The American Nightmare: No Exit, No Entry

re the article hp posted:

reminds me of the book dow 36,000 published in 1999, the height of u.s. bull market, by another set of experts following ideology rather than facts. below is from a book review on dow 36,000 in businessweek. pay special attention to background of the authors. in case anyone needs reminding, the ``institutes`` these ``scholars`` represent also bought you the iraq war:

http://www.businessweek.com/1999/99_39/b3648125.htm

``...Actually, conditions don`t have to get a lot better to justify Dow 36,000, say James K. Glassman and Kevin A. Hassett in Dow 36,000: The New Strategy for Profiting From the Coming Rise in the Stock Market. They argue that the market already merits 36K, and that stock prices will advance toward that target over the next 3 to 5 years as investors come to that conclusion, too.

...Glassman, a Washington Post columnist and fellow at the American Enterprise Institute (AEI), and Hassett, an economist and resident scholar at the AEI, first put forth their bold thesis in a Wall Street Journal op-ed piece last year....``

regarding the foreign affairs article, it is like the book dow 36,000, written by people who (i) dont have practical financial markets experience (ii) are using ideology rather than facts to justify their claims. in fact the basic premise of their article is incorrect. no serious economist or market professional argues that u.s. is going to stop being the big dog anytime soon. instead long term structural trade and budget deficits are of concern because they will lead to (i) gradual loss of u.s. control over critical economic tools such as exchange and interest rates (ii) decline in u.s. competitiveness vis-a-vis rest of the world.

there are signs that point (i) mentioned above is starting to happen. for the last two years the fed is raising rates in part to lower inflation in general and housing price inflation in particular. in response to the fed moves, short term rates have risen as desired by the fed. long term rates however have behaved in an entirely different manner. the structure of the yield curve now is causing some serious concern in the financial market:

http://today.reuters.com/business/newsarticle.aspx?type=tnBusinessNews&storyID=nN29196014

When yield curve talks, Wall St economists listen
Tuesday 29 November 2005, 12:57pm EST

NEW YORK, Nov 29 (Reuters) - Short-term interest rates are at the cusp of surpassing their long-term counterparts in the United States, and many analysts are already squirming in their chairs as they worry about an economic slowdown.

..In particular, they maintain, excess savings abroad coupled with strong foreign interest in U.S. assets has artificially depressed long-term interest rates.

...Number one on a laundry list of economic pitfalls is the housing market, where a relentless boom has prompted many to worry about a price bubble.

...And there are other sources of anxiety. Among them is an ever widening trade deficit, which many fear could prompt a sharp decline in the dollar sometime in the next couple of years, making U.S. investments less attractive to foreigners...``

the author of foreign affairs article also make a couple of basic mistakes fundemental one being that past represents the future i.e. u.s. will be the top dog forever because it was top dog in the past. btw past does not represent is the first advice any solid market professional will give you.

also their comments on u.s. investments abroad vs. foreigners investing in the u.s. defeats their own argument. foreigners invest in the u.s. largely because of low risk. americans otoh invest abroad for growth. that in itself should tell you how the markets think about the future.

#235 Romair

It`s hard to be humble when you live in a great country :).

# 244 HP

Thanks for the article. Problems are manageble.

#236 by SaimaShah
I was going to respond to your post but then I saw this great article that deals with doomsayers and your contentions. So read this. I will post my own views on this too.

The Overstretch Myth
David H. Levey and Stuart S. Brown

Summary: The United States` current account deficit and foreign debt are not dire threats to its global position, as would-be Cassandras warn. U.S. power is firmly grounded on economic superiority and financial stability that will not end soon.


Would-be Cassandras have been predicting the imminent downfall of the American imperium ever since its inception. First came Sputnik and ``the missile gap,`` followed by Vietnam, Soviet nuclear parity, and the Japanese economic challenge--a cascade of decline encapsulated by Yale historian Paul Kennedy`s 1987 ``overstretch`` thesis.

