Table On-Topic Summary - 21-Oct-2002
A compilation of this board's financial/economic posts From 43896 to 43940

Post  43896  by  Decomposed       OT: Table ON TOPIC SUMMARY Oct 20, 2002


Post  43897  by  lkorrow       Reply
ttalknet, this issue burns me up. Hopefully they are making significant changes. We certainly don't hear much on TV. This should be a major initiative with visibility, imho. I agree with you on the changing times require new policies. Yes, the mind boggles. . . .




Post  43898  by  lkorrow       Reply
Hi Clo, I guess they're saving themselves on the rate cut as you say. I'll defer to maniati on that one, though!

Yes, now Korea, wow. What if al queda's there too, what a mess. No comfort level there. I doubt we'll be attacking Iraq any time soon, but who knows. Seems like the UN route is the preferred choice. But if sadam gets a little over-confident on his status, I can see us having to go in. Since he is a madman, a coalition will probably have to disarm him, ultimately. jmho.




Post  43899  by  lkorrow       Reply
maniati, would rate cuts drive refinancing? I view it as how the rate cuts would impact companies overall expenses. Oil up, debt payments down? A half of percent could make a lot of difference on billions in loans. . . .

Still, I've gone into the selfish camp, I'd like to see a decent interest rate on my 401K MM.




Post  43900  by  lkorrow       Reply
nacl01, I'm sorry! I didn't realize I'd be coming in with an advantage. Should I get some kind of penalty? It's ok with me, you can bet I'd be down! :-)

Well you really cleaned up on ATML, congrats! Not a bad consetellation prize. :-)

Good luck to you too!

Linda



Post  43901  by  lkorrow       OT: Is there a valid description of the vehicle ou


Post  43902  by  Czechsinthemail       Reply
The proposed SEC budget cutback is disappointing but not entirely surprising. It certainly wilts the firmness of the recently (albeit belatedly) embraced law and order position against corporate wrongdoing. It also shows in a pretty blatant way that the administration's loyalty to its corporate club constituency is stronger than its commitment to the citizenry as a whole. As Bob Dylan noted, it may be the Devil or it may be the Lord, but you've got to serve somebody.

This also makes it even more clear that the main problem at the SEC isn't primarily Harvey Pitt, who is more of a symptom of an administration that is still basically willing to wink and continue its collusion with corporate insiders despite their having thoroughly abused their shareholders, their employees and the public in general.

The bigger problem, I think, is that in government as well as corporate management the fish rots from the head.

We'll see how many citizens read and how many readers vote.




Post  43903  by  Warstud       Reply
Agere files patent suit against Intersil


By Ben Charny
Staff Writer, CNET News.com
October 18, 2002, 5:23 PM PT


Wi-Fi chipmaker Agere Systems has filed a patent infringement lawsuit against rival Intersil, the company said Friday.
The lawsuit alleges that Intersil has been using Agere's patented wireless techniques in Intersil chipsets without paying for the right to do so. Agere has patented six wireless techniques, all involving the 802.11b standard.

The Agere patents involve the three major pieces of a Wi-Fi chipset using the 802.11b standard. Those elements, which are at the core of every Wi-Fi access point and modem, consist of a power amplifier, which boosts the Wi-Fi signal; a radio to broadcast the signal; and a media access controller, which puts data on a computer network.



With patents now being questioned, Wi-Fi equipment makers may wait for clarification on any new licensing schemes before going ahead with full-scale production, said Jupiter Research wireless analyst Joe Laszlo.

Networks based on Wi-Fi, or 802.11b wireless standard, have grown in popularity. Wi-Fi equipment allows people to surf the Web wirelessly, typically within a 300-foot radius surrounding a wireless hub.

Intersil Chief Executive Rich Beyer denied Agere Systems' allegations, calling them "wholly without merit." He said production of the company's Wi-Fi chips will go on as scheduled while the company defends itself.

Intersil is the only defendant named in the lawsuit, which was filed Thursday in U.S. District Court in Delaware. Intersil has 30 days to respond to the lawsuit.

Wi-Fi chipmaker Proxim, which now owns Agere, in March filed a similar patent infringement lawsuit against 3Com, Cisco Systems, Intersil and Symbol. The case is still pending, a Proxim representative said Friday. The four companies deny infringing on Proxim's patents.






Post  43904  by  Nasdaq60       Reply
ttalknet,
well said, but don't U write;
that mus.-diaper-binheads,
are the 50 mil mu.rats on 2 legs?

The mind boggles;
that not all are
behind sec.bars
or sent to iraq-arab?!




Post  43905  by  maniati       Reply
lk: I've heard that argument before, but I don't agree with it. To the extent that there is an optimum setting for our monetary controls, they ought to be independent of the price of oil.

Yes, rate cuts would drive refinancing, but the question is, why is refinancing an answer to an increase in the price of oil? I would suggest to you that monetary policy cannot do much of anything to change the price of oil, itself. Think of the price of oil as an exogenous variable over which the Fed has virtually no control. That being the case, you would want to "optimize" the system, taking oil prices as a given. The "optimal" performance is considered to be one where employment is as low as possible, with stable GDP growth, while keeping demand-pull inflation to a minimum. That is the Fed mantra, right? So, right or wrong, the Fed sets it controls (money supply, reserve requirements, etc.) at levels that it thinks will best satisfy this objective. Well, if the Fed thinks it has its monetary controls set appropriately, then what difference should an oil price increase make? If it makes sense to cut rates in response to an oil price increase, then it ought to make sense to cut rates even without such an increase. In other words, using your example, if, in response to an oil price hike, it would make sense to reduce rates so as to reduce the interest cost of debt, then why wouldn't it make sense to do that now, even without the increase in oil? Conversely, if it does not make sense to do now (which, apparently, is what the Fed thinks), then why would it make sense to do that just because oil prices increase, given that it won't affect the price of oil?



Post  43906  by  maniati       OT: lk: We are up to 3 vehicles: one white box tru
Post  43907  by  maniati       OT: OCU: Well, just so you know, "terrorism&q
Post  43908  by  pacemakernj       OT: Maniati, RE: SEC Funding...
Post  43909  by  danking_70       OT: White Van Surrounded in Richmond


Post  43910  by  pmcw       Reply
Interview with LSI Logic chairman and CEO Wilfred Corrigan
Michelle Cheng, Silicon Valley; Jane Wang, DigiTimes.com [Monday 21 October 2002]

Amid uncertainty over a rebound in the global market, LSI Logic chairman and CEO Wilfred Corrigan said the worldwide semiconductor industry is indeed in gradual recovery, though the pace varies with different sectors.

