Interesting. Would'nt Vegas be a crazy and strange place to live? A little energy intensive for this particular 4T, but still.

Vegas is going to be interesting also because it seems to be the epitome of the third sector economy. Do they have any resources there? No. Do they have any product there? No. But, this is the city we stake our future on? Wierd man.

Can you imagine ghost-planned-communities of brand new homes that no one ever lived in? And those poor dumbasses holding the mortgage.

"The Overstretch Myth,"

Doesn't it feel weird when America breathes a sigh of relief upon hearing that China won't sell off all its dollars quickly and force a scary drop in its value? I mean, our communist "rising threat" and all? With just under two-thirds of trillion in US dollars, China is now second only to Japan in dollar reserves. What would this seem to tell you about the long-term prospects for military clashes between us and the Chinese?

Why does China keep buying dollars? As one senior finance official recently put it: "If we do sell U.S. dollars now when it is tumbling, it means we lose money. If we do sell them, we have to buy other currencies such as the euro. But what if the euro drops?"

Yes, yes, what if the euro drops?

The Chinese leadership also likes to point out that while reserve holdings have tripled since 2001 (amazing, given all our war-mongering, yes?), the price of oil has doubled, and China is importing oil in unprecedented amounts.

Hmmmm. Security, money, energy. Sounds like a complex relationship.
The FA article makes the boldest case for America's long-term economic stability, arguing that it's that long-term growth potential-not Europe's or Japan's-that keeps the Asian exporters putting their trade winnings back into dollar markets:

Despite the persistence and pervasiveness of this doomsday prophecy, U.S. hegemony is in reality solidly grounded: it rests on an economy that is continually extending its lead in the innovation and application of new technology, ensuring its continued appeal for foreign central banks and private investors. The dollar's role as the global monetary standard is not threatened, and the risk to U.S. financial stability posed by large foreign liabilities has been exaggerated. To be sure, the economy will at some point have to adjust to a decline in the dollar and a rise in interest rates. But these trends will at worst slow the growth of U.S. consumers' standard of living, not undermine the United States' role as global pacesetter. If anything, the world's appetite for U.S. assets bolsters U.S. predominance rather than undermines it.

So it seems as though China can keep selling stuff to us like crazy, we can keep buying it like crazy, China can in turn keep buying dollars like crazy, and this whole merry-go-round keeps spinning.

Posted by Thomas P.M. Barnett at March 7, 2005 08:16 PM

Originally Posted by NickSmoliga

"The Overstretch Myth,"

Doesn't it feel weird when America breathes a sigh of relief upon hearing that China won't sell off all its dollars quickly and force a scary drop in its value? I mean, our communist "rising threat" and all? With just under two-thirds of trillion in US dollars, China is now second only to Japan in dollar reserves. What would this seem to tell you about the long-term prospects for military clashes between us and the Chinese?

Why does China keep buying dollars? As one senior finance official recently put it: "If we do sell U.S. dollars now when it is tumbling, it means we lose money. If we do sell them, we have to buy other currencies such as the euro. But what if the euro drops?"

Yes, yes, what if the euro drops?

The Chinese leadership also likes to point out that while reserve holdings have tripled since 2001 (amazing, given all our war-mongering, yes?), the price of oil has doubled, and China is importing oil in unprecedented amounts.

Hmmmm. Security, money, energy. Sounds like a complex relationship.
The FA article makes the boldest case for America's long-term economic stability, arguing that it's that long-term growth potential-not Europe's or Japan's-that keeps the Asian exporters putting their trade winnings back into dollar markets:

Despite the persistence and pervasiveness of this doomsday prophecy, U.S. hegemony is in reality solidly grounded: it rests on an economy that is continually extending its lead in the innovation and application of new technology, ensuring its continued appeal for foreign central banks and private investors. The dollar's role as the global monetary standard is not threatened, and the risk to U.S. financial stability posed by large foreign liabilities has been exaggerated. To be sure, the economy will at some point have to adjust to a decline in the dollar and a rise in interest rates. But these trends will at worst slow the growth of U.S. consumers' standard of living, not undermine the United States' role as global pacesetter. If anything, the world's appetite for U.S. assets bolsters U.S. predominance rather than undermines it.

So it seems as though China can keep selling stuff to us like crazy, we can keep buying it like crazy, China can in turn keep buying dollars like crazy, and this whole merry-go-round keeps spinning.

Posted by Thomas P.M. Barnett at March 7, 2005 08:16 PM

It's a "new economy" everyone. Oh, wait a minute, where have I heard THAT before?

