The American Economy - Where to Next?

21.06.03 Unless you've been living in a cave on Mars and the TV antenna is broken, or you just don't see how it affects you in the least, you probably know that the U$ Stock Market has been doing quite well over the past three months or so. Most of the experts and commentators see this as a 'surprising' comeback. Now, admittedly these pundits are really just paid by the mass-media to fill up space between advertisements and not to think too deeply, but nonetheless it seems like sound advice  - don't listen to the official experts.

Now I'm not an expert in financial matters and listening to me remains completely voluntary, but neither do I get paid by volume; I just look at the fundamentals and think carefully about where they will lead. So think about it, is the rise in the stock market really that unexpected? The overall health of the American economy is not great but neither is anything very bad happening or set to happen either. At any given moment be it a recession or not, billions and billions of dollars are out there looking for a place to go with a percentage return. Pension funds, personal retirement accounts, insurance funds, the list is endless and the amount of money they hold is staggering. With the U$ Federal Reserve interest rate set at 1.25%, safe investments just don't return enough to even compensate for the weak inflation eating away at the value of the Dollar. And you know, the average savings account at your bank will only pay you about 0.5% on your money now! Go give them $20,000 and ask them how much you'll have in ten years at the current savings rate.

So where do people with money put it? Housing and real-estate has been one place, but land and property exist in a finite supply and most of it has already been speculated on and bought up and refinanced too. In other words the housing market is pretty much saturated for casual investment purposes and lacks the liquidity of a simple savings account or stock market investment. The real-estate market just doesn't have the fungible qualities required for most investment purposes and even a REIT (Real-estate Investment Trust) is not much better. Low interest rates make debt-based investments less appealing and this means that in order to get a decent percentage return the money must be moved into progressively more risky destinations such as corporate or junk bonds.

Long story short, nothing out there can compete with equities for return hence the increased movement of cash into stocks. With low rates even junk bonds don't have much appeal anymore. Yet that isn't the only reason for a stock market rise, for the Federal Reserve and the Bush administration itself wants to see gains because it boosts the overall economy or at least lends credence to that view. And a good economy means good elections for Bush & Associates. Hence the latest interest rate cut which is rumored to occur June 25 or so and may have already happened by the time you read this.

Add it up - the stock market is like a volcano ready to blow - where else is the money going to go? And lower interest rates only add fuel to the equity fire. Money can't sit in a bank vault and make half a percent of interest for long or a lot of people won't be able to retire! As soon as most investors see that the stock market is a viable and not too dangerous location to stash the cash they will be all over it like stink on a monkey.

Right now the stock market is the axis around which the economic growth of the United States economy rotates, and by extension of its global dominance, the economic health of the world. Bush & Associates know this and they know the stock market has to start gaining ground or they will not be around in 2005. This is why they worked to get the dividend tax reduced to make stock investing more attractive and by corollary and perhaps more importantly, make debt investing (meaning bonds) less attractive. The stock market also has the psychological effect of being very visual in nature, think of nice line diagram going upwards. It also has the benefit of affecting most of the voting population either directly or just through the five second piece on the nightly news. The stock market is a symbol of economic health in the mind of the public, perhaps not an accurate one but I'm not trying to debate that here.

In the longer term a stock market rebound is only a Band-Aid for serious global economic problems. Japan especially looks forward to a nice run-up in the Nikkei index because all of their bad banks are kept afloat by the collateral values of the stocks they hold in portfolio. The Japanese government would be wise to take advantage of this respite from impending national financial meltdown to initiate an orderly purge of bad-investments and hollow financial institutions, but let's not hold our breath on that one.

Japan is increasingly marginalizing itself as a financial power and being eclipsed by an economically fascist China in communist colors, but that's a saga for the historians. More importantly the fundamental problem with the world economic system is lack of alternatives, a lack of viable competition. Oil and most commodities are all denominated in U$ Dollars and thus controlled by the American government and Federal Reserve which prints the money. This system is called Dollar Hegemony, for an explanation read Oil & The Dollar Economy.

Capitalism is a strange system because it claims to want what it acts to defeat, namely competition. Competition is a healthy thing because in the long-run it minimizes waste and increases efficiency, and when setup properly maximizes the ease of entry for new players. Yet we all know that the rich don't want competition taking their money away so they support capitalism when they can win and then undermine it when new players want a chance.

On a larger scale the Euro economy and currency is a direct challenge to the Dollar and a welcome sign of viable competition that has great potential to shake up a dying system and an increasingly dangerous and unhealthy empire of Dollar dominance resorting to reckless military violence to scare others into line and forcibly appropriate key resources. Nonetheless, and this is a widely applicable rule, new alternatives will not be adopted unless they are clearly superior to that which is already being used even if they're really just as good already - the status quo, even when it's broken, still offers safety.

Even if you're not interested in crumbling empires or life in the near future - just the status of your own bank account, then you may want to consider the short-term fundamentals and stash some cash in a few well chosen stocks while the volcano is still building up because remember: all speculative systems be they a Ponzi, Pyramid scheme or Stock Market, they all reward the first ones in at the expense of the last ones.

SALE! cheapest oil in the world

Bad News is Good News

13.07.02 A little perspective - the stock market is a reflection of the (perceived) state of the collective economy not the other way around, that would be confusing symbol and substance. Similarly, consumer spending does not "drive the economy," that's confusing cause and effect. Even the recent growth here that mainstream economists have upheld as proof of a rebounding economy is really due to expansion of consumer debt! So in other words, the anti-logic here is that if you increase your indebtedness you're increasing your wealth and your quality of life; yeah, maybe for the banks and lending institutions!

The U$ economy is resilient in its ability to divest itself of flawed and corrupt companies and business leaders, not all but some. The widespread news of corporate scandals, by virtue of the fact that they are news and investors are reacting accordingly, is a testament to the transparency of the American economy. And I would argue that still makes it the safest investment market in the world, generally speaking.

Most of the doom and gloom with any legitimacy, meaning that which does not emanate from the bottomless ignorance of the mass media, is based upon technical measurements. Many of these financial indicators are at unusual levels, for instance the S&P 500 is at a 5 year low, some measures put the bear market as the worst in 50 years. So what? The bubble for the past five, ten years was the same way, except in a positive sense. In economics one simply cannot predict the future from the market statistics of the past because the fundamentals are totally different, every age is unique. One can certainly draw apt lessons from the past but just because such and such statistics make it look like 1929 all over again doesn't mean a market crash is imminent, or even remotely similar. Same with the flood of corporate bankruptcies. So what? If you couldn't see this coming miles away, what were you smoking anyway? A doomed company going bankrupt is immensely better macro-economically than the alternative of prolonged stagnation and throwing good money after bad.

