"Stimulus? The Dollar Is Toast" Says Harvard MBA Juan Enriquez
If you believe what you read, the battle over the stimulus package has been a partisan one. The Democrats want it - the Republicans don't. And that story has played out as the vote squeaked through in the middle of the night.
So, if you buy that line of reasoning - President Obama's plan is now in place.
So, with that in mind - I found myself sitting in an auditorium in Long Beach with some of the smartest people on the planet this week. And as the stimulus debate raged in Washington, I listened to Juan Enriquez present a contrarian view of the country's financial crisis that was chilling. And perhaps made more chilling by the fact that Enriquez says the stimulus package will in fact make things worse.
Said Enriquez: "We're living in a debt crisis not a liquidity crisis. The fundamental problem is too much debt. And now we're adding debt and adding debt and adding debt. We're adding that debt in places that are not going to generate more jobs or economic output."
What is critical here is to know that Enriquez isn't preaching pop-economics. Rather, he's presenting a deeply analytical and carefully researched argument. And with his triple threat background in business, economics, and science - he's got the processing power to actually lay out a cool and calculated argument that bears investigation. In his view, the stimulus is going to pour gasoline on the fire. Otherwise, in his words: "the Dollar is toast."
Says the Harvard trained MBA,
The only part of the economy that generates new output are start-up companies. The fortune 500 have generated net negative jobs over the last 30 years. It's startup companies that are .2 percent of GDP that have generated 17.8 percent of economic output. That's where we've got to be investing.
So, has the administration reached out to Enriquez? Clearly not.
The other thing we've got to do is politically untenable but absolutely essential. The country has a crisis - a cancer - that is called debt. If you've got cancer you've got to go through radiation, you've got to go through surgery, and you've got to go through chemo. That chemo looks like capping medical spending which is going to eat the entire budget. It looks like asking people to retire two years later if they're fifty to sixty, four years later if they're under fifty. And cutting back on the military about 3% a year. If we don't start doing these things and show those that own the US Debt, which is mostly foreigners that that trend line is going to start to come down instead of accelerating very quickly in terms of overall debt we're going to be in real trouble.Enriquez has a strongly worded warning for President Obama: "Quit spending money you don't have, because our kids - it isn't just our kids who are going to pay for it, we're going to pay for it and this crisis is going to get a lot worse if we don't start controlling our spending."
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Ah...so...no doubt, HIS recommend is a very GOP-ish tax cut for rich and business types eh?
DON'T spend on jobs RIGHT NOW for the little people. Let them eat cake. The people we want to "spend" on (or give special dispensation to via massive tax cuts) are the rich so they can piss down (ie, trickle down) all over the rest of us by starting up new service industries - for Pan knows that any REAL jobs they create will be outsourced to slave labor countries.
Yet, we must maintain 700 military bases everywhere on the globe.
no wonder it's starting to get expensive.
What do you propose we do about the thousands (millions?) who starve and freeze to death if nothing is done for them in the coming years? It's a matter of opinion, and I believe the economy should exist to serve society.
The view that has run roughshod over most people in the past is that society exists to serve the economy, with a few beneficiaries of that philosophy. Of course, those beneficiaries want to do everything they can to hold on to their power.
Goods and services are still needed and are still available to be had. This is an artificial system and a man-made crisis. This is, at heart, a problem of distribution and ,of course, a lack of vision.
I agree. We are substituting public debt for private debt. The spending is unsubstainable and goverment borrowing will only make it worse.
Inflation and the dollar crashing are not the end of the world, but the solution to our structural problems.
I lived through the Russian currency crisis of '98, which was caused by following all the advice of the brilliant capitalists at the IMF.
A dollar crisis will revitalize our manufacturing sector. The result will be the end of the free ride for the US getting vast free money as the world reserve currency. The Euro and the finally-floated renmenbi will emerge in the new currency triumvirate.
Inflation will largely solve the debt crisis, enriching debtors and reducing the ill-gotten gains of the creditor class.
Americans have gotten in to debt because their spending increased along the normal lines that middle class income has increased in this country. However (although they didn't notice it), in an aberration for our historically egalitarian country, incomes did not rise for the middle class. However, because of mass predatory lending and globalization, nobody noticed until now.
