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Forum LockedImpact of American business at home and abroad

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Post Options Post Options   Quote Seko Quote  Post ReplyReply Direct Link To This Post Topic: Impact of American business at home and abroad
    Posted: 05-Nov-2005 at 21:27

I recently had a discussion with a financial advisor on the current state of affairs of the US economy. He told me that two positive factors are at work which should put a smile on my face. The first point he made had to do with the notion that business is fairly stable. The inflation rate is minimal and employement rate is good. The second point reflected demographic trends. With the baby boomer generation currently reaching its plateau, Americans are riding a wave of significant spending power for the next five years. This rise will continue till these boomers save more then they spend. Going by age that implies current 45-50 year olds. Once they reach past the mid fifties spending becomes diminished. Well thats the theory, anyhow. He did show me some impressive graphs that show this trend throughout American history. His main hesitation from total glee revolved around our significantly fluctuating oil prices. If they would just remain stable at any cost, businesses would maintain stronger investments and less paranoia.

I'm thinking great, we are in a bull market. If only we could get a handle on oil prices we'd be doing even better. However, I had a few concerns of my own. The erosion of stable American companies in the auto sector is a sign of diminishing returns. Wages are still rediculously low. And we are pumping money into a war that eats 'Ben Franklins' faster than we could say, " Hurricane Alpha, Beta and Katrina. Oh, My!". Then I read this bit of news today. And it reminds us of the economical difficulties we may have overseas.

http://www.democracyuprising.com/articles/2005/bad_business. php

"The costs associated with rising anti-American sentiment are exponential. From security and economic costs to an erosion in our ability to engender trust around the world and recruit the best and brightest, the U.S. stands to lose its competitive edge if steps are not made toward reversing the negativity associated with America."

"Such costs, foretold before the invasion, suggest that the pre-war pessimism in Davos was well justified. And such a modest list hardly exhausts the possible economic "downsides" to Bush administration policies in Iraq and beyond. The debate about Congressional spending, for one, deserves at least passing mention. Whether fiscal conservatives are right that Iraq- and tax-cut-bloated deficits are necessarily bad for business, or whether Military Keynesianism has actually been helping to soften a periodic economic downturn, the idea of war without sacrifice should sound fishy to any account-minded executive. Take direct war costs running in the hundreds of billions, add in medical bills for disabled veterans, then throw in the costs of National Guard reservists being pulled from small businesses, and pretty soon you're talking real money. At some point the overvalued dollar, which our creditors in the central banks of China and Japan have decided to let ride for the time being, will have to come down and is likely to bring the economy with it. When that happens, Colonel Sanders won't be the only one to feel the pain. "

A U.S. Banker magazine article from August relaying the results of an Edelman Trust Barometer survey of global elites found that "41 percent of Canadian elites were less likely to purchase American products because of Bush Administration policies, compared to 56 percent in the UK, 61 percent in France, 49 percent in Germany and 42 percent in Brazil."

Food for thought KFC and McDonalds. If Europe and Southeast Asia are negative to our products is this the reason why? A unilateralist imperial gloabilzation that others find offensive. Just like they do our president perhaps.



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Post Options Post Options   Quote Paul Quote  Post ReplyReply Direct Link To This Post Posted: 05-Nov-2005 at 22:56
Well according to the Economist, Europeans aren't spending they're hoarding sensing impending doom. Where as Americans are spending. So the only thing currently standing between global economic recession is the optimistic US consumer.
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Post Options Post Options   Quote Seko Quote  Post ReplyReply Direct Link To This Post Posted: 06-Nov-2005 at 11:19
Seems to be the case Paul. I don't know much about the European spending habits lately but I'll take your word on it. In the US, maintaining job security seems to be one of our biggest problems. As far as I could tell and remember, job opportunities are limited in a broad sense of the word. New college grads have to aggressively compete with numerous applicants for a desired position. This trend should follow demographic patterns. Once the workforce reaches maximum saturation and more people retire, then we will see more availability for jobs. I think Bush knows this and is willing to create laws that let foreigners continue to work here with less stringent conditions. We may eventually see a glut of openings where the pool of American workers can not fill. So the future for todays teens and twenty somethings will look bright soon enough.
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Post Options Post Options   Quote çok geç Quote  Post ReplyReply Direct Link To This Post Posted: 06-Nov-2005 at 13:04

Originally posted by Seko

Once the workforce reaches maximum saturation and more people retire, then we will see more availability for jobs. I think Bush knows this and is willing to create laws that let foreigners continue to work here with less stringent conditions.

