Great Empire or Grand Illusion?

Hi I am just wondering if someone knows any book or reading material regarding US economic & financial policies and its relevance to GAME theory...??

Sohail, this is Imran Zali`s sister...trying to contact you..this is the only way...my email is shaziaj@hotmail.com.........Shazia

SR, I did not mean I making any serious decision on your advice right away. I think even if you are 100% correct in your assessment it will take many years for rest of the world to come into terms with it. As usual I would probably be waiting in line with rest of the herd to buy gold when it happens...but Thanks for clarification anyway.. I know when our women buy gold from a jewler it is sometimes over 100% overmarked for craftsmanship or labor etc...that is why I mentioned my biwi`s gold purchases in my post.

Bhatti sahib, you are most welcome. Let me hasten to add that I DID NOT offer you any investment advice. To do so would be a violation of SEC regulations and get not only me but also the Chowk website in trouble. What I had written was a purely hypothetical scheme which I would follow myself if I had $250 K in spare change.

Having gotten that cleared, I would like to comment on gold in the form of Jewelery. I have spent all my life bitterly arguing with my sisters, bhabi`s and my mother as to the utter waste that jewelery is. It is absolutely the worst way to buy gold. In fact I would not even call that investing in gold. Jewelery is purely anexpense. Luckily, my wife is not one that goes for it and has only fake jewelery (well, with maybe two or three exception items, small token items, that I bought for her -- to placate her -- from various trips to places like Bangkok, Sri Lanka, India and Dubai)... But I recognize that is somewhat uncommon.

When one buys coins or bullion one pay`s a premium of between 1% to 7% depending on what one buys and where one buys it from. However, if one was to buy the same weight of gold in the form of jewelery, one pays anywhere from 35% to 70% in premium, over and above the intrinsic cost of the metal as determined by the daily published London spot market price (or the New York Comex settlement price). Be that as it may, if I am even half right about the coming Perfect Storm in the financial world, then even gold bught as jewelery will become profitable because the price of gold is likely to shoot well past the $1,000 an ounce. (These are troy ounces, 31.1 grams, or 3.75 troy oz = 10 tolas)

As an aside, I wish to add that the present theoritical value (by one way of measuring) of gold is about $700 per ounce. The market value today, amazingly, is only in the $350 to $370 range. By my calculus gold is selling at a deep discount and this price abnormality cannot last for ever. When mass psychology changes, as change it will, the market price could easily shoot well past the theoritical price. We see that absurdity in tech stocks today.

...SR

Thanks SR sahib. I am not sure I will/can follow your advice exactly but it just struck to me that one item you mentioned I am already heavily invested in. First (before some chowkwallas come to robb or kidnap me for ransom) I don`t have $250K cash. It was a hypothetical question. But I am invested more than 10%(of my cash) in Gold. Thanks to biwi.(although she probably bought 1 tola for $200 while it costs $80 in coins). According to her estimate it is 50/50 we have in gold and stocks.:) allah bachaye biwiyoN ke rehmo karm se.

addendum to # 87

Gold, particularly the metal (not gold stcks), is like an insurance policy. One buys it and puts it away and stops worrying about its fluctuating price. It`s like a life vest on a ship that is navigating through a trecherous sea lane full of hidden icebergs.

When the ship (Titanic?) starts to leak, the smart passangers grab a hold of a floating life vest before the crowd wakes up starts scrambling for them. One does not succumb to the temptation of trading the life vest with a fellow passanger even for a Picasso original that he is willing to offer in return.

...SR

Bhatti Sahib

Since I have no idea about your personal circumstances, it would be irresponsible of me to give you any investment advice, as far as what you should do. But I do not hesitste to say a few thing that you should not do. Also I can share with you what I would do if I had an extra $250K to invest. Whether you should do the same or not is not my place to say. But first, what not to do.

We are in a long term (secular) bear market and (almost) everyone loses in a bear market. The winner is the one who loses the least.

Like I mention in my previous posts and other articles, you should stay away from US Bonds (btw, on Aug 8, Warren Buffet reported to the SEC that he has sold off his US Treasury Bonds-- $9.1 Billion worth).

The other things to stay away from are US Stocks and Real Estate --in US, UK, Netherlands, Ireland, Spain and Scandanevia. Particularly the stocks to avoid at all cost are SOX and INX.X components (semiconductors and internets).

In general the main risk is in being vested in the US Dollar. Canada is a much better deal, relatively speaking.

Now, what I would do with that amount would be roughly the following:

First and foremost, I would pay off any and all debt that I could pay off (mortgage, cars etc).

Assuming that I had already paid off all my debts and still had $250 K available, then I would buy $25,000 worth of gold and silver bullion coins. That`s 10% right off the top. It can be reduced to 5% at most, but no less.

Then I would buy mining company stocks worth another $50,000 to $75,000 (20 -30%). The two that I would absolutely buy are Newmont Mining (NEM) and Pan American Silver (PAAS). Other mining companies that I would consider (any diversify by investing in AT LEAST five of them) and do research on before I invest are (in no particular order): Batch 1 -- RGLD, PDG, RANGY, ABX, AEM, CBJ, GLG, GG, PDG, HL; Batch 2 -- NRI, WTZ, RBK, RIC, GPXM, AFKDY; Batch -- 3 ORV,MVG, MWA, AQI, GSS, EGO, DSM, CGD, BZA, BGO, BDG.

One more: SSRI, is a silver, as opposed to gold, mining company.

Then I would go to EVERBANK (its on the internet) and shop around for their foreign currency CD`s. That way, I would convert my US dollars to other currencies. I`d allocate another $50,000 to $75,000 (20 - 30%) to buy CD`s with. My currencies of choice for diversification would be Canadian Dollar, Chinese Renmimbi, Japanese Yen and maybe also some Euro (7 - 11%, 7 - 11%, 4 - 5% and 2 - 3% respectively).

The remaining amount I would put in agricultural land and/or real estate but not in the countries mentioned. If (and only IF) I was originally from India, I would seriously consider India. Other choice countries where I`d look for property would be Argentina, Panama, Nicragua, Thailand, and Canada. (This after doing some research on location.)

This is just one of the several combinations that I would consider.

...SR

SR: With all these apocalyptic forecasts in mind what you think average individual in US should do with his or her money? Real Estate is all time high. putting money in it for investment purposes seems risky. Even if the home prices stay stable, the return on investment(rents etc) does not justify the price they are demanding. What are your suggestions other than investing in harnessing the professional skills? Suppose I $250,000..what should I do with it?

zeemax [``...it`s America`s unique ability to print endless amount of cash ! And get away with it ! ...``]

Is this a danger to the world economy?

For many years, America`s strong-dollar policy served the world and chiefly the United States very well. Their currencies cheap against the US dollar, Asian manufacturers profited by making relatively inexpensive exports and selling them in the United States at a healthy profit. In a kind cat-and-rat-farm analogy, in which the cats eat the rats, are skinned for their fur, and then are fed back to new rats, the Americans benefited by getting cheap goods that kept their consumer-led economy roaring. The financial communities benefited from the repatriation of those profits as the funds flowed back in a ceaseless waterfall into US stock markets, treasury and corporate bonds, money-market funds and other financial instruments.

But perpetual-motion machines don`t work. The monumental scale of Asia`s dollar reserves and the size of America`s deficit are starting to make economists and strategists nervous. Wayne Godley, an economist at the Levy Economics Institute in New York, writes: ``If the balance of trade does not improve, there is a danger that over a period of time the United States will find itself in a `debt trap`, with an accelerating deterioration both in its net foreign-asset position and in its overall current balance of payments (as net income paid abroad starts to explode). Such a trap would call imperatively for corrective action if it is not at some stage to unravel chaotically.``

It has been widely reported that the US must take in about $1.3 billion a day - about $55 million an hour - in foreign investment to finance its overseas debt. If that river of money falters or dries up, the difference must be made up by an inexorable fall in the value of the US currency. Indeed, if it had stopped already, the fall in the US stock markets since equities began to lose their luster in 2000 would have been catastrophic.

Certainly, Asia has been on a buying spree in US securities of all types. Despite a three-year economic pause in the United States, Asians bought a record $201 billion worth of long-term US paper in 2002. That includes another record $97 billion in US government securities. Asian central banks, with their enormous overhangs of US dollars, are increasingly doing the buying.

Over the past months, US Treasury Secretary John W Snow has begun to try to talk the US dollar down. It had fallen by more than 25 percent against the euro, the Eurozone`s common currency and the world`s other reserve legal tender, before increasingly optimistic economic news and a rising stock market checked the dollar`s fall. Although it has since risen against the euro by about 4 percent, many economists believe the dollar`s precarious position will cause the slide to continue.

The currencies of Asia, however, have almost all remained firmly tied to the dollar, either through currency pegs, reserve boards or, as in the case of Japan, as governments have bought dollars to keep their currencies static and thus to preserve their terms of trade.

