael Mandel, chief economist at Business Week Magazine and Alice Rivlin, of the Brookings Institution, former member of the Clinton administration and founding director of the Congressional Budget Office.  It was the same CBO that last week issued it's "red ink as far as the eye can see" report noting that this year's deficit will reach $497 billion and that we can expect similar massive deficits throughout the decade.

Where Mandel and Rivlin differed from the politically spun debate we usually have here; i.e.,  the guys that have a deficit play it down and the guys trying to get back in hope it has some negative resonance with voters; in today's dialogue, aptly moderated by Rehm, there was a somewhat more nuanced approach, particularly on the part of Mandel.  Both guests, with some tugging to and fro, agreed that deficits perforce result in a growing drag upon the economy, though Mandel took the approach that the impact was largely little more than noise.

Rivlin cited what she called the "remote" possibility, albeit one we should insure ourselves against, that the ever growing deficit could result in a meltdown of the dollar while Mandel took the historical or rearview mirror approach; that is.; because it's never happened before it isn't likely to happen now. To strengthen his position he argued quite preposterously --given the 40% dip  in the value of the dollar over the last couple of years—that investing in T-Bills is a safe and prudent strategy for foreigners. You have to wonder if he doesn't know who those foreigners are and why they are really buying up our government paper.

Mandel has just written what he describes as an optimistic book on the coming years called "Rational Exuberance".  Judging from his appearance today, his tune seems to go: "technology got us to our dominant position and technology will drive the economy forward" and, I suppose it's fair to paraphrase "we'll grow our way out of this mess."  Mandel further argued on the Rehm show, whenever he got the chance, that the discussion on the deficit was more or less a waste of time. We should, he insisted, be talking about how the US is going to maintain its technological dominance going forward.

And that's what got our attention.  After all, we agree with Mandel on this point, or don't we?.  Technology is what drives this economy.  We cannot compete with cheap disciplined and growingly better educated Asian labor, particularly when we are exporting our know-how as well as our capital to China and everywhere else.  We have, in a way, been hoisted on our own petard as, in our burning desire to smooth over the bumps, we have turned ourselves into the ultimate consumer society.  We now measure economic growth in this country not on how much we build but on how much we can allow ourselves to consume (consumption now accounts for 80% of GDP).  What Rivlin and Mandel fail to acknowledge is that buying more stuff at Wal-Mart, driving bigger SUVs and moving into macmansions on ever flimsier borrowing schemes  while exporting our capital ($1.5 billion per day to support the trade deficits) does not build a real economy.

What Mandel suggests might be important in some abstract way but utterly preposterous --and therefore misleading-- within the real world of Washington politics. Does he really believe we are going to have a meaningful discussion in Washington about terribly complex subjects within the context of those august branches of government, the White House and Congress, that will transcend money and politics? What planet does Michael Mandel live in? 

What Silicon Valley used to, and most people for that matter still, get quite readily is that the last guys you want messing around with real industrial and economic planning, are the denizens of the political trough and their co-conspirators.  In other words, sure the government funded the development of the Internet but not because they knew what they were doing. It was, after all, because they wanted a bomb-proof; i.e., distributed network that just happened to end up looking like a web.

Ok, so let's see where we might go with this.  If you ask the great Pooh-Bahs of today's Silicon Valley --the five or so guys left standing-- you'd probably get unanimity.  The country needs to get a wide pipe into every home and office in the land.... and then a program to subsidize the cost of supplying such a service to all those people who just don't know what they are missing.  How much would that cost?  They shrug their shoulders. Hard to say.

In other words, out in the real world, you can get a family to shell out $60 a month for cable or satellite so they can upgrade from free antenna service to get ESPN and HBO but don't ask them to spend the extra $15 it costs to upgrade from dial-up to broadband.  There is, perhaps sadly for these folks on the West Coast, a limited demand for broadband services in this country even though dial up is about as clunky as you can get.  Compared to the US, countries like Sweden and Finland have nearly twice as many broadband users per capita.  The Baby Bells, satellite and  cable providers can get faster service into the homes as soon as they figure out a killer app, and it ain't going to be video on demand.

At the same time, we desperately need some old-tech concrete and steel (job creating) infrastructure like high speed transportation networks, so that people have a reasonable chance of getting around in places like Washington DC, Los Angeles and Atlanta.

Okay, so maybe a high speed internet network isn't worth all those billions of public money while we're already running the highest deficits in history.  Not having read Mandel's book, perhaps, his key is, say, biotechnology?  After all, no technology will change the world more in the twenty-first century, than biotechnology.  But wait a minute.  Isn't the biotechnology industry just another synonym for the pharmaceutical industry and aren't these companies some of the most highly capitalized and competitive corporations in the world and didn't the Congress just vote them multiple hundreds of billions of dollars in subsidies with the latest Medicare drug bill?  No, you say, that extra money will be used for TV ads. Okay, so maybe we should give them a boost in exchange for lower drug costs. They'll agree to that! Sure.

How about nanotechnology? That's going to change everything. Perhaps, instead of spending trillions putting a man on Mars in the year 2020 or knocking out a lone North Korean missile in flight we should put that money into creating molecular replicators and assemblers that by the middle of the century might start  growing  products from the ground up, (without human intervention, mind you) much the way organic objects are created, rather than through traditional manufacturing methods?

But, besides the usual problems of government manipulation in markets, both biotechnology and nanotechnology bring their own enormous hyperdisruptive baggage.  Both technologies threaten our very existence on this planet and both will have to be carefully regulated by governments globally.  Can the wisemen in Washington both sponsor and regulate these very tricky developments and get world bodies to follow?  For instance, just today in the Washington Post a company was running an ad promising engineered sex choice for prospective parents.  Just imagine what biotech will be like in 20 or 30 years!  And imagine a world in which molecule-size devices can be trained to make anything that nature can make and anything else that someone might think profitable or the ultimate dominating weapon.

Meanwhile, there is no need to worry that Mandel will be listened to in Washington.  The budget will continue to be stretched into red ink by needs going forward of a deeply entrenched military industrial establishment, an aging baby boom population for healthcare and pension benefits, and a political establishment that can't say no to the lobbyists behind them or an electorate before them desperately seeking another influx of spending money so they can rush out to Wal-Marts and buy some more Made-in-China tchotchkes.



Your comments are welcome.

Copyright 2003 Richard Mendel-Black All Rights Reserved

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January 28, 2004

Buy and Hold?