Boomers own the housing boom, according to this article:

Investors, second-home buyers are third of market

Excerpt:
Investors accounted for 23 percent of the nation's 2004 home sale transactions, with second-home buyers taking an additional 13 percent of all sales transactions, according to the NAR report. Previous estimates gleaned from other databases had suggested that 8.5 percent of all 2004 sales transactions were investments.

Investor activity was 14 percent higher than in 2003, and second-home purchases topped the preceding year by nearly 20 percent, according to the report. The NAR study was national in scope and did not single out investment activity in individual metropolitan areas.

The typical vacation home buyer is 55 and earned $71,000 in 2003, according to NAR's report. The average investment property buyer is 47 and earned $85,700.

Though the winners of Generation X may fare well.

Boomers are very scared about their retirement prospects; they suspect social security will go bankrupt when they are old. Also many Boomers inheritances from their GI and Silent parents have been much less than they expected.

They see investment properties as a safe bet to accumulate a reasonable retirement income. My prediction for the cause of the great devaluation will be retiring Boomers selling off their assets and offloading them on a market with few buyers (since there isn?t enough X'ers who can afford those overvalued assets).

Start going to Google News and entering "housing bubble". Things are getting interesting, and the media is beginning to pay attention.

And start reading this guy:
http://www.howestreet.com/writer.php?WriterId=22

and this one:
http://www.financialsense.com/editor...enko/main.html

Half of the private-sector jobs created in California in the last two years are connected in some way to real estate.

Originally Posted by NickSmoliga

Half of the private-sector jobs created in California in the last two years are connected in some way to real estate.

That's not good.

Global: America Smells the Coffee

Stephen Roach (from Beijing)
http://www.morganstanley.com/GEFdata...i.html#anchor0



Tipping points are a great concept, but virtually impossible to identify ahead of time -- let alone when they are occurring. It is only with the great luxury of hindsight that we can look back and know that the proverbial bell has rung. March 16, 2005 could end up in the running as a possible tipping point for America. Suddenly, the US has taken on a very different aura in an increasingly unbalanced world: The confluence of a record current account deficit, a disaster from General Motors, and yet another new high for oil prices all speak of an increasingly precarious role for the global hegemon. increasenly account deficit, a disaster from General Motors, and yet another new high for oil prices all speak of an increasingly precarious role for the global hegemon. World financial markets have barely begun to sniff that out.

The current account deficit probably says it all. As I have noted ad nauseum, it is an outgrowth of America?s biggest problem -- an unprecedented shortfall of national saving. The US net national saving rate -- the combined saving of individuals, businesses and the government sector (all adjusted for depreciation) -- has fallen to a record low of 1.5% since early 2002. Lacking in domestic saving, America must import foreign saving from abroad in order to keep growing at what the body politic judges to be acceptable growth rates. And so the US must then run massive and ever-widening current account deficits to attract that foreign capital. And ever-widening it is: America?s broadest measure of its external shortfall was just reported to have hit an all-time record of 6.3% of GDP in 4Q04 -- an astonishing 1.8 percentage point deterioration from the 4.5% deficit a year-earlier in 4Q03. Not only is this a record current-account deficit for the US, but it is also a record financing burden for the rest of the world. Based on the annualized current account deficit of slightly more than $750 billion in the final period of 2004, America now requires an average of $2.9 billion of capital inflows each and every business day to keep the magic going.

?What?s good for General Motors is good for America.? I realize that dates me, but I?m old enough to remember when that was the battle cry of a once mighty Smokestack America. So when GM throws in the towel on earnings (again) and its bonds trade at near-junk status, maybe there?s more to this story than a quick flicker on the screen. The ever-cynical comments on chatrooms were quick to minimize the significance of this event: ?What do you want from a healthcare provider dressed up as an auto company?? Yes, Detroit is now a shadow of its former self -- US automakers currently employ only 0.8% of all workers in the US. In many respects, that?s emblematic of the fate of the factory sector as a whole, where the job share has plunged from 33% of private nonfarm payrolls in 1960 to around 13% today. The demise of US manufacturing is now taken as a given and most simply dismiss GM?s latest travails as a non-event.

I think there is a deeper meaning to all this -- especially coming on a day when the current-account deficit was reported to have taken yet another ominous leap into uncharted territory. Not surprisingly, the US trade deficit on goods accounted for fully 98% of America?s total current account deficit in 4Q04. That?s right, a once proud Smokestack America has borne the brunt of the unprecedented US saving shortfall. And just as GM led the charge in the heyday of America?s manufacturing prowess, it is now on the ?bleeding edge? of its darker days. Coincidence? I doubt it. It may well be that the accelerated erosion of America?s manufacturing base in recent years is the most painful outgrowth of a record US saving shortfall. Washington, of course, wants to pin the blame on unfair foreign competition. Instead, it ought to take a look in the mirror: It is the budget deficit, of course, that has been crucial in pushing national saving to record lows in recent years. And it is the capital inflows -- and the trade deficits behind those flows -- that are required to compensate for these budget deficits and give a saving-short America the foreign aid it needs to keep on growing.

