← Autodidact Archive · Original Dissent · Walter Yannis
Thread ID: 13387 | Posts: 12 | Started: 2004-04-27
2004-04-27 05:56 | User Profile
This appeared in the 27 April 2004 issue of [URL=http://www.moscowtimes.ru/stories/2004/04/27/006.html]The Moscow Times[/URL].
I think the author is right about the real estate bubble, and I'm arranging my finances accordingly. Basically, I'm out of debt and putting together as much cash as I can so that I can buy something nice when the thing pops.
Caveat: I've been wrong about this sort of thing far more often than I've been right!
Walter
Greenspan Is to Blame
By Alexei Bayer
Alan Greenspan, chairman of the U.S. Federal Reserve, is a unique figure in American history. Appointed by Ronald Reagan in 1987, he has survived four presidents and remains the longest-serving top government official. Some years ago, a magazine put out a canard describing a Greenspan shrine at a Wall Street firm. Such was the reverence for him among financial market professionals that the story was widely believed.
Since financial markets are now a vital part of the modern world, his power and influence transcend that of any of his predecessors. When he hinted last week that U.S. interest rates will eventually go up, bond yields spiked around the globe and stock markets tumbled. Even the buoyant Moscow bourse lost almost 3 percent on April 21.
Greenspan has become all but irreplaceable. His current term expires in June, and President George W. Bush has already stated that he can have his job for another four years. Senator John McCain, campaigning for the Republican presidential nomination in 2000, promised famously that if Greenspan died, he would prop him up in his chair and let him carry on -- perhaps taking a cue from the treatment of Lenin by his Bolshevik cohorts.
This is particularly ironic since U.S. policymakers like to extol the virtues of the American economic system and encourage others to emulate it. Could it be that the fate of the world's largest economy and its largest financial market, accounting for 46 percent of the total global stock market capitalization, is riding on the shoulders of a 78-year-old former economic consultant? After all, a solid economic system should not depend too much on those who administer policy. It is high-wire acts and magic tricks that are completely reliant on the skill of the performer. There's something here that doesn't quite add up.
In fact, there is a major problem with the Bush-Greenspan economic boom. It has been largely based on fiscal stimulus, resulting from two rounds of tax cuts and runaway military and domestic security spending. The budget deficit is forecast by the Economist Intelligence Unit at nearly $500 billion this year and at $700 billion by 2008.
Central banks are supposed to balance lax fiscal policy with tight money. In fact, their function was once described as taking away the punch bowl just as the party gets going. But Greenspan's Fed just keeps serving liquidity without restraint. U.S. interest rates are at 1 percent, which is both a 46-year low and below the level of inflation.
Had this been a developing country, like Russia or Argentina, such fiscal and monetary profligacy would long ago have led to the dispatch of worried IMF officials. But the United States is different: It has the dollar, the world's reserve currency. Foreigners will accept dollars in return for their goods and services, regardless of how many of them the Fed keeps printing.
This has allowed Americans to consume much more than they produce -- to the tune of more than $600 billion per year, to be exact. This means that the United States borrows about $1.5 billion per day from abroad to maintain its lavish lifestyle.
You can't keep borrowing forever, however, even if you print the world's reserve currency. The dollar has already shown signs of fatal weakness, and its current rebound is probably just a pause before further declines. In fact, it has been mainly held up by foreign central banks as they try to prevent their currencies from rising against the greenback. Asian central banks alone added $600 billion to their reserves during 2003, and foreigners now hold $800 billion worth of U.S. Treasury bonds, or 20 percent of all U.S. federal debt.
Central banks will continue to support the dollar. Spurred by fiscal and monetary stimulus, the U.S. market is the only source of demand growth in a world plagued by excess supply. Foreign producers not only keep exporting to the United States, but hold their prices down for fear of losing shares in this crucial market.
These factors have kept U.S. consumer price inflation low. Still, excess liquidity has to go somewhere. Having been burned on the "new economy" boom in the late 1990s, Americans remain weary of the stock market. Instead, they are busy buying homes, and a potentially devastating bubble has developed in the real estate market. To cite just the most outrageous example, the average two-bedroom apartment in Manhattan now sells for nearly $1 million.
When the housing bubble bursts, it will be much more painful than the deflation of the Internet bubble, and it will take much longer to mop up. This is why the Fed won't raise U.S. interest rates any time soon, and even then only by a modest margin. The worldwide gorging on liquidity is likely to continue for a while longer.