In an economic world that appears more precarious than at any time in the last 65 years, there's no shortage of risk. And so, for the sake of --should we say-- fun, we decided to move a jaundiced eye towards where we fear the greatest risks may be hiding, while knowing full well that the gods, like the audience at the local Cineplex, always seem to prefer a surprise ending, or a disaster flick, over what's reasonable and predictable.

We also know from hard experience that risk should be avoided when possible even in the best of times and, when accepted, should pay high premiums.

So, with safe returns --from both long and short-term interest rates-- hovering at historical lows and every indication that the Fed will hold them that way until at least until they can have no effect on the November elections and a dollar that has lost nearly 25% of its value in the last 12 months, there is somehow increasing pressure to take on the risk of either highly valued stock, REITs, commodities, bonds or even the currency markets.

There are plenty of analysts (hypesters and pumpers) out there who are ready to tell you that we have reached a virtuous moment in which booming asset prices; stocks, gold, housing, you name it, a depreciating dollar, rising corporate profits and easy credit for the indefatigable American consumer against a backdrop of very low inflation rates have somehow laid the groundwork for a real recovery.

For these guys, it's not too late (for you) to get into the market, which in some cases is up 50% from the bottom it hit back in 2002.  Jobs, they argue, are sure to follow and an improving job market will trigger further spending, savings, taxes and profits.  According to this analysis, we have rounded the corner and, having dodged the bullet through a heavy dose of government goosing are now heading for the next real boom. For these experts, the siphoning of jobs and manufacturing know-how to China and India, is the counterbalance that keeps prices in the stores low and thus dampens the usual inflationary pressures caused by distorted government and trade deficits and a depreciating currency.

The skeptics, of course, see a quite different picture: stagnant or sinking wages, reduced benefits, sinking dollar, government debt growing without any real prospect of moderation, widening trade deficits only marginally mitigated by the dollar devaluation, consumer debt now reaching 90% of GDP, job creation happening abroad in Eastern Europe, and mainly Asia. They also see a very deceptive inflation rate that undervalues things like the quickly rising costs of education, housing, healthcare and state and local taxes. By our reckoning --we of course count ourselves among these worrywarts-- it is only a matter of time before either some chain of events sets off the process or the ball of yarn starts to fall apart on its own no-shortage of internal tensions.

So --while always genuflecting to the aforementioned cinemaphiles, mind you-- let's conjure up the kinds of events that might cause the center to spin apart? Then, in an act of further hubris, we'll try to gauge what the possibilities might be.

We think that most people would agree that another terrorist attack of the magnitude of 911 would, depending on its strategic targeting, set off a wave of devastating economic setbacks as fear and physical destruction take their toll. Think, say, a dirty bomb attack on one or several city centers --we know al Khaida likes to stack its hits-- or, say, a bioweapon that hits humans or even the food supply. 

And the risk?  Again, we don't claim to know, but according to our neighbor Tom Ridge, something like this may be nearly inevitable.  We do know that the Soviets and others have had sophisticated germ and chemical programs and that both the know-how and the materials are out there and possibly, along with nuclear waste, for sale. Can we depend upon our intelligence organizations or border police to keep them out?  Again, knowing what we do about the number of people that infiltrate the borders every day and the lack of control in ports and even certain airports, we have to guess that someone with money, an undercover network and knowledge --sound familiar?-- could smuggle in the wherewithal to pull off a major attack.

Could that same gang have sleeper cells in this country ready to act?  Again, knowing what we do, it would seem to be a given; having had a 10 year head start, that there are likely guys already deeply embedded into this society who are only waiting to get the substances and the plans to go.

Another possibility is the outbreak of a worldwide epidemic like SARS.  How likely is that? Well, we know that SARS came close to getting out of the bottle just last year and we can  see today, with the Bird Flu, another example of a disease that just might totally overwhelm the system.  A worldwide epidemic could easily bring the economic system to a grinding halt.

To us, that alone would argue against any scenario in which an investor sinks a large percentage of  her capital into stocks or even bonds. In other words, there seems to be little room left on the upside and a whole bunch in the other direction.  Bonds, of course, have no where to go but down. Unless you believe interest rates will go negative.

So, let's say that everybody with a choice ought to be thinking about limiting exposure to risk even more today than usual.  If you believe that buying and holding stocks was the way to go last century --the American Century-- (it still wasn't) then you have probably long ago stopped reading this.

There's a strong contrarian argument out there that commodities are the way to go forward, at least, long term. According to this line of thinking, goods like oil, copper, titanium, gold are in limited supply and that as China and India grow their economies and 3/4 of the world's population gradually become consumers of electronic goods, scooters and automobiles, commodity prices as a class will rise even as demand in the industrialized countries stays flat.

Gold, of course, is that special commodity that will remain in relatively short supply while holding its historic role of ultimate storage of value.

But there are downsides on commodities.  A stagnant world economy on the brink of a deflationary spiral as more and more factories in Asia go on line, could drag commodity prices down and ultimately slow growth in Asia once again.  Economies, as we know, tend to move in fits and starts, booms and busts....and China, with all its upside, will be no exception.

Bear in mind also that petroleum and gold prices can be manipulated by political wills in ways that other markets won't be. In the case of gold, there is always the chance that behind the scenes the central bankers find it necessary to dump gold as a feint to slow the slide of the dollar.  As for the price of oil and the dependency that all players in the global economy have on it, countries will see oil prices as too strategic to be held to the whims of Mr. market.

On the other side, the major upside that is, should there be a serious crisis both gold and oil will inevitably shoot upward no matter what stop gaps are put in place.

So, all things considered, there is a little downside in a basket of commodities.  The central banks will try to hold the dollar from going to much further down and some will try --as if there weren't enough market pressures-- to "influence" China to move the RMB up to take some pressure off the dollar.

That brings us to currencies.  The real question out there is not whether the dollar will strengthen but whether it will stay pretty much where it is and only move slowly further down. The Fed made it more than clear today that they were going to hold down rates here --with a little juke move where they dropped the not really significant words "considerable period" from their outlook-- as long as it takes.  Once again, this week, Fed Gov. Bernanke raised the specter of a deflation crisis: <>.  So we have the possible losing battle scenario of the Japanese and perhaps next the Europeans busily throwing away their money buying up dollars as fast as we can print them.

