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for those who do not know, the author of this article, peter g. peterson, is one of the top investment bankers of the last 50 years. he's a former secretary of commerce under nixon. he now writes that the US is in a handbasket headed south fast.

i found this article to be apolitical, alarming, and a cautionary tale of what lies ahead based on current economic indicators.

read the article, and then contemplate the future we're going to have unless this country makes some big changes.

riding for a fall

Sounds a bit like the "Imperial Overstretch" argument that folks like Stephen Roach and Marc Faber have been writing about for a while.

Excellent, pique.

Unfortunately, such an article will only be accepted by those who accept the complexity of all of these poilicies.

Those who argue that everything is black and white and that actually thinking about them simply obfuscates them, will reject this.

Too bad, but that included the Bush Administration.

But john, to you everything the Bush Administration does is bad. Isn't that black and white thinking?

I'm still reading

There is a long trail of "highly qualified experts on the subject" who have written entire books predicting the coming demise of the US economy stretching back over decades. I've got several of them. The first on I bought was back in the 70s. Scared the heck out of me. I was convinced that I needed to convert everything I owned into gold and hide it in a hole in the ground.

But then - I was a Democrat then, so I fell for this kind of stuff......

And now that Larry's got his miser's gold he wants to hang on to it. Hence as to why he is now a Republican.

Sorry Larry, just couldn't resist the opening.

Excellent article by the way Pique.

Especially in view of Bush's speech at the GOP convention which in my humble opinion as an outsider displayed this lack of economic foresight in all its glory.

Krugman, as usual hits the nail on the head.


It's the dishonesty, stupid. The real issue in the National Guard story isn't what George W. Bush did three decades ago. It's the recent pattern of lies: . . .

It wasn't always that way. Three years ago, those of us who accused the administration of cooking the budget books were ourselves accused, by moderates as well as by Bush loyalists, of being "shrill." These days the coalition of the shrill has widened to include almost every independent budget expert.

For example, back in February the Center on Budget and Policy Priorities accused the Bush administration of, in effect, playing three-card monte with budget forecasts. It pointed out that the administration's deficit forecast was far above those of independent analysts, and suggested that this exaggeration was deliberate.

"Overstating the 2004 deficit," the center wrote, "could allow the president to announce significant 'progress' on the deficit in late October - shortly before Election Day - when the Treasury Department announces the final figures."

Was this a wild accusation from a liberal think tank? No, it's conventional wisdom among experts. Two months ago Stanley Collender, a respected nonpartisan analyst, warned: "At some point over the next few weeks, the Office of Management and Budget will release the administration's midsession budget review and try to convince everyone the federal deficit is falling. Don't believe them."

He went on to echo the center's analysis. The administration's standard procedure, he said, is to initially issue an unrealistically high deficit forecast, which is "politically motivated or just plain bad." Then, when the actual number comes in below the forecast, officials declare that the deficit is falling, even though it's higher than the previous year's deficit.

Goldman Sachs says the same. Last month one of its analysts wrote that "the Office of Management and Budget has perfected the art of underpromising and overperforming in terms of its near-term budget deficit forecasts. This creates the impression that the deficit is narrowing when, in fact, it will be up sharply."

In other words, many reputable analysts think that the Bush administration routinely fakes even its short-term budget forecasts for the purposes of political spin. And the fakery in its long-term forecasts is much worse.

The administration claims to have a plan to cut the deficit in half over the next five years. But even Bruce Bartlett, a longtime tax-cut advocate, points out that "projections showing deficits falling assume that Bush's tax cuts expire on schedule." But Mr. Bush wants those tax cuts made permanent. That is, the administration has a "plan" to reduce the deficit that depends on Congress's not passing its own legislation.

Sounding definitely shrill, Mr. Bartlett says that "anyone who thinks we can overcome our fiscal mess without higher taxes is in denial." Far from backing down on his tax cuts, however, Mr. Bush is proposing to push the budget much deeper into the red with privatization programs that purport to offer something for nothing.

As Newsweek's Allan Sloan writes, "The president didn't exactly burden us with details about paying for all this. It's great marketing: show your audience the goodies but not the price tag. It's like going to the supermarket, picking out your stuff and taking it home without stopping at the checkout line to pay. The bill? That will come later."

. .
Nobody knows what Mr. Bush would really do about taxes and spending in a second term. What we do know is that on this, as on many matters, he won't tell the truth.


link

PS Oh, and if you're worried about your SS retirement, wait until Bush & Co. are done with their privitization plan.