Sacrifice pensions? Make the middle class save the wealth yet again? HA!
What we need is the tried and true solution of the New Deal era which saved communism: fiscally responsible, progressive taxation!
And a renewed commitment to international institutions to finally thwart offshore tax cheats.
Let's take back the gains the wealthy have made at our expense. That wealth was created by US, not the "masters of the universe," despite their ever-delusional extreme narcissism. And many more chickens will come home to roost!
OOPS! "Save capitalism" of course, not "save communism."
oh and "save the wealthy" not "save the wealth".
How embarrassing and inconvenient....
You were right the first time..it was communism ( just a Fruedian slip).
Oh and "I lived through the Russian currency crisis of 98, which actually ended up bringing huge structural benefits to the Russian economy"
What do Harvard MBAs know? After all, Bush is a Harvard MBA and he was the one who got the economy into this mess.
I think he's got the right recipe for 2001 and I hope for 2012. Right now what the economists are saying is we need to spend money we don't have in order to save what we can. To some extent we're doing that just not enough and not intelligently.
Why can't we do both -- save and spend. Spend on job creating items like building high speed railroads linking cities, and save on buying prescription drugs that have generics, etc. Of course we need to spend -- don't people understand that if we don't spend on infrustructure, education, and science and technology (among other things) now -- we are passing on those responsibilities to future generations. If we spend the money now, our increased tax dollars will pay it back, and future generations will be educated people who have roads to drive on and air to breathe. Sounds like a good deal to me.
Enriquez is correct about over-leveraging our country with Petrol Dollars and promissory notes to East Asian banks (a slow-motion firesale to the Near and Far East will result, as evidenced by Kuwaiti investors' shadow-control of Citigroup). Of course, neither party can get it right: in Reagan's 8 years, our National Debt increased three-fold. The stimulus is merely a way to avoid a kind of post-political genocide: namely letting millions of americans and entire towns die because they (the towns and the people in them) no longer have any economically justifiable reason to continue to exist. Ironically, the Republicans are closer to futurists than are Democrats; their philosophy: Adapt to 21st century economic conditions or, literally, STARVE TO DEATH IN YOUR OBSOLESCENCE. This makes the Republicans also more willing Genocidiers in the violent, survival epoch we have entered.
A ghastly segue to the more imporant issue missed by the triple-academic-threat Enriquez. He focuses on the Meso-issue "Debt" without illuminating the Macro-Gorilla in the room: Population.
6.76 billion (9 by 2050) and the middleclassing of India and China cannot be sustained.
This is not Malthus talking.
Even if we invented Cold Fusion tomorrow, and figured out a zero-dollar way to desalinate sea water next week. Our planet hit carrying capacity in 1970. There will be no fix (hard socialist, soft capitalist, whatever...) of any kind for this problem. Only condoms, one-child policies, and pregnancy licenses can save us.
Don't worry about us small town Americans. We've got our livestock, crops, clean wells, and guns. Just don't come around here looking for food or you'll end up with a bullet in the head.
Actually, you are right. Rural families will be in the best possible position for what lies ahead... Any one with access to off-the-grid fresh water is going to be made in the shade by 2020. We city-folk really dont comprehend long-view economic darwinism.
Steve, here is the problem, and the solution, for our economy and our banking system.
Currently we contract out to a private entity to regulate our money supply. That entity is the Federal Reserve, which is neither Government Owned or A reserve of ANYTHING. All Banks in the US are chartered through the FED, they buy stocks in the FED, making them part of the CENTRAL BANKING SYSTEM. The system currently practices FRACTIONAL RESERVE LENDING. Which means as a member of the FED, if you take in a deposit of 1000 dollars, the FED will let you write loans from 10,000 to 30,000 dollars and they will print you the money to loan out to borrowers. And as long as the Bank makes good loans, it's all gravy for the share-holders, but if the Bank fails to make good loans, then they lose more money than they ever had, and if it's severe, the FDIC steps in to pay back depositors. The FDIC is backed by the full faith and credit of the United States, i.e. you and me, the average American taxpayer.
If Capitalists want to be unregulated, then the BANKS must be FULL RESERVE, that means dollar for dollar lending, if you have a dollar in deposits, then you only lend a dollar, not 10 to 30 dollars borrowed through the FED on the backs of the credit of the taxpayers.