But what the Europeans, the British and the Aussies won't do is lower their interest rates for fear of losing control of their economies.  And so the dollar has no where to go but further down despite the jawboning and head-fakes of the last couple of weeks.  The big question is whether there will be some kind of currency war if the US pushes too hard and further whether the Chinese will continue to throw good money at US Treasury and Agency bills as vendor financing to keep the status quo.  Should they decide they no longer have to worry about loss leaders and to keep more of their money for investment at home or stow it more safely in euros, then the seams could come apart.

Bottom line:  very little downside risk in deposits in strong currencies paying higher interest rates. In other words, there is an opportunity to store money in high interest paying denominations.

We also think that despite the high valuations, the general flimsiness of the asset bubble in general and the heavy state of consumer debt, that with much less upside potential the stock markets are unlikely to fall precipitously on their own weight this year.  That is, without some tsunami-like chain of events.  We say that because low savings account interest rates (and, shall we say, greed) are driving salivating unwashed investors back into markets that they may have had more appendages than their fingers burned in just a few years ago. Also, the money supply --M3-- which had started to slow on its own accord in November and December, will be boosted further by the Fed that will continue to keep the pedal to the metal at nearly all costs leading up to September.

As Warren Buffett is reported to have said: "throw a trillion dollars at any problem and you're sure to get some results."  The government will continue to spend on homeland security, on Iraq and further military and country-building efforts, while fazing in further tax cuts.  All of that borrowed money will filter into the economy where further borrowing fueled by low interest rates, will multiply the impact.  A cheaper dollar should also have short-term stimulating benefits: foreign goods (did anyone say Airbus?) will get more expensive while US made goods will cost less on the world market. Fewer Americans will take their vacation money to Europe and more Europeans will see bargains in visiting this country, etc.

So, we could easily be wrong about the above scenario, but let's look at what might cause the wing beat in the forest that leads to the tsunami.  For us, of all the great tightrope walking situations out there, from the above terrorist scenario to the possibility of serious setbacks in Iraq to cheap-dollar-instigated general slowdowns in Europe and Japan, to a jobless muddle-through recovery at home, the great currency imbalance seems to offer the greatest risk. 

The Fed thinks they have this under control since cooperating Group of Seven governments and the IMF have their hands on most of the levers.  But there is that little sticking point of the upcoming election: judging by the interest of voters in Iowa and New Hampshire, the continuing bad news out of Iraq, Bush just may seem beatable on the twin issues of jobs/economy and rebuilding Iraq.

The President, with the helping hand of the Fed, will pull out all the stops.  But where to go?, surely interest rates can't go any lower and it's questionable whether anyone would notice if they did.  The Congress can't vote an emergency tax giveaway that would take place a couple of weeks before the election. So??????  That leaves further currency manipulation.... and that might just set off a crash course that ends in driving the Chinese out of the US bond markets.    



Copyright 2003 Richard Mendel-Black All Rights Reserved

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January 21, 2004

Voice Over IP, Ready for Primetime?

The full ramifications of owning the line into house or office complex is only beginning to become apparent. Earthlink, AOL and lesser ISP's have already had to bow, tip the executioner and assume the position while the Baby Bells and Cable companies chortled, like an overfed Henry the VIII, behind the damasks. Soon it will be the turn of the long distance companies, AT&T, Sprint and MCI as VOIP becomes a reality;  and so the question.... how long?  Our answer --if vignettes from everyday life are of value-- is not quite yet; that is, at least when it comes to the home, small office marketplace according to the woeful story of a good friend.

This particular guy works out of a small home office but happens to do a lot of international business and pleasure chatting. With a typical long distance bill in the hundreds of dollars a month, he has been eagerly watching, though perhaps through the jaundiced eye of someone who's been around the block a couple of times, for the next technological shoe to drop. By any measure, Bob (we'll call him that) is what the marketers call an early adapter, the guy that keeps your business alive while you're crossing the chasm.

Not that Bob is a geek --he writes no code nor would ever want to-- but rather someone who isn't afraid to get his brain smudged under the hood when there's no other choice or a serious buck or two can be saved.  So, rather than call up Geeks on the Hill or even his cousin the engineer, Bob has managed to set up his own wireless network that supports four PC's, add hard drives and adapters to his server, and otherwise understand the ins and outs of WLAN security 101. In other words, he can, when forced, upgrade bios, handle set-up pages for his LinkSys and pull and switch cables and telephone wires without getting strangled in the mess.

I say all this with more than a bit of sympathy because I also know that Bob has too often got chewed to pieces by being a little too far up on the bleeding edge of good things and most of what he's learned has come from the school of hard knocks.  So when he told me he was going to try to switch to a VOIP system for his long distance calls, I perked up.  Another mutual friend had heard good things about Vonage and had recommended it.

So Bob went on line, studied the specs carefully and came away with the understanding that Vonage knew all about small home networks, limited DSL bandwidth and Windows XP and 2000, the OS's he had running.  He placed his order and within a week had got the equipment from Vonage.  Then he went underground, status "away" on his MS Messenger. The longer I didn't hear from him, the more curious I got, knowing he was not a guy to invest time in something without succeeding.

When he did surface, his story was not very reassuring.  He had, he said, after first failing to get the system running himself, spent hours on hold trying to get through to Vonage tech support.  He then spent further hours working with a number of different tech support people who walked him through every imaginable configuration change.  According to him, the patience of the techies at Vonage was amazing and at times they put two people onto his account but in the end they all had to shrug their shoulders.  Reason??  This is where it gets really interesting.  Bob said they had proved to him that if he used Vonage alone without hooking up a single computer, it appeared to work okay though he never had a chance to really try it out. 

First, he was told that there was a firewall in his router that might be the problem but that fell away when the router was pulled from the loop.  The techies at Vonage switched servers, downloaded firmware to his Motorola Voice Terminal (the hardware they had supplied), and suggested hooking the Motorola both off his router and between his DSL modem and the router.  Still......nothing much:  A dial tone but no outgoing calls, incoming calls but only from phones hooked into the VOIP system, etc. Finally, he was told that his service wasn't fast enough.  So Bob peddled over to website that measures such things and found that, as advertised, he was uploading at about 126 kbps and getting over 1.3 mbps on the way down, numbers that could be a lot worse.

As I said, ultimately they had to give up but not without a further casualty. Bob had lost a ton of hours he couldn't really afford to lose, had even missed doing a few things he wanted to do and was now faced with having to ship the equipment back (at his own expense, it appears) but even worse, while testing the system, a jolt of Vonage juice had fried some circuits in the base phone to his Siemens wireless phone system.  The Siemens now flashes like a Christmas tree when an incoming call comes in and shuts off on the second ring!