Despite the US attempts to talk the dollar down, Asian governments regard any negative changes in their trade balances as inimical to their economies. While supposedly loosening restrictions so that their consumers can participate in a demand-led consumer revolution, Asia in fact is more dependent on exports today than at any time over the past two decades.

China, whose share of exports in total gross domestic product (GDP) averaged 10.8 percent in 1985-89, now is producing exports at 28.4 percent of GDP. South Korea`s exports were at 23 percent during the same period and now are at 54 percent of GDP. Hong Kong, then at 77.8 percent, is now at 153.5 percent of GDP. These figures are being repeated across virtually every economy in Asia. These exports continue to flow into the United States despite a three-year economic downturn that, if rationality were to prevail, should have slowed consumer purchases. The US Federal Reserve`s easy-money policy and record cuts in interest rates, however, have kept consumers buying at a feverish pace, far too often on credit.

``So long as America continues to secure easy funding, there is no pressure on policymakers in Washington to do anything other than run super-easy policies to try to keep their own consumer credit cycle going,`` says Christopher Wood, global emerging-markets equities strategist for CLSA Hong Kong. ``Like any profligate debtor, market discipline will only be imposed on America when foreign investors demand an interest-rate premium for owning dollars.``

Wood tends to grow apocalyptic. ``The current trend can continue for a while,`` he writes in his 110-page first-half 2003 overview of the world economy, published last month. ``But the longer American excesses are financed, the more inevitable will be the ultimate collapse of the US paper-dollar standard that has been in place ever since Richard Nixon broke with Bretton Woods by ending the dollar`s link with gold in 1971. The result will be a massive devaluation against gold of Asia`s hoard of dollar-exchange reserves.``

Japan`s foreign reserves currently total $496 billion, followed by China at $310 billion and Taiwan at US$170 billion, according to figures compiled in April by the Hong Kong Monetary Authority. Hong Kong, with 7.5 million people, has reserves of $114 billion, nearly seven times the total money in circulation in the territory. Other Asian treasuries are similarly bulging with dollars.

In answer to statements by Treasury Secretary Snow that the country should let its currency float upward, China`s central bank governor, Zhou Xiaochuan, said at the end of June that he sees no possibility that the yuan, which trades in a narrow band at about 8.28 to the dollar, would be revalued upward. Nor is there a possibility that it will rise against the currencies of any of its other major trading partners. China intends to eat everybody`s lunch.

Confronting the prospect of additional economically difficult integration into the World Trade Organization, and faced with the task of creating tens of millions of jobs for its sacked state-owned-enterprise workers, China`s leaders believe it is crucial to keep growth above 8 percent. Severe acute respiratory syndrome (SARS) took half a point off growth in March through June. President Hu Jintao and Prime Minister Wen Jiabao have demanded, under a policy statement called ``Double Victory``, that growth continue at the maximum possible rate. There is not the slightest intention to help the United States cure its trade-balance problem by either making US exports to China more attractive or raising the price of exports to the US.

Likewise, Japan, vainly attempting for the 13th year to export its way out of its economic quagmire, is keeping the yen within a range near 115 to the US dollar. Since the beginning of the year, the Bank of Japan is believed to have bought as much as $60 billion in US securities - $30 billion in March alone - to keep the yen where it is. Its purchases have been increasing at a record pace.

Asia does not have to follow this path, Christopher Wood of CLSA says. ``Asian central banks could abandon their mercantilist policies. They could let their currencies rise, which is what would happen given Asia`s high savings rates if market forces were allowed to prevail. This would in turn boost Asia`s consumer demand cycle. This is also what should be happening from a theoretical standpoint, as satiated American consumers have already borrowed a lot and need to rebuild their balance sheets.``

Then, turning truly apocalyptic, Wood predicts that by the end of the decade there will no longer be a possibility that the world`s central banks can control the situation, and there will be a truly massive devaluation of the US dollar. ``The view here is that the US dollar will have disintegrated by the end of this decade. By then, the target price of gold bullion is US$3,400 an ounce.`` That is roughly 10 times gold`s current level. If that were to happen, Asia`s holders of dollars would be forced to start selling them or see their own reserves collapse. If they start to sell them, the price of America`s paper will fall even faster.

That is truly apocalypse now, or in 2010. Is it possible? The policymakers in the administration of President George W Bush in Washington are far more sanguine. They regard economists, often said to be the only field in which two individuals have shared the Nobel Prize for saying exactly the opposite things, to be basically irrelevant, and presumably by extension strategists. The administration, facing an election in a year and a half, and the Federal Reserve intend to keep the party going if they can.


x=x=x=x=x=x
(This entire response, though exactly reflecting my own views, is a cut and paste job from Asia Times Online. It fit perfectly so I am posting it. I couldn`t have said it better myself) :))

...SR

#83 by SR

[Where do you see the positive US “cash flow”? Please tell me?]

Of-course we come back to the same point .. it`s America`s unique ability to print endless amount of cash ! And get away with it !

Rgds

zeemax #82 [“… U.S. government obligations are $43 trillion, while total net-worth of U.S. households is just over $40 trillion. So US is technically insolvent. …”]

One cannot argue against facts. Technical insolvency of the US gets worse as each day passes. This is the point I’ve been arguing for some time now but most people are unable to even contemplate the possibility. But still facts are inconvenient little things, they keep raising their ugly heads.

Congressman Ron Paul stood in the US House of Reprsentatives, on July 10, 2003, and mentioned the same $43 Trillion that had I mentioned in the article. But the congressman made a slight error in the speech. These $43 Trillion are NOT the total obligations (that number would be infinitely larger), this $43 Trillion is the present value of the SHORTFALL. This shortfall is on the obligations that are treated as being “off the books” and we don’t see them mentioned anywhere in public, not even in the annual budget documents. Paul O’Neil, former Secretary Treasury, tried to include them in the 2004 budget document and got fired. These are numbers that NO ONE in the American media is even whispering about (then you tell me that there is no censorship?), yet these are unclassified public records and anyone can research them from the Congressional records. This $43 Trillion shortage is in the so-called “un-funded” retirement benefits that are enshrined in US Law.

It is important to understand that the officially declared annual US federal budget deficits and current account deficits that keep piling up, year after year, and are now in the vicinity of $8 Trillion, plus the private house hold and corporate debt all of which in their totality approach $32 Trillion are NOT INCLUDED in the above mentioned $43 Trillion shortfall. So if truthful accounting is done the Grand Total of the ocean of red ink that is going to sink the ship is (32 + 43) or $75 Trillion. This is simply an impossible situation to get out of without suffering any adverse consequences.


zeemax: [“… One can be `technically` insolvent but still remain a `going concern` and continue in business. It all depends on the cash flow …Citibank, although technically insolvent, was still a going concern, and had an immense franchise. The same applies to the US. ..”]

I am very glad you brought up the example of Citibank. First, I totally agree that “technical insolvency” of a “going concern” is potentially a manageable condition. But to go through chapter 11 reorganization an entity has to do some major structural re-adjustments. Let’s take your Citibank example. During the crisis period, if you remember, the company stock was driven into the dirt.

Likewise with the United States. It is a great “going concern” and it shall keep going no doubt. I never for a second suggest that US will go totally belly up. No, that is not happening. What will, however, happen is that the present reality will have to change in fundamental ways and change drastically.

If we use the analogy of a corporation to describe the financial parallels with a country we can explain things in simpler terms. The GDP of a country is analogous to the Total Gross Revenue of a corporation. The currency of the country is akin to the common stock of a corporation and the interest rate of a country is like the dividend of a corporation. If you see the logic of this analogy between a country and a corporation, then it must be very clear to you that as the country goes through “reorganization” its stock price may plummet in the market. Likewise, with the above mentioned problems and the low interest rates, I don’t care how much the Asian exporters try they will eventually fail to keep the dollar propped up and the decline of the dollar is simply an inevitability.

To say that the US will eventually come out of it, is not being disputed. Of course the US economy will eventually come to a new equilibrium but at what level? only time will tell.

zeemax: [“…How will the (US) cash flow become adverse? I don`t see it happening unless the world`s monetary system undergoes a major reversal, or everyone stops exporting to US. Do you see that happening? …”]

Where do you see the positive US “cash flow”? Please tell me? Revenues are at steeply lower and expenditure is skyrocketing. At some point US dollar holders world wide are going to get nervous when they continue to see their dollar value shrinking like an ice cube melting in the sun and their returns dimishing. It`s not a question of ``IF`` it`s a question of ``WHEN.``

zeemax: [“… US to create dollars out of thin air and still manage to keep inflation and interest rates low…”]

If you actually believe the “low inflation” story-line that the government claims, then I have a deep water submarine to sell you at a great price. It sits in the middle of the desert.