Krugman, as usual hits the nail on the head.

Krugman doesn't even have a hammer.

PS Oh, and if you're worried about your SS retirement, wait until Bush & Co. are done with their privitization plan.

THEY WANT TO STARVE OUR CHILDREN!!

THEY WANT TO TAKE AWAY YOUR SOS-SECURITY!!

THEY'RE COMING FOR YOUR BABIES!!

....... good grief.......

There is one thing I've learned about the U.S. economy, through a lifetime of working in it, and a lifetime reading about it:

There is no such animal as an accurate economist.

And even when they are partially correct, there's always somebody getting rich, even during a depression.

Live to be poor, and I'll guaranty you'll be that way.

jolly, the man isn't an economist. he's an investment banker. there's quite a difference. one is a theorist and often an ideologue. the latter lives in the real world.

Since this thread and this article were submitted thoughtfully by pique, I decided I’d just have to give it a thoughtful try.

The first thing I noticed was that it was from Foreign Affairs, the print organ of the Council on Foreign Relations. Before anyone jumps to the conclusion that there is something inherently un-American or sinister about the CFR, let me just say that I happen to know many folks from both political parties and a wide spectrum of views who are associates or one time fellows of the CFR. What the CFR label told me was that I was in for a long academic read, as Foreign Affairs articles tend to be quite long, and are often of two distinct and quite different types; 1) they are the distilled diatribe of the Council, putting forth a view of matters that the Council as a whole might like to see spread more widely or 2) they represent trial balloons by the guest authors. Armed with no more skepticism than this I began readingand right away I noticed this article was clearly a 1 in that Mr. Peterson is current chairman of the CFR and therefore this paper (ostensibly by a moderate Republican) represents the opinion of the Council rather than an unendorsed idea by a prized academic.

This then is a “watch it George” message aimed directly at the President and his team. The message is among other things that he is spending far too much money and in the wrong places. Since I can only speculate about what military sense it makes to have our troops operating in an “open borders” country like occupied Iraq, allowing more terrorists in every day to engage our troops (and now Iraqi troops) and by the way losing by far bigger numbers than anyone is reporting; by as much as fifty to one hundred to one, I’ll only suggest that perhaps it is better to engage them there than here. Ditto that it makes more sense to obsolesce military equipment in a place like Iraq rather than here and keep the jobs etc. that support much of that military “tail” here, where most of them are.

There are stranger and more complex weapons systems that will follow, again to be tried elsewhere against even more pinpoint targets. These too are being developed in the US rather than elsewhere. We already have some things that we haven’t used yet that would really tick off the rest of the world. “Oh come on, you can’t use that it’s too big an advantage.” It would also instantly brand the US as genocidal in the current political climate. There is a certain logic to developing new weapons systems and a new kind of soldier to match at many times the older weaponry that anyone else might have. The goal is not balance but supremacy. Is there a hegemonistic thread running through this current group around the President? Oh sure there is. Does the CFR support it? Of course not. CFR is a globalist outfit from the get go. They still think we can all get along.


And by the way the hegemony is Bush style, “quieter and gentler” than anyone supposes because there are factors outside the US who are quietly hoping, some of them banking on it, that the US will finally put an end to the source of almost all the world’s terror movements. But these things have to be done delicately or a lot of people are going to end up hurt or killed. Some have even suggested that this would be a good time to do an Independence Day stunt with fake aliens and spacecraft etc. of course to draw the world together, even our present foes. But don’t count on it.

Last week we had a gruesome reminder of what these people are capable of and nary was there any whisper of apology from even moderate sources with in the “religion of peace.” Their silence spoke volumes and the world is listening.

