Grace,
I appreciate your posts of late. And Cobalt's, too. You both have brought out info of great value, IMO. I also agree with the importance of seeking out the opposite point of view.
Today I finished Unlimited Wealth by Pilzner. While I don't feel it's the greatest book I've read, he does bring new twists to focus. For example, he asserts there is no permanent store of wealth. He aserts the value of any resource is dependent on the technology used by society to transform that resource into value for consumption. For example, whale oil may have been a store of value early in the previous century, until displaced by refined petro.
Thus, it's imperative for people who've built wealth to constantly remain abreast of technology developments and their potential impacts on today's resources, seeking out temporary stores of wealth.
I mention this work because he offers a view on Japan's future and present state (published a decade ago) very different than my previous beliefs. He links the problems to Japan's propensity to save, which results from their not feeling 'rich'. And inefficiencies in the retail market, as a result of government regulation, that result in Japanese products costing consumers more than the same products would cost if purchased in other countries.
He believes that the Japanese are exporting their capital, manufacturing and best minds to other developed countries, in order to decrease the lag between product development and products on the shelves. Specifically ties this to the increasing proportion of time required for shipping in a shrinking product development cycle. Uses the development of transplant auto factories as an example of Japan exporting production which directly benefits the other nations, ie the US and Europe.
Regarding Debt/Trade deficit etc, he offers this parable;
A man with an annual income of $100,000 from his business, projected to increase approximately 4% or $4000 per year, owns a home worth more than $1,000,000, with a mortgage of $56,000. His annual mortgage interest payments total $5,600. He comes to ask you, a professional financial adviser, for advice.
It seems that in addition to a handicapped child who requires special education, the man has two children about to enter college and needs an additional $2500 a year to ensure that all his children receive a proper education. He has considered cutting back on the amount of money he reinvests each year in his business, but has been advised that taking out an additional $2500 a year from the business would jeopardize the business' projected 4% annual growth rate. He is already counting on the $4000 per annum projected annual growth rate in his income to meet rising living and educational expenses for his family. His banker has agreed to let him defer $2500 of his $5600 mortgage interest each year and add the deferred amount to the principal, thereby increasing the mortgage balance by $2500 annually. He doesn't know when he will be able to resume making the full mortgage payments, and wants your advice as to how long he should continue deferring interest before worrying that his mortgage balance is too high.
Since, as a rule of thumb, home mortgage payments should not exceed 25% of household income, you tell him that so long as he earns $100,000 per year, his mortgage balance can rise to $250,000 (requiring annual interest payments of $25,000) before he should be concerned. Deferring $2500 of his interest per year, it would take 28 years for his mortgage balance to reach this level. Further, if his income continues to grow at 4% per year as anticipated, at that point in time he would earn $300,000 per annum, which could justify a balance then of $750,000.
He suggests (in 1990) that this is analogous to the federal debt and deficit situation.
My take, as long as economic growth continues, the debt and deficit are less of a problem, at the federal or consumer level, then the bears would have us believe.
Only if the real cost of carrying the debt increases at a rate beyond the real income growth as an aggregate over a sustained period should this be a concern. The bears are fond of publishing absolute numbers using non-log graphs, and ignore stats relating debt to income in percentage terms.
Prior to this I'd read Doctor Doom: Riding the Millennial Storm. Another so-so book. Perhaps the most important concept was that of mild deflation being a chronic issue historically, and the link between improved productivity and deflation. Productivity does have a dark side, which also has a silver lining.
This ties in well with Unlimited Wealth, which references technology based productivity gains without noting the deflationary aspects.
FWIW, comments welcome. BTW- a memetic virus. <g> |