…SR

#81 by SR

I read the speech by Dr. Ron Paul. You had e-mailed the link to me as well. Very revealing facts and very profound thoughts.

I agree with everything in it and all of what you say re the economy of US. So the dollars are being pumped in using all of these various wars, and increasing the size of the Government e.g. the Department of Homeland Security, instead of reducing the Government. Now I get the picture. So all of this additional money supply is coming from non-productive expenditure.

Yes it does appear the US economy is on an edge. The most interesting statistic that sticks to my mind is that the total U.S. government obligations are $43 trillion, while total net-worth of U.S. households is just over $40 trillion. So US is technically insolvent.

However, being technically insolvent is different from being bankrupt. One can be `technically` insolvent but still remain a `going concern` and continue in business. It all depends on the cash flow. Citibank was technically insolvent in late 80`s when they had to write off their South American assets, and Prince Talal Bin Aziz bailed them out by buying, if I`m correct, 30% of their shares. I`m sure you know about that episode. Why he did that was beacuse Citibank, although technically insdolvent, was still a going concern, and had an immense franchise. The same applies to the US. So far, US is a `going concern` even being insolvent, and has a huge franchise over the world.

How will the cash flow become adverse? I don`t see it happening unless the world`s monetary system undergoes a major reversal, or everyone stops exporting to US. Do you see that happening?

The unique ability of US to create dollars out of thin air and still manage to keep inflation and interest rates low, stems from the world monetary settlement system, which in turn stems from everyone`s need to export to the US domestic market.

Just a thought, and I have expressed it before. The 9/11 attacks may not really have been aimed at the twin towers. I think they were actually aimed at the US consumerism. Maybe there`s an economist in Bin Laden`s coterie as well.

Cheers.

zeemax #80 [“… my … arguments against … impending Doom for the dollar… has … been … how can the Dollar weaken when the rest of the world is compelled … to keep it propped up ? I`m glad you`ve come round to that view. …”]

I have not said anything different. The only difference we have had is that you believe that the dollar will continue to win out indefinitely, whereas I hold that the scam has lasted long enough and we are approaching the beginning of the end. In my article I wrote:

The foreigners, particularly Asians, are caught in a monkey trap of their own that has worked wonderfully for America, until now. But the scales could tip the other way at some point.

In order to keep their own exports going they have become addicted to shipping their goods to America and are therefore willing to accept more Federal Reserve issued paper (a.k.a. ‘dollars’) in exchange. For three decades now they have been willing to trade their materials, their sweat equity, and their living standards in exchange for paper that America prints at essentially no cost. How long will they keep playing this game is anybody’s guess? Establishment professionals tell us that this gravy train will never leave the American station. They claim that the foreigners, chiefly Asians, cannot afford to lose the American market and therefore the dollar will never lose its lure.

However, as the exporting countries’ dollar savings get cheaper and cheaper because of excessive printing by the US mint, at some point the pain of owning those ever-growing mountains of dollars, whose value is ever-shrinking, will become greater than the pain of losing their exports to America. When that happens, the party shall be over.


zeemax [“…(inflation is not necessary) if the excess … currency created is … sucked back out of the money supply … through treasury bills operations ... at a huge cost to the central bank (which ultimately impacts fiscal resources) due to unfavorable interest differentials between Dollar and all the world`s currencies except the J.Yen. … if a central bank decides not to sterilize due to fiscal constraints, your contention will be correct and the excess liquidity floating around will be inflationary, otherwise not. …”]

You are thinking with the mind-set of a central banker from a non-reserve currency country. If you were a US Federal Reserve official you would not have cared (as Fed officials don’t) that your dastardly deed of monetary manipulation “…ultimately impacts fiscal resources… due to unfavorable interest rate differentials…”

If you, or any of your counterparts in other non-US central banks around the world were busy creating more and more of your country’s fiat currency (at the rate of 17% of GDP per year) you would have sharply rising interest rates, especially at the long end of the yield curve. You couldn’t possibly hope to increase money supply with such abandon as does Greenspan and still “manage” to keep the thirty year treasury bond close to four and a half percent. They do that through their “open market operations.’ This is what you Karachi wallas call dada-geerey.

Please indulge my digression for a minute: I want to rant and rave.

(The US Fed, unlike the central banks of Somethingstan or Whathaveyouland, is NOT a federal government owned entity. The US Fed, as you surely know but some other reader may not, is a private corporation owned by an international cartel of big private banks. The Fed operates (for profit) under the charter of the federal government.

The ‘ultimate owners’ of the Fed are Rothschild Bank of London, Warburg Bank of Hamburg, Rothschild Bank of Berlin, Lehman Brothers of New York, Lazard Brothers of Paris, Kuhn Loeb Bank of New York, Israel Moses Seif Banks, Goldman, Sachs of Italy, Chase Manhattan Bank of New York, Warburg Bank of Amsterdam.

It is the biggest scam imaginable. It is worse than robbery.

But if you go to the Fed’s website they plainly lie and deny this fact in an outright lie and claim that the Fed is “…not owned by anyone, it is an independent entity...” That is pure horse manure.

If you look through the Fed’s website, burried inside their FAQ section you will also find the statements, that contradict the lie quoted above:

Who owns the Fed?

Although Fed member banks own stock in Reserve Banks, their ownership rights are restricted. If the Federal Reserve Banks were to be liquidated and their assets sold, Fed member banks would only receive back what they paid for their stock. The value of the Fed`s stock over and above that would be returned to the U.S. Treasury.

Where does the Fed receive its income?

Most of the Fed`s earnings come from its portfolio of U.S. government securities. The interest on them, for example, accounted for most of the Fed`s $20.9 billion operating income in 1994. From its revenues the Fed pays its expenses and a 6 percent statutory dividend on its member banks` stock. The remainder is returned to the U.S. Treasury. In 1994 the Fed paid approximately $20.7 billion to the U.S. Treasury…” ) end of rant.


This private for-profit cartel called the Fed, “creates” new money out of nothing and injects it into the economy through bank liquidity and also lends it to the US Treasury (by purchasing T-bills) and earns interest income that is paid by the US taxpayer. This is a mechanism of transfering wealth (in the form of interest on T-bills) from the taxpayers to the private banks that own the stock of the Federal Reserve. The creation of this new money costs the Fed absolutely nothing and they earn interest on it which is essentially a kind of parasitic blood sucking. How can this be good for retaining the exchange rate value of the dollar?

I urge you to check out the 73rd annual report of the Bank of International Settlements which was issued in June 2003. I`m sure you have it at your office. If you`ve looked at it, you`ll know that its very long but well divided up into sections. Even the BIS is nervous about the dollar. The report raises serious concerns about the US `twin deficits,` and this inspite the fact that BIS is a loyal dog of the US Fed (The US is the largest stockholder of BIS -- 17% -- and all the US Fed governors are also its board members. BTW, SBP is NOT a member-- why??) They point out in the report that the huge US current account deficit is distributed such that at most half of it is with those Asian countries (ex-Japan) that have their currency either pegged to the USD, e.g., China, or they are engaged in ``propping up`` the USD by purchase of USD assets and/or debasing their own currencies in the race for competative devaluation that I referred to in the article. According to the BIS report, therefore, most of the USD value errosion takes place with respect to the Euro , Yen, Loony, Aussie, Kiwi, and other European currencies (ex-Swiss). So my friend read the writing on the wall. There is way too much dirty linnen stinking up the US financial system, and indeed, the global fiat monetary system. All the gung-ho US Tech BULLs here should take note. BUY GOLD and SILVER for your family`s financial insurance. You`ll be glad you did.


Zeemax: [“…It certainly does appear from the phenomenal increase in US Money Supply that US is trying to stir up consumer demand - but using what tools are these dollars being pumped in? … I know of no large infrastructural projects underway, and the tax cuts have not been effected yet. What seems probable is that Fed is retiring a proportionate amount of Government Debt owed to banks and the general public. Is that the case? …”]

There are no public works projects like they were during FDR’s New Deal or Johnson’e Great Society. What you have right now is the Perpetual Preemptive War. War against Drugs. War against Terrorism. War against Civil Liberties and the Bill of Rights.

As far as “retiring debt” is concerned, you must be joking. The tresury debt is rising is rising faster than the space shuttle rises after launch. I am not joking. The national debt ceiling was just raised by congress by almost a trillion dollars last month.

I strongly urge you to read a speech by Congressman Dr. Ron Paul, who is a republican member of the US House of Representatives, from Texas. He gave this speech on July 10, 2003.

Please read it at this web address:

http://www.lewrockwell.com/paul/paul110.html

cheers...

...SR

#79 by SR

[Today`s Financial Times reports that the German Chancellor wants European Central Bank to weaken the Euro against dollar.]

I hope you recall my oft repeated arguments against your contention about impending Doom for the dollar. My argument has always been that how can the Dollar weaken when the rest of the world is compelled by default to keep it propped up ? I`m glad you`ve come round to that view.