The resurgence of U.S. economic and political power in the 1990s momentarily put such fears to rest. But recently, a new threat to the sustainability of U.S. hegemony has emerged: excessive dependence on foreign capital and growing foreign debt. As former Treasury Secretary Lawrence Summers has said, ``there is something odd about the world`s greatest power being the world`s greatest debtor.``

The U.S. economy, according to doubters, rests on an unsustainable accumulation of foreign debt. Fueled by government profligacy and low private savings rates, the current account deficit--the difference between what U.S. residents spend abroad and what they earn abroad in a year--now stands at almost six percent of GDP; total net foreign liabilities are approaching a quarter of GDP. Sudden unwillingness by investors abroad to continue adding to their already large dollar assets, in this scenario, would set off a panic, causing the dollar to tank, interest rates to skyrocket, and the U.S. economy to descend into crisis, dragging the rest of the world down with it.

Despite the persistence and pervasiveness of this doomsday prophecy, U.S. hegemony is in reality solidly grounded: it rests on an economy that is continually extending its lead in the innovation and application of new technology, ensuring its continued appeal for foreign central banks and private investors. The dollar`s role as the global monetary standard is not threatened, and the risk to U.S. financial stability posed by large foreign liabilities has been exaggerated. To be sure, the economy will at some point have to adjust to a decline in the dollar and a rise in interest rates. But these trends will at worst slow the growth of U.S. consumers` standard of living, not undermine the United States` role as global pacesetter. If anything, the world`s appetite for U.S. assets bolsters U.S. predominance rather than undermines it.


Discussion of the United States` ``net foreign debt`` conjures up images of countries such as Argentina, Brazil, and Turkey, evoking the currency collapses and economic crises they have suffered as models for a coming U.S. meltdown. There are key differences, however, between those emerging-market cases and the current condition of the global hegemon. The United States` external liabilities are denominated in its own currency, which remains the global monetary standard, and its economy remains on the frontier of global technological innovation, attracting foreign capital as well as immigrant labor with its rapid growth and the high returns it generates for investors.

The statistic at the center of the foreign debt debate is the net international investment position (NIIP), the value of foreign assets owned by U.S. residents minus the value of U.S. assets owned by nonresidents. Until 1989, the United States was a creditor to the rest of the world; the NIIP peaked at almost 13 percent of GDP in 1980. But chronic current account deficits ever since have given the United States the largest net liabilities in world history. Since foreign claims on the United States ($10.5 trillion) exceed U.S. claims abroad ($7.9 trillion), the NIIP is now negative: -$2.6 trillion at the start of 2004, or -24 percent of GDP.

Unpacking the NIIP gives a better sense of the risk it actually poses. It has two components: direct investment, the value of domestic operations directly controlled by a foreign company; and financial liabilities, the value of stocks, bonds, and bank deposits held overseas. At the start of 2004, foreign direct investment in the United States was $2.4 trillion, while U.S. direct investment abroad was about $2.7 trillion. (Direct investment is relatively stable, changing mostly in response to changes in expected long-term profitability.) Removing direct investment from the equation leaves $5.1 trillion in U.S.-held foreign financial assets versus $8.1 trillion in U.S. financial assets held by foreign investors.

This last figure represents a whopping 74 percent of U.S. GDP--a statistic that would seem to give ample cause for alarm. But considering foreign ownership of U.S. financial assets as a percentage of GDP is less enlightening than comparing it to the total available stock of U.S. financial assets. At the start of 2004, total U.S. securities amounted to $33.4 trillion (some 50 percent of the world total). Foreign investors held more than 38 percent of the $4 trillion in U.S. Treasury bonds, but only 11 percent of the $6.1 trillion in agency bonds (such as those issued by Fannie Mae and Freddie Mac); 23 percent of the $6.5 trillion in corporate bonds; and 11 percent of the $15.5 trillion in equities outstanding. These foreign liabilities are the result of a string of current account deficits that have grown from 1.5 percent of GDP in the mid-1990s to an estimated 5.7 percent of GDP--about $650 billion--in 2004. Economists at the Organization for Economic Cooperation and Development estimate that ongoing deficits of 3 percent of GDP would bring the U.S. NIIP to -40 percent of GDP by 2010, and that it would eventually stabilize at around -63 percent. If the deficit remains at today`s level, they foresee the NIIP growing to -50 percent of GDP by 2010 and eventually to -100 percent.

