America’s false profits -- firms are not as healthy as you might suppose

[HuckleB]

America’s false profits -- American firms are not as healthy as you might suppose

http://www.economist.com/agenda/displayStory.cfm?story_id=3124726

"THERE are not many Wal-Marts in St James’s, the swanky part of London that The Economist calls home. Actually, there aren’t any. And it is our loss, for however grand, charming and quirky the shops, cheap they are not. Wal-Mart, in contrast, is nothing if not cheap, which is why this one chain alone accounts for 8% of all American retail sales. So it would be no exaggeration to say that when Wal-Mart says that its sales are sluggish, as it did on Monday August 23rd, you should take that as strong evidence that America’s indebted consumers are tightening their belts and the economy is having a rough spell. This will not be good news for corporate America if it continues. Might it be positively bad?

The very thought! American companies, as we all know, are money-making machines. Having gone through a bit of a rough patch post Enron, their chief executives are again being lauded as the titans they clearly are. Profits for those companies lucky enough to be included in the S&P 500 index increased by 20% or more in the second quarter. They have increased by over 20% for four quarters on the trot—only the fifth time they have managed this feat in 50 years. While markets have in general fallen this year, heady corporate profits have at least provided corporate-bond and equity markets with support at their current, still elevated, levels. Anyone who thinks that they will continue to do so might not want to read what follows."


And now, finally, even the fairly "conservative" columnist at The Economist admits reality. Amazing.

[catzies]

1. Love the British gift for understatement in this line:

Chief executives post-Enron went through "a bit of a rough patch."

Bwahahaha! :evilgrin:

[HysteryDiagnosis]

2. columnist at The Economist admits reality<<

The reality is.... that we have created an atmosphere in which... it is possible... that other nations could band together with their economic power, and not their military power... in order to put the neocons in their place... and "that" would include us.... my my my how they have taken us down the wrong path for personal gain. Shame.

[Frodo]

4. Not much of a chance of that.

Since virtually all of the countries who might be inclined to try are in far worse shape than we are (higher unemployment, higher inflation, lower GDP growth) and would have to hurt themselves worse just to impact us.

Like Japan trying to prop up the US Dollar earlier this year. They weren't doing it to help Bush, they were doing it because if the Yen climbed any more against the dollar they would fall right back into recession.

[HuckleB]

5. Heck, even Argentina was buying dollars to keep the peso low this year.

The reason: The loss of exports if the peso grew too strong against the dollar. Sheesh. If Argentina has to do something like that, in the shape it's in, what kind of shape are we in?

[HysteryDiagnosis]

6. they would fall right back into recession.

Doh!!!


I wonder if it is a healthy situation to have all of the world's economy so intricately intertwined so that this one can wreak havoc on that one... and that one can undermine this one... and so forth. Maybe that is a bad thing.... It sort of sets the "world economy" up to be susceptible to a sort of economic "butterfly effect".... just my 2 cents... no economics major here.. just a concerned citizen, who wishes things weren't as bound together as they are....

[Wright Patman]

11. The 'global economy'

has been declared by pundits to be 'inevitable' for at least the last 20 years.

AT least "they" have stopped saying it is an unmitigated good thing for the world as the evidence mounts that clearly it is not.

"Interdependence" was always sold by the Council on Foreign Relations types as a way to bring the nations together into an eventual world government which will do away with national sovereignty and thus the possibility of war (putting down anyone anywhere on earth would from thenceforth be seen as "police action" even if they wound up just as dead and from the same weapons as would be used in the obsolete form of violence historicallly known as war).

The fact that a supreme power holding sway over the planet might also do away with our freedoms and render 99 percent of us serfs and peasants is hardly ever mentioned.

[HysteryDiagnosis]

15. 99 percent of us serfs

Aha!!! Bushworld... enter at your own risk!!!! Thanks for the heads up on that....

my offerings....

www.globalizethis.org

www.corpwatch.org

[Capt_Nemo]

8. Realy, Frodo? Please tell me

What are the other industrialized economies with budget, trade
deficits and a debt proportionaly as high as the US?

Who is realy in worse shape?
Maybe you'll find out when the creditors come to collect their due...

These structural problems make the US economy the most vulnerable
in the industrialized World. Should an "economic catastrophe" happen
everybody would be hurt but the US would be the most dammaged.

It is a matter of cost bennefit: if, say, the chinese decide that
the dammage to their economy from economic warfare with the US
is the price woth paying to prevent the dammage US aggresive
use military power could bring to their geopolitical intersts,
then they will definetly do it.

