Heinz on Don Coxe Article
Don Coxe:
corporate.bmo.com
Email reply from Heinz
Hi Mike,
1. health care costs:
"In all other nations, governments pick up most of the cost for employees and all-or almost all the costs-for retirees. "
this is a highly misleading statement. the 'government' means the 'tax payers' - iow, the money has to be extorted by the government SOMEHOW, SOMEWHERE.
as it were, the "Lohnnebenkosten" as they are called in Germany (i.e., those costs a company must pay in addition to an employee's salary), are far higher in Europe than in the US. this includes everything from pension, health care, jobless fund contributions, to in some places even a 'metro tax' (a special tax to pay for a city's underground rail network), and so on. for instance, an employee earning EUR 5,000 gross per month costs a company about EUR 12,000 - 14,000 in Austria or Germany, NOT counting the fact that he has to be paid 14 times a year (there's a double salary payable in summer, essentially paying for an employee's vaction, and one around Christmas time, to pay for an employee's X-mas expenses). so while it's true that health care costs in the US are soaring, it is NOT true that US companies have therefore a 'competitive disadvantage' vs. companies in other industrialized welfare states.
2. dollar devaluation:
"The stock market crash of 1987 was triggered by a sudden, market-driven plunge in the dollar, which caused a crisis in the Eurodollar market."
this is not true, insofar as there was nothing 'sudden' about it. at the time of the '87 stock market crash, the dollar had been declining for 2 years already, and eurodollar futures had been under pressure throughout '87 (the Fed was busy raising the FF rate all year ). while it could be argued that Baker's threat to Germany over the weekend prior to the '87 crash to allow the dollar to decline even more unless 'Germany did something to revive growth' was a contributing factor, along with the then record monthly trade deficit of $17 bn., it was likely a combination of persistent dollar and bond market weakness, plus a clearly overbought stock market and the unfavorable news backdrop that triggered the crash. the crash itself then was worse than it would otherwise have been due to the 'portfolio insurance' strategy and unlimited program trading (i.e. program trading sans 'curbs') . in any case, the argument that the stock market crashed because of a 'sudden' dollar devaluation makes no sense and doesn't jibe with the historical facts.
however, it IS likely that the dollar will fall further (long term anyhow - short term it looks a tad oversold, and the speculator short positions in it are too big for bear comfort), and it is even likely that this will eventually take the form of a crisis, i.e. a large fall in a short time span.
but there's nothing anyone can do about this , so discussing 'policy options' is a complete waste of time. the time to take effective countermeasures has long passed, the unrestrained credit creation by the Fed during most of the 90's and especially over the past 5 years can't be undone anymore via 'policy', so economic history will run its course and do its bit to impose a correction of the imbalances via market forces.
should the athorities attempt to intervene (be it to let the dollar down 'gently' or whatever else they have in mind) it would only serve to worsen what is potentially already a very bad situation.
regards,
hb |
