Columnist Charley Reese: Even the "Big Shots" Are Worried About the International Economy

Of all the big-shot meetings, the one that really counts, in my opinion, is the annual meeting of the Bank for International Settlements in Basel, Switzerland.

Here the heads of the central banks meet, unencumbered by politicians or academics or journalists. These are guys who hold the crown jewels of most industrial countries in their hands. Like all big-shot meetings, it's closed to the public and the press. Nobody knows what they say inside, only what they choose to say when they leave the building.

Well, one of them chose to say: "The issue is really how to produce growth in the economy and cope with the excessive disinflationary patterns which have appeared in many countries. There should be a discussion about strategies on how to prevent deflation and how to cope with it." This statement was published in a story by William Kay that just appeared in the Independent, an excellent British newspaper.

Now, let us, like an old-time preacher, treat this as a Bible verse and see what meaning we can glean from this verse straight from the lips of a central banker.

Notice that he said "the issue" is how to produce growth and cope with excessive disinflationary patterns. He didn't say it's one of several important issues. The implication is that it is the one economic issue that must be confronted, and I certainly agree with him. That's what the politicians and the economists and stocks salesmen are all talking about when they chatter about the economy. It's not growing very fast. And, apparently, they don't know how to make it grow.

Our central bank, the Federal Reserve, has cut the interest banks pay practically to the bone. This, they hope, will encourage businesses to borrow money and expand. President George Bush has succeeded in getting tax cuts for the same reason. He hopes the extra money will stimulate growth in the economy.

But the problem isn't high interest rates or punitive tax rates. The problem is that demand for goods and services is dropping. Who's going to borrow money to expand production when they can't sell the stuff they are making already? And if you're neck-deep in consumer debt, a few hundred extra bucks is likely to pay for past consumption, not for new. Debt is, after all, the money owed for past consumption, for demand already met in the past. Paying debt does nothing to stimulate production. And if you're unemployed, you aren't going to be buying much of anything except the basics.

It seems to me we're sliding into the same pit the Japanese have been in. Our economy is maxed out. There is more money floating around than there are good places to invest it. Practically everybody has all the toys he or she wants or can afford. Lots of people have a bad feeling about the future, so they are hanging onto their money. You might have noticed that the price of gold has gone up. That usually happens when people who know what's really going on get nervous about shaky economies.

Deflation can fuel itself. As demand drops, production is cut; as production is cut, jobs are eliminated; the additional unemployed people lower demand even more, so the cycle can repeat itself. Deflation is what the Great Depression was. All my life, people have said that it could never happen again because "they" have learned how to avoid it.

That's not what that central banker said. He didn't say there was a strategy to prevent deflation. He said, "There should be a discussion about strategies on how to prevent deflation and how to cope with it."

Sounds like "they" don't really know after all how to prevent depressions or cope with them.

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Speaking from the perspective of an old, reasonable technical, geezer, I have a few comments.

1. In 1968, many cars were V-8s rated at 300 hp. Now the same company wants me to buy a 225hp V-6 for the price of my first house. I think not.

2. Television receivers are bigger and better that before. However, the programming stinks (I can't watch the news anymore because I become enraged). Will I buy another? I think not.

3. Functionally, the personal computer that I use is still DOS based (although gussied up) with slightly better capabilites than those of 10-15 years ago. Should I lay out X bucks for a new one? I think not.

4. Guns. To my eye Winchesters made prior to 1954 are better that anything which I can buy on the mass market today. Fit and finish of a 1904 Colt single action revolver exceeds that of one produced today. Am I going to rush out and buy a new one? Guess.

5. Furniture. Try to find non custom made wooden furniture. Many antiques are better made that what one can buy off the floor.

I stop here.

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