Watching the nomination process and the mess the Fed and the Administration have made of the Dollar makes me think it is an appropriate time to put down some thoughts on the underlying causes of our troubles. The spark to start writing it down comes from an email exchange I have had with one of my best friends...
It is important to understand that my friend is a Liberal. Capital "L", new-speak version of the word. He's a Union guy. Likes to think and philosophize about the Big Picture. Like many Big-L folks he misses (dismisses?) the frequent disconnection between Big Picture soutions he offers and the personal choices that he himself makes. In other words, solving the problem with coercive laws is all fine and good as long he himself personally doesn't have to abide by those laws. My favorite example is taxes: if your tax bill is too low, if you want the government to have more money, send more. The number at the bottom of your 1040EZ is a minimum. Feel free to send more money to Washington. I am SURE they will spend it. But, don't pass a law that compels me to send more money...this is what Hamilton (Madison?) called the tyranny of the majority.
Anyway, the email thread I mentioned: it is about the state of the dollar, mostly. And the poor competitive situation the US holds with respect to China. Here is a taste of the thread...
Mr. L forwards article quoting Buffett:
Buffett sees "long, deep" U.S. recession
BERLIN (Reuters) - The United States is already in a recession and it will be longer as well as deeper than many people expect, U.S. investor Warren Buffett said in an interview published in German magazine Der Spiegel on Saturday.He said the United States was "already in recession" and added: "Perhaps not in the sense that economists would define it" with two consecutive quarters of negative growth."But the people are already feeling the effects," said Buffett, the world's richest man. "It will be deeper and last longer than many think."But he said that won't stop him from investing in selected companies and said he remained interested in well-managed German family-owned companies."If the world were falling apart I'd still invest in companies," he said.Buffett also renewed his criticism of derivatives trading."It's not right that hundreds of thousands of jobs are being eliminated, that entire industrial sectors in the real economy are being wiped out by financial bets even though the sectors are actually in good health."Buffett complained about the lack of effective controls."That's the problem," he said. "You can't steer it, you can't regulate it anymore. You can't get the genie back in the bottle."(Writing by Erik Kirschbaum; editing by James Jukwey)© Thomson Reuters 2008 All rights reserved
My Reply
yeah. i agree on derivatives and companies/sectors being damaged by greedy financial engineers. but, it isn't the fundamental problem. the basic problem is that production and development simply aren't competitive in the US. And, we have ignored this fact and lived beyond our means by running up huge trading deficits (essentially equivalent to running up your credit cards) and printing dollars to pay for it. we now have to pay for real...but there isn't a bill. just a big hole to dig ourselves out of with a lower net worth and a devalued currency. we must do that by innovating, producing and trading. it isn't so much a resession as a new, poorer America. we still have one of the few systems in the world that is based on personal property rights. and, competition that is more open and transparent than anywhere. plus, free flow of capital. the best universities in the world. we have Boeing. Google. Apple. Sports. Movies. Music. Genetics (once we get past the Bush/Stem-Cell issue by getting rid of W). we have the best health care and pharma development in the world (until Obaaama kills the profit motive and rations based on beaucracy and waiting in bread-lines instead of good old fashioned price-based rationing of scarce resources). There is much reason for optimism. We just have to dig in and grit it out.
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