Off Topic - Economics
atomic
Posts: 168
There are a lot of folks here with a thoughtful opinions on the topic of economics, as an earlier thread attests. No, the topic is not directly related to coin collecting but not so far afield. After all, if we're in a hard asset bull market as I believe we've been for several years, coins are a good way to play it.
Anyway, below I reprint an article that was published today by the world's most important bond trader, Bill Gross. Why publish it? Many of you will agree with what he says. He's preaching to the quire here. But this is Bill Gross talking. He manages Pacific Investment Management Co., the world's largest bond fund manager, with more than $350 billion in assets, the most successful bond fund in the world. Bonds do well when inflation is low. He's saying that if current conditions persist, PIMCO's bond fund will do poorly. In other words, he has nothing to sell. He's issuing an important warning. Listen to him.
-Atomic
What, We Worry? Yes.
By William H. Gross
Tuesday, January 13, 2004; Page A17
The United States is overextended, not just militarily but economically. We are trying to do too much, borrow too much, spend too much, and sooner or later we will have to suffer the consequences. We are a country in the beginning stages of what can best be described as hegemonic decay. Empires take decades if not centuries to wither, a process more clearly viewed through a rearview mirror; Edward Gibbon's masterful account of the decline and fall of the Roman Empire is perhaps the greatest example of this truth. But here and now, we're much less inclined to Gibbon's viewpoint than we are to Alfred E. Newman's. "What, we worry?" is pretty much the national motto when it comes to our finance-based economy and its future prospects.
Let me approach this predicament from a more personal angle -- by comparing a large nation to a typical U.S. family. Pretend that you're a head or co-head of a household. You earn a good salary, but it never seems to be enough. There are bills to pay, the Joneses to keep up with, and you've had your eye on that goofy Hummer for at least a few months now. You'd like to save money, but you can't or you won't, so you don't. As a matter of fact, each year for the past decade or so you've had to borrow 4, 5, 6 percent of your annual income to pay for what you want. You're running a personal deficit. But that's still okay, you figure. You're strong, vibrant, prospects are good, and there's no way you shouldn't be able to handle it. You can grow your way out of current liabilities and have more than enough to pay for future obligations such as college for the kids, that faraway retirement for you and your spouse, and health care, if that should ever come up. And your creditors undoubtedly will see it the same way. They know a good risk when they see one.
But then something happens. Your company's prospects sour, your pay raises virtually vanish, your health deteriorates, your family life sours -- who knows? With no savings and a boatload of debt, the wheels all go into reverse. Creditors are not so friendly. Not only will they not lend you that 6 percent of your salary every year but they want a higher interest rate on what you've already borrowed.
The United States is strikingly similar to the Alfred E. Newmans just described. It's strong and vibrant, with a future seemingly as bright as that of any country on the planet. Productivity is soaring, markets are recovering, its salary (or gross domestic product) shows decent increases almost every year. It goes wherever it wants to go, its Humvees symbolic of global military domination. Where's the decay in this hegemony?
Well, maybe I'm just pessimistic because I'm a Californian, and currently the state of California is not good. But California is 15 percent of this country, and it's a trendsetter in more ways than fashion, Hollywood and tongue rings. It has a huge deficit based on overspending that was in turn based on the anticipation that booming financial markets and their capital gains would continue indefinitely.
The United States is in a similar predicament. For years Americans have wanted to save money, but the savings rate has hovered close to zero. They have depended on those 1990s capital gains to give the impression that their liquid assets were on the rise. And they have had to borrow 4, 5, 6 percent of their annual income (GDP) to pay for what they wanted. Economists call that the trade deficit.
Add to that new evidence that our government's budget deficit is hitting new highs, with few prospects for improvement as President Bush and his economic team claim this is an investment in America, and after all, "we owe it to ourselves." Such nonsense belongs in Mad magazine. The $450 billion is paying for overconsumption, for Hummers in L.A. and Humvees in Iraq, and we increasingly owe it to foreign creditors. "I.M.F. Warns That U.S. Debt Is Threatening Global Stability," read a front-page headline in the New York Times last week. It is plain for all to see that we are living beyond our ability to pay if things go awfully wrong.
Could they? Typically, the spending-savings discipline necessary to right such a fiscal ship has to come from the outside. It's the creditors who say no. And their discipline has already started. Bond market vigilantes have suddenly recoiled in horror at the U.S. budget deficit and the failure of the Fed to guarantee its funding at exorbitantly low interest rates. In turn, foreign creditors have for more than a year been liquidating dollars in favor of other countries' currencies.
