-Caveat Lector- from: http://www.aci.net/kalliste/ <A HREF="http://www.aci.net/kalliste/">The Home Page of J. Orlin Grabbe</A> ----- ------------------------------------------------------------------------ Today's Lesson from Cat's Cradle by Kurt Vonnegut We watched the Laboratory's receptionist turn on the many educational exhibits that lined the foyer's walls. The receptionist was a tall, thin girl--icy, pale. At her crisp touch, lights twinkled, wheels turned, flasks bubbled, bells rang. "Magic," declared Miss Petko. "I'm sorry to hear a member of the Laboratory family using that brackish, medieval word," said Dr. Breed. "Every one of those exhibits explains itself. They're designed so as not to be mystifying. They're the very antithesis of magic." "The very what of magic?" "The exact opposite of magic." "You couldn't prove it by me." Dr. Breed looked just a little peeved. "Well," he said, "we don't want to mystify. At least give us credit for that." ===== US Stockmarket Greenspan's Bubble God is dead. WHEN The Economist described America’s economy as a bubble in April 1998 and advised Alan Greenspan, the Federal Reserve’s chairman, to raise interest rates to pop it, many people dismissed our warnings. Today, the Dow is even higher than it was, the economy is enjoying robust growth and the core rate of consumer-price inflation has fallen to a 33-year low. So were we wrong? Sorry to be party-poopers, but America’s economy still looks horribly bubble-like. A drop in share prices this week, as central bankers and finance ministers gathered for the annual meetings of the IMF and the World Bank, was a timely reminder that a collapse on Wall Street remains the biggest threat to the world economy. Not convinced? Consider the three most common criticisms of the idea that there is a financial bubble. First, it is argued, higher share prices are justified by improved fundamentals. In a month that has seen the publication of three books with progressively ambitious titles—“Dow 36,000”, “Dow 40,000” and “Dow 100,000”—it seems churlish to quibble. But the climb in share prices over the past year proves neither that the market is correctly valued nor that the bubble is a figment of our imagination. History shows that markets do overshoot and that bubbles can persist for some time—indeed, that is their nature. It also shows that the bigger a bubble gets, the greater the excesses it creates in the economy—and the bigger the bang when it eventually pops. It is, in truth, impossible to know whether share prices are overvalued right now. But over the past year or so, evidence of a bubble has mounted with every sign of excess elsewhere in the economy. Households and firms are on a borrowing spree. The private sector’s financial deficit has risen to an unprecedented 5% of GDP (in the previous 50 years it has never exceeded 1%). Money-supply growth is rapid. And America’s current-account deficit is heading for a record 4% of GDP this year. These are all classic symptoms of a bubble. When assets become liabilities What about the second objection: that even if shares are overvalued, why should the Fed worry? America’s inflation rate is low, so there seems no case for higher interest rates. But inflation has been held down by many one-off factors—such as a strong dollar and, thanks to weak demand in the rest of the world, low commodity and import prices—which may already be going into reverse. But more important, central banks should not ignore another sort of inflation: in the prices of assets, such as shares and property. Our survey of the world economy in this week’s issue argues that many central banks have focused too narrowly on consumer-price inflation. Excessive rises in asset prices can be as dangerous as conventional inflation. Sudden surges in wealth can, for example, encourage excessive borrowing, which, when borrowers are forced to readjust their finances, can cause a painful hard landing. In its latest World Economic Outlook, published this week, the IMF argues that conventional inflation can sometimes be a poor gauge of whether an economy is overheating, and urges central banks to pay more attention to other signs of imbalance, such as rising asset prices, rapid credit growth, private-sector financial deficits and current-account deficits. The IMF suggests that overheating in asset markets may call for monetary tightening not only when it threatens an increase in product-price inflation, but also when asset prices increase to unsustainable levels that threaten to destabilise the economy. This does not mean that the Fed should adopt a target for the Dow. But it should take more account of the impact of asset prices on the