Thanks to demand for game consoles and DVD players, consumer electronics has shown strong growth despite the market slump last year, while the communications market was hard-hit and now remains sluggish, Corrigan elaborated. Correspondingly, the Asia-Pacific and Japanese markets benefited from growth in the consumer electronics market, while the European market suffered a blow from the flagging telecommunications market, he added.

According to Corrigan, the companyís revenues have continued to grow amidst the uncertainty, rising in the second quarter mainly due to 39% growth in storage system IC revenues. With good performance from its consumer electronics, communications and storage component IC businesses, he estimated that revenues grew 10% in the third quarter and will continue growing in the fourth quarter.

The companyís biggest difference with competitors, Corrigan said, is that it provides complete solutions in consumer electronics, communications and storage components, from intellectual property (IP), design, hardware and software R&D to manufacturing capabilities. The company also provides a semiconductor platform called RapidChip that allows customers to use IP that helps them cut costs and shorten time-to-market. Through this platform, customers can save half the time compared with standard ASIC processes and achieve twice the results at only 10% of the cost.

Corrigan indicated that LSI Logic would continue to make acquisitions and strengthen IP and R&D capabilities to meet the tough challenges of the future. In storage components, the company recently acquired Mylex, IBMís RAID (redundant array of independent disks) business. The company had previously acquired C-Cube Microsystems, which boasts notable DVD, set-top box (STB) and cable modem capabilities. Combined with its own strengths in game console platforms and satellite signal converters, LSI Logic aims to claim a stake in the consumer electronics market as well.

Asked about the companyís strategies in the Asia-Pacific market, especially China and Taiwan, Corrigan stated that it would focus on developing digital and video-digital converters in the China market, while seeing the emergence of the communications and PC/storage markets there. In Taiwan, the company would provide storage and communications solutions targeting PC and PC peripheral companies.

Corrigan added that the company would continue to maintain its design and sales sites in Taipei, Beijing, Shanghai, Chengdu, Shenzhen and Hong Kong. Hong Kong will continue to be the companyís main transportation hub, handling its shipments to East Asia of components from wafer manufacturing to packaging and testing.

Corrigan commented that while foundries like Taiwan Semiconductor Manufacturing Company (TSMC) and United Microelectronics Corporation (UMC) have demonstrated Taiwanís manufacturing capabilities, and the islandís shift from OEM manufacturing to an ODM focus is becoming apparent. Chinaís semiconductor manufacturing and EMS markets are continuing to grow, as are its IC design capabilities.

To provide multiple sources of supply for its customers and accommodate varying demands from regional markets, Corrigan indicated that the company has balanced its manufacturing worldwide, using its fabs in both Gresham, Oregon and Tsukuba, Japan, as well as maintaining good ties with foundries like TSMC, Singapore-based Chartered Semiconductor Manufacturing and Malaysia-based Silterra.

Asked whether the company would strengthen its reliance on contract manufacturers like TSMC, Corrigan affirmed that IDM outsourcing has become a trend amid the recent market sluggishness, and LSI Logic expects to outsource 30% of its production by year-end and as much as 50% in 2003.

LSI Logicís 0.11-micron technology, successfully used in test production at TSMC, will be transferred to its Gresham production lines by year-end and enter volume production in 2003, Corrigan said. He added that the company is also in test production of 0.09-micron technology with its customers, and expects the first batch of products to be manufactured at TSMC in 2003.

As for 12-inch production, Corrigan indicated that the market downturn in 2001 has delayed the 12-inch timeline, and he expects 12-inch fab construction to be mainly led by foundries.




Post  43911  by  Decomposed       ot: Clinton, Carter, Korea...


Post  43912  by  uponroof       Reply
Roger B. Arnold: Deflation and Depression

General Comments

Deflation and Depression

There are many and increasing concerns being voiced about the prospects for a deflationary spiral to take hold in the US Economy as it has in Japan over the past decade.

Deflation and depression do not have to go hand in hand however.

Deflation is caused primarily by monetary mismanagement. The central bank keeps too few dollars in the economy thereby making each dollar more precious to the owner of it. The sellers of goods must then not only compete more aggressively to persuade the owner of the dollar to swap the dollars for their goods by slashing prices but must also compete with all of the other sellers of goods.

Depression is caused primarily by fiscal mismanagement; i.e. taxing and spending. The central government spends too many dollars and taxes too deeply thereby decreasing economic competitiveness, increasing barriers to entry and removing even more dollars from the economy.

Fiscal policy changes are often the result of and reaction to monetary mistakes causing the deflation to begin in the first place.

In the US in the 1930's FDR's New Deal program was a reaction to the stock market decline and resulting deep recession that was begun in the late 20's first by too loose a monetary policy, allowing the asset bubble to form in US equity prices. The inevitable correction in asset prices ran for 4 years, 1929-1932, resulted in an 89% drop in the DOW, and was coupled with tight monetary policy.

In other words, the policy mistakes by the FED allowed the Federal Government to step in at the request of the "people" to try to get the economy going again. The fix was to increase government spending, taxes and regulation in an attempt to force the economy to grow. This removed private capital profit seeking incentives from the economy and the private capital left the US Economy. The result was an even worse economy lasting the entire 1930's. The fiscal fix, the New Deal, caused the depression. But, the stock market crash and resulting recession was the prefect excuse for an egomaniac like FDR to grab for even greater political power, at the expense of the citizens that granted him the power.

In Japan in the 1930's the Japanese, at the strong urging of the Clinton Administration adopted these same fiscally, liberal, big government, big spending programs following a stock market collapse that began on the first trading of 1990 and was itself coupled with too loose a monetary policy followed by too tight a monetary policy.

But why would the Japanese adopt fiscal policies that were already known to be self defeating? Because that is what the political leaders there wanted to hear. Because big business and big banking was tied to big government it appeared to be in the best interest of the big corporations to promote a government bail out plan as well. And, the primary constituency of the Liberal Democratic Party, the party that has been running Japan since the end of WW2, is rural; i.e. they didn't know any better.

Did they know adopting these policies would fail? Yes, they knew. They couldn't not know. The government leaders placed their own ambition in place of the good of the people.

"Let them eat cake"

Germany is on the verge of following these same disastrous policies that will lead to collapse of the German economy. Their large stock market, the DAX, is down about 40% this year. Their smaller technology stock market, referred to as NASDAQ Germany is out of business. Their banking sector is undercapitalized and facing the need for a central bank bail out. The debt bubble there is worse than the US but better than Japan.

So, why would the Germans with the ability to draw on the events of the US in the 1930's and Japan in the 1990's be considering tax increases and government economic intervention to attempt to stave off an economic disaster and revitalize the economy knowing that result will most certainly be the opposite?

Because that is what he German people are requesting.

So much for the economic philosophy that people always do or pursue what is in their best interest.

Will Germany collapse? I believe it is the most probable outlook from here given the German governments current path.