The revelations of corporate corruption and malfeasance from WorldCom to Enron are most enlightening when it comes to the plutocratic connections between institutions. Perot Systems incorporated has (tenuously) implicated Ross Perot in fixing power prices during the California power crisis, even though the state legislature basically created the mess in the first place. President Bush and virtually the entire Texas government from judges to politicians have been implicated in the Enron fiasco. Dick Cheney has been dirtied by Halliburton and the Carlyle Group, and most recently when somebody remembered that he made a promotional advertisement extolling the corporate virtues of the now disgraced Arthur Anderson accounting firm!

So even as relatively fair and open as the U$ economy is compared to much of the world, with big business so intricately linked to big politics the trend towards increasing corruption and cover-ups is only set to get much worse in the future. Ten years ago the SEC could have investigated now president Bush for shady oil business deals but chose not to, perhaps because his father, Bush senior, was president at the time; of course that's just wild speculation on my part. Still, this makes Bush junior's surprising pledge to get those corporate crooks and put them in jail, all the more ironic (and hollow). Similarly today the SEC and other government watchdogs are likely to roll over yet again, making a big noise and doing mostly nothing of any real significance.

Endrun at Enron

29.11.01, 14.01.02, 11.09.09 I love reading news stories featuring peoples troubles that make my own daily difficulties trivial in comparison, it brightens my day immensely. Case In point: Enron and the thousands of employees that took the bait and funneled their cash into 401(k) stock portfolios instead of the partially insured but lower return pension plans.

Enron was a real high-flier and with corporate matching shares who could refuse? After all, fickle Wall Street liked the company and it's every employee's duty to have total faith in their corporate benefactor, right? Well, turns out Enron was a little crooked after all. Yeah I know it's hard to believe but all those billions made buying and selling power in an unregulated market made 'em just a tad greedy. So they cooked the books, lied about their debt and assets for a few years, you know stuff like that, nothing oversight committees like the SEC should have investigated long ago or anything.

An employee flees the sinking ship of Enron Corp.

True story: Joe Schmo (real names have been altered to protect the foolish) works 22 years and accumulates 8000 shares of Enron, once worth $720,000, only to wake up recently and find it worth less than 5000 dollars. That story was written on Wednesday. Today, Thursday, Enron is de-facto bankrupt and by the time you read this will likely be in the process of Chapter-11 dismemberment (largest in history) rendering Joe Schmo's net assets a whopping zero dollars and zero cents. Twenty two years of slaving away day after day for that old, reliable mega-corp and that to show for it - whoa, bummer dude!

Enron will not be the last of the mega-bankruptcies to rock corporate America. Remember, it was a new model that could only go one way - up, so don't worry about socking away your retirement into one stock, don't worry about the precipitous debt to asset ratios - it's a new economy, stupid! All that federal funny money, the years of speculative investing and reckless lending inflating the bubble that all the famous economic experts proudly proclaimed could never burst ... is bursting.

Americans are the most productive workers in the world that put in the longest hours of any industrialized workforce yet have a pathetic minimum wage, the most minimal social security benefits, and paltry (if you can get them) unemployment funds. Despite this and a rainbow of other mitigating factors, American workers hardly ever strike or form any meaningful concerted, collective complaints with most even going so far as to support the entrenched system of corporate rights over worker rights! And not even a lawsuit will get a dime of Joe Schmo's money back because shareholders are at the bottom of the bankruptcy food chain!

The American worker is like a rube so dumb and full of goodhearted naiveté they can serve as an unlimited source of corporate exploitation. You can even promise them retirement money and then disappear with the loot laughing as they're left to dangle helplessly, cursing "liberals" while flailing about struggling to find another job at lower wages and longer hours. All that's required is a little dishonesty and greed, basic prerequisites for any corporate climber.

So any bets Joe Schmo, after 22 wasted years of labor will finally get a clue and put up a modicum of intelligent and concerted resistance? Hey if you think so I've got a great 401(k) stock plan consisting of one stock, just for you! E-mail me today and I'll put you on my 'new-economy' bulk-mailing list; big money -- guaranteed!*

Enron is not a corporate aberration, some rogue quirk typifying Texas style fascist corruption, but rather a highly respected and even more heavily promoted example of the new corporate paradigm: the profit in power and the power in profit.

Enron serves as an enlightening example because it proves the Wall Street 'experts' and analysts can't be trusted - they only want to promote and sell.

The corporations can't be trusted; they'll do anything to achieve the appearance of size and profit.

The accounting firms can't be trusted; these self-regulated institutions are more than willing to help cook books and destroy evidence. Crooked accounting practices typify many high-flying corporations such as using stock as substitute for worker wages and using overvalued stock to mitigate the appearance of liabilities while magnifying perceived assets; it goes on and on. And when one company starts doing it the others have to follow or else they look undesirable, inferior to shareholders.

The government regulatory commissions can't be trusted. They knew but ignored due to campaign donation favoritism and the big is influential philosophy.

The legislative and executive leadership have both shown their true colors for they knew beforehand of Enron's impending collapse, nearly bailed them out, and still obfuscate their connections in the dirty aftermath.

Nor can any branch of government be trusted. The judiciary from Texas to DC has been bailing out on the record number of legal cases Enron is generating due to conflict of interests; even Attorney General Ashcroft had to recuse himself!

American capitalism is now a wholly unfair, imbalanced and corrupt system from top to bottom. Think about this when compelled to invest your hard-earned income because it may cost you every dime you have. Something Enron and subsidiary company employees learned the hard way.

* Not a real guarantee. Void where not prohibited.

Faking It at the Fed

27.09.01 The common perception of the Federal Reserve (if the public gives it any thought at all) is this monolithic, perfectly prepared, well-oiled institution like some Swiss watch dispensing dollar bills, carefully adjusting interest rates and making business run to the cesium pulses of their atomic money clock.

Yet the ugly truth seeps out under the pressure of panic: "Among their biggest worries was that the nation's banking and payment system would freeze up. The 12 Federal Reserve banks worked aggressively to make sure there was enough money in the system, even going so far as to keep filling ATMs in Lower Manhattan with fresh $20 bills. Even relatively minor things required calls. The government had to cancel a bond auction, meaning it was temporarily short of cash." [Washington Post]

So on September 11 the omnipotent Fed is going around stuffing their inflated funny money into ATMs to prevent a public panic. I can just picture it, Alan Greenspan running around Manhattan like a capitalist Santa Claus popping open ATMs and cramming in wads of 20s!