But despite the resultant higher interest rates and cheaper dollar these actions imply, our country's economy appears to be chugging right along. So where's the big, bad wolf in this story? Well, in addition to future domestically induced bond market sell-offs destroying the housing market, and a finance-based economy inexorably slowing down as restrictively higher yields work their historical magic, the fulcrum of a future creditor-based revolt probably rests in Beijing rather than in New York or Washington.
Because China's monthly trade surplus of $10 billion-plus with the United States implies a $120 billion annual addition to its dollar reserves, there will come a time when its hundreds of billions in holdings of U.S. notes and bonds look a tad too risky. In turn, the hundreds of billions that Japan and other Asian countries have been buying to keep their currencies competitive with the Chinese yuan and the U.S. dollar will be subject to a sanity check as well. At some point our Asian creditors will wake up and smell the coffee. Perhaps there will be dollar or Treasury note sell-offs or a revaluation of the yuan and then the yen. In any event, we pay the price: higher import costs, a cutback in spending on cheap foreign goods, rising inflation, perhaps chaotic financial markets, a lower standard of living.
China's willingness to buy our bonds, and its philosophy of fixing its currency to the U.S. dollar, will one day be tested. And should it lose patience, all its neighboring Asian states will move in near unison. U.S. interest rates will rise, our goods in the malls and the showrooms will be less affordable, and the process of national belt tightening and increased savings will have begun.
Are the Newmans worrying yet? Not if they bought stocks six months ago. Not if they refinanced their home in early June or bought that Hummer with zero-percent financing.
But they will.
The writer is founder and managing director of Pacific Investment Management Co. (PIMCO).
http://www.washingtonpost.com/wp-dyn/articles/A11575-2004Jan12.html
Anyway, below I reprint an article that was published today by the world's most important bond trader, Bill Gross. Why publish it? Many of you will agree with what he says. He's preaching to the quire here. But this is Bill Gross talking. He manages Pacific Investment Management Co., the world's largest bond fund manager, with more than $350 billion in assets, the most successful bond fund in the world. Bonds do well when inflation is low. He's saying that if current conditions persist, PIMCO's bond fund will do poorly. In other words, he has nothing to sell. He's issuing an important warning. Listen to him.
-Atomic
What, We Worry? Yes.
By William H. Gross
Tuesday, January 13, 2004; Page A17
The United States is overextended, not just militarily but economically. We are trying to do too much, borrow too much, spend too much, and sooner or later we will have to suffer the consequences. We are a country in the beginning stages of what can best be described as hegemonic decay. Empires take decades if not centuries to wither, a process more clearly viewed through a rearview mirror; Edward Gibbon's masterful account of the decline and fall of the Roman Empire is perhaps the greatest example of this truth. But here and now, we're much less inclined to Gibbon's viewpoint than we are to Alfred E. Newman's. "What, we worry?" is pretty much the national motto when it comes to our finance-based economy and its future prospects.
Let me approach this predicament from a more personal angle -- by comparing a large nation to a typical U.S. family. Pretend that you're a head or co-head of a household. You earn a good salary, but it never seems to be enough. There are bills to pay, the Joneses to keep up with, and you've had your eye on that goofy Hummer for at least a few months now. You'd like to save money, but you can't or you won't, so you don't. As a matter of fact, each year for the past decade or so you've had to borrow 4, 5, 6 percent of your annual income to pay for what you want. You're running a personal deficit. But that's still okay, you figure. You're strong, vibrant, prospects are good, and there's no way you shouldn't be able to handle it. You can grow your way out of current liabilities and have more than enough to pay for future obligations such as college for the kids, that faraway retirement for you and your spouse, and health care, if that should ever come up. And your creditors undoubtedly will see it the same way. They know a good risk when they see one.
But then something happens. Your company's prospects sour, your pay raises virtually vanish, your health deteriorates, your family life sours -- who knows? With no savings and a boatload of debt, the wheels all go into reverse. Creditors are not so friendly. Not only will they not lend you that 6 percent of your salary every year but they want a higher interest rate on what you've already borrowed.
The United States is strikingly similar to the Alfred E. Newmans just described. It's strong and vibrant, with a future seemingly as bright as that of any country on the planet. Productivity is soaring, markets are recovering, its salary (or gross domestic product) shows decent increases almost every year. It goes wherever it wants to go, its Humvees symbolic of global military domination. Where's the decay in this hegemony?