Which brings us to the US.

Deflation is a monetary mistake; depression a fiscal mistake.

Will the US deflate?

The corporate sector already is deflating and the consumer sector probably will soon.

Does the FED understand this? Of course the FED understands this.

The US FED is allowing real monetary policy to remain tight in an attempt to stop deflation by reducing capacity. In other words it is attempting to drive companies out of business by ensuring they do not have access to capital. This is my opinion anyway.

As these companies are suffocating for lack of access to capital and are beginning to panic in search of money they are turning to the Federal government for help. Will the Federal government begin to use fiscal policy to bail out companies and investors.

The key to understand the answer is in timing. If fiscal policy is used too soon or too much, before the capacity is removed from the economy; i.e. enough business's go under; then it is self defeating as it allows weaker companies to survive and compete when they should be allowed to die. This would then prolong and worsen the deflation.

I think our federal government leaders understand this and will wait until enough companies have been driven out of business to remove the capacity before stepping in with fiscal policy incentives to help the remaining and get the economy back on track.

So, the next question becomes what type of fiscal policy incentives will be used. There are basically two kinds, spending and taxing.

Spending has been increasing recently even as tax revenues fall. This trend is disturbing but not as damaging to the economy as tax policy.

In an economic slow down tax cuts are necessary, not tax increases. If you have to run budget deficits caused by tax cuts in order to stimulate the economy then you do so.

This economy will require a whole variety of corporate and individual tax cuts as this cycle is completed in order to offset the devastating effects of the debt bubble collapsing.

The bottom line is that yes we are deflating and yes it is being caused on purpose by the FED in order to remove the overcapacity in the US economy.

But, deflation need not lead to depression as long as our federal government leaders are strong enough to stand up to the "people" and those fiscally liberal members of congress pandering to them.

The US is after all a Republic; it is not a democracy.

At another time we will discuss the compounding effects of fiscally liberal federal policy competing with fiscally liberal state tax policy and the ramifications for the economy.

This is becoming a hot topic as most states and municipalities are running deep deficits.



Some associated articles.

DEFLATION: SOMETHING WICKED THIS WAY COMES

The U.S. economy faces deflation given that the economy is operating below capacity when the inflation rate is only 1%. The corporate sector is already in deflation.

The deep profits recession indicates that the U.S. corporate sector is not experiencing a "good" form of deflation. Moreover, deflation is particularly dangerous when debt
levels are high, such as in the U.S.

A Japan-style debt deflation will be avoided as long as the real estate market holds up because mortgages account for 70% of household debt.

The Federal Reserve will respond to deflationary risks by easing policy again. If lower rates fail to work, then the authorities will actively target a lower dollar.


Watch Cyclicals, Financials and Tech for Signs of this Rallyís Durability

Solid relative gains in cyclical, financial and tech stocks suggest this rally may have more durability than Julyís. The latest edition of our Global Equity Sector Strategy focuses on these three sectors as key barometers of market sentiment. The gains in cyclical stocks relative to defensives indicate that market expectations of economic growth prospects may be turning more favorable (albeit from a very low base). Cyclicals failed to make gains in the July rally. The sharp gains in financials suggest prior fears about systemic risk were overblownówe think the favorable interest rate environment should continue to support this sector. Tech stocks were late to gain in the July rally given the weak tech spending backdrop. We are still cautious on the tech outlook, but there are signs tech earnings are bottoming.

http://www.bankcreditanalyst.com/public/highlights.asp?pre=PRE-20021021.GIF



Global: The Next Japan?

Stephen Roach (from Tokyo)

Deflation denial continues to pervade the macro debate. I usually introduce the topic into my presentations by asking the assembled clients to indulge me in the American childrenís game of "word association." I will say one word and they have to come up with the next word that immediately pops into their minds. The word I select is "deflation," and the unanimous response is "Japan."
In a nutshell, thatís the essence of todayís deflation debate. It is largely defined by the US-Japan comparison. To the extent that America can distinguish itself from the Japanese experience -- solvent banks, flexible markets, mark-to-market securities pricing, a two-party political system, etc. -- the case for US deflation is then usually dismissed out of hand. Thatís when I pause and add that you donít have to be Japanese to worry about deflation. The case for US deflation stands on its own merits. In my opinion, we get into trouble by linking the assessment of US deflation to the sad saga of Japan.

Thatís not to say there arenít some important similarities between the US and Japan that bear careful noting. Two, in particular, come to mind -- the asset bubbles and the impact of those bubbles on the real economy. On the first count, I hear repeatedly that Japanís bubble was much bigger than Americaís. After all, it wasnít just the Nikkei; it was also an outsize property bubble. It was the interplay between these two asset bubbles that wreaked such havoc on Japan in the late 1980s and early 1990s. The truly astonishing thing is that America canít look in the mirror and see precisely the same pattern. The Nikkei reached its peak of 38,915 on December 29, 1989. Over the ensuing 21 months it would go on to lose 38.5% of its value while Japanese land prices, as measured by the Japanese Real Estate Institute, would continue to rise by approximately 15% before peaking in September 1991. Fast forward to America. Between December 31, 1999 and September 30, 2002, the S&P 500 lost 45% of its value -- actually worse than the initial decline in Japan. Over the same 33-month period, nationwide US home prices as measured by the Fannie Mae (OFHEO) index rose around 15%. If thatís not Japanese-like, I donít what is. Property bubbles typically outlast those in the stock market. It was true of Japan in the early 1990s and it appears to

http://www.morganstanley.com/GEFdata/digests/latest-digest.html



Spreads Date Index Value* (Credit Spread Level/Divisor) Credit Spread Level(bps) Divisor Duration (years)
10/18 1491.3 944.7 0.63345 3.9
10/17 1491.0 944.5 0.63345 3.9
10/16 1497.2 948.4 0.63345 3.9
10/15 1503.6 966.3 0.64264 3.9
10/11 1555.9 999.9 0.64264 3.9

http://www.spglobal.com/creditspecdaily.html



Post  43913  by  nacl01       OT: White van
Post  43914  by  nacl01       OT: lkorrow, VSE


Post  43915  by  lkorrow       Reply
maniati, yes, I have presented the argument several times before. I think you made my case. I see your point on why oil shouldn't matter and agree. Oil is just another variable that has a large impact on the economy by increasing or decreasing the cost of goods sold. As I understand it, there have been recessions after every major move in oil.

What you are describing is textbook Fed policy and goals. But we're in extraordinary times. I would suggest that maybe the Fed has been taking a broader look at the effect of rate cuts on corporations, recognizing the peril so many large companies are in. This is conjecture, but perhaps the Fed doesn't operate in a vacumn. Perhaps they are working with the government to try and help avoid a strong recession by trying to nurture Corporate America through its debt problem without having to resort to bailouts. We have seen the impact and ripple effect of corporate failings. One could argue they have done their part. Others would say another couple of percent would make quite a difference. Seemingly rate cuts would have minimal positive impact on new loans, since credit is so tight.

