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To: Lee Lichterman III who wrote (77971)	7/26/2003 9:51:14 PM
From: SwampDogg	Respond to of 209892

Good summary... They just unfortunately do not have a way out and it doesn't look like this can go on any longer. The debt must be written down and the sooner the better.

To: Lee Lichterman III who wrote (77971)	7/27/2003 9:30:43 AM
From: skinowski	Respond to of 209892

Thanks for the interesting remarks. I'll just briefly touch upon a couple of points which interest me. Long ago, Malthus was concerned that the number of people tends to grow geometrically, while the availability of life-sustaining material goods increases only arithmetically. The conventional wisdom is that Malthus was proven wrong by our ability to increase productivity and by the obvious abundance - where he foresaw hunger and scarcity. However, we are developing new scarcities, such as available space, clean water and air, some natural resources, etc. This planet may still prove to be unable to support the growing numbers of humans, large creatures, typically given to "irrational exuberance". I think that the jury on Malthus is still out. The popular general ideal is that every person should be able to live a lifestyle on the level of the "American Dream" - and Globalization, at least in theory, is expected to achieve that - but in reality it probably cannot happen - if for no other reason, then because this planet is already too small. It is probably already physically impossible for every person alive to have a house and a lawn and to drive a car. Long ago, Luddites attacked factories in England, realizing that the increasing productivity will make them unemployed and bring starvation. They were also "proven" wrong, since new ways of making a living kept evolving over time. The question is, Will we always be able to find enough new ways for people to make a living, or will the growing productivity (and cheap imports) cause increasing real unemployment? It is tempting to assume that these problems will be solved, because they have always solved themselves in the past, but such an assumption would be based on faith. Extrapolating past trends doesn't always work as circumstances change. Can the Government print enough of "reserve currency" to inflate debt out of existence? Probably, yes. However, if that happens, we should expect that the "unexpected" consequences will take over. For example, those who are worried that the laws related to the "War on Terrorism" erode our political freedoms - they haven't seen nothin' yet. Just wait until the Government - which is by far the biggest employer - becomes the only one which will also have unlimited funds to pay those employees. Deflation would reveal the Government's irresponsibility and incompetence. Inflation would give politicians more power. How much more? - that's a good question. Deflation would cause great numbers of people (who are also voters) to lose their overleveraged homes. Serious inflation, on the other hand, would make their payments trivial. In due course, when we get tired of rolling around those obnoxious wheelbarrows, Uncle Sam will issue new improved "firm" money. Deflationary outcome is in the interests of creditors, while an inflationary one would be preferable to debtors. Since we are a nation of debtors, including most of our population and our Government - more likely than not the banks and the "rich" will get it on the chin.

To: Lee Lichterman III who wrote (77971)	7/27/2003 11:16:35 AM
From: Rarebird	Read Replies (2) \| Respond to of 209892

I applaud your post since it is filled with Insight and honestly confronts the major issues facing the US and global economy. The best way to describe the present situation is to see it as two people sitting in a tree and taking turns to saw away at the branch they are both sitting on. What one can say about such a situation is only that if they keep sawing, the branch will break off and they will both crash to the ground. No problem, if it was only Bush and Greenspan on the branch. Sadly, all other Americans are sitting below the same branch, as are most people in the rest of the world. If the branch which is the US Dollar falls, it will land with a crash on everybody all around the world. The other problem is trying to time the fall. Since most people really do regard the problem as "unthinkable", timing their actions is impossible and trying to do it is dangerous. The solution is to pre-position oneself for the fall. Currently, the world's bond markets are in an uproar. Longer term interest rates are climbing right across the world financial markets. This means that debt is DANGEROUS. Further, a private or productive property held up in part by borrowed money is now, to the extent of the gearing, also at increased risk. CASH WINS, every time throughout history, where and when financial or monetary upsets occur. And by Cash, I do not mean merely Paper Money. The United States has lost 2.6 million manufacturing jobs since mid-2000, a 15 percent employment drop. This is a rolling economic calamity. Manufacturing is the last step in the chain of production before the goods are transported towards the final consumers. The jobs that these many individual men and women have been marched away from will likely not return for a long time to come. Have a factory stand idle for too long and it makes no economic sense to restart it. Much better to build a new one with far better equipment. But then, all the previous workers with experience on the old equipment stand unqualified. PS When one Fool goes astray, he takes several others with him.

To: Lee Lichterman III who wrote (77971)	7/27/2003 4:21:08 PM
From: Haim R. Branisteanu	Read Replies (1) \| Respond to of 209892

Great post Lee, but what is the solution ? IMHO politics are to much dictating monetary policy. The major mistake was done back in 1996 when AG transformed himself in a political tool ...... and the FED big mistake followed in 1998 after LTCM bailout and stock market manipulation ...... followed by the Y2K blunder........ I can not point to one major FED action since 1996 that was constructive long term

To: Lee Lichterman III who wrote (77971)	7/27/2003 5:49:46 PM
From: yard_man	Read Replies (2) \| Respond to of 209892

>>However if they allowed the bubble to fully deflate, it would cause disastrous implications to the economy and could institute a shock to the economy that could take decades to recover from. << disagree -- liquidation is a good thing -- frees capital for productive use. Trying to perpetuate a bubble forestalls reallocation and actually worsens misallocation of resources. Your analysis focuses on money as the measure of value, but ignores the underlying coupling of real economic capital to the ends they are employed for -- hate to say this -- but look at the recent post which Godot link from Lance Lewis -- he relates an anecdote that is quite telling regarding a semiconductor equip co, I think. Message 19144750 They continue to produce without orders in hope that this re-inflation thing works -- just act like the turnaround is coming and maybe it will arrive??!! Heck no. Not only will it not arrive -- the bust will be considerably worse. The Fed does not have its heart or head in the right place -- the policies are simply WRONG, WRONG, WRONG. There was a bubble and the errors in capital allocation (read real capital not funny money) must be allowed to correct. Capital must be put to uses that are sustainable and in alignment with the preferences of consumers -- that doesn't happen by lowering rates and pretending that debts aren't bad and cannot be serviced from profits -- when, in fact, they can't be.