So what is the problem? According to Peterson, we’re spending too much money on an adventure in Iraq while Italy spends more on social security payments to its elderly and neither situation is affordable long term. The one is looked upon as irresponsible and dangerous because it’s just no good for America to be that far out ahead of everyone else in military hardware and not being able to be superbly generous to our elderly. The CFR globalist position was that the US should have accepted matters the way they were in the Middle East, should have accepted the 9/11 attack as justified because we were too one sided in our support of Israel, etc. etc. The CFR’s globalist position also accepts various corruption and kick back schemes as inevitable (like the UN’s) and resents the US muscling in on the game and if not getting all for itself at least edging others in Europe and Asia out. And why is it always Iraq? Are they still sore about their broken contracts? Look at the size of their GDP’s compared to ours and you tell me. We are still in Afghanistan, and half a dozen other places in and around the Middle East. Well of course Saddam Hussein and the Bushs DID have some connection, some personal scores that needed settling. And if George Soros was such a savior why didn’t he run or why hasn’t he put his money squarely behind Kerry? (Because Kerry is obviously too embarrassing a candidate to back?) Or maybe Soros will ram his big boat through the stock market in October (and make lots more money himself by having his ship carve a big wake through it) But then if Soros did that and remained in the country long enough the SEC would be after him and if he destroyed hundreds of thousands or millions of people’s lives because of his huge buys and huge sells (as he did in the Korean market some time back) what kind of savior would he be?

It’s just that some people, the CFR, the Europeans, John Kerry, just can’t abide the idea of America being supreme. Well, there are some in this country who really can’t abide the idea of any other country being supreme as a matter of trust. There is still enough independence left in this country that a lot of people want to come here, not all for the right reasons, but those reasons are abundantly clear once one compares them with anyplace they might have come from, even a fairly nice place like France, a place I might add that would not exist were it not for the strength of American arms. Perhaps the nicest thing about France might be that they still speak French there. Wonder how long that will last?

Peterson said “It is only a matter of time before American voters will, or at least should, insist that more be done. Indeed, this insistence may crystallize overnight come the next serious terrorist scare.” I’m certain that it will and the result is likely to be a form of martial law where racial profiling can and will be used to round up potential sources of more terrorism and the vast majority of Americans will approve because there will have been that many more fatalities. The Bush administration is just saying, “we can’t do these things now, too politically dangerous.” If another 9/11 happens lots of things will be different practically overnight. My guess is that the terrorists haven’t had enough of us yet and will attempt to take over a school somewhere as they did in Russia. By now I’d think the Russian mood was far from conciliatory. (In many ways Russia was always our best potential ally. One of my ancestors was our first Ambassador to Russia. Maybe that’s why I feel that way.)

On the budget and deficits, yes Peterson makes some sense, except that he is talking $540 billion in a $10.6 trillion a year economy. This is so fractional that it literally beggars the imagination. Let’s put GDP in another context. China is currently #2 with a GDP of approximately $5.7 trillion (slightly more than half our GDP), Japan is third at $3.5 trillion, India fourth with $2.6 trillion and Germany at fifth $2.2 trillion. France, the UK and Italy in that order come next all in the $1.5 trillion range. As anyone can tell you who has been abroad, there are many wealthy people in these countries who live quite nice lives thank-you very much. But they fall down the scale when compared with the US because there are just that many more well off people at all stages of US society than there are in France, Britain or Italy and this is noticeable to some extent; things aren’t quite as good over there as they are here for the vast majority of people. Another advantage we have here is of course space. But what really sets America apart from everywhere else is that one can be a George Soros or Warren Buffett here if one wants. And with fabulous wealth at the command of a few people with a global perspective that features America as the only outstanding beacon of absolute liberty covered by a secure civilization on the planet, you can imagine there’d be plenty of incentive to keep it that way as long as possible, and amazingly enough from abroad too.

And here’s a nice savory piece of straight economic thinking, “If nothing else were to change, borrowing would continue until foreigners accumulated all the U.S. assets they cared to own, at which point a rise in interest rates (choking off investment) and a decline in the dollar (choking off imports and stimulating exports) would gradually close the current-account deficit. It would not entirely disappear, but it would close sufficiently to stabilize foreign holdings as a share of the U.S. economy. Afterward, Americans would cease to borrow as much from the rest of the world. In the absence of an increase in the national savings rate, people would just have to get by with less investment in their own economy and debt-service payments would no longer rise. Instead, Americans would simply make do with less capital, slower growth in GDP, and, of course, a slower rate of increase in their living standards.” Looks good on paper but it wont work out that way and Peterson knows it.