Bob has shut off the Vonage service but hasn't yet informed them of the damage he suffered.  My take away from all this is the following:  VOIP probably won't be ready for prime time until it is built into the system supplied to you by your ISP, which will most likely be the company that owns one of those ol' sagging line into your building. At the point, your Baby Bell is good and ready, they'll offer it in a package. I expect the cable companies to be all over this advantage. In the meantime, large companies will be the main beneficiaries and just the fact that there are dial up services that can take advantage of the savings, will drive the price of calls down to areas like Europe, to say, close to the 5 cents a minute offered by Vonage, who, in turn will be squeezed on their margins. 


Copyright 2003 Richard Mendel-Black All Rights Reserved

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January 19, 2004

Asset Bubbles: Crystal Balls and Rear-View Mirrors


The following article was taken from the January issue of The Hill Rag, a monthly magazine that covers the Capitol Hill area of Washington, DC.  From our perspective, it might just give pause to anyone thinking of investing in any company or entity that has a measurable footprint in the home mortgage market. It also clearly says to us that when considering the average amount of debt per family (at hyper record highs no matter how you count it) in the US, it is no longer valid to leave mortgage debt entirely out of the equation. As willing lenders (see below) encourage families to tap the maximum value out of their homes at hot market valuations and agree to interest-only and adjustable rate mortgages to stretch their ability to make monthly payments on other items, like plastic debt and automobile or real estate investment payments, both parties are betting on three variables:

1. Family incomes will rise in the future

2. The price of real estate will continue to climb, or at least, not fall significantly

3. Interest rates will stay at or near historic lows

From our perspective none of the above are good bets for many people and the odds on all three? ...rather long for everyone.

If Alan Greenspan can only see a bubble in his rear view mirror, these may indeed by halcyon days for those who bet that the US/First World economy is so dynamic and robust that it has built in anti-fail levers known only to central bankers and the IMF.



By Marianne Segura

Homeowners and buyers are taking advantage of the incredible growth in value of real estate in the greater DC area. And, they are profiting from mortgage loan programs that require low payments and free up capital for other investments. Instead of the one-size-fits all 30 year fixed program which, over its first ten years, builds very little equity, borrowers now seize the opportunity to lower payments with interest only loans where they pay only the cost of borrowing and have cash available for other investments or to pay principal when they choose. They may opt for 100% financing with a combination of loans. Such loans include: mortgages with rates fixed for three, five, seven, or ten year periods; home equity lines of credit where the borrower uses and pays only what is needed. Equity lines allow for home improvement, debt consolidation, college tuition payments, and large consumer purchases. The housing renaissance in DC, funded by flexible programs, allows home owners to live well for less and use their homes as a powerful investment tool.

One young couple refinanced their home and used the cash to expand their retail shop on Capitol Hill. On their $500,000 property, they selected to finance 80% of their home with a 10 year interest only loan at 4.65%.Thus, they took $150,000 in cash away from the transaction to use for their business. Their actual payment on this larger loan was just about the same as for their previous traditional thirty year fixed rate. “Since home prices in our neighborhood continue to soar, we expect the housing market to build equity in our home. Meanwhile, sales have really jumped with the improvements to our retail store and merchandise line,” they told me.

Another investor took a commercial mortgage on his gallery, and used the cash from that loan to finance restoration on a property that he purchased in one of DC’s rapidly improving neighborhoods. The house will be his primary residence, but once the work is complete, his home will be worth twice the amount he has in it. He plans then to refinance the home at the newly appraised rate, and use the cash he takes out for purchase of a residential apartment building. And, so continues the spiral. He particularly likes the low payments on his one year adjustable rate mortgage for the primary residence since he does not plan to hold the mortgage for more than a year.

All this may be fine for those customers who come to the table with property that they can borrow against, but what of the customer who has no way of securing cash for a down payment. They can now finance 100% of the purchase price for a new home plus up to 3% more to cover closing costs. Such an option has proved extremely attractive for first time home buyers with limited assets.

Marianne Segura is a Senior Loan
Officer with NovaStar Home Mortgage,

January edition of The Hill Rag

Copyright 2003 Richard Mendel-Black All Rights Reserved

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Copyright 2003 Richard Mendel-Black All Rights Reserved

If you would like to receive the DymaxionWeb musings directly to your e-mail box, please write to with the word Subscribe in the Subject field.  We will be happy to put you on our list.

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Posted by dymaxion at 06:45 PM

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January 15, 2004

Greenspan to IMF: Go Jump in the Reflecting Pool


You'll be happy to know that the Reflecting Pool, which stretches along the Mall below the Lincoln Memorial, is only about knee deep.  It's also frozen solid today. The Fed Gov, Alan Greenspan, was in Berlin yesterday mumbling soothing words publicly just a week after his Washington DC neighbor, the IMF published a (well it's hard to call anything written in central bankese, scathing, as you will see below) a searing report, with the hot title, "U.S. Fiscal Policies and Priorities for Long-Run Sustainability", http:/

This bit of Cassandra coming out of the Mordor of anti-globalization was echoed the next day in Brussels by the head of the ECB, the European Central Bank.  The new President of the ECB, a Frenchman who is known for his advocacy of a strong euro, Jean-Claude Trichet,perhaps with his hand twisted behind his back by a bunch of angry German manufacturers, was heard whispering something about not tolerating "brutal" currency movements. Everybody understood this to mean that even he thought the dollar was dipping a bit too fast.

But it now looks clear that while Alan was hobnobbing with his fellow bankers in Berlin, --or was it in Brussels?-- something else got whispered.  At least, that's what the currency and gold markets believe.  Brutal movements, there were, indeed, but in the opposite direction than the one Trichet was talking about. In the last couple of days the euro, which had peaked at $1.29 was trading at a little south of $1.26.  Even more brutal was the move in the gold market.  Just a week ago, gold moving in concert and even faster than the euro, had broken through a long-term high at over $430 to the troy ounce.  Bam! Today it is trading in NY at $408.70.

Is this just overreaction on the part of traders who want to lock in their big gains or is something unseemly going on?  Can we now expect to see the Europeans in the overnight markets buying up dollars to prop up the staggering greenback like their Japanese co-conspirators and are there nefarious forces planning to dump a big quantity of gold onto the market to squelch what might begin to look too much like a move back to hard money? All we can say, is that it's definitely time to keep your powder dry and your eye cocked. Folks who got into gold late, may get a second reprieve on the dip.

