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To: Jim Willie CB who wrote (4659)8/16/2002 12:16:56 PM
From: stockman_scott  Respond to of 89467
 
Currencies against the dollar

Aug 17th 2002
From The Economist print edition

So far this year, the yen and the euro have climbed by an eyebrow-raising 12% and 11% respectively against the dollar. Much more striking, however, have been the collapses of Latin American currencies: Argentina's peso has shed almost three-quarters of its value against the greenback; the Venezuelan bolivar has dropped by 45%; Brazil's real has fallen by 28%, with much of that decline during the past few weeks. The Indonesian rupiah and the South Korean won, both clobbered by the markets in 1998, have made strong gains this year. The South African rand, the Czech koruna and the Hungarian forint have also climbed by more than 10% against the dollar.

economist.com

Copyright © 2002 The Economist Newspaper and The Economist Group. All rights reserved.

economist.com



To: Jim Willie CB who wrote (4659)8/16/2002 12:23:19 PM
From: stockman_scott  Respond to of 89467
 
Iraq: The Doubters Grow

EDITORIAL | September 2, 2002
The Nation
thenation.com

This past week confirmed that the American political establishment is not united in support of the Bush Administration's policy of forcible "regime change" in Iraq. Odd as it may seem, the strongest expression of doubt came from a key member of the GOP's right wing, House majority leader Dick Armey. Expressing concern that an unprovoked attack on Iraq would violate international law, Armey was quoted as saying that such an attack "would not be consistent with what we have been as a nation or what we should be as a nation." Meanwhile, Armey's colleague across the aisle, Carl Levin, voiced the thinking of many of his fellow Democrats when he argued that "containment of Saddam is so far working."

Armey and Levin are just two of a number of important political actors--including several prominent senators, forces within the military and worried figures on Wall Street--who have recently expressed qualms about the proposed military invasion. These voices need to be amplified and reinforced by others if the United States is to avoid a potentially disastrous intervention in the Middle East.

Arguably the most important doubters, because only the Senate is empowered by the Constitution to declare war, are the members of the Senate Foreign Relations Committee. At their July 31-August 1 hearings on Iraq, chairman Joseph Biden Jr. and other committee members--while taking pains to make clear that they, too, think Saddam Hussein must go--emphasized that the aim of the hearings was not to rally support for or against an invasion but rather to raise questions and concerns. "Here we have a situation [about] which, clearly, we need to know much more," Republican Senator Richard Lugar explained in his opening remarks. Intense questioning of possible US moves is essential, he added, because "the life of the country is at stake."

Another significant indication of elite concern was articles in the New York Times and the Washington Post reporting serious divisions within the US military and business class over the merits of the proposed invasion. If these articles are accurate--and there is no reason to assume otherwise--many senior military officers fear that US intervention will produce chaos in the Middle East and lead to a costly, dangerous and long-term American occupation of Iraq. Likewise, senior corporate officials are said to fear a drop in consumer spending resulting from rising oil prices, as well as a heightened risk of terrorism.

None of these groups can be described as flat-out opponents of an American invasion. Most would probably support the President--even cheer him wildly--if US intervention was thought certain to result in a speedy, casualty-free occupation of Baghdad and the replacement of Saddam with a democratic, pro-Western, peace-seeking regime. The problem, in their eyes, is that Bush can guarantee none of this. And while readers of The Nation might wish to raise more fundamental issues--such as whether the United States has a legal or moral right to initiate a unilateral assault--the concerns among the country's elite deserve widespread public attention. They can be compressed into nine critical questions:

1. Why engage in a risky and potentially calamitous invasion of Iraq when the existing strategy of "containment"--entailing no-fly zones, sanctions, technology restraints and the deployment of US forces in surrounding areas--not only has clearly succeeded in deterring Iraqi adventurism for the past ten years but also in weakening Iraq's military capabilities?

2. Why has the Administration found so little international support for its proposed policy, even among our closest friends and allies (with the possible exception of Britain's Tony Blair), and what would be the consequences if Washington tried to act without their support and without any international legal authority? Isn't it dangerous and unwise for the United States to engage in an essentially unilateral attack on Iraq?

3. Is the United States prepared to accept significant losses of American lives--a strong possibility in the projected intense ground fighting around Baghdad and other urban areas?

4. Is the United States prepared to inflict heavy losses on Iraq's civilian population if, as expected, Saddam concentrates his military assets in urban areas? Would this not make the United States a moral pariah in the eyes of much of the world?

5. Wouldn't an invasion of Iraq aimed at the removal of Saddam Hussein remove any inhibitions he might have regarding the use of chemical and biological (and possibly nuclear) weapons, making their use more rather than less likely?

6. Are we prepared to cope with the outbreaks of anti-American protest and violence that, in the event of a US attack on Iraq, are sure to erupt throughout the Muslim world, jeopardizing the survival of pro-US governments in Egypt, Jordan and Saudi Arabia and further inflaming the Israeli-Palestinian crisis?

7. Can the fragile American economy withstand a sharp rise in oil prices, another decline in air travel, a bulging federal deficit, a drop in consumer confidence and other negative economic effects that can be expected from a major war in the Middle East? And what would an invasion mean for an even more fragile world economy and for those emerging markets that depend on selling their exports to the United States and that are vulnerable to rising oil prices?

8. Even if we are successful in toppling Saddam, who will govern Iraq afterward? Will we leave the country in chaos (as we have done in Afghanistan)? Or will we try to impose a government in the face of the inevitable Iraqi hostility if US forces destroy what remains of Iraq's infrastructure and kill many of its civilians?