We never complain that British, French or Italians own too much of our assets. There was a big Japan scare and yet at no time has Japan ever owned as much of us as a country like Holland has. Something fishy there. I’m not talking paper debt, I’m talking real assets. As for paper I believe that the Taiwanese and South Koreans are pretty heavy holders of our paper as are the Japanese, the Singaporeans and increasingly the Indians and Chinese. Lots of Europeans hold our paper too. But it’s government paper, only a drop in the bucket. Americans are everywhere on the move, on the go, buying this, changing that, going from job to job and even family to family, home to home. The trick is to do all this an increase one’s wealth not one’s debt. It apparently happens for quite a few. Does anyone bother to compare that with the expense of doing any of this anywhere else in the world or even of its feasibility? No, of course not. The terrorists are busy trying to find a way to stop it. They want to turn the world back to the 7th century with all hands on the ground 5 times a day pointed to Mecca. It wont happen. Mecca will be marked by a big spark and a mushroom cloud before that ever happens. The only question is who will have had enough first, us or someone else? My guess is that for the moment we’re pretty tolerant. I bet that even the Saudi Arabian royals are fairly pacified despite their internal problems. Of course that could change as things do.

In closing I want to thank pique for bringing this article to our attention. It was certainly among the better written ones and more informative than many we’ve seen here.

Oh, and you’re so right, fear is thief of dreams. Another reason why America is and has remained and shall remain on top.

Somewhat related article:

U.S. Treasury Shows Actual 2003 Federal Deficit at $3.7 Trillion

Some quotes:

david,
thanks for your thoughtful, and, as usual, informed analysis.

of course, how one interprets all of this depends on one's values, one's agenda, and one's world view.

my primary concern, after reading the article, is that we could become the next soviet union, paralyzed and then ultimately imploding from the intense emphasis on defense spending and development of weapons.

the soviets did this in response to the arms race, and we won. now we're doing it in response to far more elusive and ill-defined threat--terrorism.

i don't know what the answer is, but it does seem to me, from peterson's analysis, that the terrorists are killing us from the inside out.

All this talk about the deficit needs to be kept in perspective. In sheer dollars, yes, it's a bigger number of dollars than we've had before. But when you factor in the value of that dollar, the size of the economic base and its potential to pay off that debt, it doesn't come close to the size of the deficit we had under Jimmy Carter.

As far as ending up spending ourselves into oblivion on military related stuff like Russia did, that isn't even possible. The only way it could become possible is if you tax the producers in this country to the point that they can no longer afford to produce. That's why the "taxcuts for the rich" crap thumped on over and over again by the Democrats is such a red herring. What keeps our economy going, in fact what built it in the first place, is the producers of economic equity, not the users of it. Every time the Left tries to take this issue on, they end up stuck defending a socialistic economy of "from each according to his ability, to each according to his need", all while swearing up and down that's not what they're saying. If it's not what they're saying, then they don't understand economics.

The wealthiest 1 percent earns 15 percent of the income and pays 34 percent of all individual income taxes. By comparison, the bottom 50 percent of all taxpayers earn 14 percent of all income and pay just 5 percent of all individual income taxes. Most of the *jobs* that the majority of the bottom 50% have are generated by those in the 51 - 99% middle. As such, *they* are the ones that need tax relief, not the bottom 50%, because they are the ones that keep the bottom 50% working. If you want to see the US end up like Russia, raise the taxes on the job *generating* group. That's what Kerry wants to do, that's what the Democrats keep arguing for, and that's exactly what will push us into a third world situation. On the other hand, let those who generate the jobs keep more of their money, and they'll generate more jobs. Their employees will make more money, who will in turn spend more money (that's why they're on the bottom, you know) which will cause a need for more jobs.

In short, get rid of the Democrats and their socialistic ideas about economics, and let the people have their money. This country will pay off the deficit in short order, and crank out all the military equipment we need for whatever we need done. And misguided investment bankers will have to write about other things.

The importance of relative GDP should not be underestimated. America’s lead is tied directly to it and those countries which cannot compete simply haven’t the excess capacity to do some of the things America can and will be doing.

America becoming another Soviet Union? What we’d need is a much higher rate of totalitarianism from the top with the typical abject terror of same from the citizens. Russia had a long history of same. Of course it would be down to subsistence, and the only way you’d stay in a place like that is to seal the borders from the inside. When you have more people wanting to leave America than wish to come in, then you’ll know the country is finished.