March 16 was also a day of record oil prices. No, this is not just America?s problem. But in a falling-dollar climate, other nations enjoy a cushion from this blow as their currencies rise. Not so in the US as the current account deficit keeps the greenback under pressure. The press, of course, is filled with commentary about how oil no longer matters. All I can say is -- been there, done that. My experience tells me that this is precisely the rhetoric we always hear in the midst of an oil shock. And shock it is: In real terms, $56 oil represents more than a quadrupling from the lows of late 1998 -- putting this price spike very much on a par with those devastating blows of the 1970s. The apologists will tell you not to worry -- that the real price of oil is still below record levels hit in the late 1970s. That is poor macro, to say the least. Impacts to economic growth are not about levels -- but about changes. The sharp run-up of oil prices in these past few years is the functional equivalent of a tax on household purchasing power that only puts further pressure on an already over-extended American consumer. The fact that consumers haven?t caved yet doesn?t mean the Holy Grail of a new immunity to rising oil prices has been discovered. It could mean that something else has temporarily deferred the endgame.

That ?something else,? in my view, goes right back to America?s biggest hole -- the current account deficit and the capital inflows from abroad that keep funding it. Recent US Treasury data suggest this is not a problem -- net portfolio investment of $91.5 billion in January 2005 that was more than enough to cover the $58 billion trade deficit that month. The Washington spin is that foreigners can?t get enough of dollar-denominated assets and the returns they offer in an otherwise return-starved world. Don?t kid yourself. This rush of foreign capital is not about private investors plunging back into US assets. It is a conscious policy move on the part of foreign central banks. The US Treasury data do not accurately reflect the obvious -- an extraordinary build-up of dollar-denominated official foreign exchange reserves held by the world?s monetary authorities. By our estimates (based on IMF data), total reserves increased by about $700 billion from year-end 2003 to year-end 2004. Assuming that the dollar share of such holdings held steady at around 70% (an official BIS estimate as of late 2003), that implies an increase of nearly $500 billion in dollar-denominated holdings of the world?s central banks -- confirming that foreign central banks financed about 75% of America?s current account deficit last year. That policy-driven financing is a bold effort on the part of foreign central banks to keep their currencies from rising and defer what could be an otherwise painfully classic US current account adjustment -- complete with a further decline in the dollar and sharply higher US interest rates. The resulting subsidy to US interest rates -- and the asset-driven consumption that engenders -- goes a long way in cushioning the blows of stagnant real wages and surging oil prices that might have otherwise clobbered the American consumer.

But the message from overseas is that this game is just about over. One by one, Asian central banks -- America?s financiers at the margin -- have dropped the not-so-subtle hint that they are saturated with dollar-denominated assets. From Korea and Japan to China and India -- not to dismiss Malaysia, Hong Kong, and Singapore -- there is a growing protest to massive dollar overweights in official reserve portfolios. The standard American response borders on arrogance: ?What choice do they have?? The presumption is that the US has externally driven Asian economies over a barrel -- unwilling to accept a deterioration in export competitiveness that currency appreciation might bring. This misses a key cost-benefit tradeoff -- weighing the hit to exports against the fiscal cost of a portfolio loss on holdings of dollar-denominated assets. The bigger the build-up of dollar reserves, the more this tradeoff is likely to tip toward dollar diversification -- spelling the end of America?s cut-rate foreign financing.

In the end, of course, there?s far more to this story than economics. As I noted recently, history is replete with examples of leadership tests that pit a nation?s military prowess against its economic base (see my 28 February dispatch, ?The Pendulum of Global Leadership?). Yale historian Paul Kennedy has long argued that great powers typically fail when military reach outstrips a nation?s economic strength. In that vein, there?s little doubt that America is extending its reach in this post-9/11 world. Wars in Afghanistan and Iraq were the opening salvos. The Bush Administration?s recent nomination of two leading neocons to key global positions -- John Bolton as America?s ambassador to the UN and Paul Wolfowitz to head the World Bank (also announced on March 16) -- are more recent examples of a White House that is upping the ante on its ?transformational? projection of global power. In Paul Kennedy?s historical framework, America is extending its reach at precisely the moment when its economic power base is weakening -- a classic warning sign of the fall of a Great Power.