But dont' you think too that when baby boomers retire leaving vacant spaces and more availability for jobs,which is good for the economy, it will also means that they have to be supported through government social program such as the Medi-care and Social Security reserve. When the government all of a sudden has to inccur such a sudden huge cost, they will need to raise taxes to support the continuation of those programs. And of course with the US government being under a huge deficit, I don't see anyway in supporting the retirement and social-welfare program except via raising taxes, WHICH will cause younger tax-payers to spend less, which in exchange will hurt the economy.

Originally posted by Seko

A U.S. Banker magazine article from August relaying the results of an Edelman Trust Barometer survey of global elites found that "41 percent of Canadian elites were less likely to purchase American products because of Bush Administration policies, compared to 56 percent in the UK, 61 percent in France, 49 percent in Germany and 42 percent in Brazil." .

According to this piece of information, then a falling US dollar in value will not make that much of difference to the American trade balance because international consumers are tying their decision to political reasons rather than the value of those goods (whic is tied by the value of dollar of course)

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Post Options Post Options   Quote cahaya Quote  Post ReplyReply Direct Link To This Post Posted: 06-Nov-2005 at 15:34

seko said:

"Food for thought KFC and McDonalds. If Europe and Southeast Asia are negative to our products is this the reason why? A unilateralist imperial gloabilzation that others find offensive. Just like they do our president perhaps."

nope seko... so far so good for KFC and McDOnalds... even other US franchises... still doing fine here...

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Post Options Post Options   Quote Seko Quote  Post ReplyReply Direct Link To This Post Posted: 06-Nov-2005 at 16:09

Supporting the retirement question is a huge burden on American taxpayers. Younger payers will have less liquid assets to filter back into the economy.

Cahaya, personally I am glad that those food chains are popular in those areas and remain frequented regularly. The article mentions islolated instances of patriotic animosity that may have been a temporary trend.

Another thing the financial advisor told me, which correlates to Cok Gec's wise observation, is that once we are in the demographic downturn we will not have enough people to fill in future jobs that we have today. So this will directly hurt the economy as well. Starting around 2010 we should see a big dip in the Dow jones index.



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Post Options Post Options   Quote Illuminati Quote  Post ReplyReply Direct Link To This Post Posted: 06-Nov-2005 at 16:36
Originally posted by Seko

Supporting the retirement question is a huge burden on American taxpayers. Younger payers will have less liquid assets to filter back into the economy.

Cahaya, personally I am glad that those food chains are popular in those areas and remain frequented regularly. The article mentions islolated instances of patriotic animosity that may have been a temporary trend.

Another thing the financial advisor told me, which correlates to Cok Gec's wise observation, is that once we are in the demographic downturn we will not have enough people to fill in future jobs that we have today. So this will directly hurt the economy as well. Starting around 2010 we should see a big dip in the Dow jones index.



That is very ture, but it should be noted that it is not just an American problem. This kind fo thing is happeneing all over the world. As health care in first world nations improves, people are starting to live longer, and the birth rate is not going to be able to produce enough workers to sustain current economic levels. Scandanavia is very notable in terms of this problem.
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Post Options Post Options   Quote Maju Quote  Post ReplyReply Direct Link To This Post Posted: 06-Nov-2005 at 17:12
Food for thought KFC and McDonalds. If Europe and Southeast Asia are negative to our products is this the reason why? A unilateralist imperial gloabilzation that others find offensive. Just like they do our president perhaps.


I don't know. What's the competitive edge of Nordamerican products? That they have large US flags on them (some do)? No. Actually this is a revulsive: it's not anymore a neutral product but a political product and only the very pro-american will even look at its price.

