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To: Jim Willie CB who wrote (6993)9/21/2002 1:31:07 PM
From: smolejv@gmx.net  Read Replies (1) | Respond to of 89467
 
Hi jw - re bullion, fine, I see the catapult in slow motion;.

Q: What's your take on SA miners (Goofy, Harmony, drooy... ) - should I understand the last few days as kinda "flight to quality" ie out of reach of owners-to-be? what about $HUI? Is that a pennant I'm seeing?

RegZ

dj



To: Jim Willie CB who wrote (6993)9/22/2002 1:25:23 AM
From: stockman_scott  Respond to of 89467
 
The Costs of Bursting Bubbles

By STEPHEN S. ROACH
Editorial
The New York Times
9/22/02

LONDON — A year after terrorism dealt a seemingly lethal blow to America, talk of resilience and economic recovery is in the air. The nation's inflation-adjusted gross domestic product has risen for four consecutive quarters following a mild downturn in the first nine months of 2001. While the estimated 3.2 percent growth rate over the past year is subdued when compared with the more vigorous rebounds of the past, the hope is that it's a down payment on bigger and better things to come.

But while Sept. 11 was a defining event for America, it was not a defining event for the economy or the financial markets. That role belongs to the stock market bubble of the late 1990's that finally popped in March 2000. There was far more to the excesses of the 1990's, however, than an asset bubble. The bubble expanded high enough, and for long enough, to have infected the behavior of consumers and businesses alike.

The equity bubble helped to create other bubbles — most notably in the housing market and in consumer spending. Their continued existence poses a serious threat to lasting expansion — and yet, puncturing them raises the grave risk of deflation. This suggests the economy will prove as challenging to America's political leadership as any other issue in the year ahead.

There is good reason to believe that both the property and consumer bubbles will burst in the not-so-distant future. If they do, there is a realistic possibility that the United States, like Japan in the 1990's, will suffer a series of recessionary relapses over the next several years. Yet denial remains deep, just as it was when the Nasdaq composite index was lurching toward 5,000. Few want to believe that this economic expansion may be built on such a shaky foundation.

The evidence in support of a housing bubble is compelling. The 27 percent increase in inflation-adjusted American house prices since 1997 represents the sharpest five-year increase since 1945. This surge is about three times the increase in real housing rents over this period. (The divergence of home prices and rents, which usually move in tandem, is one measure of the speculative element of the housing market.) As their property values rise, hard-pressed consumers have been quick to extract purchasing power from their homes, taking advantage of low interest rates to refinance their property and use the savings to buy cars, furniture, appliances and other luxury goods. Thus the ever-expanding property bubble has become central to the culture of excess that is now driving the United States economy.

The consumer-spending bubble will undoubtedly be the last to pop. Short of savings and long on debt, an aging American population must begin to come to grips with the looming realities of retirement. Yet it must now do so in an era of defined contribution pension plans whose performance has been battered by a devastating bear market in equities. We all know that Americans are addicted to shopping. Yet we also know that, if they want to retire with any kind of financial security, they must increase their savings and rein in their spending.

What might cause the consumer-spending bubble to burst? It's hard to say, although several realistic possibilities come to mind — a spike in oil prices, a surge of white-collar layoffs or a collapse of the property bubble. Any one of those developments could send a wake-up call to the American consumer, thereby denying the United States and the broader global economy its main source of support.

But it gets worse. The saga of the post-bubble United States economy doesn't stop with the bursting of the housing and consumer bubbles. Since these events are likely to occur when inflation is already running at a very low rate, they could push the United States into a period of outright deflation — a decline in the nation's overall level of prices for goods and services.

This is a rare and worrisome condition for most economies. The impact of deflation would be most acute for wage earners and debtors. To stay profitable, companies would have to cut jobs or wages, eventually inhibiting consumer purchasing power. And the fixed obligations of indebtedness would have to be paid back in deflated dollars, squeezing overextended borrowers all the more.