economy. Mr Greenspan has worried long and hard about share prices since his “irrational exuberance” speech in December 1996, but he seems to have concluded that there was nothing he could do. Why? Partly, perhaps, because of the third popular criticism of our bubble thesis: that it is too risky, both economically and politically, for a central bank to prick a bubble by raising interest rates. It is hard to tell when and by how much rates should be raised. And the Fed, like other central banks, has a mandate only to deliver stability in consumer prices. If the Fed deliberately tried to push down share prices, it would quickly come under fierce attack. Deciding when to prick a bubble is indeed devilishly hard. But that is no reason for inaction. Instead, it argues for acting pre-emptively to prevent a bubble inflating in the first place—as the Bank of England recently tried to do by raising interest rates in response to rising house prices, even though inflation was below its target. The Bank sensibly wants to prevent a repeat of the late-1980s housing bubble. And its action also belies the claim that it is politically impossible to raise interest rates without hard evidence of rising inflation. In recent years, Mr Greenspan has been taking a big risk by not having tightened policy when he first thought a bubble might be forming, or subsequently. There were plenty of signs of overheating, such as rampant consumer borrowing, that he could have used to justify higher interest rates. His second risky move was to cut rates three times last autumn in response to financial turmoil, when policy was already lax, and then to fail to take back this easing as soon as financial markets had stabilised. The Fed has thereby fostered the impression that it will slash interest rates when share prices fall sharply, but not increase rates when they shoot up. This apparent asymmetry has created a form of moral hazard that encourages investors to take bigger risks. What should the Fed do now? Trapped by the bubble, Mr Greenspan’s room for manoeuvre is limited. Perhaps Wall Street will slide slowly downwards, letting air gently out of the bubble. But history suggests that this is unlikely. America’s economy shows no sign of slowing; July’s record trade deficit confirms that strong consumer spending is sucking in imports. Unless share prices collapse, the Fed should raise interest rates again to cool things down and to signal that it is not underwriting the market’s value. If it does nothing, the Fed runs the risk that, when Wall Street does eventually fall, inflation will be rising and the dollar falling, making it harder to ease monetary policy to offset the effects of a crash. One bonus is that the rest of the world economy is in a much healthier state now than it was a year ago. By the same token, a sharp fall on Wall Street may be less of a worry. Even so, if America’s stockmarket and its economy dive, it is vital that policymakers in Europe and Japan ensure that their economies pick up the extra slack. If the Bank of Japan, for instance, were to persist with its refusal to ease monetary policy even as America’s economy stalled, the world economy would take a nasty tumble. It would be best if we were wrong about America’s bubble. But prudent central bankers should not assume that we are—for the downside risk is huge. The Economist, Sept. 24-30, 1999 Official Biography Ronald Reagan Tried to Join the Communists? George Bush called a "downstair's person". RONALD REAGAN tried to join the American Communist Party in 1938 but was rejected by its leaders in Los Angeles, according to his official biography to be published next week. The former president's flirtation with Marxism as a 27-year-old was an unlikely prelude to a political career that was largely spent fighting the threat of Soviet communism. Among its other disclosures, the biography reveals that Mr Reagan had little respect for George Bush, his vice-president for eight years, and viewed him as a "downstairs person" who lacked political courage. But more than four decades before he reached the White House, Mr Reagan held discussions with American communists about joining their ranks. The talks took place the same year he joined the Screen Actors' Guild, in which he became a well-known activist, his biographer writes. At the time the United States was still in the grip of economic depression and many Hollywood actors were starved of work. According to Edmund Morris, the biographer, Mr Reagan applied to become a member of the Californian branch of the American CP but was rejected because leading figures in the party thought the $200-a-week actor was "a flake". Later he played a