So what did the IMF say and was it just coincidental that it came out just a week before this flurry of activity?  We, of course, have no flies on the wall at the Fed or in any of the other highly ornate ceilinged rooms that European bankers like to congregate in, so we can only wonder.

As for the IMF report:  They might have dusted off one of their old papers on Malaysia or Argentina or one of those other places that fell apart in recent memories.  There it was in black and white:  The US is running deficits that are unsustainable.  Government spending, what with the Iraq war and rebuilding effort, homeland security costs and the usual mix of entitlements, programs and pork has increased from 6 1/4 percent of GDP in 2001 to 7 1/4 percent by 2003 thus adding %25 percent to the deficit.  An additional 25% of the deficit was the direct result of the tax cuts that have been voted in since Bush took office.

The IMF then turns its attention to the global implications, noting that the US is running unprecedented budget deficits at the same time it is running up record trade (current account in bank speak) foreign debt:

"Moreover, against the background of a record-high U.S. current account deficit and a ballooning U.S. net foreign liability position, the emergence of twin fiscal and current account deficits has given rise to renewed concern. The United States is on course to increase its net external liabilities to around 40 percent of GDP within the next few years—an unprecedented level of external debt for a large industrial country (IMF, 2003b). This trend is likely to continue to put pressure on the U.S. dollar, particularly because the current account deficit increasingly reflects low saving rather than high investment.

Although the dollar's adjustment could occur gradually over an extended period, the possible global risks of a disorderly exchange rate adjustment, especially to financial markets, cannot be ignored. Episodes of rapid dollar adjustments failed to inflict significant damage in the past, but with U.S. net external debt at record levels, an abrupt weakening of investor sentiments vis-à-vis the dollar could possibly lead to adverse consequences both domestically and abroad."

And so, what we have, says the IMF, is a country in debt up to its ears even before the big rush of retiring baby boomers goes to cash in their payroll tax levied social security and medical benefits, states fighting huge deficits, (typically but even more acutely in places like California where the voters will have to approve floating a $15 billion dollar bond bailout), family plastic debt (non-mortgage) the highest in history, stagnant wages,and a consumer-based economy that buys $1.5 billion more than it sells every day.

Meanwhile the stock markets boom and housing values continue to grow!

It's a strange balancing act that could be tipped over by a feather.  So, maybe the rush to get the dollar down to $1.45 to the euro before the election was a little too fast and we're seeing the kind of legerdemain that only central bankers know how to pull off.

A cheap dollar and budget deficits, if not temporary, will begin to weigh heavily on the economy in the form of higher prices and interest rates.  Karl Rove et al. are just praying that super Alan can keep a lid on it until after the elections.  You can be sure we will stay tuned.


Copyright 2003 Richard Mendel-Black All Rights Reserved

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January 14, 2004

Of Robots and Happy Marriages


Silicon Valley Part 3

Is the Average American Worker 10 Times More Productive than his Indian Counterpart?

Silly question, you might say.

Do Americans have a corner on high tech and innovation?

I'm reminded that back in the early 1960's when John F. Kennedy proposed the space race with Russia, we were in a fight for the high ground in space as well as in the hearts and minds of the world's population.  Kennedy was also looking at a big spending program that would generate jobs, business and new technologies. There was probably no little hint of nostalgia in President Bush's proposal today to build a manned space base on the moon around 2020.

To jumpstart the program, Bush would add several hundred million dollars a year to NASA's budget over the next 5 years.  To put the proposal in perspective, the administration also announced today that it wants Congress to put roughly three times as much, $1.5 billion, into a program to support marriage --right here on earth.  People will be taught "happy marriage skills"; something we'll have to take the 5th on.

Bush's space program, estimated to ultimately cost hundreds of billions of dollars --in the next guy's budget, of course-- will not really kick in until around the same time that the first baby boomers reach retirement age and start collecting their Social Security and Medicare payments.

For the President, the payback from the space program will come in new technology and savings in future space flights, perhaps in inverse proportion to the ratio of moon to earth gravity.

The proposal coincides somewhat ironically with the unmanned probe on Mars that seems to us to be proving, quite handily, the advantage of having non-manned missions in terms of cost and scientific payback.

Whether there might be a big payback in generating fuels and oxygen from under the moon's surface or not, is hard for anyone to say for sure, so we won't hazard more than a passing sneer.

More sure, however, is the role that robotics will play in the earth's economy over the same period that Bush is planning to build a manned space program.  In order for the advanced economies of Europe, Japan and the US to support all those retirees at the same time their populations diminish to an average 1.8 children per couple, worker productivity will have to increase at the fastest pace in history.  the burden will not only be on governments but also on the pension funds of unions and corporations like General Motors, which is expected to owe about a fourth of the price of every car it produces in pension benefits to its aging work force.

Back when JFK was announcing his space program vision, it could be argued that the American automobile was the best in the world.  My 1965 Impala SS, for example, had a V8 engine that cranked more than 366 HP.  The car had an automatic transmission, power windows, steering and brakes and even included leather bucket seats up front. If I remember correctly, though a bit extravagant, it also cost less than $3,000, or roughly the equivalent of $30 grand today. Comparing that car to the equivalent German, French, British or Japanese car of the day is a little like comparing Arnold Schwarzenegger with DC's Anthony Williams. 

At the time, the US carmakers owned over 98% of the North American market. The union guys who made the cars earned more, say, than the average journalist or high school teacher of the day and got equivalent or better pension, medical and vacation benefits.

There were cracks, of course, in this picture window world that came back to haunt the industry.  For one thing, in order to insure a regular turnover in car sales, the automakers had built in obsolescence.  You could be pretty sure that within three years, that Impala would have already lost its original water and fuel pump, was rotting around the wheel wells and there was a good chance the engine had lost half its punch and was burning oil as the rings and valves lost their efficacy.

Still, though you might have thought so at the time, it wasn't Detroit that ended up dominating the world automobile markets.  Today, of course, Toyota is among the top three US auto producers and Chrysler is owned by a German company.

Miniaturization, automation, remote controls, chip and software based smart functionality are already entering into every phase of modern life from medicine to manufacturing processes.  Japan Inc appears to have taken the lead in a number of these areas.

