As you know, dear reader, we've been waiting for the End-
of-the-world-as-we-have-known-it, EOTWAWHKI for short.
The EOTWAWHKI hasn't exactly made the headlines. Life goes
on one day to the next pretty much as it always has. In
today's TIMES of London, for example, it is business as
usual: Tony Blair wonders whether his support of an
American war against Iraq will cost him the next
election...Michael Jackson admits he sleeps with boys...and
a naughty vicar has been charged with molesting male
prisons and buggery.
With so much going on, who noticed the smell of something
rotting?
"While the United States rules the waves as well as turf
and sky, I'm not so sure that we are, or perhaps will be
the economic powerhouse we once were," writes PIMCO's Bill
Gross. "Three years of stock market declines, a 20%
devaluation of the dollar over 10 months, and an inability
to serve as the global economy's locomotive despite massive
monetary and fiscal stimulation suggests America's 'shining
city on a hill' may have lost some of its sheen of late.
The US of A, it seems, is becoming less wealthy by the
minute, as foreign investment is withheld and in some cases
redirected to Chinese and other more attractive ports of
call. Economically, we may have begun a process of
hegemonic decay..."
Over the last 50 years, America's net foreign trade
position has gone from nearly 3% surplus to nearly 6%
deficit. These are big numbers. The current deficit runs
about $500 billion - that is the amount of foreign capital
required to keep Americans living beyond their means.
And now cometh the Bush Administration with a $2.2 trillion
budget. The central government proposes to seize and spend
about one out of every four dollars its citizens make. It
also proposes to run the biggest deficits in the history of
organized government - more than $300 billion in 2003 - and
a total of about a trillion dollars over the next 5 years.
This may not be the end of the world...but there's a whiff
of decay in the air. America's consumer credit expansion is
half-a-century old. Its continued credit needs...along with
an aging population burdened by debt, military ambitions, a
falling dollar, overpriced stocks...all of these things are
going to force the consumer to cut back and scale down.
"While that may not qualify as a trip to the poor house,"
Gross continues, "I have no doubt that such events signify
to at least some Americans a trip to a poorer house. Many
of us will have to adjust, either in the form of higher
unemployment, an increased price for imported goods, or
heavier indirect taxes in the form of higher inflation and
interest rates. Investment strategies, both bond and
equity, should put these secular reversals at the top of
their A list when considering opportunities to make
relative and absolute returns. Hegemonic decay will impose
costs unimagined just 16 months ago during the innocent
hours of September 10th, 2001."
But let's turn to Eric for the latest news from Wall
Street...and then we'll return to the EOTWAWHKI. |