Foreign economies have benefited from U.S. fiscal and monetary largesse. Even though central banks offset their dollar purchases by issuing domestic bonds, they are nonetheless drowning in liquidity. Real estate bubbles are now plaguing all dollar-bloc economies, from Britain to New Zealand, and emerging stock markets have long entered the bubble stage. While the IMF estimates output growth this year at 4.6 percent, the Emerging Markets Free Index compiled by Morgan Stanley has jumped by over 60 percent in the past 12 months.
Eventually, this will all come to an end. When or how is difficult to predict but, as one famous economist once said, things that can't go on forever usually don't. There will be hell to pay, and emerging economies, such as the Asian tigers, China or, most notably, Russia, which have their own indigenous imbalances to contend with, will be hit especially hard. But for now the feast just goes on.
Alexei Bayer, a New York-based economist, writes the Globalist column for Vedomosti on alternate weeks. He contributed this comment to The Moscow Times.
2004-04-27 20:20 | User Profile
The American economy is built on consumer spending that is, in large part, financed by debt. Americans have already spent more than they have, and they can't extend their credit forever. A bust is coming -- probably within 5 years, definitely within 10.
2004-04-27 23:09 | User Profile
many of the states are in financial trouble too, yet they keep finding the gonads to ask for more money, instead of making cuts. dont stop bringing in more illegal mezzicans, lets just raise the taxes goes the thinking. its all FUBAR bad.
all aboard the mystery ship
2004-04-28 05:40 | User Profile
[QUOTE=Quantrill]The American economy is built on consumer spending that is, in large part, financed by debt. Americans have already spent more than they have, and they can't extend their credit forever. A bust is coming -- probably within 5 years, definitely within 10.[/QUOTE]
Great quotes in your signature!
I'm a Chesterton fan.
I agree that the thing really has to pop at some point. The problem is that I've been saying this for the past 20 years (ever since Reagan began running up the public debt) and it's not happened yet. In fact, we had two major booms since then.
It really has to happen, but the trick is to guess when. Ygg seems to think that it will be more like 5 years, when the baby boom begins to retire en masse.
I think tha the best I can do is stay out of debt, put off my bets on a diversified portfolio, and maintain a degree of liquidity, so that I can act when the time comes.
Walter
2004-04-28 13:16 | User Profile
I'm setting the over/under at 10 years.
2004-04-28 13:45 | User Profile
[QUOTE=Walter Yannis]Great quotes in your signature!
I'm a Chesterton fan.
Thank you. I am also a Chesterton fan. I don't agree with all his opinions, but he was right most of the time, and the could turn a phrase like nobody else. Belloc is also superb.
I think a large reason that this unsustainable economy has, in fact, been sustained so long was the Bretton Woods system, in which the dollar was the reserve currency for almost the entire world. Even after that system was ended, the dollar still plays that role in practice. The central banks of other countries have created an artificially high demand for dollars. If (when) they start to move to other currencies en masse, the US economy will tank.
All those baby boomers retiring ain't gonna help either.
2004-04-29 14:02 | User Profile
[QUOTE=mwdallas]I'm setting the over/under at 10 years.[/QUOTE]
That's probably a good bet.
If you buy the "demographics as destiny" argument (and I do), then the en masse retirement of the Howdy Doody generation will place enormous stress on a system that isn't prepared to handle it.
I'm guessing that 2016 is the Year of the Crunch. I say that b/c it's an election year, and the oldest Baby Boomers will turn 70 that year, meaning that basically all of that generation will be drawing some type of pension.
I'm told by some analysts that the SSI fund flows go negative in 2008, but it will likely take a few years for the whole thing to be felt. But given Shrub's monumental mishandling of the economy and the endless deficits from fighting the War to Save the Shitty Little Country's Kosher Bacon, it could well pop before then.
Walter
2004-04-29 14:09 | User Profile
[QUOTE=Walter Yannis]But given Shrub's monumental mishandling of the economy and the endless deficits from fighting the War to Save the Shitty Little Country's Kosher Bacon, it could well pop before then.[/QUOTE] Sorry, I know this is completely off-topic, but when I read the above sentence, an image of a T-shirt flashed into my mind.
Front -- Israel Back -- It's a Shitty Little Country :)
OK, carry on.
2004-04-30 10:26 | User Profile
[QUOTE=Quantrill]Sorry, I know this is completely off-topic, but when I read the above sentence, an image of a T-shirt flashed into my mind.