It seems to us that if the vision thing was based on anything more than short-term political gain, it would have relied on a real assessment of where future productivity gains are going to come from.

The Pollyanna's claim we don't need the same kind of efficiency here in this country as do, say, more homogeneous societies like Japan and Western Europe where language and other societal barriers serve to keep immigrants out. The US will subsidize, so to speak, its declining birth rates with immigrants from Latin America.

Perhaps, that's what Bush really had in mind today, when he put aside all that dough to promote domestic bliss.... more people, fewer robots!     




Do American's have a natural born right to defy the economic law that says at party's end the piper must be paid?

Perhaps, also a silly question.  We're told that spending causes economic activity that leads to higher incomes that leads to greater taxes and......yes, we all live happily ever after on this planet and beyond.

The American dollar, after all, is accepted as a Reserve Currency held by central banks across the planet as the basis for the economic viability for their own currencies. Since the Second World War, dollars have supplanted gold as the reserve currency of choice.  Since the US government does not back those dollars in any way, there is no cost to printing as many dollars as the world is willing to accept.

Should major countries around the world decide to balance their reserves with something that appears equally or more stable, say the Euro, then the US will have lost its very profitable, favored status franchise.

Watch the price of oil. Producers will not sit around forever seeing the real price fall in Europe, Japan and England while the US tries to jump start its economy by revving up the printing press.  You might see $3 a gallon prices by the summer.  And that would be the same as a de facto revaluation.  Needless to say, it would not make Karl Rove very happy.


Copyright 2003 Richard Mendel-Black All Rights Reserved

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January 12, 2004

Bad Times at Microsoft High


Silicon Valley Part 2

Carly Fiorina made news twice last week.  First, while announcing at a press conference that she and Craig Barrett of Intel were heading a delegation of Silicon Valley executives to Washington DC to lobby Congress for $30 billion in subsidies and --quite surprisingly and to the chagrin of a lot of their struggling Silicon Valley neighbors-- to urge Congress not to move to put barriers up against the export of decent-wage IT and R&D jobs to India and the rest of Asia.

At almost the same time, HP, Carly's company, was announcing a deal with Apple in which HP would private label the Apple Ipod, the popular digital music hard disc storage and player device. This was a departure from HP's usual way of doing business in two significant ways: first, it broke a company taboo around OEMing products manufactured by other companies and more significantly, it signaled a break from Microsoft unquestioned domination at a major MS computer manufacturer. As part of the deal, HP will also bundle software on new computers that will allow PC purchasers to easily sign up for the complementary Apple iTunes service.

There was a time not too long ago when no MS partner, major or minor, would have dared take a step away from the Redmond giant. At the same Consumer Electronics show in Las Vegas, where the Apple HP announcement was made, to underline the importance to MS of the digital music delivery industry, Bill Gates had earlier given the keynote address in which he expounded on MS's vision for the PC as central for the "intelligent home". Key to that vision, not without coincidence, is the wireless home entertainment center, which Microsoft has tried to claim outright , in part, through the forced use of its own proprietary digital music format, WMA.  The music industry generally supports the competing and technically superior AAC format, which just happens to be the format for songs sold on Apple's iTunes Service. Microsoft provides a free software based media player with Windows and that player plays WMA and not AAC. 

iTunes is the first successful bid to sell songs through a download service and comes years after a number of companies tried and failed. It was the coupling of the iPod and iTunes service that sealed the deal for Apple with its customer base, so to speak, but it was also a matter of timing.  The music industry has taken major heat from its own best consumers for its heavy handed approach to digital music sharing services that offered no copyright protection and in its eyes the outlook for negative revenue streams if something didn't happen quick.

Microsoft, through its .Net strategy and its DRM (digital rights management) capabilities that are integrated into the WMA format has been quietly positioning itself to become the sole intermediary between the entertainment (music and movie) industry and its customers thereby isolating the music companies from their customers much like it had done with computer applications companies like Netscape and Lotus.

Having seen how Microsoft had consistently crushed or at minimum subjugated nearly every industry it worked closely with, the major entertainment companies have resisted crawling into bed with Redmond.

A further bit of bad news for MS on the same front also came last week as IBM announced it was partnering with Real Networks, Microsoft's major desktop music player competitor.

Microsoft, of course, totally dominates the worldwide desktop application and operating system market for home and office PC's and has made a credible entry into the server marketplace.  This business should continue to grow incrementally as larger and larger portions of the second and third world adopt the PC as a fundamental business and home tool. 

But Microsoft's voracious appetite for revenues and business domination needs more than simple incremental growth and the prospect the entertainment industry offered with the promise of MS getting a piece of each transaction processed through its operating system and back end tools became the overweening goal that Redmond set for itself over three years ago when it laid out plans for .Net.

Of course, Microsoft's other great battle lies against Linux, an open source (freely licensed) competing Unix-based operating service that depends on the worldwide collaboration of programmers seeking to end Microsoft's domination.  In this area MS also suffered a further blow last week.  IBM, which has for a time now lent its full and highly credible support to Linux, first as an Intel-based Unix server solution competing directly with MS for domination in that area, announced that it would begin to convert its own internal corporate-wide desktop services and applications over to Linux as well, with a goal of being fully Linux-based on the desktop within two years.  The company later backed off of that quite unrealistic goal. Nonetheless, the significance for MS is enormous.

As we noted, MS's major growth --particularly if they can't make it in show business-- must happen in countries like China and India where significant portions of their enormous populations are rather rapidly moving into an electronic reality that includes PC's and vast wireless networks. Should those countries decide to standardize on a feasible Linux desktop (something that doesn't exist today) the cost to future MS profit growth would be catastrophic. The stakes are great and Microsoft sits on an enormous cash war chest that dwarfs any other company's in the world.  The question is whether that money being spread around by a company fighting for its life will overcome what could make enormous economic sense not only to developing countries building new businesses but to the major global interests that would like to see MS's ham handed strangle hold brought to bay.

We don't pretend to know that much about the future but we do have to think that investors betting that Microsoft will own home entertainment or even increase its dividend by distributing some of its cash reserves had better get another strategy.


Copyright 2003 Richard Mendel-Black All Rights Reserved

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January 09, 2004

The Mysteriously Shrinking Silicon Valley or Whatever Happened to the Real Growth Engine?


