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Politics : Ask Michael Burke -- Ignore unavailable to you. Want to Upgrade?

To: allen menglin chen who wrote (83167)	8/21/2000 1:22:59 PM
From: Thomas M.	Read Replies (2) \| Respond to of 132070

From Barron's: <<< Foreigners own over $6.4 trillion of U.S. assets (66% of U.S. gross domestic product), compared with U.S. holdings of foreign assets of $4.7 trillion (48% of U.S. GDP). In 1990, foreigners owned assets valued at just 33% of GDP. On net, the U.S. has an unprecedented asset imbalance equal to 18% of U.S. GDP. Foreigners also own a record 38% of the U.S. Treasury market. Excluding securities owned by the Fed, foreigners own an astounding 44% of the liquid government securities market. They also own a record 20% of the U.S. corporate bond market. To put these figures in perspective, foreigners own just 8% of the U.S. equity market, 14% if you include foreign direct investment in U.S. companies. Simply put, the bond market is on the front line if international investors shun dollar-denominated assets. >>>

To: allen menglin chen who wrote (83167)	8/21/2000 11:36:27 PM
From: Earlie	Read Replies (2) \| Respond to of 132070

Allen: U.S. corporate debt levels: Your friend has mis-interpreted my point re U.S. companies borrowing in Europe. Many U.S. companies ARE carrying historic levels of debt (he should examine a few balance sheets if he thinks otherwise,... IBM as an example), but much of that debt was acquired in the U.S. A significant Europe/U.S. interest rate differential (2%)is a relatively recent thing, (and says much in and of itself,... remember the smugness relating to the "Japan Premium" of a few years ago?) and it has only been since this differential appeared that it made sense to borrow in Europe. The point made was that much of the money flowing from Europe to the U.S. (which puts downward pressure on the Euro and upward pressure on the U.S. dollar and also offsets some of the massive trade deficit) is debt,... more debt on top of already worrisome levels of debt. The other point, which I sort of thought would be obvious, is that part of the current strong U.S. dollar and weak Euro has resulted, not from strength in the U.S. economy (as is trumpeted by the talking heads), but from borrowing by U.S firms. Euro as "reserve currency". Perhaps your friend missed the importance of the words "reserve currency". At the moment, there is only one "reserve currency" in the world and that is the U.S. dollar. My point is that the Euro is emerging as an alternative "reserve currency",.... and one that does not hump the baggage that encumbers the U.S. dollar. If (when?) the Euro becomes an officially recognized "reserve currency" (which appears inevitable), then the U.S. buck, bonds and treasuries take it in the ear. Any events that move the Euro closer to "reserve currency" status, pounds another nail into the coffin of the U.S. dollar as the world's exclusive "reserve currency". It makes little sense to me to ignore this inexorable progression. I think your friend needs to have another look at the European economic numbers. Aside from the fact that they are not tortured with accounting baloney as are the U.S. numbers, they paint a picture of a continent that is getting its act together very nicely. Your friend reminds me of BGR, who frequently talked about Europe as it used to be, not Europe as it is emerging today. I have no ax to grind with respect to Europe. In fact, I don't even like visiting over there. That said, I also prefer my head well clear of the sand. Sure, Germany has specific problems, but it has still done a remarkable job with respect to getting the former East Germany off its back (incredibly expensive, but largely completed) and its economy is humming (have a look at that country's exports if you want an eye-opener). That Germany is experiencing a "dismal economic situation", is utter nonsense. The Euro not backed by 15% gold? Then I guess their central bank is just telling fibs when they state as much. As a passing comment, at least the gold held by central banks over there has been recently audited, so there is no question as to the fact that the gold is actually there. Check when the last audit of U.S. gold holdings took place and guess which government refuses to allow the conducting of a new independent audit, in spite of many requests for same. Euro baggage vrs U.S. dollar baggage. How do we spell order-of-magnitude? How many zeros are there in $1.6 trillion? Maybe the Euro will pick up plenty of baggage over time, but it simply hasn't been an abused reserve currency for decades, hence the opportunity to paper the world hasn't been available. I note the gentleman's summary comment with respect to the value of my comments. Of course, everybody is entitled to his perspective. We shall see which of us has completed the more intelligent research as time goes by. (g) Best, Earlie