[To buy dollars your central bank has to create more of your own currency, and this is inflationary. ]

Not necessarily so; i.e if the excess local currency created is `sterilized` i.e. sucked back out of the money supply by the central bank through treasury bills operations. Sterilization is however at a huge cost to the central bank (which ultimately impacts fiscal resources) due to unfavorable interest differentials between Dollar and all the world`s currencies except the J.Yen. Thus, if a central bank decides not to sterilize due to fiscal constraints, your contention will be correct and the excess liquidity floating around will be inflationary, otherwise not.

It certainly does appear from the phenomenal increase in US Money Supply that US is trying to stir up consumer demand - but using what tools are these dollars being pumped in? I mean I know of no large infrastructural projects underway, and the tax cuts have not been effected yet. What seems probable is that Fed is retiring a proportionate amount of Government Debt owed to banks and the general public. Is that the case? Your research into this will throw much needed light on the issue before your question re `the ultimate winner -- inflation or deflation?`, as well as the future of fiat money, can be answered.

Rgds

I gasped today when I saw the latest statistic on the broad money supply (M-3). For the week ended June 20, money supply just exploded by a hefty $63.1 billion. These are brand spanking new dollars. ``Hot off the press`` so to speak (only they are ``electronic`` and not ``paper`` dollars, so it didn`t even cost paper and ink). Add that to the two previous weeks of $20 billion each, and you have a bit over $100 billion added to the money supply in the last three weeks alone. That`s at an annualized rate of around $1.7 trillion.

Folks, these are US dollars that the Fed simply “creates” out of thin air. The fact is that the creation of new money in the US has gone totally wild.

In the meantime, the US trade deficit widened to $41.8 billion, close to its widest ever for a third straight month -- the US demand for imported good continues to rise. Thus, the US trade deficit is almost running at an annualized half a trillion dollars.

Beijing announced yesterday that Chinese industrial production surged 17 percent in the first half of 2003 along with a 33 percent rise in exports.

Today`s Financial Times reports that the German Chancellor wants European Central Bank to weaken the Euro against dollar.

The battle for exports continues, and one of the weapons is competitive devaluation. These are strange economic events. The idea is to keep your country`s currency ``cheap`` against the dollar. Therefore you reduce interest rates, thus making your currency less attractive to hold. Or your central bank buys dollars to keep the dollar strong against your own country`s currency.

To buy dollars your central bank has to create more of your own currency, and this is inflationary. On top of this, selling your products to the US means dollars coming into your country. As the billions of dollars build up in foreign nations, these nations build factories and other sources of production. World production (particularly in Asia) continues to rise, and this global increase in production means that all the over-produced goods cannot be digested by the consumers of the world.

Thus we have the pressure of world deflation as nations produce an ever-increasing amount of goods and yes, services. To offset the forces of deflation, the US floods the system with liquidity. Can the US stave off deflation? That`s what the battle is all about today.

So far, there seems to be a stand-off. The ultimate winner -- inflation or deflation? No one knowst know yet, but ultimately, I believe, inflation wins even if deflationary winds blow at gale force in some areas. Either way, the future of fiat money (i.e., purely ``paper money`` that the government can create by decree) world-wide is bleak.

…SR

#77 by soysauce

``Maybe they are all independently wealthy singles to whom Chowk is the family.``

You got it !

Rgds

SR
I was being facetious in my comment. Many of the prolific interactors here have responsible jobs (that`s what they say) and families. I cannot figure out how they find the time to be here for what seems like several hours a day. Many of them also are emotionally invested in the discussions here. Maybe they are all independently wealthy singles to whom Chowk is the family.

#64 tahmed32 [“…it was funny the way SR was meticulously correcting (h)is figures… and apologizing for the erratum. …”]

There is no shame or hesitation in recognizing one’s errors. As to why I even bothered to correct an error even if it was not significant to the main argument as it didn’t change the big picture? It a matter of (1) personal credibility and (2) an attempt to avoid running afoul of any punitive government regulations.

When one shares a perspective in a public forum it is an automatic expectation that they have done everything possible to use correct information. Particularly objective facts and data points must be valid and accurate. I take down copious notes from the various source documents that I go through during the day. Some are web based sources some printed hard copies and after a while it becomes hard to recall certain particulars. Therefore, I keep a notebook handy. It just so happened, that for some reason the incorrect number got transcribed (45 instead of 43) into my notebook and that is what I used as a ready reference while writing the article. When I later discovered the error I felt that a known error must be acknowledged and corrected, so that is why I did it, and I don’t mid if you find it funny. I do my best to avoid factual errors when possible.

The other reason for being ever so careful is that I don’t want Chowk.com web site to get blamed, or held responsible for, anything I may write. It particularly applies to financial stuff presented in a public forum and I being a free lancer as opposed to a licensed professional, it behooves me to not let false information through as far as possible. This is a matter of CYA (cover your ass). The interfering, overbearing, incompetent morons who run various over-bloated government bureaucracies (whose budgets demand a never-ending supply of wrongdoers to be penalized) are very good at harassing the little guy (while they are unable to curtail big institutional wrong doing) and they are the reason for the ridiculous and irritating DISCLAIMERS one sees everywhere in any financial publications. I resent it, but can’t do much for they are the one’s who control the prisons and the police force. You and I are merely sheep to the slaughter. According to a recent study issued by the Cato Institute, the various regulatory agencies of the federal government collectively issued well over thirty thousand pages of new regulations or amendments during the year 2002.

If you haven’t seen it already, I urge you to go to your neighborhood BLOCKBUSTER and rent a movie titled “Brazil.” It came out during the 1980s. That accurately (but in satire form) reflects my point view. Besides, you’ll like the movie.


#75 arjun_m

I think now we each understand what the other is saying, and that is a happy thing. Thanks a bunch.

…SR

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#68 by arjun_m [“… manufacturers who assemble …(foreign)… made components in the US. …that doesn`t sound right …It would sound right if a ``Made in America`` was a USP and could win a large market share. …give us … examples? …”]

Thank you for raising this important question. I fully appreciate your skepticism. But first let me get some linguistic clarity.

This is a dry and boring subject matter for most people so sometimes I try to use cliches to spice up the writing style yet keep it cogent as well. It is possible to inaccurately convey the essence, though I do try to strike a balance and not to sacrifice clarity while make light of the matter.

“Made in America” was used as a cliché. I didn’t mean that they attach a small label that actually has those words written on it. Of course, a mere “made in America” label will not stimulate sales and nor did I mean to imply so.

The idea was to emphasize that a US ‘manufacturer’ could ‘produce’ and market a ‘black box.’ The sales proceeds of the ‘black box.’ (i.e., our end-product) would go to the top line revenue figure of the financial statement of the US manufacturer. The last bit of process to ‘assemble’ the black-box together may be a proprietary knowledge dependent assembly step consisting of putting together several component parts. Several of those components are no longer produced at the in-house facilities of the manufacturer because they could be imported cheaper from abroad. The cost of the component parts is passed on to the customer with a price mark-up added to it. This price mark-up is also counted towards ‘enhanced worker productivity,’ because now fewer employees work in the assembly plant and such measures as sales per employee, cash flow per employee or earnings per employee look a lot better than they did when the labor cost of fabricating the component parts was included in company payroll. Now that component part’s labor cost has been incurred by someone else overseas and is not a part of our payroll in the US plant. The plant owner’s book keeper will treat the entire cost of the component part as a single item under some other column such as ‘parts and supplies.’ This, in my view artificially enhances the ‘worker productivity.’ The worker productivity may actually also have improved due to more stream-lined processes and use of automation, but the extra bit that is added to enhance productivity even further is the dishonest part. It should be considered under cost-efficiency that resulted from the management’s decision to outsource production of the more expensive and labor intensive component parts. But it cannot, logically, be said that our factory worker is now more ‘productive.’ If that were the case that would mean an increase in process efficiency levels. What we in fact have here is a financial efficiency that is being passed off as something else which it is not.

They have thus changed the very meaning of the word ``productivity``. It is a lie in the same way as calling innocent civilian death’s “collateral damage,” is dishonest.

Computer box ‘manufacturers’ import component parts such as motherboards, disc drives, memory chips, power supply, etc, etc, and bundle them up together and sell them to you under the logo of “Hell” or “Hooker-Packed” or “Hate away” or “I’m a Bum” etc.

Likewise with automobiles.

Digging up more specific examples with manufacturer name, detailed costs of in-house fabrication vs. outsourcing and model numbers and component part specifications etc., costs extra money. This is a free column. You only get what you pay for. :))


#70 Romair: [“…do a write up on the Pakistani economy… very little objective good material available … the US economy has tons of material…

Pakistani economy… analsysts… suffer from… problems:

…are journalists… consider themselves an expert … too much political baggage… attach economic… to religion or secularism… a pure, objective, analysis of Pakistan`s economy … greatly needed.

