22 December 2008

Russ Winter nails the gooses at GaveKal

The latest in misconceived bullish theories to come down the pike was espoused in this week’s Barrons, by GaveKal. A centerpiece of their theory is the “net worth” of American “households”, derived from the Federal Reserve Z1 report. In 3Q, 2006 the Fed reported that US households held $67.1 trillion in assets against liabilities of $13.0 trillion, for a net worth of $54.1 trillion. GaveKal goes on to assure us that based on this supposed solid balance sheet, the US will have little difficulty with borrowing from these foreigners, and servicing trillion dollar plus annual twin deficits.

GaveKal also recommends a concept called “platform companies”, which is code for outfits that best outsource American jobs to “safe” production locales like China and Thailand, who then pollute the global environment and fail to account for the negative externalities (true costs) of their production. Connecting the dots, the reader is left with the peculiar slash and burn notion that the US can just eat its young by outsourcing jobs to foreign polluters, while failing to invest in capex and just merrily borrowing from foreigners against its Bubble induced “wealth.”

Scientists now say 30% or more of the mercury settling into U.S. ground soil and waterways comes from other countries – in particular, China.

What GaveKal doesn’t get into at all is who holds all this fictitious American wealth? Readers of this blog already know the answer to that. It’s in the hands of plutocrats and the elite. Therefore for purposes of my counterpoint to the “bountiful wealth” theory, I am just going to acknowledge from the get go that about 10% of American households are doing fabulously indeed, at least for the moment. The next 10% may be doing well, sort of, but increasingly that’s subject to debate. It’s the bottom 80% that I worry about and will focus on here. Further I advance the following question: can the US economy stay solvent and strong by depending on transitory Bubble “wealth” and the income of the top 10%, especially as “platform companies” jettison the jobs of the other 90%?
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