prominent role in the blacklisting of actors suspected of communist sympathies. By the Sixties Mr Reagan was a convinced conservative. He joined the Republican Party and went on to become one of the most popular and successful presidents in American history. The revelation of Mr Reagan's disdain for Mr Bush, the loyal deputy who became his successor, throws new light on the tensions within the White House as Vice-President Bush struggled to get his own presidential campaign off the ground. It will also cast a shadow over the presidential campaign of Mr Bush's son, George W Bush, the Texas governor. According to Morris, who devoted 14 years to the book, Mr Reagan formed a dim view of Mr Bush while they were both candidates for the Republicans' presidential nomination in 1980 - a contest that Mr Reagan won. After agreeing to a one-to-one debate with Mr Bush in New Hampshire, the scene of the crucial first primary election, Mr Reagan invited other candidates to join in. Instead of objecting, Mr Bush sat silently by, allowing his rival to change the rules and dominate the event. "Reagan was a man who admired strength," Morris said. "I think he perceived Bush, when Bush wimped out, as a man who gave in to pressure . . . I sensed very strongly that Reagan thought Bush was not all man." Dutch: A Memoir of Ronald Reagan, the 864-page book to be published by Random House, was commissioned in the Eighties when Mr Reagan was president. Morris was given unprecedented access to White House meetings and had monthly conversations with his subject. Mr Bush is quoted in the book, complaining that the Reagans did not appreciate him or his wife. "I really love that guy, he's such a terrific fellow," Mr Bush told Morris on Christmas Eve 1988, less than a month before becoming president. But he added: "I kinda wished they'd shown,ya'know, a little appreciation. Didn't seem to want us upstairs in the White House." Barbara Bush added that she and her husband always thanked the Reagans for their gifts but Mr Bush said they had not had "a word of thanks" for a present they had given the Reagans. Mrs Reagan regarded Mrs Bush as "the help" and Mr Bush likewise, according to Morris - "downstairs people, not upstairs people". Morris has already made waves by disclosing that he found Mr Reagan "an apparent airhead" and said that he began to decline mentally after he was shot in the failed assassination attempt of 1981. But he said that Mr Reagan "retained a useful intelligence" until three years after leaving office. Mr Reagan, who is 88, was diagnosed with Alzheimer's disease five years ago and has since withdrawn from public life. In a recorded interview to be broadcast by the CBS News programme, 60 Minutes, today, Morris said that Mrs Reagan had not yet seen the book. Asked if he thought the former First Lady would like it, he said: "My guess is that she's going to be disturbed by it, because it observes her husband very, very objectively. And I do not hide the fact that Reagan was frequently an old spaced-out man, inattentive to details . . . that he was boring in private." But the book is understood to provide a more balanced view of Mr Reagan than the author's recent comments suggest. Previously he had said that its biggest revelation was that Mr Reagan was a person "of considerably more deliberation and philosophical seriousness than he's been given credit for". The book has aroused more controversy for its form than its content. In a literary device that critics say is more in keeping with a novel than a serious biography, Morris has invented himself as a contemporary of Mr Reagan, narrating events from his youth as if he had witnessed them. The author, who is 59, was not born until after Mr Reagan had embarked on his Hollywood career. He spent his early years in Kenya, South Africa and England. A string of former Reagan aides, some of who helped Morris in the White House, said they were disturbed by his technique, which, with source references to invented diaries, runs the risk of confusing fact and fiction. The London Telegraph, Sept. 26, 1999 Austria Uberfremdung and Austrian Politicians Hitler was a good old boy. JORG HAIDER, the far-Right Austrian politician who once praised Adolf Hitler's employment policies and described the Waffen SS as "loyal patriots", is on the verge of taking national office for the first time. The Freedom Party (FPO), led by Mr Haider, is set to replace the traditionally conservative People's Party as Austria's second-largest party after next Sunday's general elections. An expected 30 per cent share of the vote will give Mr Haider the prospect of a place in a new coalition government and destroy the "grand