[ Pobierz całość w formacie PDF ]
.Recently, the P/E Ratio has been about 25.47 c02.qxp 8/8/06 1:39 PM Page 48America s Bubble EconomyBusinesses grew, jobs were created, and consumers keptconsuming.Real estate began to appreciate nicely.Thegrowing demand for dollars to buy valuable American realestate, stocks, and bonds, greatly increased the value of thedollar, allowing foreigner investors to make even moremoney on their already spectacular investments.Returnslike these on U.S.stocks, bonds, and real estate have hardlyever been seen in the modern industrial world.More andmore foreigners came looking to lend and invest more andmore money, further driving up the value of our assets,including our currency.As a wonderful bonus, the high price of the dollar alsomade foreign goods spectacularly cheap for American con-sumers, who by now were armed with wallets full of creditcards and low interest home equity loans, often used to paytheir credit cards and buy more imported goodies.The explo-sion in imported foreign goods flowing into the United Stateswas great news for the nations who sold us these goods.Manyeconomies around the world began to grow along with us.Some, like China, grew even faster than the United States.With the value of the dollar high,and less prosperous nationsworking around the clock to make cheap stuff for us to buy,the world became one bigWal-Mart toAmerican consumers.The economic advantages of borrowing huge amountsof money from foreigners to fund astronomical governmentdeficits are almost too many to list.To summarize, a quickreview of the benefits shows how important big influxes offoreign capital have been and continue to be for oureconomy:1.The huge supply on foreign money helps keep inter-est rates low.48 c02.qxp 8/8/06 1:39 PM Page 49Bubble Blind2.The government uses this money to fund its deficits.This deficit spending is highly simulative of the econ-omy.It allows for lower taxes and more jobs createdby government spending.3.Low interest rates encourage purchases of capitalgoods such as cars and houses.4.Low interest rates help make credit cards cheaper andeasier to obtain, creating a growing pool of capital tobuy more goods (and a credit card industry boom).5.Low interest rates allow business to expand moreeasily.6.Low interest rates also help the stock market.Withoutgetting into equity valuation theory too much, sufficeto say that the lower the interest rates the higher thevalue of equity, public and private.The value of stocksstart to grow rapidly.7.The booming economy created by the above listedfactors add more fuel to the stock market fire.8.A booming stock market encourages foreigners to puteven more capital into the United States by investingin the stock market.9.The huge surge in the stock market encourageseven more foreigners and Americans to invest.Themarket went up over 10 times from 1982, the startof the borrowing, to 2000.The NASDAQ was upover 25 times!!! What a country! Who wouldn tinvest! (The Dow is still up almost 10 times as isthe NASDAQ even after the correction of 2000not bad at all).49 c02.qxp 8/8/06 1:39 PM Page 50America s Bubble Economy10.With the stock market and economy booming, realestate also begins to appreciate.11.The huge demand for dollars to buy American stocks,bonds and real estate, greatly increases the value ofthe dollar.Foreigners are making even more moneyon their already spectacular investments.Investmentreturns like these on stocks, bonds and real estatehave hardly ever been seen in the modern industrialworld.12.The high price of the dollar also makes foreign goodsspectacularly cheap to American consumers who arenow armed with lots of credit cards and low interesthome equity loans (sometimes used to pay off thecredit cards) to buy those foreign goods.An explosionin purchases of foreign goods results.Thank Heaven for Massive Government DeficitsMany people, including former Federal Reserve ChairmanAlan Greenspan, have said big government deficits are athreat to our economy.And of course, this it true.However,there s another side to running a government deficit thatfor some strange reason almost no one ever talks about,even though it s easy enough for anyone to see.The big secret that most experts never, ever discuss isthis: Running a big government deficit has an incrediblypowerful positive impact on the economy and on mostasset values in the short term.Economists know that deficit spending cansignificantly stimulate the economy, and they even have aname for it: priming the pump. The government borrowsmoney and uses it to buy goods and services.The people50 c02.qxp 8/8/06 1:39 PM Page 51Bubble Blindreceiving this money then spend it on more goods andservices, and so on, creating an increase in economicactivity.Since there is no offset in the form of taxes (thegovernment is borrowing the money, not taking it fromtaxes), deficit spending can be a big boost to economicgrowth.There are limits, of course.If the government borrowstoo much money, then the increased demand for moneypushes up interest rates (the cost of money).Now here comes the part that almost no one is willingto talk about, even though they know it.The wonderfulsolution to this problem is to borrow the money fromforeigners.Borrowing from foreigner investors means there ismuch less, if any, crowding out of money for U.S.businesses and individuals.Instead, because U.S.capital isnot sucked up by the government, it is available for otheruses, keeping interest rates down and stimulating theeconomy.Massive government deficits, now totaling nearly$8 trillion in government debt, heavily funded by foreigncapital, have an enormously positive impact on theeconomy.It s practically a gift from heaven.It s been theUnderdog Super Power Pill of economic growth! Stockprices are way up in the last 25 years, real estate valueswent sky high, and other U.S.assets have done very, verywell.It s perfect!Well, not quite perfect and herein lies the reason noone is singing its praises.Eventually, we do have to pay it allback.And then, all that positive will turn to negative whenit s time to pay the bill [ Pobierz całość w formacie PDF ]