My point is another percent or two can make a big difference in the corporate bottom line. If oil goes up, companies are further burdened, if it goes down, they're in better shape. It's all about profits.

I doubt the Fed will move without a psychological impetus to do so. Corporate debt isn't their primary concern if it's a concern at all. The psychological impact of having some powder dry probably outweighs any furhter lightening of corporate debt. And if the mood gets too gloomy, they can drop a bit to lighten things up. Dropping to nothing would represent a capitulation of a different sort!


Post  43916  by  lkorrow       OT: maniati. Thanks, I can't wait for 1PM!
Post  43917  by  lkorrow       OT: nacl, maybe my handicap is the rise in the mar
Post  43918  by  danking_70       ot: Judenrein, jawohl!


Post  43919  by  lkorrow       Reply
Brookings Institute says there could be deflation within the next year. (cnbc) More people apparently moving to that court.

Gold taking a dive to close to $310. Wonder where it bottoms . . .




Post  43920  by  uponroof       Reply
pace: China makes furniture
If Japan and Korea can't compete with them...we darn sure can't. Here's a telling quote: "...He predicted that 90% of U.S. furniture production would move to China within five years..." Pace, this report involves fine wood furniture, but how long before they enter the metal office arena? Hope you're able to navigate through this mess.

Los Angeles Times
October 21, 2002

A GIANT AWAKENS / SECOND OF THREE PARTS
China Polishes Off Rivals in Furniture Production
Backed by cheap labor, the country has become the top exporter to the U.S. in less than 10 years.





By Evelyn Iritani, Times Staff Writer


DONGGUAN, China -- In a vast climate-controlled room far from the dust and din of the woodcutting machines, rows of young Chinese women create elaborate patterns from thin strips of wood. Fingers flying, they shape veneer into complex patterns of contrasting grains and colors, wooden tapestries meant to transform mere cabinets into objets d'art.

The workers who craft these designs are paid 40 cents an hour, which allows factory owner Samuel Kuo to make high-end furniture for American consumers for 30% less than his U.S. competitors can.

By tapping into the aspirations of China's poor, Kuo has helped turn a remote stretch of rice paddies in the Pearl River Delta into a furniture-making powerhouse. His factory is one of thousands churning out dining room sets, sofas, china cabinets and coffee tables. In less than a decade, China has become one of the world's leading furniture producers and the top exporter to the U.S.

"For the next 10 or 15 years, China will be the manufacturing base for all of the world," said Kuo, 47, whose Lacquer Craft Manufacturing Co. ships 1,400 containers of furniture -- the equivalent of 18,200 bedroom sets -- to the United States each month. "For anything that involves people, China is the place."

An outpouring of Chinese products is reshaping the global economy. Around the world, makers of everything from bicycles to bath towels are struggling to survive intense competition from inexpensive, high-quality Chinese goods. Thousands of factories have closed as production jobs have moved to China.

That migration has been driven, above all, by low wages. In furniture, for instance, labor represents 30% of the cost of production in the U.S. In China, it is less than 7%.

As furniture factories have moved to China, their suppliers and related businesses have followed, making the country an exceptionally efficient place to operate. Akzo Nobel, a Dutch-Swedish conglomerate that is one of the largest suppliers of furniture finishes, has closed plants in the U.S. and Europe and is opening three factories in China.

"We can't expand fast enough," said Michael Keith Estes, a managing director at Akzo Nobel. He predicted that 90% of U.S. furniture production would move to China within five years. "It's a sleeping dragon, and it woke up."

*

Crossing the Strait

Among the first to move to China were furniture producers from Taiwan, which were being squeezed by rising wages and land costs at home.

Kuo, whose family manufactured wooden pool cues in Taichung, a city in central Taiwan, was among the pioneers. After completing his military service, Kuo took over the family business, expanded into furniture and began looking across the Taiwan Strait for a cheaper place to operate.

That was in the early 1990s, and China was eager to attract foreign investors. The government wanted to convert the southern city of Dongguan, 50 miles north of Hong Kong, to an industrial zone specializing in exports. Officials there offered Kuo tax breaks, inexpensive land and light regulation.

Long-standing animosity between Taiwan and Beijing complicated such a move. At the time, Taiwan prohibited direct investments in the mainland. But entrepreneurs devised ways around the rules, and the government generally looked the other way.

Kuo set up a factory in Dongguan and started making simple wooden tables, which he shipped to the U.S. at bargain prices. Quality was unpredictable. Shoddy packaging fell apart in transit and the furniture arrived with nicks and dents. It was hard to find a steady supply of top-grade wood, because China's forests had been depleted by years of unrestrained logging.

Gradually, Kuo turned things around. He imported high-quality wood, upgraded his machinery and brought in experienced managers from Taiwan and the U.S. Soon, his Dongguan factory was able to meet the standards of a growing list of U.S. customers, including prominent brands such as Ashley, Standard and Progressive. In 1994 he closed his factory in Taiwan.

Competitors took note of Kuo's success and followed him across the strait. Today, 2,000 foreign furniture companies operate in southern China, 350 of them owned by investors from Taiwan.

Those Taiwanese-owned factories produce nearly three-quarters of China's wooden furniture exports. Kuo hopes this mutual dependence will reduce the likelihood of military conflict between the island and the mainland. "We speak the same language," said Kuo, whose wife, Grace, handles the company's finances while his teenage children attend school in Taiwan and Australia. "We're all Chinese."

*

Economy and Quality

The road to Kuo's factory in Dalingshan, a township within Dongguan, is lined with small shops selling wood, paints and furniture-making supplies. Lacquer Craft is a sprawling complex of blue-and-white buildings with several huge manufacturing, assembly and warehouse facilities and four dormitories for Kuo's 5,000 employees.

By midmorning, the factory is bustling. Young men wearing goggles feed wood into precision cutting machines that fill the room with a constant screech. Workers drive motorized carts between buildings, unloading supplies and moving furniture pieces to the next step in the production process. At the end of the assembly line, workers wrap dining room chairs and dressers with padding and plastic for the long sea voyage.

By the time it reaches the showroom of a Macy's or a Levitz, the furniture commands prices ranging from $300 for an end table to as much as $4,000 for a dining room set.

At each step of the manufacturing process, Kuo tries to shave costs without compromising quality. He does this by combining modern technology with manual labor.

He has purchased some of the world's most expensive wood-measuring and -cutting machines, so waste is minimized and furniture parts will fit together seamlessly. But he relies on human hands for fine decorative touches or for rote labor that in China can be done at low cost. For instance, Kuo economizes on raw materials by purchasing cheap wood for certain uses and paying workers to cut out the knotholes.

