< regards corruption being one the core problems
in global economics>
Max, thanks for the article on corruption. I'm afraid that although throwing money at a problem has never solved the problem, unfortunatly it may continue to be the only solution.
Perception can alter reality. If enough people believe something, then it is real. How many articles have you seen over the weekend tying in the world's economic problems directly with our economy ? Did you see the article about Asia's woes affecting Western U.S. business ? How about Latin America's problems affecting Florida ?
I didn't see anything about how U.S. buying abroad is affecting other economies. How about a spotlight on the growing industries oversees catering to America's needs ? Perception is turning very negative and is of immediate concern.
All in all and regardless of what the best policy or solution is, we will inevitably continue to pour money to solve problems.
Here is a doom and gloom picture portrayed by Ed Yardini in his newsletter:
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In my opinion, the global economy is slipping into
a recession. This is confirmed by falling commodity prices. The recession
could become a depression, i.e., a recession which does not respond to
easy monetary policy. By this definition, Japan is in a depression with
the bond yield there recently falling under 1% and an overnight rate of
0.25%. Indeed, Japan is the epicenter of global deflation and could cause
a global depression much as the US did so in the 1930s when we passed the
Smoot-Hawley Tariff during June 1930. Today's global-commerce-killer is
the collapse of Japan's banking system, which is causing a deadly global
credit crunch. Japan's depression is likely to push US and Europe into
recessions late next year.
What can be done? Many Japanese banks are totally insolvent and must be
nationalized. Public funds must be used to restructure the banks and to
boost bank lending. The WSJ reports that Japanese lawmakers just agreed
to a vague plan that will do this. However, this will be painful and will
reveal the magnitude of the Japanese banking crisis, which should be a
shocker. Japan needs to provide a huge tax cut to consumers immediately,
but discussions on this issue aren't scheduled to begin until January.
The Fed needs to cut interest rates. I favor an attention-grabbing
full-point cut in the US discount rate. More likely, the Fed folks will
cut the fed funds rate by 25 bp at Nov. 17 FOMC meeting.
I still believe US stocks are in a bear market. But they should trade
between 7400 and 8200 through March 1999 with much volatility as bears
focus on disappointing earnings and global risks, while bulls focus on 1)
stabilizing policy initiatives in Japan, Russia, and Latin America and 2)
easier monetary policy in US and Japan. Nevertheless by mid-1999, I see
the Dow at 6400 because I remain bearish on global recession outlook,
earnings, credit risk, and Y2K. I am not rooting for a bear market. I
hope to see events unfold that will change my mind. For now, this is my
opinion, with the usual hedge clause displayed on my web site. |