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.Recently, the P/E Ratio has been about 25.47 c02.qxp 8/8/06 1:39 PM Page 48America s Bubble EconomyBusinesses grew, jobs were created, and consumers keptconsuming.Real estate began to appreciate nicely.Thegrowing demand for dollars to buy valuable American realestate, stocks, and bonds, greatly increased the value of thedollar, allowing foreigner investors to make even moremoney on their already spectacular investments.Returnslike these on U.S.stocks, bonds, and real estate have hardlyever been seen in the modern industrial world.More andmore foreigners came looking to lend and invest more andmore money, further driving up the value of our assets,including our currency.As a wonderful bonus, the high price of the dollar alsomade foreign goods spectacularly cheap for American con-sumers, who by now were armed with wallets full of creditcards and low interest home equity loans, often used to paytheir credit cards and buy more imported goodies.The explo-sion in imported foreign goods flowing into the United Stateswas great news for the nations who sold us these goods.Manyeconomies around the world began to grow along with us.Some, like China, grew even faster than the United States.With the value of the dollar high,and less prosperous nationsworking around the clock to make cheap stuff for us to buy,the world became one bigWal-Mart toAmerican consumers.The economic advantages of borrowing huge amountsof money from foreigners to fund astronomical governmentdeficits are almost too many to list.To summarize, a quickreview of the benefits shows how important big influxes offoreign capital have been and continue to be for oureconomy:1.The huge supply on foreign money helps keep inter-est rates low.48 c02.qxp 8/8/06 1:39 PM Page 49Bubble Blind2.The government uses this money to fund its deficits.This deficit spending is highly simulative of the econ-omy.It allows for lower taxes and more jobs createdby government spending.3.Low interest rates encourage purchases of capitalgoods such as cars and houses.4.Low interest rates help make credit cards cheaper andeasier to obtain, creating a growing pool of capital tobuy more goods (and a credit card industry boom).5.Low interest rates allow business to expand moreeasily.6.Low interest rates also help the stock market.Withoutgetting into equity valuation theory too much, sufficeto say that the lower the interest rates the higher thevalue of equity, public and private.The value of stocksstart to grow rapidly.7.The booming economy created by the above listedfactors add more fuel to the stock market fire.8.A booming stock market encourages foreigners to puteven more capital into the United States by investingin the stock market.9.The huge surge in the stock market encourageseven more foreigners and Americans to invest.Themarket went up over 10 times from 1982, the startof the borrowing, to 2000.The NASDAQ was upover 25 times!!! What a country! Who wouldn tinvest! (The Dow is still up almost 10 times as isthe NASDAQ even after the correction of 2000not bad at all).49 c02.qxp 8/8/06 1:39 PM Page 50America s Bubble Economy10.With the stock market and economy booming, realestate also begins to appreciate.11.The huge demand for dollars to buy American stocks,bonds and real estate, greatly increases the value ofthe dollar.Foreigners are making even more moneyon their already spectacular investments.Investmentreturns like these on stocks, bonds and real estatehave hardly ever been seen in the modern industrialworld.12.The high price of the dollar also makes foreign goodsspectacularly cheap to American consumers who arenow armed with lots of credit cards and low interesthome equity loans (sometimes used to pay off thecredit cards) to buy those foreign goods.An explosionin purchases of foreign goods results.Thank Heaven for Massive Government DeficitsMany people, including former Federal Reserve ChairmanAlan Greenspan, have said big government deficits are athreat to our economy.And of course, this it true.However,there s another side to running a government deficit thatfor some strange reason almost no one ever talks about,even though it s easy enough for anyone to see.The big secret that most experts never, ever discuss isthis: Running a big government deficit has an incrediblypowerful positive impact on the economy and on mostasset values in the short term.Economists know that deficit spending cansignificantly stimulate the economy, and they even have aname for it: priming the pump. The government borrowsmoney and uses it to buy goods and services.The people50 c02.qxp 8/8/06 1:39 PM Page 51Bubble Blindreceiving this money then spend it on more goods andservices, and so on, creating an increase in economicactivity.Since there is no offset in the form of taxes (thegovernment is borrowing the money, not taking it fromtaxes), deficit spending can be a big boost to economicgrowth.There are limits, of course.If the government borrowstoo much money, then the increased demand for moneypushes up interest rates (the cost of money).Now here comes the part that almost no one is willingto talk about, even though they know it.The wonderfulsolution to this problem is to borrow the money fromforeigners.Borrowing from foreigner investors means there ismuch less, if any, crowding out of money for U.S.businesses and individuals.Instead, because U.S.capital isnot sucked up by the government, it is available for otheruses, keeping interest rates down and stimulating theeconomy.Massive government deficits, now totaling nearly$8 trillion in government debt, heavily funded by foreigncapital, have an enormously positive impact on theeconomy.It s practically a gift from heaven.It s been theUnderdog Super Power Pill of economic growth! Stockprices are way up in the last 25 years, real estate valueswent sky high, and other U.S.assets have done very, verywell.It s perfect!Well, not quite perfect and herein lies the reason noone is singing its praises.Eventually, we do have to pay it allback.And then, all that positive will turn to negative whenit s time to pay the bill [ Pobierz całość w formacie PDF ]