These estimates, however, fail to consider that future dollar depreciation and market adjustments in interest rates and asset prices will likely check the increase of the NIIP. Dollar depreciation against the euro and the yen in 2002 and 2003 kept the NIIP flat despite large current account deficits. The same result is likely for 2004 (final numbers will not be available until the end of June). Thus, although the NIIP will surely continue to grow for many years to come, its increase will be far less dramatic than many economists fear.

Read complete article here…
http://www.foreignaffairs.org/20050301facomment84201/david-h-levey-stuart-s-brown/the-overstretch-myth.html

Raw_Dust #240: ``Romair:
but you are a loyal subject of someone who enslaved your forefathers and here you are at it again - you willingly have chosen to be the subject of the same entity...

admit it man... :-) ``

Yes. You are correct. I`ll have to give you that one. I personally think Canadians should kick the queen out. Even the oath of citizenship is to the queen, for some reason. But as long as all Canadians are enslaved to her, its ok..........

Added to this, I still believe Pakistan should have allowed the goras to rule over it for 30 more years. We would have been like Hong Kong, by now............So being ruled by goras is not that bad. That is how God designed the world. Goras rule and the rest of us become the labor.........

In any case, in 25 years, South Asians and Chinese will have taken over Canada. Or at least taken over, all important places like Toronto and Vancouver. At which time the standard of living in Canada will automatically decrease. And in 50 years, Mexicans will have taken over USA, decreasing the standard of living there, as well.......

By that time, I will have moved to New Zealand............which is also, under the queen.........

Long live the Queen!!!

Re: # 241

>>>Being on page 17 of a newspaper is more a sign of the newspaper`s ignorance than anything else.<<<

Romair Sir Ji… being on page A-17 means there are other more important news that are on earlier pages. In all honesty, no one in the world is worried about the Canadian no-confidence vote, while Clinton’s cigar makes covers of the newspapers the world over. Monika is more famous than Paul Martin. You see the difference?

Here’s a list of 10 famous Canadians:

1. OK, I will have to get back to you on that one.

And yeah, I agree with you, DullahBhatti indeed is a class into himself.

Kulharee #239: ``Romair Ji, I know DullahBhatti, and Sir let me tell you that you are no DullahBhatti – however I think that you will make a fabulous Queen of Canada.``

Yes, that is true. Bhatti Saab is, indeed, in a class of his own.........Suppose I do become the queen of Canada, wouldn`t that still mean that you cannot become the President of the USA?

``Sir, please don’t try to put down Americans. Thanks.``

You may want to get out of the habit of considering any critique of the USA to be a, ``put down.`` Do keep in mind that the USA publishes an annual reports on human rights and God knows what else, about every country in the world. Don`t you think that makes it OK for others to critique the USA; especially since the USA is intruding in so many countries` business. Not the mention the fact that there are still Americans who think that other countries will miss US soldiers, when they vacate their lands!........

Being on page 17 of a newspaper is more a sign of the newspaper`s ignorance than anything else. As I said, lack of information and knowledge about others is a bad thing. Not something to be proud of.............In any case, ignorance is bliss is a philosophy that is popular..........