The government of the richest and most powerful nation is run by phone calls to friends, special favors and the expediency of panic. Timely exceptions for the 'too big to fall' industries in trouble, discount loans for the big banks, billion dollar bailouts for airlines that fire tens of thousands without so much as a friendly good-luck getting a job let alone severance pay. Yes and isn't it curious that the most vociferous proponents of laissez-faire free market capitalism turn out to be the biggest meddlers in the "free"-market? Apparently yet another brutal truth has escaped its incarceration in the prison of American mythology: rules are just for the little people.

Euro

Another aspect of the new euro currency I'm forced to ridicule, I mean question, is why it's set in such huge denominations? 200, 500 Euros! That's a single bill worth nearly $500 USD. I'd hate to have a wallet full of those stolen. I mean come on, they claim to have thrown in every anti-counterfeiting measure possible (even "secret" ones) from foil strips to holograms, yet they violate the simplest rule of all - the smallest maximum denomination possible to make counterfeiting more difficult.

And you know instead of going to this horrendous expense and effort to make a single new currency, or at least printing it on paper, they could have saved a huge amount of money and boosted consumer spending by just giving out official government credit cards because it would automatically convert currencies upon purchase. Then everyone would be happy!

A Novel Notion - Tax the Loans

31.05.01 It's somewhat ironic but the richer the person the more they borrow. The reasons are numerous, but think of the greater need for fluid funds to fuel frenetic buying habits. Wealth tied-up in stocks, bonds and similar often illiquid assets necessitates recurrent trips to the money-lenders.

But this seems like a critical weakness of the capitalist system. Correction: a vastly under-exploited flaw. If the goal is to really equalize wealth (or increase tax revenue) maybe the income tax doesn't go far enough. Perhaps there should be a tax on borrowing. This could take the form of a percentage tax on all borrowed money, like a 'transaction fee' that goes to government. Commercial interests could be exempted but I tend to think any exemptions would merely be co-opted as loopholes.

It would be the perfect valve to control not just the economy like a central bank but also a valve to control individual wealth. But wait! This gets more interesting because not only could government control economic contraction or expansions by manipulating the percentage rate here but they could do away with a central bank entirely. Let interest rates blow with the wind of natural supply and demand, just flex the transaction tax.

Now this idea actually has significant upside potential because, as we're well aware, governments are always keen on new means of generating tax revenue. This has the social appeal of 'socking it to the rich' and even big business - if authorities become so inclined. Now government can control the fluidity of the economy with a simple tax which could easily be charged at 'point of sale' like a sales tax and electronically transferred to government coffers. Also they would eliminate the cost and hassle of a central bank, reserve branches and staff. And you know it should seem odd that despite the revolutionary technological and social advances of the past century we're still left using archaic economic theories and tools, the flawed, outdated character of which merely becomes more painfully manifest with each passing day.

All primitive-minded institutions will likely remain belligerent on the notion. But maybe banks would like the idea of replacing the central bank with their own influence or even currency. Certainly things do get interesting without a central bank or federal reserve corporation as the case may be, both of which are superfluous outside the conservative, collective monomania (read: lack of imagination or search for solutions). Yes indeed let the banks print the money and let the government do what it does best - set standards. Just as government sets the standard for a unit of length, or the voltage in a power cable or any number of things they would simply extend this trend into the currency.

Supply Inflation In The Internet Era

13.04.01 Supply expands exponentially as everyone with a computer and a modem can now contribute, sell, buy, etc. Yet demand remains the same since people don't have more time or more money, ha! So the monetary reward for many things, like writing or software production, plummets as these products are ubiquitous anymore due to the ease of market entry. It's good that ideas and opinions are transferred with so much less friction but at the same time without adequate compensation many can't do these things professionally, full time, or at all anymore.

The present radically restructured system is a flattened pyramid with one or two dominating entities at the peak a few more in the middle level and millions at the base. The mid and lower level suffer because they can no longer gain anything near the same profit levels as before. Competition at these levels goes up exponentially. Earlier one only had to shout to be heard, now they need a megaphone and soon everyone else will get a megaphone too and then one will need a sound system at 120 decibels to compete, and after that ....! Exacerbated by the fact everyone wants to spread their ideas (memes), software, stories or what have you, even without payment in return, or at least to the degree that free time allows.

Consequently profits for most drop, profits for a few at the top go up and the consumer has a field day. So clearly the winner is the consumer the loser is the producer by and large. Until taxes on Net transactions or other friction enters the transference equation here I don't see any major changes, or at least not any reversals. What this trend is really stating is that specialization and niche markets are the new opportunities because no longer is everyone restricted to buying the same mass-marketed generic products in the mega - warehouse stores. People can find exactly what they want and get it like never before. So the best opportunities are to market unique products thus avoiding the shouting match anyway. And still when people want their Levis™ jeans and their Campbell's™ soup they'll still go to the brick and mortar store to get it because the cost of shipping and transportation outweighs the savings from cutting out middlemen and buying from factories and production nodes, unless of course the product is unique.

This creates a realm of specialization where cliques and groups form based on similar interests and products. So green activists can buy directly from certain green farms and political conservatives can get their news from certain conservative online newspapers, for example.

Specialization has its positives and negatives. It's good that people have choices and freedom to buy or read what they really want but this also sets up competitions between new cliques and strengthens the narrow-mindedness of existing ones.

18.02.01 Screwed by their own hubris and blinded by greed, many employees enriched by massive stock options taken instead of higher wages now have found themselves gaining little and owing much to the tax collector.

Whether through bad luck, mismanagement, market restrictions, ignorance or greed, many people failed to sell enough stock to cover the bill. They treated paper gains as real and even borrowed against them. And they presumed that when tax time came, the money would be there.
"This problem is far more widespread this year than in previous years," said Kaye A. Thomas, an authority on stock options and author of "Consider Your Options." "Many people have fallen into the trap where they owe more money in taxes than they got out of their stock options," he said. "Some people have basically been bankrupted by their tax liability." NYT Suddenly, the Stock Option Looks Just Like a Bad Penny Feb.18, 2001

Anyone remember the true tale of Charles Ponzi?

Consumo-Vision: entertainment for the bleary eyed

17.12.00 It's the Holiday season and you know what that means - fulfilling your civic duty by spending lots of money putting those floundering retailers back in the black! After all you don't want to be un-American and put minimum wage-slaves out of work (before they can be laid off in January) right?

I look at the advertising for all the electronic junk and can't help but think what a waste of money 95% of it is. Now you can get little silver boxes that do everything in one, a cell phone that plays MP3's, surfs the net, cooks food and cleans the toilet ... well, the last two features are future options. Pretty soon we'll just buy a universal electronic cube that fulfills every electronic need. It would have to come in multiple colors and shapes to maintain marketability though.

But really it all depreciates in value so fast, why not just set fire to your cash? If it isn't obsolete in a year it will probably be broken, lost or stolen. No wonder the U$ has an exploding trade deficit, trading mountains of dollar bills for shiny electronic toys just as fast as possible.