Front -- Israel Back -- It's a Shitty Little Country :)
OK, carry on.[/QUOTE]
I'm pleased you mentioned that, because it seems to me that the slogan "Shitty Little Country" is a winner for our side. Look at it from a marketing perspective. The slogan "Shitty Little Country" really puts the whole thing into immediate perspective.
Israel is a "little" country, and certainly doesnt deserve occupying the center stage of world opinion, and its existence doesn't justify WWIII. Israel should be consigned by right to the same category occupied by, say, Moldavia, in the popular mind. It's there, but only sort of. The fact that Israel is front and center 24/7 on every news program every day is in the teeth of its status as a "little" country, and this slogan really drives that fact home.
But Israel is also a "shitty" country, because it's a financial deadbeat and exists only by taxing white countries. It's also a moral pariah before the entire world. They crush the Palestinians. They sell our secrets to Red China. It discriminates against non-Jewish citizens in terms of a whole array of civil rights. It bulldozes the houses of poor farmers. Its nuclear arsenal threatens world peace. Nobody in their right mind would want to live there, because it is indeed a shitty little socialist abortion of a place. The list of reasons as to why Israel is "shitty" could obviously go on and on, but you get the idea. Everybody knows Israel is "shitty", but nobody ever says it (except for us, of course!). It's a nice shorthand way of saying all of the above, and more.
And Israel is a "country", which means that by right it should be subject to the same rules of civilized behaviour as all other countries, and that we shouldn't tolerate their continual outrages.
Perhaps most importantly, when the French diplomat said that, it immediately struck a nerve with the Kosher Krew. It was like a dentist probing a nerve he didn't expect to be exposed. Wham! "Shitty Little Country" was a sharp and excruciating shot of the truth. Same effect as Gibson's Passion. It jabs the Jews where they live, and incites in them stupid and self destructive reactions.
I say use this slogan far and wide. Teeshirts are a great place to start.
Walter[list] [/list]
2004-05-01 17:32 | User Profile
[QUOTE=Walter Yannis]I'm pleased you mentioned that, because it seems to me that the slogan "Shitty Little Country" is a winner for our side. Look at it from a marketing perspective. The slogan "Shitty Little Country" really puts the whole thing into immediate perspective.
Israel is a "little" country, and certainly doesnt deserve occupying the center stage of world opinion, and its existence doesn't justify WWIII. Israel should be consigned by right to the same category occupied by, say, Moldavia, in the popular mind. It's there, but only sort of. The fact that Israel is front and center 24/7 on every news program every day is in the teeth of its status as a "little" country, and this slogan really drives that fact home.
But Israel is also a "shitty" country, because it's a financial deadbeat and exists only by taxing white countries. It's also a moral pariah before the entire world. They crush the Palestinians. They sell our secrets to Red China. It discriminates against non-Jewish citizens in terms of a whole array of civil rights. It bulldozes the houses of poor farmers. Its nuclear arsenal threatens world peace. Nobody in their right mind would want to live there, because it is indeed a shitty little socialist abortion of a place. The list of reasons as to why Israel is "shitty" could obviously go on and on, but you get the idea. Everybody knows Israel is "shitty", but nobody ever says it (except for us, of course!). It's a nice shorthand way of saying all of the above, and more.
And Israel is a "country", which means that by right it should be subject to the same rules of civilized behaviour as all other countries, and that we shouldn't tolerate their continual outrages.
Perhaps most importantly, when the French diplomat said that, it immediately struck a nerve with the Kosher Krew. It was like a dentist probing a nerve he didn't expect to be exposed. Wham! "Shitty Little Country" was a sharp and excruciating shot of the truth. Same effect as Gibson's Passion. It jabs the Jews where they live, and incites in them stupid and self destructive reactions.
I say use this slogan far and wide. Teeshirts are a great place to start.
Walter[/QUOTE] Walter,
Your post is outstanding. One of the best Ive read. Ive copied/pasted this in MS word and saved it on my hard drive.
best regards,
Peter
2004-05-01 17:38 | User Profile
[QUOTE=Walter Yannis]I agree that the thing really has to pop at some point. The problem is that I've been saying this for the past 20 years (ever since Reagan began running up the public debt) and it's not happened yet. In fact, we had two major booms since then.
It really has to happen, but the trick is to guess when. Ygg seems to think that it will be more like 5 years, when the baby boom begins to retire en masse.
I think tha the best I can do is stay out of debt, put off my bets on a diversified portfolio, and maintain a degree of liquidity, so that I can act when the time comes.