It was amazing that at no time in the past was the Soviet Union’s GDP more than 14% of the US and yet they were considered a serious rival. Just as the USSR succeeded in posing a serious threat to us with an internal totalitarian agenda, WHILE AIDED BY TRAITORS HERE AND ELSEWHERE, so it is possible that some other state or regime might try the same thing. CERTAINLY SADDAM HUSSEIN would have liked trying, and THERE WERE PLENTY OF PEOPLE WILLING TO HELP HIM, which explains why so many people are so sore at President Bush. In fact we’ll never really know what Saddam had or how close he was to having it, which is ok with me. I even had some sources telling me that Saddam’s scientists (many from Germany as well as Russia) had somehow cracked some of our leading edge research into extremely heavy atomic elements and was on the verge of developing an anti-matter bomb, something so dangerous that one the size of the Hiroshima bomb would destroy a quarter of the earth within seconds and of course the rest of the world would end within minutes. Yes, there are such possible weapons. But also there are such sources of tremendous energy that eventually, if we can get beyond this stage of human development, practically limitless amounts of clean electrical energy can be had for less than pennies a gigawatt.

No, I don’t think Peterson is saying we’d end up as a Soviet Union. I think he thinks we should be planning on becoming like just another France, Britain or Italy with an aging population in need of support, since we’ve all allowed so much abortion that the only way any of us can make up the difference is to import more people from the third world, and basically get along with everyone, allow the usual forms of corruption, etc. etc.

Except that the demographics are all against a continuance of civilization in any way that we have ever known it, as I’ve stated many times reaching its apogee in this country in about 1959. From that time on I’ve seen many technological changes for the better, like the internet, but most changes pointing to a devaluation of life, a corrosion of values on all levels, the appearance of frankly obscene shows of the basest tribal culture, a diminution of basic reading and writing skills (including the ability to read music) and a general loss of respect for anything or anyone that dares to rise above the general baseness of contemporary American culture. So while I accept as imperative that America must remain on top, I’m critical of where the country’s culture is going (largely into the toilet) and concerned that it would be perceived (as it is perceived by perhaps at least one fifth of the world) as not worth very much preserving.

Here are my fundamental criticisms of contemporary American culture in encapsulated form:

1) An emphasis on youthfulness, teenaged youthfulness, especially in physical appearance. Oh, but while it is necessary, especially for women, to try and appear as youthful as possible, there is this whole piercing and tattooing thing going on, especially in places that can’t be seen too readily, the tongue, the navel, other places. A part of this is also the weird idea of being sexually appealing, and active, but not having children. Being mothers and fathers in the traditional sense is somehow not as cool as remaining kids for as long as possible. And along with this is sort of a glorification of the high school years as if we should all think of them as the times of our lives and everything before them or after them is mere dullsville.

2) An emphasis on financial success. How much does one really need to be rich enough? I’m not suggesting, as I once did when I was a young socialist, that we merely place a ceiling on how much any individual could ever hold at one time, nor am I suggesting that it is rewarding, glamorous or spiritually beneficial to be impoverished. I’m just wondering why just being ordinary middle class American isn’t good enough for most to aspire to? Because we can’t appear on TV? Because we can’t influence millions to ….. do, think, react, what?

3) Super intelligence, even of the kind that’s bordering on nerdiness, if it’s coupled with the other two make one super cool. A really smart person is talented in so many ways that they don’t even have to try, they just do. This is what we were taught, HUGE MISTAKE, by Yoda the Jedi. You want to play a Beethoven sonata? Better plan on doing some serious work. You think it comes easy? You’ll never know the joy without the effort.

Let’s put it all together; a guy in his 40’s who looks 25, has a quarter billion dollars and a 180 IQ. That’s what America worships as an ideal. If we could crank em out and put em on TV we would. It’s put out there so that everyone else can chase the dream. The female equivalent is the perpetual child woman who never has children and never grows old, who shops on Rodeo Drive or some other similar place, has a fabulous wardrobe, perhaps a pampered pet, might have a big bank account too and might be really smart but in a way so fast that no ordinary man could ever catch her. Such women were once castigated as the bitch goddess success that all men secretly wanted. Britney Spears is a caricature of one.

I know that I have said these things imperfectly. How could I not? I’m not really as good at it as some of you are. But if I’ve struck a few chords perhaps you’ll be able to state it better than I have.

What it seems to me is this; if we are really going to save our country and keep it as a shining beacon on a hill for the rest of humanity, then hadn’t we better come up with something a bit more MATURE and REALISTIC and BEAUTIFUL that as a way of life is worthy of respect and worth preserving? And isn’t this the same dilemma once faced by the ancients, especially Rome?

David you are one brilliant guy.

he's much better to read than peter, in a different way. Makes one think