Wake-up signals from Wall Street Paul Craig Roberts

Washington Times ^ | Wednesday, July 3, 2002 | Paul Craig Roberts

[LS]

First, there is overwhelming evidence that the trade "deficit" is manipulated by foreign countries' accounting methods, which are much like ENRON'S. Several studies have shown that, for example, Japan "double counts" many items (take an overhead projector: Japan counts the projector, but also counts the glass, the metal, etc.) This artificially inflates the trade deficit and has FOR YEARS.

Roberts SHOULD KNOW THIS BECAUSE HE WAS IN THE REAGAN ADMINISTRATION when the critics were raising the same issues and he and others pointed this out!!

Second, the problem is not "the economy," the problem IS Iraq, Al-Quaeda, and the PLO. Markets are jittery in large part because of threats of terrorism. Pick your industry: airlines? Yes, they were in trouble before 9/11, but you can't deny that the terror attacks really hurt. Computer markets are disrupted due to uncertainty.

But Roberts pins it down even further, which is entrepreneurs, especially high-tech entrepreneurs, are NOT finding any venture capital. VC funds have dried up. This is due to a) expectations and b) TIGHT MONEY. The Fed is still too tight on the money supply. Until VC returns, don't expect a boom.

Of course I agree with Roberts that anything and everything should be done regulation-wise to improve the climate---but this has little to do with the trade deficit bogeyman that I heard throughout the 80s which was as bogus then as it is now. Doesn't anyone remember "the Japanese are going to control all the new markets?" Now, do you really believe Belgium and France are going to dominate anything?

[LS]

I agree this won't clear up in a few months, but I disagree that there are fundamental "structural" problems. Quite the contrary, many of the structures (productivity, new home contstruction, low unemployment) are good. What is missing is VENTURE CAPITAL---the "animal spirits" that Keynes spoke of and the thing that drives the high-tech market, which is where the boom must come.

I also, however, have been almost alone here preaching on the necessity for the "last mile" of internet wiring, which I view as critical to the next boom, AND a resolution in the intellectual/property rights of content on the net. When those things happen---and the fed loosens the money supply (we are still in deflation)---then the recovery will be fast, no matter what the so-called "trade deficit" is.

[snooker]

Well those, millions of investors have a choice. Bankruptcy, which then their stock is worthless, or re-oganization, in which case their stock migth be worth something.

The economy is moving along at a 5-6% rate. What uncertainty. This is what I meant. Profits are coming back and manufacturing is picking up. Read the reports.

True PC sales aren't but who needs a new faster system to run a new slower OS. This train is parked.

Now as to those laid off at WCOM, yep ... this is the pits. But if the ones that remain at the company want the best shot at having a job, they should go the re-organization route.

WCOM is 55% carrier for internet backbane. And they run MCI. Many B to B operations utilize their networks. A big cash business.

I say that WCOM should get the chance to right the ship, rather than just toss it out and everybody loose everything.

But the previous management should see jail time. Starting with the CFO.

tarpon

[SteelTrap]

I agree we are still in deflation. Many people make the mistake of placing too much emphasis is on interest rates. Rates in Japan hit zero and their economy still tanks. Japan, along with the rest of the countries that link their currency to our floating dollar, are getting crushed by the deflation caused by the Fed's tightening a few years ago.

The Fed has been using it's favorite weapon (interest rates) for almost two years now with little to show for it. Think what would happen if the rates went to zero and deflation (or inflation) stays put? Where would the remedy be found then?

The quick way out is to increase liquidity. The money injected post 9/11 has kept us out of the ditch but will not be permanent. The best way to stay out of the mess is to restore the link between the dollar and gold and pay attention to the price of gold to tell you when to increase or decrease the supply of dollars.

[cinFLA]

That works until inflation is accepted as a reality.

Ask Japan if inflation is a reality!

[bvw]

Ah, remember the days when the NASDAQ looked like it might rocket to parity with the DOW? Now the hope is it doesn't sink past the S&P 500.

[LS]

YES! YES! YES! Thank God someone here understands this! Liquidity is the key, and that is why Venture Capital is still dried up!

Absolutely right on interest rates being ineffective by themselves. Look at the Great Depression: interest rates were .5% and STILL no borrowing!