[Frodo]

9. Tut tut. Did I say that?

Did I mention trade deficits? Do you really place that on a par with the other measurements? You think maybe the Germans go home every day saying "Well, we've got anemic growth and unemployment rates in the double digits, but our annual deficit is only 4% of GDP when those poor Americans are running there's at 5%" ???

But if we really want to talk debt. Do you really think it's so out of whack? Debt is only important as a percentage of GDP. $10,000 of credit card debt to a college student with a part time job is devastating. To the guy with the six figure income it's merely a nuisance. Total US debt to GDP is still under 40% ) while France Germany and Japan are all higher (sometimes MUCH higher). In fact, out debt/GDP ratio is among the lowest in the industrialized world. So your point is not valid even judging by your own standards.

"Who is really in worse shape?
Maybe you'll find out when the creditors come to collect their due..."

This is a commonly held fiction. One, the "creditors" are largely US. Foreign ownership of US debt is actually a small percentage of the total debt..and 2) The creditors CAN'T "collect their due". I can't tell you how many times I've heard "what happens when the Japanese decide to call in those debts?". There is no option for them to do that. They could SELL those bonds, but only to another willing buyer. They can't make the US pay up any faster than the agreed term of the debt.

[Capt_Nemo]

10. 7 trillion out of 12 trillion, seems not 40% to me

Germans GO HOME everyday, even the unemployed, which can't be said
of the scores of homeless and those that live in decrepit, degraded
urban areas or in trailer parks in the good ol' US of A.
Guess what? Even some that work live in those hellholes!
I'd rather be unemployed in Germany, thank you!

Japan's problem with debt should give you a hint where the US is heading...

The problem with the way you put the debt problem is that it supposes
the US can be trusted with fulfilling its obligations. Well, with
all the "creative accounting" that goes on today in corporate america
and even in the state finances trust becomes faith to the home
creditor, and evaporates overseas.
What if Japanese creditors find out the bonds they hold are worth nothing?

[Frodo]

12. Do you have figures?

What are you basing your comments re: Germany on? Their homelessness rate is four times that of other european nations like Denmark, Greece, Belgium etc. And while the best numbers I can find are from the late 90's, Germany didn't have better numbers than the US did.

And it's humerous how you can simultaneously admit Japan is WAY worse off than we are (debt-wise) while wondering what THEY will do when they find out "the bonds they hold are worth nothing"?

[Capt_Nemo]

13. The figure I saw several times stated for

the US debt is 7 trillion dollars, maybe I'm misinformed, why
don't you please supply me a link about the current US debt?

I didn't talk about Germany's unemployement figures, which are
that high mainly because the consequences of re-unification
(a policy advocated by free-marketeers that wasn't well thought out from the start) are still being felt.
What I talked about was on the standard of living of the unemployed
in Germany and comparing it to their american counterparts.

Japan got indebted the 80's just like the US is doing now
the result is there for all to see now. Why do japanese investors
finance US debt? I don't know, I don't think its a reliable investment
at all...
Maybe their economy has stagnated because japanese investors are
dimwitted...
What I was saying was that if at some point the US economy is percieved as not being able to cope with its obligations the foreign
capital inflows, that sustain it, will colapse, due to lack of trust
from foreign investors.
That is where corrupt accounting practices get into the picture.

[Frodo]

14. I think the 7 Trillon dollars is "total debt" including Social Security

liabilities. That's comparing apples to oranges.

Debt held by the public is around 36-37% of GDP right now.

Sure, you can reasonably argue that debt is debt and those socail security liabilities ARE going to need to be paid out. And I would agree.

The problem with that assumption is that the figures for the other countries ALSO ignores future public pension liabilities. I have no data right now comparing the two, but I'm sure we can agree that the pension payouts in Europe are generally more attractive than here in the US? So adding in the comparable figures for coutries like France and Germany would only INCREASE the disparity between the two?

As for the REASONS behind German unemployment? That is certainly a factor... but France is sitting on virtually identical figures. The stats really can't be spun as far as you would like. The bottom line is that, for all of our recent problems, the economies of Europe are not even doing THAT well.

And for "if at some point the US economy is percieved as not being able to cope with its obligations"? US treasury debt is currently THE safest investment (credit risk wise) in the world - hands down. IF that were to ever change it WOULD be a problem. But you've given no indication of what might cause that to happen.

[Capt_Nemo]

16. "creative" accounting practices

If the maths doesn't add up anymore, investors will lose trust
in the figures produced by the treasury...

[Frodo]

17. The math works fine.

Some people just don't like the results.