(cont. next post)
So, if we are to remain Capitalists with a Central Bank that practices Fractional Reserve Lending, there must me Real Regulation of the private company, the Federal Reserve, and there must be real limits to RISK and Exposure as long as the American Taxpayer is the Collateral on the Loan. We must control our Money Supply responsibly, and that is the opposite of what Greenspan, Phil Graham and Bill Clinton did in the 90's.
The way to pay down our debt is to let the taxpayer participate in the profits generated by the FED and the Banks. The FED charges the Treasury a fee to provide the service it provides, and the banks use Fractional Reserve Lending to create money out of thin air, on which they charge interest and fees, and all of that money is generated through the sell of Federal Debt guaranteed by the Full Faith and Credit of the US. Basically, the taxpayer is the collateral on the loan, and the taxpayer doesn’t get to participate in the profits, but instead, loses money outright through fees and interest, and suffers the pain of inflation and the constant devaluing of the dollar through the use of Fractional Reserve Lending and the ever increasing money supply
I'm sure there's no one in the leadership of either party who consistently promotes fiscal responsibility. Who is going to pay for all this? Why isn't this question being asked? From fear of terrorists being used to push us into passing bad legislation, we've moved to fear of recession.
Fear, fear, fear...
Enriquez is correct, alright. Fighting debt with debt, expanding the failed wars and military spending, not addressing the foreclosure problem, not creating new jobs, investing in failed industries, and failing to invest in the promised new economy to move us off of petroleum. The fear mongering, political blame game, and never-ending political campaigning has a stranglehold on any hope of reform by the Obama administration. My friends and neighbors have started to lose their homes and jobs. Having lost half their savings they will not be retiring anytim e soon. They now need jobs, today, not months or years from now. We need an office in every town in America where people can go to get a job to make some money to try and preserve their lives. Trillions spent on bailouts of corporations are not trickling down to real people.
So he's a smart guy with a Harvard MBA? SFW - so were the guys in Citi, Lehmann etc. who drove their businesses over a cliff.
You don't need anything but common sense to see that our national infrastructure is way below par (say, 25 years behind the rest of the developed world), and that start-ups in Santa Barbara and Cambridge will have zero impact on that.
Will investing in highways, schools, transit etc. fuel future economic growth? It worked for Germany and France, etc., and the Chinese believe it will work for them ($80 bn just for high-speed rail, for instance).
And, by the way, where are those future start-ups going to get their staff if we don't invest in schools and in making college more affordable right now?
America's rural areas are in desperate need of high-speed wireless access to the Internet for economic development. We are paying too much for slowspeed solutions. Wireless should be a public utility.
Wonder where all the so called experts, multi-millionaire media pundits, and GOP nay-sayers were regarding wasteful Government spending over the last eight years? You would think this problem just appeared 10 days ago when Obama became president according to them. It seems that everyone is an expert now. And why didn't any of them speak up when massive job losses, housing foreclosures, and astronomical debt was racking up when it was for things the Republicans wanted to spend it on? Instead, just a few months ago, we were being told the fundamentals of the economy was sound. Now we're being told we can expect to go over the cliff if we spend money to help our own citizens with a crust of bread (while we continue to support the Iraqi war and their national infrastructure). Yes, things are in a mess. But we all would do well to remember how we got here and who worked to put us there.
THANK you! And where were all these Congresspersons so concerned with economic policy, when Paulson ran into the room with his hair on fire, screaming for $700,000,000 ("a nice, big number") that had to be paid right now? They prostrated themselves to him so quickly they all got nosebleeds. Suddenly these people are so concerned about the way the government uses funds? Yeah, when it's not going into THEIR pockets.
Do you know anything about MBA's? That doesn't qualify him as an expert on the economy. The MBA usually consists of wine-tasting and networking classes and is only a two year program. Why you are treating this guy's opinion as sacrosanct rather than listening to economics Phd's is beyond me. We are currently facing a deflation period, so inflation is actually preferable. The problems he mentions can be addressed later, but if we do nothing, then millions of jobs will be lost. Period.
Having an MBA, I will have to take exception to the idea that getting it consisted of "wine-tasting and networking classes".
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