9. Are we willing to deploy 100,000 or more American soldiers in Iraq for ten or twenty years (at a cost of tens of billions of dollars a year) to defend a US-imposed government and prevent the breakup of the country into unstable Kurdish, Sunni and Shiite mini-states?

So far, the Bush Administration has not provided honest or convincing answers to any of these questions. It is essential, then, that concerned Americans ask their Congressional representatives to demand answers to these (and related) questions from the White House and hold further hearings to weigh the credibility of the Administration's answers. It is vital that our representatives play their rightful constitutional role in this fateful decision. The American public clearly would welcome such moves: A recent Washington Post-ABC News poll found that while a majority support the President at this point, they want him to seek authorization from Congress and approval of America's allies before going ahead. And when asked whether they would favor a ground war if it were to produce "significant" US casualties, support plummeted to 40 percent and opposition rose to 51 percent. If you worry about the future of America, clip or copy these nine questions and include them in letters to your senators and representative. In addition, get involved locally: Help organize a teach-in, write a letter to your newspaper, raise the subject at civic meetings.



To: Jim Willie CB who wrote (4659)8/16/2002 12:58:04 PM
From: stockman_scott  Read Replies (2) | Respond to of 89467
 
Double Dip Recession

By Neville Bennett

New York based FX Concepts forecasts the US entering a further recession and a “double-dip” in the coming year. Double dip apparently refers to the Dow plunging from its current 8400 to 6000 and the USD/EUR depreciating by about 15% to $1.10.

The double tip concept has also emerged in the analysis of Stephen Roach, chief economist of Morgan Stanley. Roach observes that US growth rates have been revised downwards, and contends that the economy is now at stall speed. He warns that another shock will “trigger the double dip”. The shock may emerge from corporate collapse, corporate cost cutting, a credit crunch, a downturn in housing, or another geopolitical shock.

Roach believes demand always relapses when business in recovering from recession. Double dips “are the rule” past business cycles and the likelihood of another soon is 60-65%. This will have “actionable implications for stocks, bonds and currencies.”

While not actually defining a double dip, Roach implies a fall in both economic growth and in asset prices. FX emphasizes stock and currencies. The emphases are different, but these asset classes are linked. When the Dow falls the dollar usually does too. The Dow contracts on news of faltering growth. These analysts predict very tough times ahead with further falls in the stock, and currency, markets. Growth will be lower than expected.

The economy is a primary cause of concern. As was discussed somewhat prophetically in NBR, US GDP figures are often revised. Politicians demand good news, but the economists responsible for this task have a deserved reputation for integrity. The latest revisions cover three years, and have revised growth estimates downward for 5 quarters after the second quarter of 2000.

What had seemed a period of slow growth is now officially a recession over three consecutive quarters. The margin between peak and trough was only 0.6%. Business capital spending fell by $88 billion. This fall was greater than the loss of GDP, so the recession was obviously offset by the resilience of the housing market (NBR) and spending on consumer durables such as autos.

It is now clear that the tech-wreck wrought much destruction. The collapse of the bubble accounted for 70% of the fall in capital spending, and 100% of the fall in GDP. Most commentators picked a growth rate of 3.5% for this quarter, but they were too optimistic. The economy is actually near a stall speed of 1.1%.

There are numerous risks. Shocks could emanate from plunging markets, politics, corporate malfeasance, and foreign events. More probably, there will be further statistical revisions of the current account deficit. A downward revision will slow capital inflows and put downward pressure on the dollar. Savings data is troublesome. The present rate is 4%, well below the trend of 8.6% for 1950-94. Capital investment is very low. Debt levels are undoubtedly excessive. Us household debt is 76% of GDP and business debt is 68% of GDP. These percentages will rise as GDP has been revised downwards.

Many observers agree with President Bush that the US has been partying. There are excesses in consumption, borrowing and speculating. Most observers would agree that there is a price to pay, and growth cannot resume until the excesses are purged and assets brought to realistic levels.

Wall Street has been derailed by a realization that the economic recovery has faltered. The NASDAQ posted losses in 16 of the last 20 weeks. GDP revisions were confirmed by disappointing employment data.

The diminishing recovery affects upon business profit expectations. On the other hand, business might expect a lift from falling interest rates, which lower its costs. Bond yields are trending down and the December Futures Contract indicates 1.5% overnight interest rates. The market firmly anticipates Greenspan lowering by another 25 points.

Falling interest rates are unlikely in themselves to counter other negative pressures. The Institute of Supply Management (ISM) index of manufacturing sank to 50.55 in July from 56.2% in June. New Orders fell very sharply from 60.8% to 50.4%; employment fell 49.75 to 45%. Wall Street plunged on the release of these figures: it was as if an engine had dropped off.

The data suggests the bear market is not over. FX Concepts makes the historically valid point that “bottoms are made when sellers have finished their selling and when buyers are too discouraged to buy anymore”. Moreover, while the bottom is forming, people do not “even want to discuss the market.” This seems a valid observation of New Zealand after the 1987 crash. The share clubs vanished. The people who got burned have barely returned to the market.

Wall Street will fall further. Falling equities will cause the depreciation of the USD. The dollar has been strong in part because of its competitive long-term interest rates. The interest rate curve was steep; with low short rates but high rates for 10 –30 year bonds. Investor flight from equities to bonds has forced long term rates down. The curve is flatter. The US curve has lost its margin over the Euro. Given fears of a contracting economy, the USD has declined in value. Thus, the US is caught in a bind, almost a triple dip in its economy, stock markets, and currency.

Neville Bennett: Phone (03), 3482233

Email n.bennett@hist.canterbury.ac.nz