America is already on the brink of deflation. Our broadest price gauge, the G.D.P. price index, recorded just a 1 percent annualized increase in the second quarter of 2002. That's the lowest inflation rate in 48 years. Prices of goods and structures — covering nearly half the economy — are already contracting at an annual rate of 0.6 percent. Only in services, where price statistics are notoriously unreliable, are prices still rising.

The hows and whys of America's deflationary perils will long be debated. Two sources seem most likely. First, the bubble-induced boom of business capital spending led to an overhang of new information technologies and other forms of capital equipment in the late 1990's. The result was excess supply, a textbook recipe for lower prices.

Also at work are the unmistakable effects of globalization. The modern-day American economy now has a record exposure to global competition. In the second quarter of 2002, America imported a third as many goods as it produced, well in excess of the 20 percent ratio prevailing at the onset of the last recovery in the early 1990's. Significantly, more and more of these goods are coming from highly competitive Asian producers who have much lower cost structures than their American counterparts.

Moreover, with the exception of Korea, every major Asian economy is now in the throes of its own deflation. Consequently, courtesy of ever-expanding trade relations with Asia, America is now buying more and more from countries like China and Japan that are already in deflation. The growing share of these increasingly cheap foreign goods helps drive down prices of products made at home, thereby deepening deflationary pressures.

History tells us that when major asset bubbles burst, deflation is often the result. That was true of the United States in the 1930's and Japan in the 1990's. Most are quick to claim that America is not Japan — that its more flexible, dynamic economy stands in sharp contrast to Japan's economic inertia. But the United States is already a lot closer to the deflationary edge than most concede — and it could go further.


Deflationary risks can never be taken lightly in a post-bubble economy. Yet that's precisely what American investors and policy makers now seem to be doing. If the housing and consumer bubbles pop, then the risk of outright deflation will only increase. It's time to stop pretending this can't happen in the United States.

___________________________________________________

Stephen S. Roach is chief economist and director of global economics at Morgan Stanley.

nytimes.com



To: Jim Willie CB who wrote (6993)9/22/2002 4:52:33 PM
From: stockman_scott  Respond to of 89467
 
*Read this carefully folks...pay close attention to the last few sentences of this editorial...

President Bush's 'new' doctrine of preemptive action has been around for more than a decade.

The End of Deterrence
By CAROL BRIGHTMAN
Editorial
The Los Angeles Times
September 22, 2002

WALPOLE, Maine -- On Friday, in a national security document prepared for Congress, President Bush described more completely than ever before the cornerstone of his administration's overhaul of U.S. military strategy: that is, the strategic doctrine of preemptive action which underlies his drive to topple the regime in Baghdad.

Most Americans learned of this radical departure from traditional bipartisan policies of deterrence and containment (where you don't shoot people unless they threaten you directly) when President Bush told the graduating class at West Point in June that U.S. security requires "a military ... ready to strike at a moment's notice in any dark corner of the world," one that will "be ready for preemptive action when necessary to defend our liberty and ... our lives."

This new first-strike doctrine, however, far from being a response to Sept. 11, as many suppose, has been around for at least a decade, ever since defense planners began to toil and trouble over a post-Cold War strategy where opposing forces could no longer be held in check by mutually assured destruction and backroom deals between Moscow and Washington.

The strategy was spelled out for the first time in the "National Security Guideline" prepared for the Pentagon in 1991 by Paul D. Wolfowitz and Lewis "Scooter" Libby--today, respectively, Defense Secretary Donald H. Rumsfeld's No. 2 man and Vice President Dick Cheney's chief of staff. It was an oddly paranoid document, considering that the U.S. had just emerged triumphant from a 40-year contest with the "evil empire." The brand new "unipolar" world, it seemed, had become infinitely more perilous.

Our allies ("regional hegemons" in the document's lingo) were seen as "potential competitors" who had to be prevented from "aspiring to a larger regional or global role" than we assigned them. U.S. military intervention would become "a constant feature" of world affairs.

The U.S. would "retain preeminent responsibility for addressing selectively those wrongs which threaten not only our interests, but those of our allies or friends." A first-strike option, "preemption," was designed for potentially hostile states engaged in the development of weapons of mass destruction--a strategy the president embraced this year.

