Date: Tue, 25 Mar 2008 23:47:20 -0400
From: "Bosco D'Mello" <[EMAIL PROTECTED]>
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Mario Goveia responded with his typical defensive response vis-a-vis business
cycles:
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http://lists.goanet.org/pipermail/goanet-goanet.org/2008-March/070642.html
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Mario responds:
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Hey, Bosco,
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Pardon me for being "defensive" by pointing out the simple fact that the US
goes through business cycles every few years and that the last two have been
about double the period of previous cycles because of the success in
controlling US inflation. This well known fact seems to have mostly escaped
the attention of the other "experts" you have cited, who tend to think that
"this time" everything will be different, yadda, yadda, yadda. Maybe. Maybe
not. I have seen "this time it will be different" come and go numerous times
in the almost four decades I have lived here.
>
US economic policy depends on certain basic principles which generally fall
towards the capitalist end of the spectrum of policy options, modified from
time to time by the politics of which party has the votes in government.
>
At the risk of being "defensive", here are some observations on certain
excerpts from the TIME magazine article, which is a great article to explain
why the US economy is different from that of most other countries.
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http://www.time.com/time/magazine/article/0,9171,1725094,00.html
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Excerpt: It also means that those mounds of dollars held by central banks and
investors from Tokyo to Kuwait City are also deteriorating in value by the day.
Yet the world can't just dump its dollars. Not only would that be incredibly
destabilizing to the global economy, but it also would be effectively
impossible. The dollar has been the reserve currency for decades and there are
just too darn many of them out there to be converted into something else.
Bankers in Beijing, Hong Kong and Dubai are stuck with the rotting stacks of
greenbacks.
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Mario responds:
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These comments may sound clever, but there are no "rotting stacks of
greenbacks". These funds are all in bank accounts, earning interest, mostly
invested in US Treasury securities and other short term US dollar investments.
>
Schuman is correct about the difficulty of "dumping" dollars without
destabilizing the global economy. This would include destroying the demand for
the goods and services of China, India and other foreign supplier countries.
The US imports more than it exports, has done so for decades, and the last time
I checked, that has hugely benefited the economies of those countries and
created this situation in the first place. Just imagine India's economy, or
China's, today without purchases by US buyers.
>
If most Americans start saving like people in other countries, rather than
spending like they always have done, the global economy will have to endure an
economic slowdown and adapt to the loss of its primary economic engine.
Fortunately, that is unlikely to happen. Even immigrants from countries with
savings cultures become spenders in the US. That's the American way, whether
the rest of the world likes it or not. Actually, the rest of the world loves
it, because what would happen to their economies without American spending?
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Schuman continues:
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Excerpt: So the outcome is inevitable. As the financial crisis in the U.S.
persists, the combination of decreasing asset prices and a weakening dollar
will make the U.S. cheaper and cheaper to foreign investors. Irresistibly
cheap. The U.S. is, after all, still a highly desirable place to own property,
companies and securities. Foreign investors will see the crisis as a golden
opportunity to buy prime pieces of Americana at bargain-basement prices. So all
those dollars in banks around the world will flood back into the U.S. to buy
stocks, bonds and property. Debt-burdened Americans, desperate for fresh cash,
will be only too happy to sell — or be forced to sell. The U.S. will become one
giant garage sale, where the buyers are Japanese banks, Chinese state-run
investment funds and oil-rich Arab sheikdoms.
>
Of course, we've heard all of this before. For the past two decades, pundits
have warned of the dangers of the trade deficit, while the U.S. has powered on.
The big difference these days is that far more countries are awash in dollars
today than there were in the 1980s. Even back then, if you remember, Japan
recycled its surplus into U.S. assets when the dollar weakened in the late
1980s.
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The upside to greater foreign investment in the U.S. will be the strengthening
of the dollar and the resurrection of stock and property prices. The downside
is that the foreign business community – especially in Asia – will own larger
swaths of the U.S. economy. And it is these foreign buyers who will benefit
from the increases in the value of assets and the dollar.
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Mario responds:
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Schuman is right, but this is nothing new. Foreign holders of US dollars have
always bought US assets, whether they be financial assets or companies or farms
or commercial property. 80% of commercial property in Honolulu, for example,
belongs to Japanese owners. Europeans own and manage huge farms and commercial
property across the US. The US has never shied away from foreign ownership of
US assets. It wants foreigners to buy US assets, which benefits US sellers,
than assets anywhere else. That way the foreign owners develop a vested
interest in the US and its economy creating a win-win situation for everyone.
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Unlike the paranoid discussions on Goa and its identity being taken over by
"foreigners", in the US this is considered a good thing, because, unlike most
other countries, the US has always belonged to "foreigners".
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Almost every American has descended from "foreigners" - like my kids and
grandkids - or was a "foreigner" not too long ago - like me.
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The US has become the world's only surviving superpower by using other people's
brains and other people's money - always has, always will. Most of the
American Nobel Laureates in medicine and the sciences were foreign born - but
had to come to the US to maximize their intellects.
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I hope this helps Bosco to sleep better with those Canadian pesos burning a
hole in his pocket:-))
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Hey, Bosco, drive down to Buffalo, New York, why don't you, and shop at the
local malls there. We love your money, ...er, business, baby!
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