Well, maybe I'm just pessimistic because I'm a Californian, and currently the state of California is not good. But California is 15 percent of this country, and it's a trendsetter in more ways than fashion, Hollywood and tongue rings. It has a huge deficit based on overspending that was in turn based on the anticipation that booming financial markets and their capital gains would continue indefinitely.
The United States is in a similar predicament. For years Americans have wanted to save money, but the savings rate has hovered close to zero. They have depended on those 1990s capital gains to give the impression that their liquid assets were on the rise. And they have had to borrow 4, 5, 6 percent of their annual income (GDP) to pay for what they wanted. Economists call that the trade deficit.
Add to that new evidence that our government's budget deficit is hitting new highs, with few prospects for improvement as President Bush and his economic team claim this is an investment in America, and after all, "we owe it to ourselves." Such nonsense belongs in Mad magazine. The $450 billion is paying for overconsumption, for Hummers in L.A. and Humvees in Iraq, and we increasingly owe it to foreign creditors. "I.M.F. Warns That U.S. Debt Is Threatening Global Stability," read a front-page headline in the New York Times last week. It is plain for all to see that we are living beyond our ability to pay if things go awfully wrong.
Could they? Typically, the spending-savings discipline necessary to right such a fiscal ship has to come from the outside. It's the creditors who say no. And their discipline has already started. Bond market vigilantes have suddenly recoiled in horror at the U.S. budget deficit and the failure of the Fed to guarantee its funding at exorbitantly low interest rates. In turn, foreign creditors have for more than a year been liquidating dollars in favor of other countries' currencies.
But despite the resultant higher interest rates and cheaper dollar these actions imply, our country's economy appears to be chugging right along. So where's the big, bad wolf in this story? Well, in addition to future domestically induced bond market sell-offs destroying the housing market, and a finance-based economy inexorably slowing down as restrictively higher yields work their historical magic, the fulcrum of a future creditor-based revolt probably rests in Beijing rather than in New York or Washington.
Because China's monthly trade surplus of $10 billion-plus with the United States implies a $120 billion annual addition to its dollar reserves, there will come a time when its hundreds of billions in holdings of U.S. notes and bonds look a tad too risky. In turn, the hundreds of billions that Japan and other Asian countries have been buying to keep their currencies competitive with the Chinese yuan and the U.S. dollar will be subject to a sanity check as well. At some point our Asian creditors will wake up and smell the coffee. Perhaps there will be dollar or Treasury note sell-offs or a revaluation of the yuan and then the yen. In any event, we pay the price: higher import costs, a cutback in spending on cheap foreign goods, rising inflation, perhaps chaotic financial markets, a lower standard of living.
China's willingness to buy our bonds, and its philosophy of fixing its currency to the U.S. dollar, will one day be tested. And should it lose patience, all its neighboring Asian states will move in near unison. U.S. interest rates will rise, our goods in the malls and the showrooms will be less affordable, and the process of national belt tightening and increased savings will have begun.
Are the Newmans worrying yet? Not if they bought stocks six months ago. Not if they refinanced their home in early June or bought that Hummer with zero-percent financing.
But they will.
The writer is founder and managing director of Pacific Investment Management Co. (PIMCO).
http://www.washingtonpost.com/wp-dyn/articles/A11575-2004Jan12.html
Estragon: I can't go on like this.
Vladimir: That's what you think.
- Samuel Beckett, Waiting For Godot
Vladimir: That's what you think.
- Samuel Beckett, Waiting For Godot
0
Comments
This is why every four years every single candidate for the nomination dumbs down his speech as we get closer to the election. It is something that has to be communicated on a fifth grade level, which is the average reading and comprehension level of the populace.
If you go into GDP,GNP, and CPI, you will loose most people. Propaganda is an effective way to communicate with the public. I asked three people at work if they knew what type of government Iran had. Two said that they didn't know that Iran had a government and one said that it was a Persian King. The mullas and the iatollas are very happy right now. I asked a few more if the knew who Howard Dean was. One said a senator running for Congress, the other said he was an NBC news anchor.
Brian - You work at PCGS?
Doggedly collecting coins of the Central American Republic.
Visit the Society of US Pattern Collectors at USPatterns.com.
I could never live or work in California. The firearms laws are too restrictive.
Would I short the dollar? No. But I would consider shorting the companies extending credit to consumers. Somehow, I expect that they have underestimated their risks.
Doggedly collecting coins of the Central American Republic.
Visit the Society of US Pattern Collectors at USPatterns.com.
I can think of a dozen reasons not to have high capacity magazines, but it's the reasons I haven't thought about that I need them.
are states with the highest illegal population. They are forced to deal with
health, educational, and other social expenses with little help from the Federal
Government.