…give it a shot, if you have the background… who makes sense… is Shahid Javed Burki…”]

You are extremely kind to consider me worthy of such an arduous undertaking as deciphering the enigma of the Pakistani economy. Your generosity towards me is misplaced and your vote of confidence undeserved.

I am not an academic therefore I take pains only to research subjects inside my circle of personal interests. Pakistan is outside that circle. The US markets afford me a modest livelihood, so I try and go the extra mile and look under rocks that would otherwise be left unturned. Sometimes it pays off. The trouble is worth my while and I like the work.

In a country like Pakistan where impartial empirical data is neither publicly available nor easily accessible, the only way anyone can put a coherent big picture together is if one had the resources to do field research. For that I would have neither the background nor the resources.

Let me not convey the impression that no good work has been done on the Pakistani economy. I’m sure there is lots of good work done, but I just would not have ready access to it. Besides, with people like Mr. Burki, who have seen it from the inside, there is nothing useful that a self-exiled outsider can contribute.

...SR

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SR #47: ``First, please let me make no bones about it. I am not an economist, accountant or financial professional. I am merely a layman albeit a keen observer and a devoted student of the markets and the economy.``

Be that is it may, I still think it may be a good idea for you to do a write up on the Pakistani economy. There is very little objective good material available on it. While the US economy has tons of material on it, from every direction and from every county.

On the Pakistani economy, the analsysts seem to suffer from a few problems:

- They are journalists, and not analysts, who comment on everything from military strategy to economics. And they consider themselves an expert on all these issues, because they can write decent English. There seem to be very few journalists in Pakistan, who are technical specialists in specific areas.

- They have too much political baggage attached with them. They are pushing either the govts.` agenda or the PPP`s agenda or the PML`s. So they cannot see beyond that.

- They attach economic rules to religion or secularism, without realizing that economies progress due to good economic policies, not due to how secular or religious a country maybe.

So, I think a pure, objective, analysis of Pakistan`s economy in comparison to where it was a few years ago and where it is going, without a pre-meditated doomsday scenario, is something greatly needed.

I think you should give it a shot, if you have the background. I would certainly be more interested in the Pakistan economy more than the US economy. So far the only analysis who makes sense to me in this area is Shahid Javed Burki`s weekly Tuesday article in Dawn.

sohail -- u r not only an economics seer -- u R a great editor -- thanks:-)

sohail -- u r not only an economics seer -- u R a great editor -- thanks:-)

zeemax

When my browawe loaded the page only your message #62 was posted, so I didn`t get to see #63 until after having posted my response (which is now listed as) #67.

[``...was it your brush with eternity?...``] [``...welcome to the club...``]

Thank you, old friend. You are entirely too kind.

Perhaps it`s been too long and you may be forgetting that my first ``brush with eternity`` was back in Lahore when we were 17 years old. (Remember-- from Wahadat Road to UCH?) So, my memebership to the club dates way back. It has only been re-issued again :), but thanks for the welcome, any way.

The write up you refer to is about four years old when I was a more regular participant at Chowk. The inspiration, if any, was not a diseased heart, but a broken one. I suppose it was those repeated heartaches and heart breaks that have finally done it.

tu bachaa bachaa kae na rakH eis-ay tera aiena hae vo aiena
kae shikasta ho tou aziz ter hae niGHah-e-aiena saaz maeiN

...SR

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zeemax

Good to see that you are back. It`s been so long that I though you might have fallen off the edge of the Earth.

Yes, the demographic age-cohort imbalance is a very serious issue and one that is likely to create much political, social, and economic turmoil. European Union`s troubles in this particular regard are even worse. And they are committing a huge blunder by adding Estonia, Lithunia and Latvia (all with aging populations and low birth rates). Instead they should add Turkey, with a pyramid shaped age-distribution. That would balance out the aging population problem.

Now, now, zeemax, you should be a bit kinder to Mr. Ahmed... He seems to be refraining from hauling new insults at people and is in fact attempting to set things right by exercising a sense of humor (as demonstrated by his most recent message wherein he jokingly admonishes me). It is better to crack light jokes than to be offensive, so please give him the benefit of doubt from this point forward.

The same, unfortunately, cannot be said about another nitpicker here who utterly fails to (or deliberately refuses to) comprehend humor and takes the content of a joke literally and then attempts to demonstrate his mathematical prowess.

ZahraJ

I`m glad you found the essay worthy of the time it takes to read through, long as it is. I am also thankful that you liked the straight forward writing style, but please let me add with full emphasis that I would never presume to consider the reader as a ``little kid.`` The readers of this forum are generally very smart individuals and many of them are highly qualified and competent professionals who are entirely too kind to even bother and read a common man`s dessenting point of view that I present in this column.

soysauce

Your contribution cannot possibly be misinterpreted as an attempt to hijack the thread. In fact the InterActor`s participation only enriches this space. As far as Chowk staff`s editorial prerogative is concerned, I am in no position to second-guess that since I never saw your ``purged`` post. But am glad this other psot of your did make it through.

I tend to agree with your final observation that this website is blessed with a disproportionately high count of affulent people of the respective communities whence their numbers are mostly drawn from.

ali87

Thank you for taking the time to express several different ideas in your elaborate, albeit extempore, message.

You`ve mentioned Wall-Mart and GE as contributors to enhanced productivity. Actually, much of the ``enhanced productivity`` is a statistical gimmic. A US manufacturer who outsources a huge proportion of his component parts to India and China (where they are made at a fraction of the cost compared to what it would have cost him in-house) ends up having a total lower cost of production. He then takes the last step of assembling the final product in-house. This last step entitles him to put ``Made in America`` label on his end product, even if most of the internal components are foreign made. The sale price of his ``made in America`` end-product is credited to his account. Compared to yester-year when he made most component parts in-house, of course, his cost is much lower (fews workers in the assembly plant) and so PRESTO we have ``enhanced productivity``. This is how they can make the patently dishonest claim that the ``productivity`` of the American worker is sky-rocketting compared to other countries. (In an earlier message I`ve already discussed the other dishonest trick the government uses to claim enhanced productivity, namely, the hedonic factor, also called the hedonic deflator.)

Just as an aside, the US market has three main deflationary forces at work: Chinese imports, Wall-Mart and the Internet. (Wall-Mart contributes between 1.5 to 2.2 (depending on the metric used) of the US GDP. Wall-Mart has more people in uniform than does the US army. To appreciate its financial muscle consider that just the theft from Wall-Mart stores is about $2 Billion a year.)

You`ve mentioned the Chinese asking for payment in yuan at some future point. That day may well come one day but for now the communist party leadership is only interested in clinging on to its power and for that they need to create employment, thus they are going for market share, and damned be the profits. The Chinese credit creting machinery is also on full throttle and that has led to a huge world-wide over-capacity in practically every manufactured products -- just wait till China starts exporting cars.

The Chinese are a very patient people and throughout their history, last 50 years being an abberation, they were astute capitalists. Their plan seems to be taking market share and eliminating all competetors by price undercutting. Simulataneously, the Chinese have started accummulating gold and other precious metals. Shanghai gold exchange and now even silver and platinum exchanges are up and running. Chinese are presently the second biggest importers of gold world-wide. (Japan is still number one.) One day, I suspect, before the middle of the century, the Chinese will back their currency with gold and the yuan will be the most solid currency in the world.

The reference you made to US military power and the future power struggle is a difficult one to foresee. I do not think that the US will continue to have the military might that it does today. I beleive that as the nation-state becomes weaker economically, the military will gradually become more and more privatised. At some point later in the century the internal political power dynamics of America will have changed so profoundly, partly due to the ``browning`` of America that the real power shall have shifted away from the federal state and will have passed on into the collective hands of consortiums of multi-national corporations. It will be the consortium of corporations that will have the financial muscle to pay for and support a mercinary military establishment. The deminished nation-state will be a more democratic entiry but one that wields much less power as it would always be teetering at the brink of financial insolvency. The whole concept to ``nationalism`` could be something totally different than what we recognize today. So, in clusion, NO, I don`t think that America will be the Big Bad Satan Empire by the end of the century. The Chinese will also have come and gone. There will be bigger, newer and more nebulous ``Empires`` that will be based, at once, everywhere and nowhere.

...SR

SR,

Wow, just happened to click on your intro ! What inspired this moving prose? Was it your brush with eternity?

``Each day the barracuda sets out not knowing whether it shall get dinner or become dinner.``

``A life lived in the past or for tomorrow is a thankless ritual, as meaningless as scooping water with a sieve. Yesterday is only a dream buried under the dust of time. Tomorrow is an illusion, a mere fantasy, a phantom forever elusive.``

No comments on the first quote. Its just true.

