[In the daily give-and-take of the Rick’s Picks forum, Mario Cavolo, an American expatriate living in Shanghai, is the perennial optimist, sort of. While hardly unmindful of America’s steep decline, he sees offsets in a rising global middle class, particularly in India and China, and in an upper-class America that will continue to flourish even in hard times. Skeptical though we are sometimes about his thesis, we must admit that a drive through Palm Beach, Florida, the other day reminded us that there are concentrations of wealth in this country so deep that even if 90% of it were to vanish tomorrow, the super-rich will still be driving Bentleys and shopping on Worth Avenue and Rodeo Drive. For a summation of Mario’s thoughts as U.S. stocks continue their descent into Hell, read on. RA]
Let’s begin this commentary by asking exactly what specific Lehman-type crisis recently occurred or will occur to justify the nasty global equities decline and its continuation as, perhaps, the 2011-2012 Crisis? We can quickly dismiss the idea that it was Standard & Poor’s credit downgrade of U.S. debt. I mean, come on folks, it has been beyond obvious that global credit markets are awash in debt and therefore higher-risk. Things were known to be bad before the downgrade, and the downgrade itself did not make the fundamental problems any worse. The credit downgrade was a message to Washington, long overdue, but it probably did more to soil S&P’s reputation, since it is still well recalled that the firm rated sub-prime junk as triple-A a few years back. So let’s move on to more substantive issues to identify what is wrong with the global economy right now.
Can we say it was the recent “realization” that Washington bankers and politicians have been pillaging the financial system greedily? No, the reality of those issues has been baked into the cake ever since. We are far beyond any hope that those in power – I hesitate to call them leaders — in Washington or on Wall Street will do the right thing. Neither bankers nor politicians are ever going take a bullet for the good of the country. Rich people just don’t do that sort of thing, reminding us why a wise Biblical figure named Jesus quipped one day about it being easier for a camel to pass through the eye of a needle… Indeed. They will instead follow the values of any otherwise worthy seafaring captain and go down with the ship.
Wildly Overvalued?
Moving to the withdrawal of Bernanke’s QE, should that cause a fresh crisis of sorts, and if so, why? Have publicly held companies performed so poorly lately that the stock market had become wildly overvalued? Hmm, that’s a tough sell. How about the fact that interest rates are likely to remain near zero indefinitely? Doesn’t that support the flow of money into risk assets like stocks? In fact, doesn’t a stock portfolio of reasonably priced, financially sound, dividend-paying companies, MLPs, REITs and other such vehicles sound like a superbly good idea right about now? Isn’t it true that global companies like P&G, Yums and hundreds of others will, by the nature of their economic position across the globe, have their shares priced in balance with any currency fluctuations and inflation?
If not any of the above issues, then it must be those trillions of U.S. dollars being pumped into the system, right? Nonsense, I say! What’s a few trillion dollars amongst crooks and the citizens of the world? More money in circulation means inflation of goods and services. It does not necessarily mean hyperinflation. The sharply reduced purchasing power of the USD and other currencies across the past four decades is nothing new, as so many intelligent analysts have pointed out, and we have confirmation that it will continue along with global expansion. Now let’s rise up and argue that “we” can’t afford higher prices. But we must stop and ask who is this “we”?
A Nation of Renters
Then, let’s turn to the U.S. real estate debacle. Yes, this is really horrible: The 100 million lower- and middle-income families of America are ruined, including being upside down in their homes and moving toward becoming a rental society. But this group of people is not the world economy! Granted, they are largely ruined. But there are another 150 million Americans whose lives are stable and good, and they are wealthier than ever. They have high-paying jobs, their kids are in college, the companies they work for are not going out of business anytime soon. Am I wrong?
It’s easy to understand why Americans and Europeans living in America and Europe narrowly see doomsday with all of its related horrors. After all, the closer you are to the pain of others, the worse it seems and the more of it you feel. However, need we be reminded that the world is not composed only of a declining U.S. middle and lower class? I think this pain, this very real pain, has caused a terrible distortion in the American view of the state of global affairs.
View from Shanghai
From my vantage point here in Shanghai, I’m reminded that the lives of 150 million Americans are better than ever, that stock valuations are not outrageous, that the rise of Asia led by China and the rise of BRIC countries is a long-term, multi-decade reality as was the rise of post-WWII America; that the global tech and web-driven shifts transforming the world are individually and together powerful trends with the potential to more than offset the shameful shenanigans of Washington and Wall Street elites who have disgraced the word “leaders.” Make no mistake, America’s biggest problem is its dismal and corrupt leadership — of government, financial, defense, insurance, lobbying and legal sectors.
America’s second biggest problem is that it is confused about its identity. It doesn’t know that it is no longer The Greatest Nation on Earth any more. This is where the true and sad delusion lies. (Read Give Me Liberty by Naomi Wolf for an insightful understanding, of this.) Even adding in Europe’s similar sovereign-debt excesses, that still doesn’t sound a doomsday siren for the whole world. Because the American economy, financial and political system have broken down to varying degrees doesn’t mean the end for all of us. Those billions who are poor have always struggled, and so there is not so much change for them, even as a rising middle class in China, India and elsewhere more than offsets a declining middle class in America. That does not make the struggling, angry American feel better, however, nor should it. What it needs to do is summon to action the spirit that made America great to begin with. Although broad socio-economic changes will be playing out globally in the years ahead, the situation is reasonably described as a period of unprecedented societal, economic and technology-driven shifts and transformations. I readily acknowledge that this positive, expansive picture which I present is being threatened by one of the most disgraceful periods in American political and financial history.
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Oh, come-on. Do you really think the industry would have left if US didn’t have regulations, labor laws, minimum wage specifically?
I remember how the state would torture my boss having him provide me with my lunch time. No one ever gave a flak that I, the employee, do not want to take any lunches! I wanted to work for 16 hours straight, I did not want any overtime, but no, the state demanded overtime and double-time, making me twice as expensive to my boss, and I was left with no difference in earnings whatsoever!
Granted, someone, somewhere, might wanted to have lunch, and the overtime pay, well, I never protested to deny him whatever he can agree on with his boss.
This socialism is why industry has left. This is no secret. And who asked for the regulations? For the labor laws? For the minimum wages?
The same exact as*-*les who are now getting all their oxygen cut off and licking their unemployment paycheck. They really should have thought before destroying the country they singed they loved so much.