Many major manufacturers have come out with earnings warnings, as well as layoffs lately. From hi-tech to old fashioned car manufacturers, they're all finally realizing they've been overproducing for a year and simply can't keep cramming their wares down the public's throat at the same frenetic pace forever. The Telecom giants are one example of the dangers of over-investment combined with the inflexibility of large corporate structures. AT&T for example has $62 billion in debt and barely above junk bond rating. British Telecom has $45 billion in debt. Deutsche Telecom - same story. Clearly that's a lot of loans so much in fact that the Telecom companies are crowding out other borrowers, perhaps even legitimate ones.

The near future will see them breaking up, spinning off and generally doing everything to recover from their past buying binge unless something happens and buyers don't want their debt in which case they go bust. Oh well.

Another sector I've personally questioned for quite a while is the hi-end chip makers like AMD and Intel. Especially Intel. Now Intel comes out with a faster chip every few months, the nerds rejoice and Intel takes their money to the bank, same old story. But today we've already reached the point where even the high-end user doesn't need the processor power Intel is churning out. We've got home computers with the speed to design nuclear weapons, but people use them for word processing and cruising the Internet! Publicity and marketing focus for Intel has gone up dramatically recently with obvious motives, they're in a desperate situation. Intel must continue to convince the public, the home and office computer crowd that provides then with their revenue that they must own the latest, fastest chip (despite all logic to the contrary). Yet Intel's structure has not changed, they are still aimed at making the top of the line microprocessors, expanding facilities (even doubling their Rio Rancho New Mexico facility), yet their legitimate customer base is effectively shrinking to nothing. Soon Intel will be like Coke or Pepsi, something, overpriced that nobody needs but people buy for brand awareness and status.

When you work for a company you must never forget one thing: your sole purpose within that organization, be it private or publicly-held, is to increase owner & shareholder value. In other words your employer is compelled to offer the minimum compensation to you for your labor while delivering the maximum profits to the corporate owners.

Since it's unlikely the vast majority will ever see anything approaching the wealth of the ownership class it is succinct and accurate to state that your purpose as an employee is to make the elite richer.

Happy holidays! Now stop reading this and get back to work!

Replacing Capitalism

29.11.00 & 12.09.09 The American Constitution guarantees freedom's but not to the extent that one entity can deprive another of those same freedoms by virtue of their size, wealth and influence. It is increasingly apparent within American society that hostile, sprawling multinational corporate entities have deprived average Americans of their Constitutional rights by manipulating wealth, media and even democracy itself, just to name a few offenses.

Capitalism is not codified in the Constitution

We need a new economic ideology to replace capitalism because capitalism is misdirected fatalism: it puts money in the hands of whoever gets it first. It doesn't appeal to any sense of fairness or justice. Money is power, and money like power in the wrong hands is dangerous. That is the fundamental concept behind the Constitution, division of powers. In that spirit I present this concept, a rough outline that took me about an hour from inception to completed writing.

If money in large amounts is such a hazardous commodity then it should be treated as we classify other dangerous substances. Therefore we must begin to speak of the rights and responsibilities of owning money and the responsibilities that come with money ownership. Money has become a dangerously unregulated commodity that has already created fiendish power barons perverting the rule of law and public opinion into their own twisted versions of plutocratic elitism.

Therefore I propose the legislation of a maximum personal wealth capacity, where once exceeded all money must be immediately divested or face a legal freeze of those assets. After all why would anyone need a billion dollars in their bank account? And if one makes more than the allowed amount it goes into a giant fund invested into various public and private interests including but not limited to, stocks, bonds, venture capital and art, music and various cultural endeavors. Although realistically these investments would have to be very rigid though to prevent unscrupulous agents from using the money as tools of political interests, so primarily were talking about federal bonds. The interest income generated from this fund is then redistributed to the lower income bracket annually through tax refunds and direct to household grants.

How about wealth capped off at 10 or 100 million dollars, including a house, possessions, investments and gifts. This figure could be adjusted for cost of living differences between disparate regions of the country. Why would anyone need more than that except for nefarious purposes, right?

Of course I'm just throwing out numbers here the idea is to shrink the fantastic rift that presently exists between the super wealthy, the Larry Ellison and Bill Gates of the world, and the average taxpayer like you and I. And if they start playing the shell game, investing in Bermudan banks or what have you, we play hard ball just as our 'leaders' in Washington should but don't. We freeze their domestic corporate assets and forbid them from doing business within our sovereign countries boundaries. And if they screw us twice we seize their assets.

This does not preclude anyone from being rich, it merely disallows them keeping any of that money above the proscribed maximum wealth. So the obvious problem is that someone making 20 million a year would just spend his 10 million and not worry about the law. Of course he couldn't easily horde his wealth as can be done now but it wouldn't solve the problem of income disparity. One exception though would be for long term investments that penalize early withdrawal such as bonds and Certificate of Deposits. In other words one could put a lot of money above the limit into these types of investments because they would encourage healthy long term investments rather than short term speculation.

This is really a remarkable idea because it would for once stimulate safe and solvent investing by the average citizen. Instead of buying lottery tickets or dot-com stocks they would be compelled to wisely invest their income in interest bearing savings accounts generating money for times of crisis as well as the kind of prudent savings that drives a solid economy.

Q: Wouldn't this destroy the incentive to invest?
A: Investing would change true but the individual can still give their profits to any organization they want, if they wish to give their money to their friend, favorite charity or Global HyperDynamics Mega-Corp, that's great. They simply cannot legally own any wealth above the maximum, after the regular tax deadline.

Q: How does that prevent them from buying socially unsafe interests in media and business?
A: Well it would certainly change the system because they would not be able to use massive stock assets to control corporate interests or conduct buyouts etc. Corporate entities would not have the same limits on wealth that individuals do, thereby allowing transactions that exceed the limits of the personal wealth maximum. However a larger corporate wealth limit would force very big companies to split into smaller entities thereby fulfilling a wise American principle, the aversion to large monopolies.

Q: Would this discourage growth?
A: This would not be a disincentive to growth, merely a structural limitation on the unwieldy, large corporate conglomerations. This would also diffuse stockholder and other stakeholders undue influence as they would be forced to split their time and energy between the multiple companies they are trying to control.

Q: What about banks?
A: They are corporate entities same as any other business.