  • The Never-Ending Dollar Dip Creeps on like Chinese Torture

  • Gold Prices Keep Moving Up

No surprises from these quarters regarding the above two headlines.  But the raft of headlines coming out of Washington and Silicon Valley yesterday and today got our attention: We hear from the San Jose Mercury News that a group of Silicon Valley luminaries plans to visit Washington in the coming months hat in hand.  What do they want: More money in subsidies and tax breaks for tech R&D and, get this, carte blanche when it comes to exporting tech jobs abroad. With extreme chutzpah, Craig Barrett, Intel's CEO said the request would amount to about a $30 billion dollar subsidy for the high tech industry.  He compared it to the amount of money Congress doles out to agriculture, in his words "a Nineteenth Century industry".

Is this the same decidedly libertarian Silicon Valley that we knew oh so few years ago? Tramping back and forth from DC every couple of weeks, we found it hard to make people even want to know what their representatives were cooking up over here.  So now, how can we help but wonder what happened to this once proud (to a fault) industry.  Back in those days, we used to hear that when it came to the real things that made America grow, the East Coast was irrelevant.  The twin engines of American growth, high technology and the media industry were solidly settled in the West.  And with their Convergence, --you'll remember this word-- the synergy would be earth shattering.

We remember hearing the story repeated by a colleague about a co-executive, in the supreme hubris of the moment, arguing before a group of executives a the country's leading bricks and mortar publisher, that the reason the relatively insignificant company --a couple of hundred employees--  they were both working for was valued in the market at a higher price than the publisher and a number of the nation's other greatest companies with hundreds of thousands of employees, was because "the market got it!"  In other words, a stock market valuation of $6 billion for a company with no paying customers, was the true measure of its economic value. 

Ever since then, you might note, he, and I should say, we, have become more and more convinced that much to our chagrin the market doesn't get it at all.  He goes on to recall actually shuttering one day when a working-stiff friend of his told him over a couple of drinks that he had just made a big bet on the stock of this company when it was selling for nearly $100 a share.

The market does get something. It does indeed!  And hopefully, if you're reading here, it won't be yours!

But we are talking about Silicon Valley today and the high tech engine that drives this country's growth: And so we also remember hearing from these same Valley wags that the Japanese, once everybody's bugaboos, were now toast. You remember that expression, too. In Part 2, we will take a look at what's going on with Silicon (and Silicone) Valley and those cooked Japanese.

We have, of course, spent much energy in previous blogs expounding why we think the present bubble is a bubble, and an "echo bubble", at that. Besides the symptomatic collapsing dollar, the widening trade and government deficits, the lack of (real and not too real) job generation, all of which we have belabored with the obsession of a little kid crying, "see, mama, he's not wearing any clothes", what's really got us is the most important question of all:  "Where's the growth engine?"

No, we don't believe we can stick our fingers in the job leak dike and stop companies from farming back office, programming and R&D jobs to India where they can do the same stuff for a fifth of the price --and have it ready by the time business opens over here.  Anybody who understands the power of that much maligned Internet and infrastructure of the global economy, knows that there's nothing that can stop this kind of activity.

But the spectacle of Carly Fiorina and Craig Barrett et al. coming to Washington DC to plead for Congressional blessing for this unfortunate blowback of the Internet revolution, well, that makes me think that, perhaps, Silicon Valley looks a lot more like the Rust Belt than the promised land.

According to the economists who know, the the early 21st Century world, it seems, will continue to rely on the American consumer to power its growth.  Now, can anybody out there figure out where that valiant consumer is going to get his next good paying job?  Surely not at Wal-Marts.

To be continued:  Steve Jobs and Bill Gates, hold onto your hats!


Copyright 2003 Richard Mendel-Black All Rights Reserved

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January 07, 2004

Kingmaker of the Universe

We have a sneaking suspicion --perhaps based on a few choice words by Fed Gov. Ben Bernanke over the weekend-- that the Fed wouldn't mind boosting prices as it administers its next all-sugar suppository.  "The only thing worse," we imagine Ben sitting back at his desk and musing, "than a consumer who thinks prices will even get better if he waits to make a purchase is a guy who hasn't taken out a loan on his house to get back in the market.  No," he goes on, "if those cunning Asians insist on sticking to the dollar standard, we'll, well, hmmm, we'll show them some IPO's that will suck the wind out of everybody's sails." "Sooner or later, they'll all see what stocks and awe really means.  We will inflate! we will inflate!"  He bangs his loafer on the desk for emphasis, further crumpling the latest warning on America's finances hot off the presses from the IMF, and gazes up on the wall at an engraved plaque with quotes from a speech he made last year, mumbling to himself, "they just don't understand; carved in bronze it reads:

Although deflation and the zero bound on nominal interest rates create a significant problem for those seeking to borrow, they impose an even greater burden on households and firms that had accumulated substantial debt before the onset of the deflation. This burden arises because, even if debtors are able to refinance their existing obligations at low nominal interest rates, with prices falling they must still repay the principal in dollars of increasing (perhaps rapidly increasing) real value. ...........

What has this got to do with monetary policy? Like gold, U.S. dollars have value only to the extent that they are strictly limited in supply. But the U.S. government has a technology, called a printing press (or, today, its electronic equivalent), that allows it to produce as many U.S. dollars as it wishes at essentially no cost. By increasing the number of U.S. dollars in circulation, or even by credibly threatening to do so, the U.S. government can also reduce the value of a dollar in terms of goods and services, which is equivalent to raising the prices in dollars of those goods and services. We conclude that, under a paper-money system, a determined government can always generate higher spending and hence positive inflation.

In the story books I read as a kid, central bankers were an austere lot, who never wore loafers, and from their Olympian heights used to throw bolts of wisdom down on the madding crowds.  "Trade deficits, they'd admonish, trade deficits mean we are living above our means, buying more than we're selling."  Budget deficits got the same intonation: "no country can continuously spend more than it takes in in taxes; that's tantamount to passing down our profligate ways to our children and grandchildren."

The role of the central banker back in those days was to make sure that things didn't veer too far out of control so we wouldn't all end up in a ditch. They knew from a long history that the politicians in pinstripes and kings in ermine left to their own devices would invariably let their self-serving ambitions bring everyone to ruin.  For most of monetary history, the cost and natural scarcity of precious metals, principally gold, has served as a greater brake than any stern banker or moneylender's admonitions.

Throughout history, whenever the good faith and credit of the issuing country has been the only thing backing the currency, there has been first a great bubble and then when the realization finally dawned on the paper's major holders, a terrible crash.