The second quote reminds of of what George Harrison (R.I.P) had said when interviewed on the 25th anniversary of the Woodstock Festival ``We can learn from the past but we can`t relive it; we can hope for the future but who knows if there`s one? So, the only thing there ever was, is now.``

Not that I necessarily agree. There`s something beyond, and that should be the quest.

Welcome to the club!

Rgds




Rgds

zeemax #62 But I did contribute seriously to this discussion in my very first post, #9. In my latest post that you read, I just thought it was funny the way SR was meticulously correcting is figures from $43.something to $45 and apologizing for the erratum.

re einsteinwallah #61:

Thanks for your explanation. I agree that the odds do not improve if one is always carrying the bomb. I was looking at the two events from the perspective of someone who had no knowledge of either event and was purely calculating probabilities of an event composed of independent events.

As for risk adjusted rate of return, there is a lot of research out there but very little of it is used in practice. A good example is Sharpe ratio which is used to come up with efficient portfolios.

later
-sac

The very premise and the title of the article shows inconsistency and lack of understanding of the way US works. YES, US IS NEITHER AN EMPIRE NOR AN ILLUSION. And the adjectives are meaningless.

US is a directed democracy and capitalist economy. Do not confuse capitalist for laissez faire. Inspite of some hard steps that US has taken during last two years - no, partially due to them - the US economy is still the strongest and most prosperous in the world ever.

Unfortunately, due to the verbosity of the article it is not possible - nor, is it worthwhile to spend so much time on obviously prejudiced view point - to provide a detailed evaluation.

ANSWER THIS:

WHICH COUNTRY, ECONOMY AND KINGDOM IS IMPORTING MORE AMERICANS THAN EXPORTING THEIR POPULATION? AND WHY IS EVERYONE GATECRASHING AMERICA??
WHY DON`T THOSE WHO ANTICIPATE DISASTER TAKE THE PRUDENT STEP AND GO BACK TO THEIR ``LOVABLE LAND???``

[#59 by sac on July 8, 2003 7:29pm PT

I am afraid the statistician was correct and you are wrong. etc etc]

First of all I must apologise for giving here another correction to my post #53:

E(P(t + 1) / P(t)) = r

should read as:

ln(E(P(t + 1) / P(t))) = r

Now for reply to sac:

I am a Statistics graduate of an Indian university. So I understand the meaning of ``independent event``. But when the traveller is always carrying a bomb, then that event has probability 1. It always happens. That event and the event of real terrorist planting a bomb are two independent events. That I agree. But since one event is certain and the other event (say) has probability ``p``, then probability of both happening is: 1 * p. So you are right about the multiplication formula. But in the joke the traveller was seeking advice for improving his odds. So, this does not improve his odds. The probability of 1 bomb planted by a real terrorist remains same. So when Statistician gives such advice he is being dishonest. For that matter why not let traveller carry 10 bombs? Surely probability of 11 bombs aboard an aircraft is p ^ 11 which must be almost zero. But no. Probability of 10 bombs on aircarft not exploding is 1. So correct formula is again: 1 * p = p. And again it has not gone down. Odds have not improved.

The formula in my post relates to a Stochastic Differential Equation which is famous in Financial Math literature. Famous Black-Scholes formula for price of an option with European-style exercise is based on this model. I will give brief intro here but you should search web for more info. Two popular textbooks in this subject are: (1) Salih Neftci ``An Introduction to the Mathematics of Financial Derivatives`` and (2) Bernt Oksendal ``Stochastic Differential Equations``.

Basic concept is that if stock price type of data series is there (say) P(t) which is randomly changing then we want to give a model for it.

If your P(t) is money then it would be constant if you just bury that money in a hole in your backyard and value of that money will remain unchanged no matter how long it sits there. Such P(t) is not of our interest. We want to model random price movement.

In case of a stock price which is not going up or down, but which executes a ``random walk`` along ``price axis`` (y-axis, x-axis is time), there will be certain amount of unpredictibility of future price of stock. More volatile stock, it is more likely to move away from a past price. This parameter of volatility is sigma in the equation I gave in my post.

What Japanese mathematician Ito did was provide simple rules for manipulating ``differentials`` of P(t). Rememeber P(t) is stock price, so it takes any value from 0 to infinity. And P(t + dt) / P(t) is nonsense, because both numerator and denominator are random variables. All we can say is that such quantities may be themselves random variables.

If P(t) had been deterministic (that is non-random) and growing exponentially then:

d(P(t)) = r * P(t) * dt (r is exponential growth rate)

But the fact that stock prices are random means:

d(P(t)) = r * P(t) * dt + ``random noise``

More volatile the stock more wild the noise:

d(P(t)) = r * P(t) * dt + sigma * P(t) * ``infinitismal noise``

The ``infinitismal noise`` is what Prof Ito wrote as dB. Unlike dt, dB is a random quantity. B is ``unit`` level of noise. Kind of ``standardized noise``. If stock is more volatile then we just use bigger sigma to ``amplify`` the effect of dB.

When dB is infinitismal Gaussian noise, then the two expectations are as I gave in my post #53. (But please read the correction I give in this post.) There is nothing big einstein-stuff there. If you know basic statistics then you know that E(f(X)) is not equal to f(E(X)). In the expectations I have given in #53, expectation of ratio of stock prices separated by 1 unit of time is e ^ r. (Here you will have to read my above correction.) That is: natural logarithm of this quantity is ``r``. But the expectation of natural logarithm of price ratio is a smaller quantity! The correction you have to apply is half of variance. And variance is (sigma ^ 2). And sigma is ``amplification`` factor of Gaussian infinitismal noise.

As an example:

Suppose a stock doubles in price one day and then next day it halves. Per day average of ratios over these two days is average of 2 and half: (2 + 0.5) / 2 = 1.25. But does that mean that stock returned a profit per day of 25 percent? No. Really the stock price has not moved by a penny over these two days! So to get a ``correct`` picture of this situation we use logarithms of ratios and then take average. That is (ln(2) + ln(0.5)) / 2 = 0.

In other words ``return rate`` based on day to day percent returns are always rosier. That is ``unadjusted`` return rate. It is the logarithms of day to day ratios that give ``correct`` picture. And those will give gloomier picture. This smaller return rate based on logarithms of ratios is called ``risk adjusted return rate``.

Once again I must apologise for errors in post #53. I am sure it must have confused many statistics-aware Chowksters.

SR,

I see Mr. tahmed32 is, as usual, posting his laconic and cynical remarks rather than contributing anything of substance. Not to worry my friend. I think your article as well as your posts that follow are knowledgable and revealing.

I have particular interest in the following phenomon which you have pointed out:

``The Baby Boom generation shall begin to retire and become entitled to Social Security benefits in five years. In eight years they will also start collecting Medicare benefits. By the time all 76 million Baby Boomers retire, the US retiree population will have doubled but the additional tax payers who carry the financial burden will have increased by a mere 15%.``

The Baby Boomers have dictated the consumer industrial/marketing policies since the 60s. What do you think is next? Certainly there`ll be an enormous burden on the US exchequer. so US will create more Dollars to cover them. I guess sales of golf kits will also have a phenominal jump. You`re right in asserting it all apears so ridiculous.

Rgds

An informative article. I like the writer`s style since he narrates examples as if he is addressing curious little kids. It`s a sweet way of engaging your audience.

I hate to do that, but I simply cannot resist applauding the wit and humor in select interActs.

Glad to read that the interActors are alive and kicking contributors vs. passive readers :)

re einsteinwallah #53:

I am afraid the statistician was correct and you are wrong. You`ve correctly identified each person carrying a bomb as an independent event. However, the probability of two independent events happening when they don`t affect each other is obtained by multiplying individual probabilities. So, if you assign a small number like .01 to the probability of each event, then the probability of both of them happening would be .01x.01=.0001 which as the statistician pointed out would be a smaller number than .01.

I don`t understand what you are trying to convey by your formula.

later
-sac

SR #56 You made an error of $1.3 trillion and think just sorry will do!! Think of the folks who now stand to lose their pension funds as a result of this incorrect data that you supplied!! Those poor widows and orphans who will now starve thanks to YOUR mistake. Entire nations will now go bankrupt thanks to your disinformation. Finance ministers have already started submitting their resignations. Investors from New York to Tokyo Hong Kong to London to Frankfurt have started jumping from out of windows from their high-rise office buildings. The IMF has already been alerted and is burning the midnight oil trying to figure out how to prevent the collapse of the world monetary system as a result of YOUR mistake.

And all you have to say for yourself is...sorry. I shall not stand for this!!

Now what did I say about Buffoon Bush.....Texas `dimwitted cowboy`

Here is today Nicholas Kristoff of New York Times say about Bush and Blair -- and how Bush has pratically assured the Booting out of Blair and the Labor from 10 Downing Street.

In Blair We Trust
By NICHOLAS D. KRISTOF

LONDON
One of the saddest results of our war in Iraq is that it may finish off Tony Blair before Saddam Hussein.

