A Mid Winter’s Nightmare: Economic Notes for the Winter Holiday Season


Before you debit or credit yourself in the holiday season, think about the US’s current account balance, national debt, and US citizens as the greatest debtor nation in the world.


After the red, white and blue confetti and balloons have fallen, it is back to work! It’s time to role up our sleeves and deal with the real issues:

  1. The US is the largest debtor Nation in the world.
  2. The US is the largest per capita consumer of energy.
  3. The US currency is in decline, assuring a decline in our way of life and our world super power status.

There is a connection-and the bill is due.

Well-read Americans will have noted that Russia is considering moving their reserve accounts from dollars to Euros. As a CEO of a global company, I am sorry that we have not been billing our clients in Euros. We would have gotten a 30% raise this year (do I hear the sounds of profit margins in that).

But the real issue is beyond the PR and labels of tax and spend. Let the people spend their own money. The government has been spending our children’smoney at an alarming rate, to the extent that the US will probably lose stature as the financial and ultimately most powerful nation status, right before our eyes. It is like waking up after the dream and finding that ‘Bottom was an ass’.

Asian nations as well are considering this. Is this a plea for the US to get their financial act in order? But desperate currency holders, who have seen their nation’s reserves dwindle by 30% and falling, beg the US to please get its house it order. Remember, it was not so long ago that a phone call from the US President (or the golden 3: Clinton, Rubin, Greenspan) could stave off an international currency crisis!

In Shakespeare’s A Midsummer Night’s Dream, competing forces of fairies put magic drops in the eyes of Titania so that she will love the first thing she sees. Of course, this modest and humorous character Nick Bottom comes along-a donkey-who our heroine is smitten with.

But we have some strange drops in our eyes too! Visions of sugar plum fairies dance in our eyes…Holiday shopping, gas guzzling SUV’s, buying on credit. Will we wake up in such a state too, with our economic woes inherited by our children?

“Full of vexation I come, full of complaint…” [1] Average Americans have missed the fact that we live in an inter-related world. Isolationism has consistently been a hallmark of our culture, as well as a sense of our huge power. Being the politician of a super power creates a sense of imperviousness. Which means, we don’t have the facts! Asian manufacturing workers make less, so much less that there will be no catch-up in life times-Auto workers in US, Germany and Japan make about $42 an hour vs., say, Poland ~$7, or China ~$1. Other manufacturing wages, according to the Bureau of Labor Statistics, report that average manufacturing in the US is $21.11 vs. China ~$.63! Don’t miss the decimal point here. And according to China Today, a full two thirds of China’s workforce is still farm laborers. This means that they are not likely to raise labor rates much, with farmers still wanting to migrate to the Cities.

In addition, whether you are Republican or Democrat, you have to admit that the US government does not actually have an economic strategy: cut taxes alright, but where is the requisite shrinking of government to keep the bills paid?

As researchers and futurists, we look at the impending storms, trends, etc….how the inter-related forces create new directional trends. “How slow this old moon wanes”.[2]

It is hard to see the new world that emerges while the slow transition is in spin. It is worth examining these forces in the Christmas season, since Americans have an obsession with shopping and spending-buying “plain Republican Coats” [3] or Democratic Coats (I suppose a Democratic coat might have feathers? sequins, or maybe velvet?).

People think that the lower dollar will lead to more US goods being sold (but most of these goods are made overseas). But this is a simplistic story:

– The US pays its bills with low interest credit.
– Low interest credit is only accepted for the AAA bonds. Junk bonds, higher risks, have high interest rates.
– Our congressmen currently visiting Iraq attest to a multi-year stay, with us all alone, paying the bills.

So, what will be the impact over time of this situation? More spending, obviously, less income, higher debt, and, in order to keep bonds, a higher interest rate.

So what? When interest rates go up, the economy will slow (some more). Housing market will slow, consumer interest will climb. It is sad that people simply thought they voted for a tax cut to put more money in their pocket. But the offset will be less money in their pocket, since they will have to pay greater interest rates on a variety of purchases!

Higher energy prices, higher interest rates, slowed economy. The nightmare goes on, since the Bush tax plan gets really interesting AFTER he leaves office, with even higher tax cuts that kick in. Most Americans are not aware of this fact. Think of it; Bush will not be responsible for addressing the balancing of the budget. That is our midwinter nightmare, which we hope will not come to pass.

Policy changes we have to confront now:

  • Pay as you go government. Insist congress re-establish Warren-Rudman and address the exploding debt!
  • Energy policies to reduce our dependency on oil-especially foreign energy sources that take us to hostile locations, increasing pollution, and the cost of energy.

Things get a bit out of control in Shakespeare’s Midsummer Night’sDream, in this play. But this story has various fairies who have super natural powers, and an author, Shakespeare, who can make the plot turn out with a happy ending.
We, the people, do have powers, too.

Post Script….from the EU

While US Markets are down, overseas markets are doing very well! How can business people in the US think that huge government deficits can be good for their businesses?

With drops in their eyes, they miss that no one wants to invest in US firms with depressed currencies at their heart. Here in Europe, where I am working, I meet many Americans who have even moved their own money to Euros. While huge US firms like Wal-Mart, et al, and our markets decline, overseas markets improve!

It’s simple math.

See daily alerts from The Wall Street Journal

  • TOP ASIAN NEWS : Asian stock markets closed mostly higher, with the key index rising in Tokyo and hitting a new high in Australia. Hong Kong shares soared on gains in the property sector.
  • TOP EUROPEAN NEWS: European stocks moved higher Wednesday as worries ease about the outlook for corporate profits.

[1] Act I Scene II, A Midsummer Night’s Dream.

[2] Act I Scene I, A Midsummer Night’s Dream.

[3] Richard Nixon’s reference to Pat Nixon’s coat.

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