The author has been described by News Ltd as an "iconoclast", "Svengali", a pollie's "economist muse", and "pungently accurate". Fairfax says he is a "Renaissance man" and "one of Australia’s most respected analysts." Stephen Koukoulas concludes that he is "85% right", and "would make a great Opposition leader." Terry McCrann claims the author thinks "‘nuance’ is a trendy village in the south of France", but can be "scintillating" when he thinks "clearly". The ACTU reckons he’s "an enigma wrapped in a Bloomberg terminal, wrapped in some apparently well-honed abs."

Saturday, July 3, 2010

Kohler brilliant on two factors that could save the US...

In the subscriber only, Eureka Report "weekend briefing", the seriously smart Alan Kohler (remember AK has to cover a ton of subjects) identifies the two forces that could help preserve some semblance of US economic hegemony: innovation and population growth, which also just happen to be the two most important drivers of long-term economic growth. And it pays to remember that no country has the inventive record of the US...Anyways, I have often thought that if something is going to salvage the US long-term, it will be its ingenuity (you know my views on population growth). Quoted with permission:

"In fact the ECRI leading indicator and the bond market are predicting another recession and the stockmarket has been sagging for a fortnight as analysts have been redoing their profit forecasts.

It’s a horror story. How did it happen? Well, it’s just not a normal cycle: since the end of World War 2 and then especially after winning the Cold War against the Russians, Americans have enjoyed the greatest standard of living in history. They have been triumphant. And as time went on the American Dream was increasingly financed by debt, not productivity, and they created a financial house of cards.

And what Bush, Bernanke and Obama, all the financiers of Wall Street and all the marketers of Madison Avenue have been trying to do over the past 18 months is persuade themselves and the American People that the dream doesn’t have to end – they can just print more money and it will be OK.

Deb and I have been watching DVDs of the HBO TV series called “Madmen” lately – about an advertising agency in 1960. It’s totally fascinating because you are seeing the beginning of this story – the birth of consumerism, the blatant manipulation by advertisers, the smoking, the huge cars, the sexism (oh boy the sexism!).

And back to the present, on CNN and the Wall Street Journal, we can see how the story ends – they all get crushed under a mountain of debt 50 years later.

Bernanke and Obama will simply not accept a new American Depression and will do anything to prevent it - print any amount of new dollars, borrow any amount of money from China. We are now at the tipping point that will determine whether they will succeed, or whether, no matter what they do, the US will have long, drawn-out deflationary depression like Japan.

In my view there are two things that might prevent what happened to Japan in the 1980s and 1990s happening to America for 20 years as well, and they have nothing whatsoever to do with money printing and government borrowing, which Japan proved don’t work.

They are: Mexican immigration and Silicon Valley. They are two sides of the same coin - energy and the creative spirit.

I’ve written here before about the importance of innovation to the US, and the possibility that the current extraordinary wave of invention produced by the intense competition between Apple, Google, Microsoft, Research in Motion (Blackberry) and others will save the country. Japanese firms were mostly copiers, not inventors.

The other thing that Japan didn’t do during its deflation/depression years following the crash of 1989 was open the borders to immigrants. The result is that Japan’s population became older and older, more and more tired, and less productive.

The US has endless waves of Hispanic migrants washing across its southern borders. The border is not exactly open, but they look the other way so that the Mexicans can do their menial work. The result is that America’s stocks of young, energetic workers trying to improve their families’ lives are constantly being replenished.

This is an enormously powerful force and the uncrushable spirit of innovation coming out of the West Coast is one of the two things that might save the United States from Depression. It might not too, and there is a growing body of opinion that it won’t."