In the "veneer room," hundreds of women piece together intricate designs. The ornamentation enhances the appearance of a cabinet or a bureau and thus its market value. That is not the only reason Kuo is fond of veneer. Every last piece of wood is used, so there is far less waste and more furniture can be made from the same quantity of timber.

"He has the best veneer room in the world," said Winsor White, an American furniture designer living in the Philippines who came out of semi-retirement to work for Kuo. "No one in the U.S. can afford to do that today."

Once a piece is completed, it heads down a mile-long, serpentine finishing line with 19 spraying stations and 300 workers, more than twice as many as would be found in a U.S. factory. Each item gets extra sanding, buffing and finishing, attention reserved for only the most expensive furniture in the United States.

Kuo has no trouble filling jobs. An estimated 10 million laborers from across China, more than 60% of them women, are looking for work in Guangdong province. Their hours are long and the labor grueling, sometimes dangerous. They keep at it because their paychecks help feed the families they left behind.

Among Kuo's employees is Dai Zhiying, 23, from a village in Hunan province in central China. Dai's education ended with elementary school. As a teenager, she took a job driving a truck at a cement factory for $36 a month. Six years ago, she followed relatives to Dongguan, where she held a series of jobs in clothing factories, each offering a few cents more per hour than the one before.

Last December, Dai took a job on the drawer assembly line at Kuo's company. Lacquer Craft stood out from the city's other export factories because it gave regular raises and performance bonuses.

*

2,000 Drawers Per Shift

The workday starts at 7:30 a.m. and lasts until 8 p.m., with breaks for lunch and dinner. During each shift, Dai and her co-workers assemble 2,000 drawers, more than three per minute. Employees live six or eight to a room in rent-free company dormitories and pay about $7 a month for three meals a day. They relax by watching television or a rented movie in a communal screening room or playing basketball in the courtyard.

Dai and her husband, a painter at Lacquer Craft, have moved into an apartment outside the factory with their year-old baby. She now makes about $50 to $60 a month, 25% more than she made at the cement factory in Hunan. "These factories are all the same," she said. "But my friends told me, 'If you stay at Lacquer Craft, your salary will go up.' "

Salaries average $100 a month for production workers at Lacquer Craft, Kuo said.

After six years with the company, Mei Xiaoli earns $240 a month as a supervisor in the machine room, 12 times the average income of a Chinese peasant. Every new year, Mei, 25, joins the migration back home to his village in northern China's Henan province. But after visiting his family, he said, he always is eager to return.

"The economy is very slow in my hometown," he said. "I came here to make money."

Kuo said it's in his interest to offer his workers progress toward a better life, however gradual. Employees who are treated well are less likely to defect to one of his competitors. Lower turnover reduces training costs.

"Under communism, people all got the same pay," he said. "Now, people will jump to another job for a penny an hour more."

*

Buying a Brand

As competitors flooded into China, Kuo realized that he couldn't compete on low prices alone. After studying the U.S. market, he became convinced that having a brand of his own was the best way to increase sales and profit.

As a supplier, Kuo was not in control of his production. The large American furniture brands that were his major customers told him what to make and how much. Kuo wanted to sell directly to retailers. But he knew that an unknown Chinese brand stood little chance of success.

Then Kuo heard that one of his biggest clients, Universal Furniture Ltd., based in High Point, N.C., was up for sale. Last year Kuo paid an undisclosed sum, believed by industry analysts to be at least $25 million, to acquire Universal's brand name and its sales and marketing network. He did not want its factories in the United States and Asia, which were sold or closed.

The marriage of Universal Furniture's name with Kuo's low-cost production base has been lucrative, he reports. Though overall U.S. furniture sales have been slumping, Kuo said the demand for his ornately carved dining room sets and veneered cabinets has been so strong that he plans to spend $20 million building new production capacity in China.

Kuo said furniture manufacturing is in China to stay. One reason is that the country's population -- at 1.3 billion the world's largest -- ensures an almost endless supply of cheap labor. Millions of peasants will travel across the country for even a meager paycheck. As wages rise in industrial areas such as Dongguan, manufacturers can open factories elsewhere.

Kuo has started building a second factory near Shanghai, where wages are lower than in southern China and government incentives even more appealing.

"China is getting stronger and stronger," Kuo said. "It still has 10 to 15 years to go before it reaches the next level. But compared to 10 years ago, it has come a long, long ways."

*

http://www.latimes.com/news/printedition/la-fi-china2oct21011430.story?null

About This Series

This is the second of three articles on China's emergence as a global manufacturing power. To read the first installment, go to www.latimes.com /china.

Tuesday: Semiconductors, China's next frontier.






Post  43921  by  lkorrow       Reply
Pace, seems like this scenario is strong handwriting for other industries like you have been alluding to. Would the counter be for our companies to go multinational and put plants there to reduce costs and bring the profits home?

Related news from cnbc: GM just reported their car sales in China are soaring. Said China will be the third largest market in five years.




Post  43922  by  lkorrow       Reply
Decomposed, I'm dropping out of the VSE competition. By definition, a competition offers an equal playing field. If you'all do it again, I'll join. Thanks for the invite, though! Hope to hear more here from the players. Have fun!



Post  43923  by  clo       Reply
roof, about "cheap labor" don't forget about Mexico.

They will also be affected by China's cheaper labor.

A dear friend of mine sent me an article last week about this, China Vs Mexico. But I am unable to locate it now.
Now if Mexico & Japan & Korea can't compete, we sure as hell can't...

After all we have our standards, as in pollution, labor laws, child labor laws, etc...

This is when companies that have their labor done on the cheap, yet continue to sell at USA made prices, angers me!
Just as many are screaming for US companies to be located here and pay US taxes, I feel this standard should apply to labor also if We are going to take that route.

just my USA .02... clo


Post  43924  by  nacl01       OT: lkorrow, VSE
Post  43925  by  lkorrow       OT: maniati, 1:00 PM sniper briefing cancelled. On
Post  43926  by  danking_70       OT: And Berkley is a leading institution?
Post  43927  by  TheArcticOwl       OT: pmcw...If you could share a few thoughts on bo


Post  43928  by  uponroof       Reply
clo...

and a good USA .02 it is!

The real problem lies within a hideous trade imbalance. In past posts I wondered when O'Neill and Co. would finally refocus on devaluing the dollar and competing again in global trade.

I am starting to think they have information telling them trade competition, given our exceptionally poor position and currently inflated values, would be an exercise in futility. This might explain their insistance on staying the course as if their is nothing wrong (it's their only option).