alliance" between social democrats and conservatives that has held power in Vienna for a generation. No other European party of the far Right has been so close to power since the Second World War. Mr Haider's "march on Vienna", as his supporters are calling it, has transformed the normally sedate political scene in the Austrian capital. A Porsche-driving millionaire famed for his athletic good looks, the maverick politician has based his populist campaign on an anti-immigrant platform. He has also gathered a collection of household names in Austrian showbusiness and sport around his banner, including the blonde television presenter Teresa Zieler, and the former Olympic ski champion Patrick Ortlieb. The combination of glamour and fierce nationalism has caused consternation among his political rivals. Last week, President Thomas Klestil said that a triumph for Mr Haider could serve to make Austria "ungovernable". A series of stunning regional results for the FPO have fuelled Mr Haider's optimism. The latest triumph, in Vorarlberg last week, saw local conservatives lose their majority for the first time since the war. The FPO scored a record 27 per cent. The People's Party has vowed to go into opposition if it finishes behind the FPO next Sunday, but some prominent members have said that they would be willing to negotiate with the previously ostracised Mr Haider. FPO supporters have flooded Vienna with lurid posters promising a "Stop to the foreign invasion" and a new emphasis on family and morality. Opponents have defaced images of Mr Haider - wearing a designer-suit and sporting his usual tan - adding Hitler moustaches and anti-Nazi slogans. The FPO plans to close Austria's borders to foreigners for up to four years and attempt to block European Union expansion to the east. Mr Haider also intends a two-tier "Austrians First" welfare system that would discriminate against foreigners legally resident there. Non-Austrian women will be excluded from a proposed child benefit payment of £280 a month, the centrepiece of the FPO's family-centred welfare proposals. Anti-Haider campaigners plan a legal challenge to the Austrians-only policy as unconstitutional. A previous policy to repatriate aliens who failed to find work within three months has been shelved. In an interview with The Telegraph, Mr Haider said that the FPO would be prepared to negotiate a possible coalition with either the social democrats or the conservatives. He defended his party's radical stance on immigrants. "We have seven million Austrians in Austria and one million immigrants if you include illegal entrants," Mr Haider said. "That's too many foreigners for such a small country. What we're proposing is not so radically different to what the French have done at times." FPO workers also point to a government poll which found that more than half of Austrians are in favour of stopping all immigration. The fierce debate over foreigners, and the FPO's constant use of the slogan "Echte Osterreicher" (True Austrians), has re-ignited controversy over Mr Haider's alleged neo-Nazi sympathies. In the early Nineties his political career appeared to have been destroyed by a series of gaffes over Austria's Nazi past. In 1991 he was forced to stand down as state governor of Carinthia after praising Hitler's employment policies. Four years later he was vilified for describing Nazi concentration camps as merely "penal camps" and informing a gathering of ex-Waffen SS soldiers that they were "decent men with character". The senior Conservative Erhard Busek said at the time that Mr Haider was "a political dwarf; quarantine is appropriate so that the rotten bacillus dies". But in March Mr Haider was re-instated as governor in Carinthia after winning 40 per cent of the vote. Finally close to real power in Vienna, Mr Haider is now keen to play down his past. "I have played the crocodile-in-chief for many years to wake Austria up a bit," he said. "But a return to confrontational opposition politics now would be fatal. There were a lot of misunderstandings back then. All I was trying to do was give a fair understanding of the past." But Mr Haider's critics allege that FPO policies still have a clear affinity with neo-Nazi ideology. "Look at the word 'Uberfremdung' which he uses when talking about immigration," said Paolo Budroni, a political researcher at the University of Vienna, "It means over-population by foreigners. The last person to use it was Josef Goebbels." The London Telegraph, Sept. 26, 1999 ----- Aloha, He'Ping, Om, Shalom, Salaam. Em Hotep, Peace Be, Omnia Bona Bonis, All My Relations. Adieu, Adios, Aloha. Amen. 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