Walter[/QUOTE]It could happen a lot faster than that. Here is Dennis Wheeler on the subject:
[QUOTE]
[font=Arial][size=5]How Much Time Is Left? [/size][/font]
[font=Arial]by Dennis Wheeler [/font]
[font=Arial]This is the first time I am making any rough prediction as to how much time is left before a financial calamity occurs that could bring down the U.S. government and spark severe civil unrest in the country. This is just a rough estimate and it is just a speculation. Things may change as we move forward, but I doubt it. [/font]
[font=Arial]It took 27 months for Washington to wrack up its last $1 trillion in debt. That is an average of $37 billion in new debt per month over the past 27 months. But during the past 12 months, the debt has grown by $596 billion. And that is an average of just shy of $50 billion per month. [/font]
[font=Arial]If debt keeps being added at that pace, then it will take 20 more months to run up another trillion in debt. But the situation keeps deteriorating and over the past three months the rate has been down to 18 months.. So I will predict that Washington will run up another one trillion dollars in debt in the next 17 months. That will take us to June 2005. [/font]
[font=Arial]I don't know the future, of course, but let's suppose that one trillion dollars in new debt is added over 17 months, then 11 months, then six months, then three months, then chaos. That would give the present system about 38 more months. So we're looking at March 2007 for a financial calamity unless something takes place to stop it. [/font]
[font=Arial]A Nation of Slaves [/font]
[font=Arial]I want you to be prepared for what's coming. The dollar is dropping hard and gold is rising systematically. The government of the United States has embarked on a hyperinflation of its currency to stave off economic collapse and the financial indicators are responding accordingly. [/font]
[font=Arial]Now there is one indicator that is not responding properly - interest rates are not rising yet to any substantial degree. Here's why: China, Japan, and other countries, to a lesser degree, are buying U.S. debt at a massive rate, consciously holding down U.S. interest rates so that our economy won't collapse and the American consumer can and will continue to buy their manufactured goods. [/font]
[font=Arial]The implication of this is clear: the economic well-being of the United States exists at the pleasure of China, Japan, and others. In essence, we are their slaves and vassals and they are using us to enrich themselves. [/font]
[font=Arial]This is a far different picture than Americans have of themselves, especially the neocon vision of total U.S. global domination. But this is much closer to the truth than anything the government or Fox News will tell you. [/font]
[font=Arial]This period of exceedingly low interest rates cannot last. They must rise at some point and with so much debt now to be serviced, it will become impossible. The government in Washington will be completely bankrupt and civil strife like not seen here since the Civil War will ensue. [/font]
[font=Arial]The United States is not using this aberrational period of lower interest rates to get its financial house in order. No, it is using the time to wrack up even more debt, in greater amounts than ever before in the history of the world. No wonder the U.S. dollar fell more than 20% against even the Canadian dollar last year. [/font]
[font=Arial]The euro is at an all-time high above $1.25. There are no breaks on this runaway train. [/font]
[font=Arial]I hope you'll buy some gold and silver for your own protection. You're going to need it. And I hope you'll keep this paper handy as a reference guide. I'll keep updating the story for you as we move forward. [/font]
[font=Arial]The thing to keep your eye on is how long it takes Washington to run up its next trillion dollars of debt. [/font]
[font=Arial]Let me end with two quotes by Republican senators, made in December 2003, that show there is beginning to be some cognizance of the problem in Washington. [/font]
[font=Arial]Senator Chuck Hagel (R:NE): "I gave my first speech on the Senate floor in February 1997 in support of the balanced-budget amendment. Republicans used to believe in balanced budgets. Republicans used to believe in fiscal responsibility, limited international entanglements, and limited government. We have lost our way. We have come loose from our moorings. The Medicare reform bill is a good example of our lack of direction, purpose, and responsibility. If we don't get some control over this out-of-control spending and policy-for-the-moment decision-making, we will put America on a course that we may not be able to recover from." [/font]
[font=Arial]And Senator John McCain (R:AZ): "Any economist will say that you cannot have this level of debt and increasing deficits without eventually it affecting interest rates and inflation. Those are the greatest enemies of middle-income Americans and retired Americans." [/font]
[font=Arial]McCain went on to say: "Congress is now spending money like a drunken sailor and I've never known a sailor, drunk or sober, with the imagination that this Congress has." [/QUOTE][/font]
2004-05-01 18:26 | User Profile
[QUOTE=Peter Phillips]Walter,
Your post is outstanding. One of the best Ive read. Ive copied/pasted this in MS word and saved it on my hard drive.
best regards,
Peter[/QUOTE]
Walter has a habit of doing that.... :thumbsup:
-Jay