One thinks of Secretary of State Dean Rusk's nightmare during the Vietnam years when he said: "The world is round. Only one-third of its people are asleep at any one time. The other two-thirds are awake and causing mischief somewhere." With North Vietnam's diplomatic and military victories over the United States, Rusk's world really had slipped its traces. In 1991, however, the U.S. was top banana.

So what explains the projection of force as the solution to every conflict, even potential conflicts? And the overweening contempt for dialogue--for "laws and rules and transnational negotiation and cooperation," which the conservative writer Robert Kagan, in an essay in "Policy Review," calls the "tactics of the weak"? "[N]ow that the United States is powerful, it behaves as powerful nations do.... The 'unipolar moment,' " he asserts, "[has] made the United States more willing to use force abroad."

But surely Kagan, whose United States inhabits a "world where power is the ultimate determinant of national security and success," confuses force with power. As do Wolfowitz and the irrepressible Richard N. Perle, assistant secretary of Defense under Reagan who now helps orchestrate the attack-Iraq campaign from his chairs at the Defense Policy Board and the American Enterprise Institute. "The string of Perles," insiders call these first-strike spokesmen--who include William Kristol, co-editor with Kagan of "Present Dangers," which argues for the missile defense shield and a massive military buildup, and New York Times columnist William Safire, who has leaped into the ring against Brent Scowcroft "and his leave-Saddam-alone acolytes."

True power, as Machiavelli and Confucius knew, asserts itself through countless channels, mostly pacific. On this score, Vietnam taught the U.S. a hard lesson, or tried to. "The amount of violence at the disposal of any given country," political philosopher Hannah Arendt noted in 1969, "may soon not be a reliable indication of the country's strength or a reliable guarantee against destruction by a substantially smaller and weaker power." She foresaw a "complete reversal in the relationship between power and violence, foreshadowing another reversal in the future relationship between small and great powers."

This reversal is very likely the nightmare that haunts today's defense ideologues--and the inspiration for the administration's assertion in its new policy statement that the U.S. must never again allow its military supremacy to be challenged as it was during the cold war.

Bush's advisors are not stupid, after all, and must contend with the legacy of the Vietnam War. The hawks' widespread aversion to Secretary of State Colin L. Powell (with whom Wolfowitz, then No. 3 man in the Pentagon, quarreled during the Gulf War) is probably partly because he reminds them of Vietnam.

In any event, try substituting "Ho Chi Minh" for the "aggressive despot" in Safire's case for preemptive action against Iraq: "The need to strike at an aggressive despot before he gains the power to blackmail us with the horrific weapons he is building ... is apparent to most Americans."

In Vietnam, the "horrific" weapon was a hard-fought war of national liberation, materially supported by Moscow and (less so) Beijing but not controlled by either, and therefore not subject to Cold War arm-twisting. Once we decided to invade, the U.S. had to fight essentially on Vietnamese terms, mano a mano, as well as from our favorite perch in the sky.

"If only we had taken Ho out in 1965, think of the losses we would have avoided, including the blow to U.S. military prestige." Such, one imagines, is the intelligent war planner's version of Gen. Curtis E. LeMay's take on Vietnam: "They have got to draw in their horns and stop their aggression, or we are going to bomb them back into the Stone Age!"

Arendt's "complete reversal," meanwhile, is the true portent of the Sept. 11 attacks, whose perpetrators operated out of a half-dozen countries, including our own, without being accountable to any government. This statelessness, together with the ability to turn the might of U.S. technology itself into terrible weapons against the U.S., sets Osama bin Laden's network outside the parameters of conventional international security systems. It's hard to imagine a "force posture" capable of trapping such chameleons, but if you want a big bang to divert attention from your failure to cope with the paradoxical nature of power in the real world, then bomb Iraq.
________________________________________________
Carol Brightman is the author of the biography "Writing Dangerously: Mary McCarthy and Her World," and the editor of "Between Friends: The Correspondence of Hannah Arendt and Mary McCarthy."

latimes.com