Example (with a $10 million cap): Joe Smith has stock and real estate investments valued at $50 million dollars plus an $800,000 home in San Francisco. He works as a lawyer and makes $200,000 a year. And if you ask Joe if he's rich he'll just chuckle and quickly reply 'oh no'... The Monetary Safety Act is enacted and Joe worries that his hard earned investments may be confiscated by the 'commies' in the government. Despite Joe's fears, the government doesn't take his money and in fact the only thing that changes is his invested income. Joe must decide to transfer it into a long term savings plan at around 4-6% interest or gift about 40 million of his investment money to someone else. Not surprisingly being a "selfish capitalist" Joe decides to put his money into a savings plan. Still he throws a hissy-fit whining that now he can't make the fluctuating 20% annual return he's making now on his tech-stocks. His investment analyst points out that due to the longevity of his savings plan he will actually make a more reliable, even more profitable return on his money. According to the graduated scale measuring time versus money Joe will need to have at least a 30 year CD or equivalent, but theoretically if he so chose he could have up to $9 million dollars taken out of the fund for his personal use every year. Instead Joe finally catches on when he realizes the tax breaks he will get (a few fringe benefits of the Monetary Safety Act) by using the CD and gifting a large portion of the money to his dependents in the future as education and inheritance money. A few weeks later the bottom falls out of the stock market and Joe expresses a sighs of relief his money is safely earning interest in an insured and accredited financial institution that is still small enough that he can visit their corporate office downtown and even talk to the president if he felt the need.

Here's a thought, what would happen if the Saudi's and the rest of OPEC suddenly decided they had enough U$ Dollars and wouldn't accept them in trade anymore? What would America use to pay for oil? Say OPEC now wants gold or mining rights to large tracts of land in Colorado or fishing rights to the Atlantic seaboard. Could they not ask for anything, and would our country not be soon be forced to grant it to them?

Oh but they have an insatiable appetite for U$ dollars right? Hardly. A low Euro helps for the time being but the real inevitability is the fact that the rest of the world will soon grow sated, nay sick on a dollar binge. It's happened before (remember the 70s, Nixon anyone?) and it will happen again.

Burned Again

According to the Federal Reserve Board's survey released earlier this year, one out of every five households with incomes less than $50,000 had debt service burdens greater than 40%, which is considered high. By comparison, in each of the last three previous surveys, covering 1989 to 1995, about 15% of such households were weighed down with that much debt burden. - LA Times May 13, 2000

14.05.00 Oh yeah but the economy is fantastic right now so who cares? And we’ll all live happily ever after. Besides being facetious my point is that economic trends have reached a point of total unsustainability, no half-point interest rate hike is going to matter because the damage has already been done. Most of us already know what the rising interest rates are doing to credit card debt, but living without one is nearly impossible. About half of the U$ population is caught between these two walls of static income and rising interest rates and at least one of those walls is already closing in on them. Some are worse off than others but most have a false sense of security inflated through virtual wealth generators such as the stock market. In the very near future spending will be forced to drop off; this will precipitate a decline in consumer sales and a recession. The recession like always will mean job cuts and pay freezes. This in turn will cause an increase in consumer debt defaults and a general increase in the numbers caught in the debt trap.

The next recession will be very ugly because nothing exists to support the working class if they lose a job or get crushed under high interest rates, they’re left out to dry while the banks and debt agencies make a few extra bucks on foreclosures and defaults.

Banks aren't the only way - Many Indians wear their savings accounts.

Take my money, please!

21.01.00 Judging from the number of credit card applications I get in the mail every day I would judge that our present credit expansion shows no signs of abating anytime soon. In fact I would judge that it’s ballooning out of control. On one application form for a card, which of course I’m completely ‘pre-approved’ for, right below the fill in the blank section is a query for a cash (loan) up front! So now I can go into debt before I even get the card, wow!

Nor am I especially concerned about interest rates being significantly increased anytime soon despite popular economic concern to the contrary. The FED wants the party to continue and higher interest rates are just too heavy to pull out of the bag right now. And truthfully things are to the point where it may well be too dangerous to slow down, let alone stop the party. Of course a quarter or half point raise is to be expected, but nothing big enough to put a dent into the credit institutions or slow anything like the stock market down. These guys are floating in excess cash. They have so much they’re begging people for loans - credit cards with 9% a year or less fixed interest.

No wonder our trade deficit gets bigger every month, so much cash in the economy has to go somewhere and it isn’t profitable enough to save it, so we all have to spend it. Yes, and spend at an ever-increasing pace. Should we even wonder why savings rates keep declining? Once again it’s not rocket science. The reason is that it doesn’t pay to wait for anything since the interest one earns on a savings account doesn’t even come close to stocks or even just buying consumer junk that breaks in a year. The real value of the dollar is falling rapidly even if it isn’t reflected in the cost of your new imported electronics. The real value is reflected in how long it stays in the hot little hands of the wage earner. Think about it – valuable items appreciate over time, but our cash does the opposite -- it declines in value unless turned into something else, such as a dot-com stock or your new Lincoln SUV. Banks know this and they’re even more desperate than the consumer to unload it, in their case as interest-earning loans. Remember, legally banks can only invest (directly anyway) small fractions of their money into high-risk sectors, like stocks, which means they have to find other ways to get rich quick, like credit cards.

So is this a good time to get a second mortgage, stereo surround sound entertainment system and that fur coat? Hell yeah! When the currency hyperinflates we can just pay it off with a few wheelbarrow loads of million-dollar bills, right? Maybe, but more likely the banks will just raise interest rates on the loans to reflect the depreciation of the dollar's value so your 10% loan turns into 1000% and you need 100 wheelbarrows. But at the same time the Fed will want maximum liquid money supply, which runs contradictory to the high interest rates. So I dunno which side would win out since they seem to be mutually exclusive outcomes. I suppose that the Fed would just pump in more and more money until prices rise so fast that transactions simply cease to be possible.

Bottom line, if you can get a loan today with a guaranteed fixed interest rate I would say definitely take it because when hyperinflation hits it’s not really gonna matter anyway. The people that stuffed their cash under the mattress are going to be the losers, gold or silver might be a better bet but demand would have to increase dramatically. Don't do like Warren Buffet billionaire and "investment genius" who’s lost probably billions on his silver horde he bought into a while back only to see precious metal prices continue to hit rock bottom! Invest with care...

30.12.99 & 11.09.09 I have a copy of a Federal Reserve note from 1934; what’s so great about that? Only the fact that it’s denominated at $1,000 – to bad it’s not real! But seriously why would the Federal Reserve print a denomination that high? And it wasn’t a bank note either, it was for general circulation. Even today that seems like a very large sum for one bill. You probably could’ve bought a house with that amount in 1934. Not only is it an open invitation for counterfeiting but it could be stolen or lost or damaged. Let’s just say that if I was rich in 1934 I wouldn’t really want (or probably need) to carry one around in my wallet.