Romair:
but you are a loyal subject of someone who enslaved your forefathers and here you are at it again - you willingly have chosen to be the subject of the same entity...

admit it man... :-)

Re: # 238

>>>> ``makes page A-17 of the NYTimes here`` This is a major problem in the USA, i.e. lack of information about other countries. It keeps people ignorant. Ignorance is a bad thing..........<<<<

Romair Bhaijan, that’s just not true. NYTimes first 16 pages of full of International News (I don’t think that I need to list it, but here’s a sample – Nigerian leader fleas; Egyptian Elections; Iraq; Korean Scientist; Mexico’s Charter; Syria UN; even news from Wales; VZ; Honduras; Columbia; China; Pakistan; Myanmar; Russia; Uganda; Kenya…. Just a little sample from today’s NYTimes. plus 3 international editorials, and 4 essays) And Sir the American are not as ignorant as some people will make you believe.

Sir, please don’t try to put down Americans. Thanks.


>>>>So who knows, one fine day, either me or DullahBhatti - two Punjabi speaking immigrants - may be the Governor General of Canada. What chances do you have of being the President of the USA? Do let me know......<<<<

Romair Ji, I know DullahBhatti, and Sir let me tell you that you are no DullahBhatti – however I think that you will make a fabulous Queen of Canada.

Kulharee #237: ``I read somewhere that Canadians are more aware of the American politics than their own. I am totally amazed that you Canadians know so much about the US whereas a major event in your country``

I know about the USA because I lived there for a long time. Canadians know far more about the USA, then the USA knows about Canada. Canadians know far more about the UK then the UK knows about Canada. Knowing something is a good thing. Not knowing something is a bad thing; not something to be proud of............

``makes page A-17 of the NYTimes here``

This is a major problem in the USA, i.e. lack of information about other countries. It keeps people ignorant. Ignorance is a bad thing..........

``having no global position in terms of economic power, or just plain envy?``

Canada is a member of the G-7, so I would not call that, ``no global position.`` And has been rated the best place to live in the world by the UN, for seven straight years.......So I wouldn`t call it envy either..........

``Do you know that Queen of England is your head of State?``

Yes, this is true. It is done deliberately. She could be kicked out, as and when wanted. Being in the Commonwealth has some advantages. Do keep in mind that the Governor General of Canada (the practical head of state) is a Black 48 year old lady named Michaelle Jean. She is a French speaking immigrant, who fleed from Haiti, currently living in Quebec!

So who knows, one fine day, either me or DullahBhatti - two Punjabi speaking immigrants - may be the Governor General of Canada. What chances do you have of being the President of the USA? Do let me know......

Re: # 234

Romair Sahib, I read somewhere that Canadians are more aware of the American politics than their own. I am totally amazed that you Canadians know so much about the US whereas a major event in your country (no-confidence vote) makes page A-17 of the NYTimes here. Why do you think that that’s the case? Is it due to Canada being insignificant and inconsequential in the world affairs, having no global position in terms of economic power, or just plain envy? I tend to believe it is the envy first and the other stuff last. It’s not just Canada but most of the world (as you rightly put) that wishes it had only a little piece of what USA has. Do you know that Queen of England is your head of State? Well, you can thank me if you didn’t know that.

I read Der Spiegel and Le-Monde articles in the WPReview. While France burns, it still is worried about race relations in America; while there is 14% unemployment in Germany, it is worried about US economy and War in Iraq and also about Hurricane Katrina. I mean at what point do you say that enough is enough?

Re: # 226

Consumer spending is 67% of US GDP. US trade deficit quite clearly means that the US under Greenspan has ignored the future over consumption today. US has a net negative savings rate with underreported inflation rate (see Bill Gross). Outstanding Public Debt as of 28Nov2005 is over 8trillion. See the book, ‘The Empire of Debt.’ Yes, the US is technically bankrupt.

The estimated population of the United States is 297,826,574 so each citizen`s share of this debt is $27,253.87. This is the amount that each American has to earn above earnings to feed and clothe him or her to eventually pay it off. At a per capita income of 40k per year and an income that has been static for the last several years with an increasingly poor population, I don’t see it happening too fast.