[Capt_Nemo]

18. And I have some WorldCom stock to sell you...

or do you prefer Enron?

[Frodo]

19. Thanks for making my point.

Compare the US Treasury to Enron?

[Capt_Nemo]

20. The system is corrupt to its core

Enron is just the symptom.

[Frodo]

21. The system I take it is "capitalism"???

Careful not to show all your cards at once Captain.

[Capt_Nemo]

22. Have I ever hidden my game, Frodo?

[Frodo]

23. As long as it's clear what your "overlay" is.

:hi:

No offense intended.

What's your preference?

[Capt_Nemo]

24. Scandinavian social-democracy

But to fight neo-conservatism I would get on Satan's team if necessary...

[Frodo]

25. "Social democracy"? Don't confuse governing model with economic

You mean "Socialism", right?


Even on THIS board (well to the left of the Democratic party as a whole) that probably isn't a real popular position. Even in Scandinavia they've been moving away from that model over the alst several years.

But to the point. Socialism doesn't so ANYTHING to avoid economic corruption (some would argue it's worse).

Corruption does not exist in an economic system... but in people.

[Capt_Nemo]

26. Labels are different here in Europe

And I have always made it pretty clear that I'm way left to "DU's mainstream".

I'm a socialist but I'll setlle for the scandinavian model.

You are right that the pendulum has been going in the direction
of deregulation and privatization since the creation of the WTO.
But once the people all over the world realize that the endgame
of "free trade" as enshrined in the WTO rules is the feudalization of
the World and the anihalation of the middle classes, they will want
no more.

[Frodo]

27. That's fine. So, going back to post #16

You're saying that the system which is based on CENTRALIZED economics is LESS prone to fictional accounting than the one that is DE-centralized?

In order for theories re: the gaming of this system to be true, the Bush team would have to control tens of thousands of career government workers (of BOTH parties) as well as dozens of independant organizations and universities.

BTW - Where's "here"?

[Capt_Nemo]

28. "here" is Portugal

It's not a question of centralization it is a question of checks
and ballances written into law, separation of powers AND the rule of law.

Soviet so-called socialism was a corrupt centralized system
because there was no such thing as separation of powers or the
rule of law.
I don't believe that such thing as "socialism" can exist without
the rule of law.

The US brand of capitalism is a corrupt de-centralized system because the legal
checks and ballances were done away within the last 20 years.
It was done by legislators of both parties lobbied by big business
that bennefits from the legal loopholes that were created.

Democracy, rule of law and the welfare state were nice weapons in the cold
war keeping the working classes at peace with the system, but are not needed anymore.

In the US the 2 parties are 2 faces on the same coin, looking after the interests
of the same corporations that finance both. The problem
for the democrats is that too late in the game they woke up to
the fact that the people that financed them got tired of democracy
and now prefer a mexican type system with a party permanently in goverment
(the one that better caters for their interests) and a
façade opposition party.
Maybe it is too late to turn the tide now... anyway, best luck to Kerry
... he'll need it.

this conversation is good but now I have to go dinner. See you tomorrow.

[Fovea]

29. Your model of socialism as it currently exists in virtually all other

western industrial nations looks a lot more like late Stalinism to me.
There is no GosPlan in the EU. I would call your framing maladroit, and be charitable.

In order me to regard our system not to be gamed but to be the real market at work, an awful lot of recent history like Enron, Halliburton, et al must be discarded as irrelevant. I predict that before October, we will see this economy retreat violently under energy costs and outsourcing and the dollar will fall further against the Euro, the Ruble, and the Yuan. That will of course, make the fuel oil shock this winter far worse.

Chinese will drive more, Americans will drive less because we can buy less, Europeans will drive less to try to bake less and profit for it.

Relocating public goods like health care back into the government, rather than the employer will be a positive good for America. A workforce that can retrain without penalty will compete in the real market for goods and services, not for the exclusive good of the captive monopolies and oligarchies like transportation, education, healthcare, and energy, but for their own as well.
The real market radicals are even trying to capture drinkable water as a market as well.

This is part of a madness that will end in serfdom, disease, and a downward trending in the industrialized world population in a time of rising birth rates in resource extraction states. A great misery in our time. IMO.

[xchrom]

3. hmmmph -- we've been experiencing

first hand what is taking this guy a long time to see.
btw i work retail.

[Bernardo de La Paz]

7. W for double dip recession. Second dip looks possible.

Bubble Boy speaks to the convention Sept. 2nd.
Job figures come out on Sept. 3rd
Labor Day weekend begins Sept. 4th.