But think about the date – 1934, the Great Depression, Maynard Keynes, FDR, what did the Federal Reserve start doing about that time? They inflated the money supply based on the reasoning that the cause of economic recession was a lack of cheap money. And what is the best way to expand the supply of money – print it in large denominations and flood the market.

The point is that this establishes prior conduct on the part of the Federal Reserve. They have printed money to buoy the economy before and are doing it now. First it was through new ‘counterfeit resistant’ bills and now it is through Y2K ‘emergency’ cash something like $90 billion I hear. Not only that but the old ideas that a recession was required for such drastic action has been superseded by the new ends-justify-means policy or let’s-see-how-high-we-can-fly-before-our-wax-wings-melt policy.

It’s difficult to ascertain what chain of events has driven U$ economic decision making to such levels. Is it political tactics? Secret international economic crisis? In ten years historians may have the answer but right now it just seems ludicrous and unnecessary. I mean a sky-high economy is great but is creating a speculative bubble really necessary?

Also note the rather infamous Henry Morgenthau Jr. as Secretary of the Treasury, signed on the 1934 Federal Reserve Note.

American Funny Money

19.12.99 Curious isn’t it that the U$ Treasury suddenly decided to renovate and redesign our entire paper currency system? I mean they sure were slow to react to counterfeiting threats (how long have laser printers been around?). And the new money doesn’t even seem like a very competent response. Fundamentally they haven’t changed any part of the appearance that would make it difficult to copy, the plastic thread strip was already in it before. Of course the texture, which is the same, can’t be copied very easily. So the only addition that is counterfeit resistant is the watermark (the ghost portraits).

If anti-counterfeiting is really the goal why not put in a hologram or something difficulty to print-copy like reflective foil, gold thread or something like that? If that had been done, a minor adjustment with an unmistakable quality like reflective metal, vending machines, ATM’s and all the other money machines wouldn’t necessarily have to be reprogrammed.

Whatever one thinks of the new money a certain benefit of this program seems unmistakable but hasn’t been mentioned by anyone else that I know of. By designing new bills the Treasury* created a golden opportunity to easily inject new money into the economy, i.e. massively inflate the money supply. It would make sense that the easiest way to inject this new money into the economy would be through government loans, federal projects etc. You know building a new highway in Oklahoma or a new airport in Pennsylvania, that type of thing. The banks would then use the new cash to pay salaries contractors and other expenses on the project dribbling it down to you and me.

Think about it, most paper money lasts several years under normal wear and tear before it becomes unusable and is turned in to be recycled by the banks (hundreds should last the longest given that they're treated the best). But the new bills sure did show up fast, almost instantly in fact. Not only that but the old currency has no expiration date, in other words we can use the old style bills forever. This is especially convenient for the treasury because they don’t have to replace the old money on a one-to-one basis. They can print up as many billions as they need and pump it into the economy where it will not replace anything but merely add to the supply! And what about the M2 reading?

I don’t have the budgets for the past four years but I know that federal government spending has been rapidly increasing lately (yeah I know I’m going out on a limb with that one). The IRS has reported significant declines in tax revenue recently due to fewer agents and a new soft-glove approach. Federal spending is breaking records, set-limits are regularly circumvented. Yet at the same time the Budget office reports a ‘balanced budget’. Can social security taxes really be covering that big of a financial gap to create the illusion of a balanced budget?

I have to seriously doubt the ease with which the federal government has miraculously become financially solvent despite ever more egregious over-spending and waste. This federal spending would support my previous hypotheses that the treasury is, well essentially, using its own manufactured cash to pay itself indirectly. The benefits are anything but intangible.

Why would a government want to water down it currency like this? Well for one the trade deficit keeps increasing to the point where the U$A loses 30 billion dollars a month. For that and other reasons it would be desirable to have a weaker dollar, it would help to balance trade levels by decreasing imports and increasing exports. This is the same reason Japan generally wants a weak Yen. Besides that having lots of money for the government to spend means influencing votes in key locations and generally keeping the economy out of recession (always advantageous to the incumbent). A fluid and plentiful money supply keeps interest rates low and loans cheap, that is until inflation sets in and the inevitable reactionary recession rains on the party.

Interestingly our economic boom has neatly paralleled the introduction of this new money. You know the 100-dollar bills were the first ones pumped into the system which would more quickly create the strongest effect. And wasn’t that done around election time 1996? Damn right it was, the first new hundred's started circulating in late March of that Presidential election year.

Certainly I would never put a plot this insidious beyond the limits of the Clinton administration or our friendly Jewish financier Robert Rubin who ran the Treasury department. I say ran because he now has a very cushy job with mega-mergered bank conglomerate Citigroup. Of course it must have been purely coincidental that new banking legislation was passed (right before he retired) thanks to Rubin’s influence, repealing depression era laws and allowing these banks to branch out into other operations like insurance. But I digress.

Am I being paranoid? Possibly. But something like that meshes well with Clinton behavior, the politicization of everything and the credo that the ends justify the means. Inflating the money supply is a very pragmatic move with unmistakable near term benefits. Everything is an election and everything that matters is election. The ride should continue until at least after the 2000 election because the Clinton administration logically wants Gore, or at least a friendly democrat, in office to smoothly continue implementation of favored policy. The best way to guarantee that is to keep the economy red-hot and as many voters happy as possible. The big question is, can the party last that long?

* For simplification when I say 'Treasury' in this essay I mean to include the Federal Reserve which actually makes the paper currency.

 Exporting Inflation

26.12.99 The U$ economy has avoided inflationary pressures largely due to the large scale exporting of our problems. Selling bonds to foreign creditors is one way. Devalued foreign currencies keep imported consumer products cheap as well. Meanwhile technological advances have worked to keep prices low – everything from home electronics to more productive genetically modified foodstuffs. And besides all those factors the fundamental components of industrial manufacturing have continued to decline in cost. As commodity prices fall it creates a trickledown effect, cheaper inputs mean cheaper outputs. About the only thing left is the cost of labor, which is kept fairly low through large-scale immigration. Microsoft, for example, has been a leader in this area importing Indian computer scientists or exporting the projects themselves. Either way they pay a fraction of standard wage.

It almost sounds like everything is just fine the way it is, right? Mainstream economists certainly feel that way and a superficial analysis could easily lead one to believe the same thing. Nothing is really new about the ‘new’ economy. The tactics being used are the oldest tricks in the book. Soon we will see that every action has a reaction and the benefits of our ‘new economy’ are no exception. These consequences are being manifest first in the less insulated economies of the developing world. Lower commodity prices are wreaking havoc throughout the globe. Countries like Ecuador or South Africa are having serious economic difficulties as plummeting commodity prices dry up their few sources of income. Oil has leveled off, but foodstuffs and especially metals like gold are reaching points where it's no longer profitable to even mine!