The National Debt has continued to increase an average of $3.14 billion per day since September 30, 2005. Funnily, in news reports (CNN) you will see that the economy has done extremely well--grown at 8% this quarter. If you look elsewhere you will see that analysts are quite skeptical of these numbers and if you dig deeper you will realise that these numbers are quite misleading in the assumptions that they make (Bill Gross, October 2004). Concern about debt is labelled Left and therefore irrelevant to American progress.

Let’s put this in perspective. Every Republican govt., increases debt. Every democratic govt., decreases debt. There are all sorts of analysis that Americans need to make on what this means.

About spending. There are several reasons why spending doesn’t translate to increasing incomes 1. Since consumer spending is increasingly financed through debt, debt is simply a promise to pay in future, debt repayment eventually goes to finance companies who may or may not invest in US 2.The goods purchased are produced elsewhere, spending does not translate into production within US leading to lower incomes (). There are ramifications to all this. 3. Taxes on consumer spending go into defense rather than investing in people. 4. Dwindling tax base

The other issue about 4 million jobs going overseas—I doubt that America had the requisite skills to do those jobs. And the real question is why doesn’t America invest in people-and/or why doesn’t it increase immigration when the population skill levels fall short. If you look at the policies of the present empire, you can see that the government is reducing the support system for the population—removing incentives such as medicaid, social security and ways out such as abortion. As a result, there will be increased pressure on women to marry, produce children and stay under-educated. Similarly since the cost of a university education has risen more than the inflation per se, it means that fewer Americans will be able to afford a college education.

State of the deficit is such that it seems the world is paying US to buy goods from it. If this continues more countries might decide not to peg to the USD. If the USD loses its status as the currency needed for trade--well then—there may be a crisis within America. The real question is ‘Can the World Do Without the American Dollar.’ (HP’s question about why do other countries buy US Tbills—is explained by the status of the US dollar in the world economy—this has been pointed out by many experts and references are easy to find as to why other countries buy Tbills—politics and history plus peg currency but the point is what is the incentive for them to continue to buy?). A scenario where the US dollar is no longer used as peg currency would probably take 5 years or hopefully take 5 years--according to which financial analyst you talk to.

It further proves the hypothesis that there is significant propaganda hijacking information in US. There are stereotypes floating around; All naysayers are lazy ass, overly worried, pessimistic, academic types, greenpeace, gay or unreal Americans. The real American is hardworking, to the point, well dressed, (not a geek) and always optimistic, who somehow outsmarts all the smart ones (see teen TV to verify). Today`s media is so image laden, so deeply invasive of our minds, that it is propaganda--a cut above being infotainment. There are very few ‘independent’ newspapers left.

Ok, so is there a game plan or not? Does the government know what it is doing or not? What is really driving them to pursue these policies? IMHO, born again christainity.

Pardesi #233: ``I can promise you when our troops come back home and give up this world cop role, the world is going to miss us.``

Could it be that this is the kind of thinking that has gotten the USA into the varoius messes it is in, internationally. There isn`t a country in the world, other than Israel, where George Bush can go and even make a speech without facing all kinds of opposition. Just look at what happened on his tour to South America and China. Not to mention in the UK..........He got the same treatment in Canada........

It is one thing to assume that one`s sh//t doesn`t stink. But, I think when one starts thinking that people are even going to, ``miss`` one`s military actions, one has gone a bit too far in self-aggrandization.

I think the Americans are completely naive about the way they are being viewed by the rest of the world; including the Western world...........The USA needs a serious rethink of its policies.........at the top of this list is economic affairs and foreign affairs. The former is a local matter, but the later affects a lot of countries, and costs a lot of lives..........

I think the recent defeat in Iraq is slowly starting to put the wheels in motion, regarding this rethink............Rest assured, when the US troops come home, everyone will take a breath of relief. They will not be missed...........

Kulharee #232: ``Now that the liberals are out, I think the right wing Nazis and the fascists will take over and will make life more miserable for the Immigrants who are not happy there to begin with.``

I think the chances of this happening are next to nill.