Everywhere I go in Britain, people dismiss Mr. Blair as President Bush`s poodle. Mr. Blair`s Labor Party has fallen behind the Conservatives in the latest poll, for only the second time in 11 years.

``The Iraq critics think that the prime minister has betrayed his country to a Texas gunslinger,`` William Rees-Mogg noted in The Times of London.

So it`ll sound foolish when I suggest that President Bush should study Mr. Blair and learn a few things. But on the other hand, everybody likes Mr. Blair but the Brits.

A poll by the Pew Research Center found that Mr. Blair was the world leader Americans trusted most (Mr. Bush ranked second), respected by 83 percent of Americans, and he was also highly esteemed in countries as diverse as Australia and Nigeria.

More interesting, Mr. Bush and Mr. Blair took very similar positions over the last couple of years, and both exaggerated the Iraqi threat — and yet Mr. Blair is perhaps the leading statesman in the world today and Mr. Bush is regarded by much of the globe as a dimwitted cowboy.

Or, as an Oxford don put it to me after perhaps too much sherry, ``a buffoon.``(NYT)

thanks Nick.

ERROR CORRECTION

Dear ALL

While going through some source documents I have just discovered a factual error that I had transcribed in my notes which I used as quick reference while writing the article.

The Gokhal and Smetters study that I`ve referred to in the article put the present value of the government`s fiscal imbalance at $43.4 Trillion.

Please see: http://irm.wharton.upenn.edu/WP-Testimony-Smetters.pdf

In the article I have presented that number, in error, as $45 Trillion. I sincerely regret this misreporting.

...SR

#50 SR
I don`t mean to hijack your thread. Just wanted to make an observation. [I did send in something relevant to this thread a few days ago but Chowk`s censors (thank you Ana Doborah!) seem to have decided it wasn`t profound enough to make it.]
You say:As an example, suppose someone here claimed that you were a liar and a thief. They said you were stealing from your employer. They make this statement on the observation that you lurk around Chowk.com reading and typing messages all day long when you are supposedly at work. They may thus conclude that you were not being honest to your employer and were virtually stealing money by not earning it while you were supposedly at work. Now would that be reasonable? I think not. For all that person knows you could be an independently wealthy gentleman of leisure who could do with his time as he damn well pleases.

Methinks there are a lot of independently wealthy gentlemen about in the Chowk..

[#53 by einsteinwallah on July 8, 2003 0:56am PT
...
dP = r * P * dt + sigma * dB (P=Price, t=time, r=return rate, sigma= square root of a variance-like quantity)]

Correction. The equation should read as follows:

dP = r * P * dt + sigma * P * dB

[#46 by SR on July 7, 2003 0:49am PT
...
The statistician advised him to carry a bomb in his brief case at all times because that way his probability of being in a plane with TWO bombs would be far, far smaller. ]

A statistician could not have made such a statement. This clearly shows that you do not know even basic probability theory.

If ``p`` is probability of an unknown terrorist planting a bomb in an aircraft, then that ``p`` is probability of an event which is completely different from a traveller always carrying a bomb. A traveller always carrying bomb means that probability of 1 bomb on aircraft is 1. And probability of an unknown terrorist planting a bomb over and above the one carried by the traveller remains ``p``, because these two events are independent.

Statistics is mainly misused by politicians and those who do not understand it correctly.

The Snow`s statement in your article mentions ``risk-adjusted return`` which is also a statistical concept. (Having said that Snow might have used it in the conference more for hype than anything else.)

Any investment which grows at a random exponential rate ``r`` has always expected unadjusted rate of return inflated by half of a variance-like number if underlying model of price is Geometrical Brownian Motion (GBM). GBM is often represented by a Stochastic Differential Equation like following:

dP = r * P * dt + sigma * dB (P=Price, t=time, r=return rate, sigma= square root of a variance-like quantity)

where dB is differential of a ``unit`` Brownian Motion (a random thing). Japanese Mathematician Ito developed this brand new ``calculus`` for manipulating such equations. Basic result is:

E(P(t + 1) / P(t)) = r (unadjusted rate) (Here E(.) is expectation, another of ill understood statistical concept)

But:

E(ln(P(t + 1) / P(t))) = r - ( sigma * sigma ) / 2 (risk adjusted rate)

The number ( sigma * sigma ) is variance per unit of time of (random) return rate of P. When sigma is zero return is governed by famous exponential growth equation:

dP = r * P * dt (which is not Ito-type equation, so college Calculus is sufficient here)

which has a solution:

P(t) = P(0) * e ^ (r * t) (where ``e`` is exponential ``e``)

SR, Tahmed, Inqurier others,

good article. It is amusing to see those who are settled here quite upset about anything that points to the future coming problems of the US.

From a economic point of view what your article points is largely true.
The efficeincy of the US Industry is also cited for its accumulation of riches. It is often seen coming from the first mass production in the world ie of ford.
However recent prodctvity increases are largley attributed to in the retailing part of the economy. Walmart is suppossed to be responsible for a major portion of this productvity improvement. Similarly the other gaint ie GE under Jack Welsh showed immpressive increase in growth and profits. Some analayse this due to the aggressive(first among the large companies)outsourcing of manufacturing to china. It is estimated that 70% of the manufacuring done by GE now comes from China or other location of outsourcing.

If this is the source of the current strength of the US economy vi a vi the other developed economies we know very well what the future can hold for the US

The other aspects ie of demographics, past achivements, persent social system etc. It is intresting to analyse these. Some one was quoting the presence of nobel prize winners, intellectual capital etc. yes we can look at absoute figures and make conclusions. The art of predicting is not based on current but on relative paramaters. Let us take the case of circa 1950 and crica 2003. US a large land with inherent landbased wealth plus the intellectual wealth of a advanced eurpoean based knowledge system further enchanced by fleeing intellecutals, technocrats etc from europe was a leader in this aspect in the world. Add to this a large economy you have things going very well. On the other hand there was asia, practically poor in every sense especially in education and technical knowledge and of course no large economy to compare with the US.
Cut to present. Would it be an exxegaration to say that the combined number of educated, tehchnological component people in china, India, Japan, ASEAN outnumber those in the US in sheer numbers in quality perhaps they dont but that is not because of capability but perhaps because of lack of opprotunity ie large local economy to service which is what demands innovations, absorbs the cost of research and provides access to market to experiment with new ideas and technologies.
But all this set to change. Japan already is a developed nation. China a large manufacturing base as is ASEAN, both innovation as well as research is possible as the internal economies become rich India is getting there ie with other than manufactruing and by exporting intellectuals who will certainly provide(and are providing)impetus to innovation as the market in India becomes capable of taking all those inputs.
But where does US stand in all this? Is the population increasing? are the number of technicaly compentet people in US increasing dramatically? Is the capability for Innovaiton a sole preserve of US? some thing that will not change in future?

On the other hand the recent position of US as expounded by the current administration has been taken note of by all governments in the world. As you will see that many rearrangemts are takign place in many countries in their startegic thinking vis a vi US. Some economists with chinese background call for china to ask for payments for its goods in near future(decade or two)in Yuan(therefore instead of china buying or recivigd dollars it will demand yuan)Is this possible scenario? yes it is.(wether it happens or not is a differnt case especially considering the current political situation). With other countries having recongnised the value of euro or other payments(mainly to redude the possibility for arm twisting from US) It will certainly become a trend I dont think that US will forever be able to use its military to settle such issues. Mahatir Mohammeds attempt for creation of gold dinar has found symphteic ears in some countries. As as his alterantive of using barter for trade as far as possible(some thing that India welcomes too.) One cant fight Ideas with the gun forever successfully.

There are nearly 3 billion people in Asia compared to the 280 million in US(increasingly getting old) Poor as these people are I dont doubt that they will be better off in future (which may be 2-4 decades away) will they not be a bigger market than the US even if they are just 1/4 th as rich?
This is not to say that US will become poor suddenly. It has invested very wisely in infrasturcture which will be very valuable for it in times of need. It will only loose its premminent role in the world.

The biggest danger in future will not be the internal demographics as some one says here but the ability of the US to accept this futrure in which it does not have a dominant role as it has now. Its military will not disappear over night neither will its thousands of nuclear weapons. We are seeing a future conflict where a instrangient US will not accept its new place in the world and loaded with the thousands of Nuclear Weapons and no political or moral compusion not to use them.
Let us enjoy our present realtive calm what will come next will be very horrific.
past achivemnts are not a garuntee for future comfort and the social system of the US is not based on any moral value but on the capabilty of the rich to provide an shot at the purisut of happiness. Ie the socitey as clamied by the founders of the US is not based on moral values but on the social contract of the rich to the poor in which the poor are given a chance go gain better life and at times get rich this is what will keep order in the socitey.
What happens when the rich are not able to fullfil their side of the contract?
It will be intresting to see what happens a similar question was asked by a collumist in a southern californina newspaper who did not offer any conclusion.
Let us say Ill be buying gold and investing in education of people for the next few decades.