The new economy is glaringly evil because it's making the rich richer and the poor even poorer; the new structure is taking the form of a giant pyramid with the U$A at the top and hordes of the destitute at the bottom.

Go back and look at the stock market. When did it start acting crazy? Try around 1996 the same time the funny-munny started hitting the streets. Now we’ve reached the point where NASDAQ is doubling every 10 months down to two months to.....?! An exponential curve if ever one existed. The FED and treasury can’t simply stop the money growth; our economy is a runaway freight train. Hopefully there aren’t any pennies on the rail ahead that could derail it before it can be slowed down through interest rates. Unfortunately it seems Greenspan and crew may be deluding themselves into thinking everything will be fine at least until after the 2000 elections.

Either way this entire new economy is built on a rapidly growing supply of cheap credit, something that simply cannot be sustained indefinitely. It must either be shut down preferably with interests rates or it will continue to accelerate until it runs out of fuel and the Dollar hyperinflates into oblivion like a burned out, dying star.

Deposit Insurance & TBTF

01.11.99 The Savings and Loan bailout/scandal is a distant memory in the minds of most but the fundamental causes of that debacle have still barely been addressed. Over $200 billion dollars was thrown away in the rush to save bad investments, crooked bankers, and to sweep an unpleasant political situation under the rug.

While the number of small, poorly run banks has certainly improved from ten years ago the present situation is actually much worse. While the S&L's were busy being auctioned-off to larger financial institutions the same errors that brought the S&L's down are just as prevalent, if not more so, in the parent banks So instead of having many fly-by-night banks we now have a few huge multi-national banks with multiple fly-by-night sub-divisions. Poor investments, shady high risk deals, questionable derivative investments - you name it. By stimulating mega-mergers and banking conglomerations the errors have been compounded not eliminated. And with the Too-big-to-Fail ideology that pervades banking insurance now the cost of insuring private deposit's far exceeds a mere $100,000 per account.

Of course most banks are secure institutions that are careful to manage financial risk, but no one is completely safe from it; all investing is fraught with some level of peril. Rapid changes in currency exchange rates, stock prices, bond rates or any of innumerable factors, thanks to derivative risks, opens up the possibility of sudden and unavoidable large-scale failures.

This is what happened with Long Term Capital Management run by some of the 'smartest investment wizards in the world'. The case is still shrouded in mystery as to why the Fed needed to bail them out although most speculation points to a pattern of massively-leveraged global investments using cheap loans from short-sale gold contracts. Sudden severe market swings led to those two most dreaded words - margin call! The fundamental fact is that LTCM was simply another TBTF institution that had to be saved, and LTCM wasn't even a bank! The insurance issue has gone beyond mere banks, now it doesn't matter whether it's a thrift or a brokerage firm, anything big enough is guaranteed a bail-out because of the potentially disastrous repercussions on the world economy. The banks know this and the Fed knows this, but the fear of bank collapses and loss in confidence in the American banking system is so great that those making the decisions don't want any policy changes. And the Fed has good reason for concern given historical trends in American banking. Panics and collapses are, unfortunately, not uncommon.

It's foolish to pretend that every bank and every deposit is perfectly safe because it isn't and can never be that way. A much better policy would be to let bad banks fail and let good banks thrive. Instead everyone is heaped together and corrupt or sound they're all insured equally. A traditional insurance system would charge fees based on the risk of who they're insuring. But since deposit insurance is guaranteed by the U$ treasury it doesn't seem to matter that fiscal efficiency is non-existent.

While the Fed is worrying about guaranteeing every bank account to $100,000 they should be worrying about the cost of bailing out everybody at once because that's what the next crisis is shaping up to look like. The Fed claims to have 'a virtually unlimited' capability as lender of last resort, that ability may be put to the test in the not too distant future.

More information: Federal Reserve Board Testimony on LTCM

Your Dollar Bills are Debt

09.10.99 The American monetary system is anything but transparent and most people really don’t even give it any thought. As long as they have green in the wallet that’s good enough. But this is really a terrible mistake because, to put it bluntly, the system we have is designed to screw the taxpayer. Not surprisingly this is a combination ripe for conspiracy theory and misinformation. I won’t claim to know everything about it but I do know enough to point out the basics and hopefully steer clear of the sensationalism of conspiracy to illuminate the fundamental consequences of our monetary system.

The American central banking system is neither simple nor what it seems. Private and Public have very strange meanings in this world. Every greenback is an IOU, a promise of payment, a debt. "This note is legal tender for all debts, public and private." Remember that it has no intrinsic value on its own, at least not since Bretton Woods was cancelled in the early 1970s and the dollar was taken of the gold standard, it is fiat money – totally fungible.

Money in the U$ is printed by 12 primary banks united into one unit known as the Federal Reserve System (FRS) which has monopoly rights on the production of all U$ paper money since 1913. The chairman and board of the FRS are appointed by the President but serve a term of 14 years, which can be renewed. The FRS has the power to alter interest rates through loans to commercial banks. They determine what interest fee will be charged for the loans and subsequently every loan that bank makes from there on will be based on the fee they have to pay. In the banking world these loans occur constantly and are usually for short durations, such as overnight to balance payments in and out of the bank.

So now we see the Reserve system which has the power to print money and change interest rates as it sees fit – not as the President or Congress or anybody else wants them. Any bank can be a federal reserve member and member banks exercise joint ownership, and consequently control, of the FRS through Reserve stock shareholding. But don’t look for the stock on NYSE or NASDAQ it’s not traded, at least not in the traditional sense. Although theoretically by buying stock in a member bank a private citizen could have indirect influence in the Federal Reserve's actions.

The US mint produces all legal and commemorative coins which are then circulated via the Federal Reserve banks. Yes all those one cent pieces you can’t get rid of come courtesy of the U$ government, but what of the paper money? That’s exclusively from the regional Federal Reserve banks. But the interesting thing is that the coins made by the mint are interest free, whereas the paper currency printed by the FRS is based on federal debt issuance and therefore costs interest to use. Hence the title of my essay Money is Debt. Literally all our paper money is debt and as such requires interest payments for it to be circulated and used by you and me.

The FDIC which insures most banks is called a ‘government agency’ and was created by act of Congress but is simultaneously a private (insurance) corporation. The FDIC has the ability to borrow directly from the U$ treasury. Once again this organization is not what it seems, the FDIC is privately controlled and gets its income from insurance fees levied on member banks; it does not answer to the government and as such is not really a government agency!