Much like the US society and politics is leaning heavily to the conservative side, Canadian politics and society is leaning heavily to the liberal side. According to Pew Research 45% of the Americans want religion in their govt. (i.e. they are openly against secularism). 2 out of 3 considers him/herself to be conservative. 42% consider themselves to be the members of the Christian Right. And 23% of the registered voters consider themselves to be outright Christian Evangelicals.

This 23% group is now the most powerful political force in the USA. More powerful than the, otherwise, two most powerful forces - NRA and AIPAC. No one can get a Republican nomination without the supporf of the Evangelicals. This is how a nincumpoop like Bush beat out a more competent and balancced McCain. And a nincumpoop like Cheney survived, even after blundering in Iraq, while a more balanced, but less ideological Colin Powell was kicked out.

The above, combined with the fact that 66% of the country is conservative, ensures that the Evangelicals and the religious right, have the deciding vote in who becomes the President of the USA (not to mention who ends up on the Supreme Court). Had Bush not been elected and blundered hugely, the Religious Right was set to rule the USA for the next few decades..........Liberal is still considered a four lettered word in US politics........

Nothing wrong with that, since that is what Americans want............

Canada is going in the opposite direction. For starters, there are four major political parties at the federal level - NDP, Bloc Quebecois, Liberal and Conservative. Three out of these four are liberal parties. NDP is extremely liberal. One cannot get a seat from them, until one openly declares one supports gay marriage and abortion. Bloc Quebecois is a Left Wing party, which is pro-Quebec (and anti-US). Liberal party, is, well, as the name suggests, liberal. The Conservative party being the only conservative force, and even it would considered liberal had it been in US politics.

All four of these parties are pro-immigration. The fifth, tiny Green Party, is also pro-immigration. There isn`t a single anti-immigration force in Canada! They just support it in varying quantities. But they all support it.......

As for Nazism coming into Canada, I certainly cannot see it. At the moment, the Liberal party is at its lowest. Its involved in a huge corruption scandal. It was divided down the middle by an internal squabble. It`s govt. fell yesterday, in a historical vote. It has been in power for more than a decade and is getting stale.

Yet it still leads in the polls for the next election!! And the % support for the Conservative party in Canada, even in such a situation is still only 30%! So Canada`s problem is not going to be fascists taking over. It will be too many liberal forces taking over.............Much like USA`s problem will be the Relgious Right taking over (it has already taken over)............

# 222 SR

As you know, we are dealing with a very emotional topic here. We are not debating the challenges that we face. In fact I can add more items to your list. The issue is will US come out limping, or better and stronger out of this mess. Some of us here feel that we all will be alright. Will it cause lots of pain – yes.

BTW, our “12 aircraft carrier group” is protecting South Koreans and Taiwanese, has assisted Muslims from Bosnia, and liberated Kuwait and Iraqi Shias/Kurds. Not bad record :). I can promise you when our troops come back home and give up this world cop role, the world is going to miss us. Japanese will build up to match Chinese, China will grab Taiwan, India and Pakistan will be fighting real war rather than unending Mickey mouse games, Israel and Arabs will really destroy each other etc. etc. It will not be a pretty place.

I am sure we will continue this debate over another board.

Meanwhile, I wish you and your family very happy holidays.

I am so sad for my Canadian buddies. Yesterday, their Government collapsed and it made a page 9 news in the New York Times (Poland makes page 1). Lucky for them, I get 10 international newspapers at work including International Herald Tribune, and it was page 6 news in that. It`s so sad that while the whole of Canada is fukd up beyond repair but the morons living there are more concerned about the United States than their own fukd up country.

Now that the liberals are out, I think the right wing Nazis and the fascists will take over and will make life more miserable for the Immigrants who are not happy there to begin with. That means more Canadians coming over to the US to work illegally and flashing their mediocre degrees in our faces. Oh well. Who gives a shyt?