Saturday, September 4, 2010

The Economy - September 2010

NOTE: Thomas Straubhaar lives in Germany and wrote these columns for Der Spiegel.

America Has Become Too European - Thomas Straubhaar
A firm belief in the individual's ability, ideas, courage, will and a reliance on one's own resources brought the US to the top. The American dream promised everyone the chance of upward mobility -- literally from rags to riches, from minimum wage to millionaire. The individual's pursuit of happiness was seen as the crucial foundation for the well-being of society, rather than the benevolent state which cares for its subjects -- and certainly not the welfare state, which provides a social safety net for its citizens.

In the American system, every man was responsible for himself -- in good times and bad. No one could count on government assistance, not even the wannabe millionaire who did not make it and ended up homeless.

For many US citizens, the financial crisis has turned the American dream into a nightmare. Millions of Americans are struggling with high levels of debt, and not only because they bought overpriced houses during the housing boom and can no longer afford their mortgages. Often families are burdened with loans they took out during better times for cars, furniture, electronic gadgets or university tuition.

A Return to Traditional American Virtues - Thomas Straubhaar
Both the behavior of the American government and the Federal Reserve makes one thing clear: They do not see the solution to the US's economic woes in a return to traditional American virtues. Obama is not calling for the unleashing of market forces, as Ronald Reagan once did during an equally critical period in the early 1980s. On the contrary: Obama, driven by his own convictions and advised by economists who believe in government intervention, has taken a path that leads far away from those things that catapulted America to the top of the world in the past century.

The Obama administration's current policies rely on more government rather than personal responsibility and self-determination. They are administering to the patient more, not less, of exactly those things that led to the crisis.

Our Debt Is More Than All the Money in the World - Kevin D. Williamson
I have argued that the real national debt is about $130 trillion. Let’s say I’m being pessimistic. Forbes, in a 2008 article, came up with a lower number: $70 trillion. Let’s say the sunny optimists at Forbes got it right and I got it wrong.

For perspective: At the time that 2008 article was written, the entire supply of money in the world (“broad money,” i.e., global M3, meaning cash, consumer-account deposits, checkable accounts, CDs, long-term deposits, travelers’ checks, money-market funds, the whole enchilada) was estimated to be just under $60 trillion. Which is to say: The optimistic view is that our outstanding obligations amount to more than all of the money in the world.

Global GDP in 2008? Also about $60 trillion. Meaning that the optimistic view is that our federal obligations outpace the entire annual economic output of human civilization.

Interview With Marc Faber: It Is Not A Matter Of If With Hyperinflation, But When - Ron Hera
HRN: Do you think hyperinflation in the US is possible?

Dr. Marc Faber: The Federal Reserve doesn’t want to create a hyperinflation. I mean Mr. Bernanke may be incompetent, but he’s not an evil person per se. He just doesn’t have sufficient knowledge to be a central banker, in my opinion, and has misguided economic theories, but he’s not evil in the sense that he would not wish to debase the currency entirely. Clearly, if the US economy moves into a double dip recession and you have deflationary pressures reappearing, in the housing market, for example, and if the S&P drops from roughly 1,100 down to say 900, then I think further monetization will happen. I believe that because of the unfunded liabilities and the deficits of the US government, which will stay high for a long time; sooner or later there will be more monetization anyway.

It’s more a question of when it will happen rather than if it will happen. For sure it will happen but will it happen right away, say in September, or maybe only in two years time? Eventually, before everything collapses we’ll have an inflationary bout which may not be so strongly felt in consumer prices, as in stocks or housing or precious metals prices or in commodities like oil; or inflation could occur mostly in foreign currencies, in other words, in Asia where the currencies could appreciate.

Obama Stimulus Made Economic Crisis Worse, `Black Swan' Author Taleb Says
- Frederic Tomesco
U.S. President Barack Obama and his administration weakened the country’s economy by seeking to foster growth instead of paying down the federal debt, said Nassim Nicholas Taleb, author of “The Black Swan.”

“Obama did exactly the opposite of what should have been done,” Taleb said yesterday in Montreal in a speech as part of Canada’s Salon Speakers series. “He surrounded himself with people who exacerbated the problem. You have a person who has cancer and instead of removing the cancer, you give him tranquilizers. When you give tranquilizers to a cancer patient, they feel better but the cancer gets worse.”

Today, Taleb said, “total debt is higher than it was in 2008 and unemployment is worse.”