Defrocked,
>> Keep in mind that the Japanese adopted a similar superior and insular attitude for two years after the 1987 crash.
Although you make many excellent points in your post this is my favorite. An attitude of superiority is what destroys people, companies and nations! Instead of dealing with our problems and focusing on answers we plow money into a giant casino game. Just thought I would mention a few problems since most people (not you naturally) have forgotten them 1: Lack of international competitiveness as evidenced by huge and growing trade deficits 2: dishonest government accounting as evidenced by a rising federal debt while declaring a budget surplus and while squandering excess social security funds 3: Sickening corporate accounting games like capitalized vapor and an endless stream of "one time charges" 4: out of control derivatives markets that no one fully understands 5: Money supply running out of control 6: War zones in the core of many of our cities 7: An educational system that provides unequal opportunity, ensuring a permanent under class 8: A lack of investment into energy conservation leading to the largest dependence on foreign oil in our history 9: No, or poor public transit systems ensuring that many people spend a large part of their productive lives parked on a beltline 10: .... you get the idea.
All of these problems and others are easily solvable, but as long as we pour all available resources into the stock casino game much like the Japanese poured money into their real estate game, even after the 87 wake up call, important issues will not be addressed. The Japanese assumed that they were superior and that they and their government had so much money that a fall in prices was impossible.
Similarly we assume that the fed can always create enough credit to ensure that the bubble never bursts. After all, we are the worlds reserve currency. The world has no choice other than to accept our currency and accumulate it in their central banks. NOT!
SEA has learned a valuable lesson - having a pile of US paper in the central bank doesn't help when hedge funds have bigger piles of leveraged paper. It's better and easier to let your currency float. Japan is also making it easier to price and transact business in SEA in Yen. Japan may yet have to sell US paper to deal with it's internal problems. Similarly, China may have to sell it's 200+ billion in US paper to deal with it's real estate and banking problems. The problem is that if any large player is forced to sell, everyone else will have to sell or stand by and watch their savings go down the drain. Who will be first? Will there be a first?
Europe has it's share of problems but they still seem determined to get out from under the dollar. If they capture 15% of the worlds transactions and reserves (they are 22% of the worlds economy - we are slight smaller at 19.6%) then around 1 trillion dollars will be dumped and exchanged for Euros. A trillion in the currency markets is not much, but when considered in light of the endless US trade and current account deficits it could be just enough to return it to it's long term downward trend, sending it sliding over the edge. Once the spiral starts, it wil be difficult if not impossible to stop.
Instead of a tax structure that rewards stupid options and buy backs games that creates a casino mentality, maybe we could create a tax structure that rewards exports and R&D. This way the dollar might retain is international reserve status and the economy could remain competitive over the long term. The confusion between luck and superiority will eventually sort itself out! |