Was March 16, 2005 America?s tipping point? Only time will tell. The optimist can hope that it was a wake-up call for a saving-short US economy to put its house back in order. For once, call me an optimist. It?s time for America to smell the coffee

This guy has good economic columns, especially on the housing bubble. Here is an example:
http://www.howestreet.com/story.php?ArticleId=1038

And from another columnist:
http://www.financialsense.com/editor...2005/0309.html

From another forum
http://www.peakoil.com/fortopic6059.html

More doom and gloom:
http://www.dissidentvoice.org/Mar05/Whitney0317.htm

Tom,

Thanks for the links.

Curious, does anyone know of any sites where there are those predicting nothing but sweetness and light? I think they're probably full of crap, but I think it only wise to read opposing points of view.

Originally Posted by Peter Gibbons

Tom,

Thanks for the links.

Curious, does anyone know of any sites where there are those predicting nothing but sweetness and light? I think they're probably full of crap, but I think it only wise to read opposing points of view.

Out here in the Land of Zion, clients of said bank receive these http://www.zionsbancorporation.com/z...k/teaLeaf.html
newsletters weekly. Definately in the "sweetness and light" catagory. Economic information for kool-aid drinkers, and sheep.

Originally Posted by cbailey

Originally Posted by Peter Gibbons

Tom,

Thanks for the links.

Curious, does anyone know of any sites where there are those predicting nothing but sweetness and light? I think they're probably full of crap, but I think it only wise to read opposing points of view.

Out here in the Land of Zion, clients of said bank receive these http://www.zionsbancorporation.com/z...k/teaLeaf.html
newsletters weekly. Definately in the "sweetness and light" catagory. Economic information for kool-aid drinkers, and sheep.

Thanks cbailey. I have put it on a daily-to-weekly perusal.

Any more out there?

GM is about to collapse, which may be the beginning of the end:
http://www.kitco.com/ind/Hommel/prin...ar182005p.html

Originally Posted by Tom Mazanec

GM is about to collapse, which may be the beginning of the end:
http://www.kitco.com/ind/Hommel/prin...ar182005p.html

Yeah, I read that last night. Scary stuff.

Originally Posted by Peter Gibbons

Originally Posted by Tom Mazanec

GM is about to collapse, which may be the beginning of the end:
http://www.kitco.com/ind/Hommel/prin...ar182005p.html

Yeah, I read that last night. Scary stuff.

Scary indeed. I saw a very revealing pair of pie charts recently, showing automakers' market shares twenty years ago and now. Basically, Ford and (Daimler-)Chrysler have held the same shares of the market. The Japanese companies' gains are about equal to GM's losses in market share.

Originally Posted by Tom Mazanec

GM is about to collapse, which may be the beginning of the end:
http://www.kitco.com/ind/Hommel/prin...ar182005p.html

This could be the first nail:

General Motors Debt Costs Surge as GE Pulls Support

The annual cost of insuring $10 million of the debt of General Motor's finance unit for five years via credit-default swaps rose to around $500,000 today from $430,000 yesterday, according to Deutsche Bank AG prices.

Originally Posted by JTaber 1972

Basically, Ford and (Daimler-)Chrysler have held the same shares of the market

Heh heh. If you worked for that one (or one of its affiliates), you'd know that it's more properly written Daimler(Chrysler). In German, the 'Chrysler' is silent.

Originally Posted by Justin '77

Originally Posted by JTaber 1972

Basically, Ford and (Daimler-)Chrysler have held the same shares of the market

Heh heh. If you worked for that one (or one of its affiliates), you'd know that it's more properly written Daimler(Chrysler). In German, the 'Chrysler' is silent.

I don't doubt that, even if my wife does drive a 2003 Dodge Stratus.

Originally Posted by Justin '77

Originally Posted by JTaber 1972

Basically, Ford and (Daimler-)Chrysler have held the same shares of the market

Heh heh. If you worked for that one (or one of its affiliates), you'd know that it's more properly written Daimler(Chrysler). In German, the 'Chrysler' is silent.

Hee hee that's funny. And it's wonderfully ironic in a pomo sort of way that the damn nazis now own the jeep. I just love it.

How goes GM is how goes the US.

Originally Posted by JTaber 1972

Originally Posted by Justin '77

Originally Posted by JTaber 1972

Basically, Ford and (Daimler-)Chrysler have held the same shares of the market

Heh heh. If you worked for that one (or one of its affiliates), you'd know that it's more properly written Daimler(Chrysler). In German, the 'Chrysler' is silent.

I don't doubt that, even if my wife does drive a 2003 Dodge Stratus.

Which is made in Illinois (?) by Mitsubishi, whose planes once bombed Pearl Harbor.

Illinois was also host to Tojo in the early 1930s at the University of Chigago where he was taught by American military strategists (like Gen. George Marshall) that no democracy could sustain a war lasting longer than seven years. "Ah so," said Tojo, as he skippered on back to Japan with big ideas.