To: allen menglin chen who wrote (83167)	8/22/2000 12:27:42 PM
From: Louis V. Lambrecht	Respond to of 132070

allen - "Euro backed with 15% gold" BS ? Yes, as per Jun, the gold reserves only were 14.32% ecb.int

To: allen menglin chen who wrote (83167)	8/22/2000 10:26:25 PM
From: pater tenebrarum	Read Replies (1) \| Respond to of 132070

allen, just to put some hard figures on it: over the past 12 months, Euro denominated borrowing by US entities has amounted to well over $300 billion. i know, chump change in the mania, but set to dramatically expand now that the GSE's are looking to Europe as well in order to further bloat their balance sheets. over time, the interest payments on these borrowings will reverse the flow of funds to some extent and could tip the balance in favor of the Euro. just to make this clear, i also reside in Europe, and i agree with Earnie that there is a tendency to restructure and reform the up until recently sclerotic economic systems of the Euro zone members. to wit, Germany's recent tax reform, which France is set to emulate asap. deregulation is proceeding apace in all sorts of industries, state controlled industries have largely been privatized, and red tape is being struck down in several regions (not as fast as one would like admittedly...but progress is still progress). the single currency actually forces reform. much remains to be done of course, especially regarding the EU administrative and budgetary nightmare that has its home in Brussels. the Euro is indeed 15% gold backed. anyone claiming otherwise doesn't know what he/she speaks of. i notice also the claim that the DM never had gold backing, which is also untrue. the BuBa continues to hold over 3,000 tons of gold. of course the US dollar is also partially backed by the gold reputedly still at Fort Knox, and the Euro is not on a gold standard by any stretch of the imagination. however, the former national CB's all still hold large amounts of gold...France also has 3,300 tons, and no plans to sell any. so if push came to shove, the gold backing of the Euro could be increased anytime. note, the 15% are not set in stone, as the gold is marked to market on a regular basis. finally, private sector debt in the US (corporate and household) is at a world and historic record in every possible dimension, both in absolute numbers as well as relative to GDP/equity/disposable income. it is an immense ponzi pyramid, that grows approximately 5 times faster than GDP...and that is using the hedonically inflated bogus GDP numbers. last year over $10 trillion in short term US denominated debt was outstanding and needs to be rolled over every six months or less (presumably the figure has grown in the meantime).there has been an unfortunate tendency to shift much debt on corporate balance sheets towards shorter durations -potentially deadly in a credit crunch. GE Capital has enough leverage to wipe out its entire equity base of $9,5 billion if only 4% of its assets (loans,securities)became impaired to the point of unrecoverability to cite an example. as a side effect of this burgeoning credit bubble, $ 35 trillion in notional value of derivatives is now outstanding at US financial institutions. these derivatives are designed to hedge individual risk, but have vastly increased systemic risk in case of a series of counterparty failures. this is the Achilles heel of the boom - already this year more junk bonds have gone into default than were issued, and default rates in junk bond land are at levels normally associated with recessions. imagine a recession were to actually occur at this point in time - it could lead to a deflationary collapse a la Japan. good night! hb

To: allen menglin chen who wrote (83167)	8/22/2000 10:49:35 PM
From: pater tenebrarum	Read Replies (2) \| Respond to of 132070

allen, for a little graphic representation of the US credit bubble, take a gander at this slide show: prudentbear.com the numbers are truly staggering...of course, you never hear the good chairman mention this...here is another graphic look at the bubble's anatomy, this time including some other imbalances as well...one more eyepopping than the next. no wonder the printing presses are running at full speed: contraryinvestor.com if any of this should trouble you, may i propose the solution which has proven most profitable for all stripes of leveraged gamblers thus far, which is, take a Prozac, and buy the dip...-g- regards, hb