But back to the FRS. Is it run by foreigners? Probably not, but ultimately that’s a specious and irrelevant argument. Why? Because, the U$ government prints and dumps billions of dollars worth of bond/debt literally every week. Foreigners own between 40-60% of that government debt, the Japanese being the single largest group. Every U$ taxpayer pays dollars directly to the Japanese, the Saudi’s or anyone else who owns U$ debt via the interest on those treasuries! The average person is completely unaware of the fact that the $5, $6, or whatever it’s currently at, trillion dollars the government owes has to be constantly renewed because the principal is not paid, just the interest. So after 10 to 30 years, when the bonds expire, new debt has to be issued to replace it. If for any reason buyers were unable or unwilling to take these treasuries, interest rates would skyrocket and our economy as we know it would cease to exist literally overnight. So far this has not happened, mainly because the U$ dollar is the standard reserve currency for the world. How much longer this will last is anyone's guess.

So does anything good exist in the FRS? Central banks in America have had a long and colorful history. American’s really have a love/hate relationship with government and banks in general. At one time the government controls all the money and then people complain, so then it gets handed over to a private bank and people complain -- back and forth it shifts. The FRS does have good qualities to it. The most significant is the ease with which the money supply and interest rates can be altered. This quick reaction has minimized or avoided recessions. However, elections hinge on recessions and the temptation to manipulate the economy for political and short-term economic gains has not gone unused.

The real problem lies in the mistaken concept that we can have whatever we want right now with just a little borrowing. That little borrowing has ballooned into the multi-trillions. Indeed the 6 trillion in government debt pales in comparison to the private U$ debt in credit cards, mortgages car loans etc. Smart people and smart governments get rich off the American taxpayer as private citizens spending with plastic and then again as taxpayers through government debt and the reserve currency system. Sucker thy name is U$ taxpayer!

But as ridiculous as it is, and as fun as it is to spend today and promise to pay tomorrow, the truth is that the American party is nearing the end. The U$ has gotten away with this too-good-to-be-true deal for decades because of its economic, hegemonic dominance of the world economy. Even the USSR didn’t threaten the U$ dollar, they kept the Ruble in domestic circulation only.

Debt spending cannot last forever and just in the past two years we have seen the end consequences of it. Countries like Indonesia, Russia, Mexico and Brazil up to their eyeballs in debt simply cannot take anymore and have all been ‘bailed out’ by massive cash infusions from the U$. But the unstated consequences of this are to merely water down the strong American dollar in order to prop up debt-ridden countries for another ten years. It’s merely delaying the inevitable reconciliation. The U$ dollar is rapidly and significantly losing value even as I write. This is often masked by the fact that foreign currencies and foreign nations are in even weaker economic health. So the ratio may stay the same but everyone is on the same boat sinking faster.

...And you’d better believe Alan Greenspan and his friends are sweating bullets trying to figure a way out of this one.

Deflation fuels consumer spending

02.09.98 I'm of the opinion that the current levels of consumer spending at record levels are being supported by deflationary trends. Prices on consumer goods are falling, quite significantly too. This deflation of price values is most notable on imported items such as cars, electronics, and other highly competitive products.

The Consumer Price Index (CPI) is not reflecting this trend because it measures staples, which are not in a competitive market, and not imported items - the CPI is misleading.

U$ consumer spending is being sustained at its astronomical levels by these reduced prices on economically important but totally frivolous items. As commodities continue to lose value on the trading markets this trend will continue to supports consumer spending but at a slowly diminishing level as other factors are accounted for over time.

When one studies current economic news stories we have to differentiate between those of strategic importance and the everyday noise that simply confuses the issues. The stock market is irrelevant today but the trend is important. Please keep in mind whether you think things are bad now, good or whatever - 90% of the full effects of current events has not manifested yet. Serious changes take time to implement the apparent portions of their force. Our financial leaders and planers are increasingly focusing on the static and snow of the tactical battle at the expense of the strategic war.

How Real is Deflation?

13.02.98 Deflation is a popular concept to apply towards modern macro-economic behavior. How much validity does deflation warrant and is it applicable to current trends?

Deflation is over-competition, or too many products chasing too few consumers, the result is lower prices on the products and thus lower profits. Deflation is really a poorly understood macro-economic phenomena simply because it hasn't really been a prominent historical trend; at least that's the conclusion of my analysis. I think deflation is a real phenomena affecting global economics now but it may be difficult to predict the eventual outcome of deflation's effects. A good example is the glut of hard disks on the market which has done severe damage to nearly all the drive manufacturers not just a few. It's doubtful anyone will go bankrupt over it but it just depresses the profit scale.

Look at the trends of advertising to pinpoint and saturate markets, the Internet which vastly increases competition among retailers (drives prices down), and even global free trade. Consumer spending is very finite and certainly in this country is at its maximum, especially since wage growth is flat. Marketing and direct sales becomes increasingly efficient but that just allows more retailers and producers to reach the same number of customers! Pretty soon Japanese and Chinese factories will be able to sell electronics or even cars directly to US consumers over the Internet?! What will that do to the competition!

Another consideration; much of the growth in employment is in secondary industries. Retail, re-sales, and services; all these sectors rely on what may be a diminishing role in the wired world.

East Vs. West

18.01.98 It seems odd that the US appears to be in 'never better' economic health while much of the rest of the world is facing severe problems. Is the US feeding off the rest of the planets abundance - the great consumer nation? A good way to quantify this effect is the trade deficit which has hit all time highs. For years now the US has been a black hole sucking up cheap imports from every corner of the globe. But as trade barriers disappear it only creates more competition for the finite US consumer market, thus imports only become cheaper as the number of exporting nations increases. How long can such a huge imbalance continue, I mean it's more parasitic than symbiotic? Trade has to be a two way street otherwise it doesn't work! And right now it's definitely not bi-directional.

Even if East Asia recovers they will only have an uphill battle because export profits are increasingly deflationary. China, South Korea, Japan, even Vietnam and Thailand - they all produce the same or similar products, their only difference is labor costs which are all minimal anyway! And now they don't even have to guarantee lifetime employment! I mean who's really the loser here, everyone sees the corporations but hell they can just write off their losses, what about the employees?! A nation of temps all getting paid pennies per hour; truly a capitalist fantasy.

So our imports will become unbelievably cheap which will completely destroy the remaining domestic competition. Multi-National Companies (MNCs) will cleanup in the wake and the trade imbalance will increase exponentially. Every action has a reaction and every up has its down; at some point the system will fracture and the cards will be reshuffled. Keep in mind though that at this point the only ones who can (or even HAVE) anything left to lose are the Western workers. The Vietnamese already make a few bucks a day without benefits - their position in the global marketplace is sealed, but the Western proletariat have to compete with the Vietnamese and the system always seeks to minimize costs.

Economists, along with their fallible science, are the modern equivalent of the sawbones doctors of medicine 150 years ago. Regardless of whether they kill the patient or accidentally save a life the public is compelled to seek their services for lack of a superior alternative.