For the last 10 years we have focused on exporting 'intellectual capital' (Nasdaq/Stock Market/wisdom) which was networked around the world via 'the strong dollar policy'. Underpinning all that was the American societal living standard (envy of the world) and dominating military might. Needless to say, intellectual capital is no longer in demand as foreign investors now leave the American equity markets in droves.

You can't just disregarded domestic manufacturing for 10 years (while exporting a strong dollar) and hope to rebound quickly....especially after carpetbagging the rest of the world. As you say, Nike makes sneakers for a few dollars and sells them for 80. The difference (77 bucks) is working it's way through the system now as globalization reality plows under domestic manufacturing/labor balances. Can you here Pat Buchanan screaming in the background?

You are what you eat. We (Americans) have eaten up (exploited) other less developed countries as we import (through goods) cheap labor. Every day that passes brings us closer to inhereting that similar cheap labor-undeveloped living standard.

Military strength seems to be the Lone Ranger (for now) holding up whatever intrinsic value you can attach to America. On the other hand as jeffbas points out in comparison we are and should be above the others in the fray....my question is how much longer can we claim superiority over others as we knit closer and closer via globalization?

So, will we raise others up as the closeness continues, or will they lower us down? Given our now weak position through a failed 'intellectual dollar policy', I beleive we will be lowered....how far is the only question.

.02


Post  43929  by  pacemakernj       OT: Decomp, the liberals have already started to b


Post  43930  by  clo       Reply
roof, how low will we go?

"So, will we raise others up as the closeness continues, or will they lower us down? Given our now weak position through a failed 'intellectual dollar policy', I beleive we will be lowered....how far is the only question."

Consider this; prior to the market collapse, Americans we able to ask for more wage increases, since we were booming.

Now, not only is unemployment on the rise, their savings are on the decline.
This gives Americans less leverage.
How many work 3 jobs to make a decent living?
Less are covered medically.
The cost of living increases as their wages decline.
This is creating a smaller middle class.
You know what that means, we are taken lower.

Then let's see who can afford those Nikes? And how much they will cost to make up for the loss of volume...

Not a pretty picture...
I think I'll start saving those pennies, again. clo





Post  43931  by  pacemakernj       Reply
Roof, thanks for that post. I knew it was bad but that really highlights how bad it is. Although I have written extensively about the dangers of China for the foreseeable future I am now convinced there is no turning back. As they say this cake is baked! I know we are importing steel office furniture but I do not know how much. That said, America will now only employ corporate offices. Building brands will be the only thing's that matter. Corporations will be able to outsource everything all they will have to do is market their products. This is the death of vertical integration. For example, if you want to buy a computer from Dell. You might call a person on the phone in say India who takes your order. This order taker is a sub-contractor to Dell. The order taker places the order to a factory in China who makes the computer. The manufacturer is a sub-contractor to Dell as well. The computer is shipped out by Fed Ex or UPS and sent to the client. You pay Dell. Dell takes your credit card and processes the fee instantaneously. They however in turn don't pay their suppliers for 15 or 30 days picking up the float on your money. In effect you are financing Dell computer. All Dell does is get some doofy kid up there to say "Easy as Dell". That's brand marketing with no overhead. Dell uses someone else's money and makes the "vig" as the intermediary. That is the future. Meanwhile jobs are being shed daily as we shift production capacity to China. IMO, and I've said this before China will become the world manufacturer for most usable products in the free world. I have been pounding the table wrt this issue for some time. I am also very concerned that all America is becoming is the land of Banks! I stated this is a dangerous precedent being setup here but in the next 15-20 years we could see a dramatic shift in our standard of living. The news just keeps piling up. Thank's again for the post. Pace.



Post  43932  by  pacemakernj       Reply
Linda, see my previous post to Roof. But these companies are already there doing their thing. Yes they are brining their profits home and sending good paying jobs abroad. Pace.

Post  43933  by  pacemakernj       OT: Dan, NOTHING surprises me about the Germany or


Post  43934  by  pmcw       Reply
Owl, PTTRX has a long history of producing earnings in virtually any kind of market. They typically rank in the top third to quarter of their peer group and have the advantage of critical mass. In bonds, I see this as an advantage versus equities where I often see the same as a negative.

I don't know that PTTRX hedges in classical ways and it is bound by its charter to stay in mid-term high quality debt. I guess you could call its international exposure to currency fluctuations as a hedge in the bond world, but normally when I think of hedging it involves shorting or using options as one might hedge in equities.

I think an exciting place to look in the bond world today is in the area of convertible bonds. Mario Gabelli made a fortune in this sector in the 1980's and I see it as an area where the very smart managers will have that opportunity again. Of course, the not so smart managers will lose their shirts. In other words, it is not, by any stretch, a low risk area. I also think the very best managers will do well in the area of low rated secured debt (Buffett has made some striking plays here in 2002).

For the most part, the majority of my bond investing has historically been where I can buy the bonds outright and will be happy owning them to maturity. In other words, I tend to use the majority of this sort of money for real "fixed income" rather than gamble or even watch the volatility of the bond itself. Due to the turn over within a fund, I don't think they offer quite this type of profile.

In my view, I see PTTRX as a moderate (moderate means there are ways to bet heavier and softer in this regard) short term bet against recovery and/or a strong dollar. In the long term, I see it as a conservative well run bond fund that is likely to provide long term historic returns in future years that are on or above par with its peers.

Regards, pmcw




Post  43935  by  maniati       Reply
lk: No, actually, I didn't make your case. :-) I think you misunderstood what I was saying. If Fed policy is optimally set, using my definition from my prior post, then cutting rates further would be inflationary and would only add to the inflation caused by an oil price rise. So, it would worsen the inflation problem.

Now, it's possible that an oil price rise could be so severe that it results in cost-cutting elsewhere, and brings on a recession. But, you have to wait until that at least appears to be in the cards before doing anything. It's way too premature to cut rates now because we might go to war, which might cause oil prices to rise, which might rise severely, which might bring on or worsen a recession. You're getting way ahead of yourself. You appear to be looking for any justification to cut rates.

Just focus on the unemployment numbers. If those get bad enough, you'll get your cut. There's a much stronger nexus between the unemployment numbers and a rate cut than there is with the possibility of an oil price increase that leads to an inflation-induced recession.

You also talk nonchalantly about a 2% rate cut. We don't have that much room left to cut! The fed funds rate is at 1.75% as it is. The discount rate is at 1.25% You can't go below zero, you know! :-)

Furthermore, you're trying to buy a yacht, and you're going to the grocery store to do it. You can't buy yachts at a grocery store. The problems with this economy are not the interest rate. Stop worrying about the interest rate. It's a red herring. It's meaningless. Those people on CNBC are idiots. We have a monumental over-supply problem; we spent years building the capacity to build things that no one seems to want any more. To fix that, we need to see huge write-offs, bankruptcies, asset sales and purchases, and fiscal policy in the form of incentive tax credits and the like. In addition, IMO, we need innovation. Something that comes along to stimulate demand again. Not in the financial sense - interest rates can't do it any more - but in the "I gotta have this" sense.