Here's a somewhat more scary thought:  inflation wipes out savings and erases debts!  Is Ben, the dauphin, dreaming that the Fed will resurrect all those American consumers now weighted down by an avalanche of plastic and other mortgage and non-mortgage debt for yet another go round?  Well, when Mr. Bernanke talks about a little inflation, he imagines a managed inflation target of several percent a year. We, of course, wonder just how he's going to get everybody else, including the debt holders, to hold still like a turn of the century family being photographed while the Fed keeps an underlying stagnant economy at a slow boil.

Well, tomorrow for starters we'll find out whether the Europeans are readying themselves to drop their interest rates.  It's expected that an actual rate drop may not be in the cards but instead the problem will be fought by words at a press conference given by Jean-Claude Trichet, the ECB central bank president.  In other words, will that sucking sound coming out of the Fed start to move the European bureaucrats ever closer to the fire?  Or, are they just trying to slow the inevitable down a bit?

In Detroit over the weekend, Volkswagen, Europe's largest automaker announced that the strong dollar was going to hurt their earnings in 2004.  This was certainly not good news for an economy that has been in the doldrums for years.  Meanwhile the stock markets back in the US keep heating up.  If you looked at your 401K lately, you'll know that your net worth is probably up.

There's an inevitability to the downward march of the dollar.  There will be blips, moves up and down but there are no blinking red tail lights on at the Fed in an election year, the bubble will continue to inflate and the piper will be paid ..... but later! When Alan Greenspan looks in the mirror, he only sees as far as kingmaker of the universe.


Copyright 2003 Richard Mendel-Black All Rights Reserved

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January 06, 2004

The Kindness of Strangers, Revisited

We were happy to have the image of Alan Greenspan patting himself on the back pass before our mindseye over the weekend.  Alan, it appears, gave himself an A+ for the recent performance of the Fed that first let the Tech Bubble grow and burst of its own karma and then deadened the aftershock by dropping interest rates down to their lowest point in more than 50 years.  And, of course, when that didn't quite work, let the dollar slide to lows not seen since the Nixon days against the European currencies.  "See." we imagined Alan saying, "we did it all with smoke and mirrors and so far everything's hunky dory.

There is, of course, a great deal of irony in all this since the same Alan --the world's most powerful puller of levers and strings-- was once the darling acolyte of none other than Ayn Rand, the libertarian author of such books as the Fountainhead and Atlas Shrugged.  Of course, back in those days Alan was also a vocal critic of fiat currencies; that is, paper money backed by nothing but the good faith and credit of the government that prints them.

But Alan, it seems, figured out an angle that nobody else noticed.  Or so we hear today from the usually more sanguine David Ignatius of the Washington Post, who, we imagine, is tired of being beaten up on by the hear-no-evil/see-no-evil crowd in Washington whose dinner parties Alan is more likely to attend these days than the those of the coterie of a popular conservative literary icon from another, dare we say, more naive day.  According to Ignatius the buzz in Washington is around a report co-authored and presented by Deutsche Bank economist Peter Farber to a gathering at the IMF. 

"The fundamental global imbalance is not in the exchange rate,"  Garber told the IMF forum in November.  "The fundamental global imbalance is in the enormous excess supply of labor in Asia now waiting to enter the modern global economy."

Garber estimates that there are 200 million underemployed Chinese who must be integrated into the global economy over the next 20 years.  "This is an entire continent worth of people, a new labor force equivalent to the labor force of the EU and North America," he explains."  

For this reason, the article goes on to say, the Chinese are willing to eat their daily dollar losses (1.5 billion x the % drop) no matter how low the currency gets.  Garber (and his colleagues) parallels this time in history to the postwar period in Europe when the Bretton Woods agreement guaranteed monetary stability by (my words) freezing the price of the dollar and gold at $35 an ounce, locking other participating currencies in a narrow band around the dollar and keeping the dollar window at the Fed open to foreign central banks should they want to trade surplus dollars in for gold.  (It was, of course, just that dollar/gold window that was slammed by Nixon in the early 1970's).

Now, let's take a closer look at this:  Okay, so it doesn't contradict what we've been thinking; i.e., that the Chinese and Japanese are so addicted to making tchotchkes for the American consumer and the reserve dollars they hold in their vaults that they will not be the first to rock the boat. 

However, cold comfort, we say.

Garber has presented us with this truly amazing spectacle of these 200 million Chinese peasants, not to mention all the Asians already holding sustenance wage jobs in the usual sweatshops, all depending on the spending capacity of the American consumer who is already so riddled in debt --nearly $8,000 per family in plastic (non-mortgage) debt-- that even with persistently low mortgage rates the refi market has all but dried up and fixed rate mortgages now only make up 30% of issued mortgages.  In other words, through the magic of Alan A+ Greenspan and company, we have not only expanded debt to record limits but have encouraged home owning consumers to mortgage themselves to the teeth on loans that just might spin out of control. And now we are going to encourage that indefatigable consumer to support the growth of 200 million new jobs in Asia.  Doesn't that kind of give you the fleeting thought that every job in the country is somehow going to be lost in the process?

Perhaps the Asians will  keep taking our dollars even when half the country is on welfare?  In other words, they will pay us to do what we love best!  "Shop until you drop", they will sing as they take more and more ads on television.  In the age of interactive TV's we will be able to order something at all hours and have it delivered within 60 minutes or your money back.  It will be like the pizza delivery business:  "Take your chances, and if we don't get it to you in time, it's yours free!"

It appears that we have nothing to worry about for the next 20 years while all those Chinese finally get jobs off the farm.  We, of course, will continue to lead the world in (besides shopping) developing intellectual property.  All those newly prosperous Chinese consumers will finally be able to sit home and watch a good ol' American action movie.... and get to buy the action figure at the American owned drive-in chop-suey house!

Meanwhile, all the Europeans will be taking those extended vacations they are so famous for, busily spending those now grossly overvalued Euro's on whatever new vice they can create for themselves.  They too, of course, will have lost their jobs but will still have good healthcare thanks to their socialist mentalities.

We have no doubt that Mr. Greenspan and company will find another way to keep the wealth effect going long after falling real wages became the norm and, going forward, interest rates cross below -5%.  Yes, Virginia, the government will pay you 5% to borrow money and, thanks to Garber et al., we now know how it will be financed.



Copyright 2003 Richard Mendel-Black All Rights Reserved


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