SR #50 I hope for the sake of your real life that you are a fast typist (given the length of your post). You make two basic points, I think: (a) That democratic practices were prevalent in other societies and before the US, although the American Revolution represents a significant milestone; and (b) That I was wrong in writing that you hate the US.

Fair enough. I did go too far on (b), and I am glad to see you got folks proudly serving in the US Navy.

PS: On (b) can I at least claim that you hate the Federal Reserve members, and particularly Mr. ``Interest-free Economy`` Greenspan on down? You think Greenspan could be a mullah, lowering interest rates until they disappear?? Notice that you never see him and Mullah Omar together at the same place (like superman and Clark Kent)...I consider that very suspicious!!

PPS: Thanks for the tip on chowk popularity. Considering I shall be running for Senate in the Democratic Republic of Chowkistan next year, with dreams of running for President of Chowk four years from now, this tip is most timely.

#48 rsridhar [“…tone down … ultra-bold headings? They are … jarring to the eyes…”]

Please accept my regrets. It was an unintended error. Not being proficient with HTML I failed to ‘switch off’ the large font size of the ultra-bold heading. It was supposed to have high-lighted only one word of that. As for normal font size bold letters, they are used sparingly and then only to stress upon a point. I also use them to highlight snippets of the other InterActor’s message in “…quote…” marks. This is meant to make it easier on the eye but if other inter-actors feel that it is hard on the eye, I’ll gladly cease and desist.

#47 tahmed [“…(a) there were pockets of democracy prior to the American Revolution - those pockets did not spread very far either in time or in space.

Ancient Rome … had democratic beginnings … any flames of democracy were quickly snuffed out…

Ancient India contributed much … but democratic … institutions were not one of them. Any democracy that existed was like the ``democracy`` we have in the tribal areas - which is more of a gerontocracy.

…even Athenian democracy died out …”]

I have neither the time nor the inclination to argue over the ‘democracy’ in ancient India, which I contend was the first in the world and was longer lasting and more widespread than ancient Greece. For starters I recommend you look up the following two links:

www.infinityfoundation.com/ECITdemocracyindiaframeset.htm
And :
www.infinityfoundation.com/mandala/h_es/h_es_muhlb_democra.htm

The Greek ‘democracies’ also lasted for many centuries and Rome was a republic for over five hundred years until the mid first century BC. During the Republic days Rome ruled over what is present-day France, Lower Countries, Spain, Italy, Malta, Corsica, Siscilly, Malta, Cyprus, Solvenia, Croatia, Bosnia, Macedonia, Albania, Greece, Turkey, Syria, Lebanon, Israel, Jordan, Egypt, North Libya, Tunesia, North Algeria and North Morrocco.

Now let’s be reasonable, Mr. Amhed. I wouldn’t exactly describe this as “not spread very far either in time or in space… and …quickly snuffed out…” !! Would you??

The American republic, by contrast, has not even hit the 250 year mark as yet.


[“…(b) modern democratic institutions (characterized by separation of powers of the three arms of government) find their roots in the US…”]

The idea of ‘separation of powers’ are not uniquely a product of the American Revolution. These ideas also have their roots in the Revolt of Parliament in England during the mid-1600s. Before that the early Dutch and Swiss ‘democracies’ also believed in independence of judiciary. All this was happening before anyone had even heard of the Boston Tea Party.

I never disputed that the American Revolution was a great watershed, all I said was that you should not make sweeping statements based on limited information.

[“…(c) Your strong (and ultimately irrational) feelings of hatred for the US blind you …

If you really believed that you had facts … (then)… you would not need to use these huge fonts …”]

Again, you are making statements about things you have not the least idea. All you are doing is airing your prejudice. What do you know about my (or anyone else’s) love or hate with anything or anybody, be it rational or otherwise? What gives you the right to imagine that you have such wisdom?

And what is this illogical rubbish that since I chose a certain font size I don’t really believe that I have any facts to support my stance? Huh? Are you all right?

I despise the political establishment and the vested interests in the huge bureaucracies. I believe that the US Federal Reserve is one of the great evils on Earth. And let me give you a clue as to why I believe that.

The academics who run central banks but have never made a penny`s worth of profit in the marketplace and are totally pay-check dependent for their livelihoods are not the best qualified to run the world’s monetary system. College professors and university economists running central banks are not the one`s who can provide answers. Clueless idiots like Greenspan, who personal careers were disastrous failures in the private sector and went scurrying for the safety of their government jobs now have power and influence to create a total mess which they are creating as anyone with common sense and a perspective on history can see. They have power in a corrupt and doomed system and that power is mistaken for capability and genius. It`s a tragic-comedy. The world monetary system is going to hell in a handbasket and these morons are doing the same thing that caused the problem in the first place, i.e., creating more and more credit. That is just like giving a heroin addict more and more heroin in the hope of preventing his collapse.

I am a US citizen as are my offsprings. My child’s mother, that is my wife, was born and raised in America as were her parents. I live, eat, drink, breath, socialize, love, hate, laugh and cry among Americans. One of my wife’s siblings is in the Navy as were other relatives. My strong criticism against the evils in the American system are not based on any Jehadi hatred nor does it make us blind to any facts. A thinking person can distinguish between criticism and hatred. But there is a colonial slave mentality of people, sometimes seen on Chowk, who think that criticism of the establishment’s prevailing system can only mean an “irrational hatred” that makes the critic “blind to any reason.” Such people usually have irrational blind loyalties to their particular choice brand of religion or nationalism or culture or ideology.

So in future think before you make statements based on assumptions.

Let me ask you this. Would it be reasonable for someone to make assumptions about what you think or feel?

As an example, suppose someone here claimed that you were a liar and a thief. They said you were stealing from your employer. They make this statement on the observation that you lurk around Chowk.com reading and typing messages all day long when you are supposedly at work. They may thus conclude that you were not being honest to your employer and were virtually stealing money by not earning it while you were supposedly at work. Now would that be reasonable? I think not. For all that person knows you could be an independently wealthy gentleman of leisure who could do with his time as he damn well pleases. Thus by calling you a thief that person will have only expressed his closed minded prejudice against you for totally different reasons. Perhaps that person had a dislike towards you because he may consider you obnoxious, irritating, boring, repetitive, unimaginative and generally disagreeable, irrelevant and nonsensical. It would, indeed, be unfair of this hypothetical person to have judged you thus. Perhaps he may be projecting his own deficiencies on others. He might just have an inferiority complex and a sense of sexual inadequacy because he had a small penis and he was just taking out his frustrations by being uncivil to others. The point is that such a person would be utterly out of line to make any assumptions about you and make assertions based on them.

Therefore, I hope, Ahmed sahib, you will refrain from making prejudicial assumptions about others’ thoughts or feelings. Please, think about it Ahmed sahib. It may even help your popularity.

...SR

something is wrong with the interacts here. This should be a pretty strong topic for the likes of Jay and co, the should be able to bring their special wisdom and apply it here. God, never thought I would say this but I sure am missing their invaluable input here.

Hey just kidding.....was pleasently surprised and all that....no jay and no mishrajis around. Even the ever present ever effervescent Arjum_m is missing. Have their fingers got tired and lost their hand eye coordination! Have they been banned by the chowk_pc_police_wannabes!

SR #46 While there were pockets of democracy prior to the American Revolution, the examples you provide simply confirm what I wrote - those pockets did not spread very far either in time or in space. Ancient Rome may have had democratic beginnings as you say, but any flames of democracy were quickly snuffed out. Ancient India contributed much to mankind, but democratic ideals or institutions were not one of them. Any democracy that existed was like the ``democracy`` we have in the tribal areas of Pakistan nowadays - which is more of a gerontocracy. The case for Ancient Greece is stronger, but even Athenian democracy died out and was replaced by kingships and Grecian ideas of free speech and so on lay buried for thousands of years. Modern democratic ideals that are now generally accepted all across the world, and modern democratic institutions (characterized by separation of powers of the three arms of government) find their roots in the US. The only serious challenge posed to these ideals is among the half-brained Islamic fanatics, who still live in a world of the Divine Right of Caliphs.

Your strong (and ultimately irrational) feelings of hatred for the US blind you to such simple facts. If you really believed that you had facts that proved that the American Revolution was not the first significant blow to the institution of kingship, you would not need to use these huge fonts (the internet equivalent of trying to shout someone down).

re:#46 by SR
Thanks for your informative post. I enjoyed the part related to statistics.
One request. Can you please tone down the bold letters and ultra-bold headings? They are kind of jarring to the eyes.
Sridhar

#32 tahmed [“…the american revolution represented the first time that the globally accepted institution of kingship was challenged and overthrown. …”]

There you go again, Ahmed s