The President, on the other hand, wants to open the borders, allowing more
foreigners to easily walk in , with the whole family.
Now, with the healthcare insurance situation running 10% plus per year,
and the average American getting a 2% income raise per year, how can
the Administration hope to fund the medical costs for all the "immigrants"
that will pour in without cutting into the taxpayer's income ?
Come on !! Where does this money come from ?
I'm having enough trouble paying my own bills and taxes and paying for
my herion addict nextdoor neighbor's kids !
Now I have to rebuild Iraq, Afghanistan, and send aid to whatever country
has a natural disaster.
Sorry Mr. President, this dog don't feel up to hunting no more !
roadrunner
The US has severe structural problems and decaying institutions. In the long run these will
prove fatal if these trends are not checked. Perhaps the current economy is based on sen-
timent and psychology but these can turn sour quickly if the lights go out or the stores run
out of food. While the economy is improving and the greatest dangers from our weaknesses
seem to lie in the future there are no gaurantees that some instabilities could derail us sooner
rather than later. It is far past time to begin the necessary changes but as is usually the case
no one wants to upset the status quo until there is convincing proof that there is no alternative.
In a modern economy that will prove even more to late than it did to many of the cultures
which have come and gone before us.
China has over a billion people -- the person they admire most is Bill Gates. They are going to all want to buy the nice toys we have, but, guess what, they'll manufacture them in China and keep the profits.
There are hundreds of millions of young people living in Muslim countries from Morocco to Indonesia who have been raised to hate the US and all we stand for -- they have no hopes of getting real jobs with dignity which will allow them to live like the rest of the world they see on TV. They are being taught that it is most noble to strap bombs to themselves and blow themselves up if they can take a bunch of Westerners with them -- how long until they bring that over to the US and how will we react when they do?
Would you run a business very long paying workers $8, 10, 20 per hour when you can have the same work done by people standing in line to do it for a couple of dollars a week?
Where are all the middle-management jobs for our college kids when they come out of school to cut their teeth on?
Our federal govt. is truly spending like a drunken sailor -- we have run up deficits over just the last few years that our grandchildren will be paying off, if they have jobs. Higher education is being priced out of the stratosphere and loan, scholarship and grant money is drying up. California, my home state, will literally run of out of money this coming June and we won't be able to borrow any more because we are already at junk bond status -- unless the $15 billion dollar bond measure is passed in March.
We are spending unprecedented amounts for military and security -- every orange level we hit costs cities and counties a fortune as law enforcement has to work on an emergency basis.
The current administration has raised $87 billion for Iraq and that probably won't last the year, then they'll need more. Pork barrel spending is setting new highs. We are going back to the moon and then on to Mars -- thats another trillion or more.
This country is like never balancing your checkbook and keeping on writing those checks.
You might be able to tell . . . I don't have a good feeling about what is coming after this election year. Keep your powder dry, stockpile your precious metals and hang on folks, we are in for a bumpy ride.
Lester Thurow wrote a great book in the 1990's entitled "The future of Capitalism". It is still valid in today's world. Everyone should read it.
Brian
al h.
The only things standing between them and total world domination is our love for God and the 2nd ammendment. Their goal is to open the borders, flood the nation with illiterate future voters, create a world economy based on an ignorant consumer and then hold power. As Lucius once said in the great
book "Life during Wartime", ...." Its always the same story, Four Romans dead, and five Carthaginians"
Uh oh. Are slaves allowed to collect coins?
Doggedly collecting coins of the Central American Republic.
Visit the Society of US Pattern Collectors at USPatterns.com.
1. Early 80's, Donald Rhumsfeld goes to Bagdad to sell long range NBC (Nuclear/Biological/Chemical) artillery shells to Saddam Hussein to keep Iahtollah Khomeini of Iran at bay.
2. Rumsfeld enjoys the gracious hospitallity of "The evil dictator". The presidential palace even
gives him a nice suite.
3. 2004: Same artillery shells are now WMDs.(Weapons of Mass Destruction)
4. Saddamm Hussein: " Can I have my money back?"
5. The French: " Por Qua?" "Les etaje mi duo British Aerospace o Aerospatiale?"
6. MSNBC: Brian Williams. "The evil dictator has been caught in a spider hole"
Now , thats economics!
Vladimir: That's what you think.
- Samuel Beckett, Waiting For Godot
All the more reason to buy more common date gold XF Libs and Saints.
This describes the US situation for at least 30 years, and it's been getting progressively worse and worse. Helloooooooooooooo!!!!!