People might disagree about some of these other "levers," but the larger point I am trying to make is that interest rates can't solve every problem. Lower rates can't help you break in a new baseball glove or find your lost sunglasses. They have their limits. So, you have to start looking elsewhere for the solutions. A good place to start is to understand what created the problem to begin with, and that gets us back to excess capacity. But, the folks at CNBC don't seem to realize that.

Furthermore, even the fed funds rate and discount rate are not as important as the money supply itself. You get a totally distorted view of the significance of those two rates from the media. The rate of interest to commercial borrowers is a heck of a lot more important than the discount rate. But even that is so damn low now - it's not the problem. Interest rates are not the problem. Interest rates are not the problem. Interest rates are not the problem.

Maybe they're too low! Maybe higher rates would have weeded out all the failing companies a lot faster, and we could have gotten this capital misallocation problem over with more quickly. Actually, there's no "maybe" about it. There's no question this downturn could have been shortened in duration by not lowering rates as much as we did. But, the Fed didn't want to put more people out of work. So, instead, we get this Chinese water torture. Some companies won't fail until 2003, when otherwise they would have failed this year or last.

Furthermore, in any era, there's always someone who says we are in extraordinary times. It seems that's always the case. But what makes these times extraordinary is that we are realizing for the first time that we are engaged in a war that will probably last hundreds of years and probably kill millions of people in the process. Given that, I think that, in the over all scheme of these particular extraordinary times, the discount rate is rather inconsequential.

Ok. You're turn. :-)


Post  43936  by  TheArcticOwl       OT: pmcw...Thanks! Its not like my 401 offers me a


Post  43937  by  wilful10       Reply
Pace - What you say about China becoming

"the world manufacturer for most usable products in the free world."

is true, but there are two very good reasons why you need not become too worried about this:

1. It IS happening and will not be stopped. So, no use
worrying about something you can't change.

2. It forces us to develop/invent new products and services
to take the place of those that marched off-shore.

We and the other industrialized countries have been doing this for a long time. Remember our smokestack industries? Mostly gone. Remember when Japan's incredible ability to mimic, then improve, then out-manufacture us in everything from cameras to autos was supposed to push us way down on the scale of value as a nation, even to the extent that they commenced an unprecedented buying spree of American real estate - at a mkt top - on much of which they later lost billions thru selling and foreclosures.

China's growing expertise in manufacturing fuels our need to invent new/better products and services. I might add - Our environment suffers less when we export heavy manufacturing and work more with our minds.

Even as heavy manufacturing was fleeing,,, a host of new products in high tech was coming into being - computers, internet, telecomm, entertainment, household and workplace products... And the explosion of our services industry. More people working with their minds.

Change is what we are about. From pioneer to sodbuster to railroader to copper barron to steel magnate to auto assembly line to world war fighters to stock mkt bettors to hoboes to aircraft makers to chemical producers to farmers to fiber optic layers to artificial hearts... We constantly change what we produce - and the world follows our lead. Most of this "world" yearns to come to America - to study in our colleges, to have surgery in our hospitals, to buy our government insured bonds, to start or buy a business in America - to get a piece of the American Dream. But in addition to, or I should say - way beyond - they come for that one intangible for which we are most and best known: They come for Freedom.

All these business's going to China are drooling in anticipation of the time when the Chinese people start becoming consumers of those very products they are now making. That'll be the day! And American business shall be well represented, with lots of $ of profit flowing right back here.

Btw - Banks ain't all bad..Switzerland has done OK with 'em.

W.




Post  43938  by  pmcw       Reply
Intel to Invest $150 Million in Companies Making Wireless Technology
Monday October 21, 4:38 pm ET
By Don Clark, Staff Reporter of The Wall Street Journal

Some deep thinker will most likely determine that this news is "bad" for ISIL. The reality is that this news is very good for ISIL. Even INTC coming out with a chip-set including 802.11 is good. Everything that broadens and hastens the deployment of 802.11 is good for ISIL. For every application they lose to the chip-set they will gain five in other applications.


SAN FRANCISCO -- Intel Corp. (NasdaqNM:INTC - News) said it will invest $150 million in companies developing a popular wireless technology, the chip maker's latest effort to stimulate markets that could boost demand for its products.
ADVERTISEMENT


Intel plans to put the money into companies that are promoting a technology called Wi-Fi, or 802.11b, which is being used to let users of laptop computers connect to the Internet from specially equipped airports, cafes and other locations.

The company's venture-capital arm plans to allocate the money for wireless investments from an existing $500 million communications fund, Intel executives said. It has already put $25 million into more than 10 companies in the sector.

Sriram Viswanathan, Intel's director for wireless and broadband investments, said it plans to put money into three principal areas: companies that are helping to add more Wi-Fi-equipped locations or otherwise help improve the wireless infrastructure; companies that attack some fundamental problem associated with the technology, such as improving security or billing technology; and companies that improve the basic capability of the technology, such as to expand the range of Wi-Fi transmission devices.

One reason for the timing of the fund, said Mr. Viswanathan, is that Intel next year will introduce a new chip technology for mobile computing -- code- named Banias -- that offers built-in Wi-Fi technology. But another motivator is that many venture-capital firms are cutting back their investment activity, leaving fewer sources of capital to help stimulate the market.

"If we don't do it, then who?" he asked.





Post  43939  by  srudek       Reply
Q: What's the diff between Japan & U.S.?

A: About ten years.

I understand this is actually a joke in Japan, except there they say: What's the difference between Japan and Argentina? Anyway, I thought of this joke when I saw the latest Stephen Roach article . . . .

http://www.morganstanley.com/GEFdata/digests/20021021-mon.html#anchor0
Global: The Next Japan?

Stephen Roach (from Tokyo)



Deflation denial continues to pervade the macro debate. I usually introduce the topic into my presentations by asking the assembled clients to indulge me in the American childrenís game of "word association." I will say one word and they have to come up with the next word that immediately pops into their minds. The word I select is "deflation," and the unanimous response is "Japan."

In a nutshell, thatís the essence of todayís deflation debate. It is largely defined by the US-Japan comparison. To the extent that America can distinguish itself from the Japanese experience -- solvent banks, flexible markets, mark-to-market securities pricing, a two-party political system, etc. -- the case for US deflation is then usually dismissed out of hand. Thatís when I pause and add that you donít have to be Japanese to worry about deflation. The case for US deflation stands on its own merits. In my opinion, we get into trouble by linking the assessment of US deflation to the sad saga of Japan.

Thatís not to say there arenít some important similarities between the US and Japan that bear careful noting. Two, in particular, come to mind -- the asset bubbles and the impact of those bubbles on the real economy. On the first count, I hear repeatedly that Japanís bubble was much bigger than Americaís. After all, it wasnít just the Nikkei; it was also an outsize property bubble. It was the interplay between these two asset bubbles that wreaked such havoc on Japan in the late 1980s and early 1990s. The truly astonishing thing is that America canít look in the mirror and see precisely the same pattern. The Nikkei reached its peak of 38,915 on December 29, 1989. Over the ensuing 21 months it would go on to lose 38.5% of its value while Japanese land prices, as measured by the Japanese Real Estate Institute, would continue to rise by approximately 15% before peaking in September 1991. Fast forward to America. Between December 31, 1999 and September 30, 2002, the S&P 500 lost 45% of its value -- actually worse than the initial decline in Japan. Over the same 33-month period, nationwide US home prices as measured by the Fannie Mae (OFHEO) index rose around 15%. If thatís not Japanese-like, I donít what is. Property bubbles typically outlast those in the stock market. It was true of Japan in the early 1990s and it appears to be true of America today.

Nor does Japan have a monopoly on bubble-induced distortions in its real economy. Japanís capital spending binge during the bubble has been well documented -- the IMF calculates that real private fixed investment per capita nearly doubled over that period. In America, a similar calculation puts the per-capita increase in real fixed investment at 73% over the 1992 to 2000 interval, only slightly shy of Japanís binge. But the American consumer more than made up for the difference. Spending freely out of the asset bubble, the US personal saving rate plunged from a pre-bubble 6.5% reading in late 1994 to just 1.9% in late 2000. By contrast, in Japan, the so-called propensity to consume -- the inverse of the saving rate -- actually edged down in the late 1980s from 78.6% in 1984 to 75.5% in 1989. Unlike Japan, where the bubble manifested itself mainly in the form of a massive overhang of the capital stock, Americaís bubble led to serious distortions in both capital spending and consumer behavior.

Alas, thereís more to this comparative saga. America also stacks up very poorly with Japan from the standpoint of its international indebtedness. During its bubble, Japan remained a net creditor to the rest of the world, with its net foreign asset position holding roughly steady at around 10% of its GDP. By contrast, the United States borrowed freely from abroad to fund the excesses of domestic consumption. Courtesy of ever-widening current-account deficits, America went from being the worldís largest creditor to the worldís largest debtor; during its bubble, the US net foreign asset position went from -2% of GDP in 1994 to a record -20% of GDP in 2000. The bubble enticed America to live well beyond its means, as those means are defined by domestic production and income generation. Lacking any autonomous demand growth of its own, the rest of the world has been more than delighted to go along for the ride -- at least until now. But unlike Japan, which was able to finance its bubble economy on its own, the bubble-induced excesses of a saving-short US economy have largely been financed through the "kindness of strangers." Despite the dollarís seemingly Teflon-like resilience since the mid-1990s, I find nothing comforting about Americaís increasingly precarious dependence on external financing. It sets the United States up for the possibility of a much more wrenching post-bubble adjustment in its currency and its external sector than Japan ever had to face.

Then thereís domestic debt -- especially that of the private sector. No matter how you cut it, Americaís private sector debt loads are currently at their post-World War II highs. Thatís especially true of households, where the debt-to-GDP ratio currently stands at 76%; by way of comparison, this same ratio was a mere 63% at the onset of the past recovery a decade ago. Indebtedness has also moved into uncharted territory in the business sector, where the debt-to-GDP ratio has now climbed to 69%, fractionally above the highs reached in 1987. The US experience is, in some respects, the mirror image of that which unfolded in Japan during its bubble. For the Japanese nonfinancial corporate sector, the debt-to-GDP ratio averaged an outsize 175% over the 1987 to 1993 interval; it subsequently soared to 235% by 2001. For Japanese households, the debt-to-GDP ratio rose from just 61% in the early 1980s to 74% in 1989, and then increased only slightly further to 77% in 2001. Consequently, unlike America, the Japanese consumer has been far more judicious in adding to indebtedness; Corporate Japan, by contrast, is in far worse shape.

History tells us that excess debt is the legacy of any asset bubble. That is undeniably the case in America today, just as it was in Japan in the late 1980s. Nor can the lessons of Japanís public sector indebtedness be ignored -- a general government surplus of 2% of GDP in 1990 that has since morphed into a 7% deficit. For a fleeting moment, America also had a 2% surplus in 2000 -- only to see it vanish into thin air due to a weak economy and Bush Administration tax cuts. Our current projections call for nearly a 2% deficit in the current fiscal year -- a swing of four percentage points in the past two years alone. With Washington now sending signals of more tax cuts to come in the post-election period, a Japanese-like public sector debt problem suddenly doesnít seem all that remote for Americaís post-bubble economy.

Notwithstanding the worrisome legacy of Americaís post-bubble economy, I am not inclined to believe that America faces a Japanese-like lost decade as penance for its sins. The reason boils down to one word -- flexibility. The US economy has it and the Japanese economy does not. Only now, nearly 13 years after the popping of the Nikkei bubble, is Japan finally contemplating the heavy lifting of post-bubble repair. And the verdict is hardly clear-cut that the recent Koizumi cabinet reshuffle will be sufficient to break the gridlock on financial sector reform. While there can be no doubting the reform credentials of the new financial czar, Minister Heizo Takenaka, there can also be no doubting the long-standing intransigence of the anti-reform forces still residing in the ruling LDP hierarchy. In poring through the recent analysis of our Japan team in preparation for my current Asian swing, I am struck that even today the best case that can be made for Japan is glacial-like when compared with the pyrotechnics of Americaís mark-to-market system. Lest we forget, there was a near instantaneous vaporization of some $460 billion in market capitalization for Americaís notorious "gang of five" -- Enron, WorldCom, Tyco, Qwest, and Computer Associates. In Japan, the "convoy system" is still struggling to keep the moribund Daiei retail company on life support.

America is not Japan. But that doesnít mean its post-bubble legacy should be treated lightly. What strikes me as I now return to Japan is that denial finally seems to be cracking. There is the palpable sense of an urgency to reform that has captivated the debate in a fashion I havenít seen here in years. There are no guarantees that it will work this time, but the debate and the political maneuvering seem to have a new intensity. America, by contrast, remains the land of denial. We have a defensive central bank that still doesnít want to admit it could have done anything about the asset bubble. And we have a White House that categorically dismisses the twin perils of double dip and deflation as bad things that happen to others. The focus in Washington is on war, not on navigating the perilous course of a post-bubble economy. Maybe itís not so far-fetched after all to begin worrying about the next Japan.


Post  43940  by  lkorrow       OT: nacl, VSE