Also, what's the advantage of eating a hamburger in a McDonalds when I know that even most Nordamericans hate McDonalds and search for alternatives when they can. In this country you can go out there and eat excellent sandwiches and all kind of local foods in restaurants worth that name and not any more expensive and, if I'm going to eat some exotic fast food, I'll probably go to the King Kebab or call the Chinese restaurant, both cheaper than McDonalds (I believe).

US products are so standarized (for US consumers) that can hardly fit in the European taste. And then it comes the political dislike, which probably plays a role as well.

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Post Options Post Options   Quote cahaya Quote  Post ReplyReply Direct Link To This Post Posted: 07-Nov-2005 at 22:27

-edited-

 



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Post Options Post Options   Quote Constantine XI Quote  Post ReplyReply Direct Link To This Post Posted: 08-Nov-2005 at 02:52
Added problems also are the increasing inefficiency of certain sectors of the US economy (agriculture, manufacturing, steel) which occur directly as a result of tariff imposed at the behest of lobby interest groups. At the request of the steel industry the US government set up another tariff wall, with the result that the US steel industry is not exposed to competitive pressures and has no need to make itself more efficient. This, of course, is steadily resulting in it losing global market share as it cannot keep up with its competitive global rivals.

Worse still, the various US industries which rely on steel manufacture (manufacturing, building etc) now have to incur higher costs for their factors of production, making them more globally uncompetitive in turn, with the resultant loss of market share.

While the US is generally quite good with allowing her industries exposure to competitive pressures, the impact of lobby groups in restricting that (particularly strong under Bush Jr.) is going to have serious consequences in undermining the US economy.
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Post Options Post Options   Quote çok geç Quote  Post ReplyReply Direct Link To This Post Posted: 08-Nov-2005 at 03:18

That is an interesting insight Constantine XI.

many of US industries are witnessing decreasing quality of their products compared to Japanese, German, and suprisingly now some South Korea and Malaysia. What they need is to adopt seriously the Total Quality Management approach that has been adopted in Japan since 1950's and transferred Japanese products' quality from a low quality product (as much as China is today) to the highest reputable product on the market in less than 4 years!!

Ironically, the inventor of that approach of total quality management (TQM) is the American Edwards Deming whose idea didnt' please American companies' directors at that time!! 

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Post Options Post Options   Quote gcle2003 Quote  Post ReplyReply Direct Link To This Post Posted: 08-Nov-2005 at 08:00

The initial analysis leaves a few things out of account.

Once upon a time the US was self-sufficient in raw materials. Now it isn't.

Once upon a time the US propensity to import (the tendency to prefer foreign goods to domestic ones) was negative. Now it's positive.

Once upon a time the US propensity to save, and invest in US industry, was positive and pretty high. Now it's gone negative, and investment is more and more in land and financial securities.

Once upon a time the US profited from other people's wars. Now it pays for its own.

Once upon a time the share of its wealth the US spent on weaponry was trivial. Now it's immense.

Once upon a time the US created jobs faster than its population grew. It hasn't done that for ages.

Once upon a time the US was the world's biggest creditor. Now it's the world's biggest debtor - both privately and publicly.

Once upon a time the US middle and working classes had employer-provided pensions. Now only a few do and it's getting fewer. 40% of baby boomers retiring in the next decade are estimated to have no savings and no pension apart from social security.

Throw in the immense costs of the US health services.

What does all that do to the spending projections? And the assumption that if Americans spend, it will benefit American manufacturers? Even the loans they use to buy imports with are more and more provided by foreign lenders - who therefore cream off the profits that result.

 

 

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Post Options Post Options   Quote Constantine XI Quote  Post ReplyReply Direct Link To This Post Posted: 08-Nov-2005 at 08:23
Originally posted by gcle2003

The initial analysis leaves a few things out of account.

Once upon a time the US was self-sufficient in raw materials. Now it isn't.

Once upon a time the US propensity to import (the tendency to prefer foreign goods to domestic ones) was negative. Now it's positive.

Once upon a time the US propensity to save, and invest in US industry, was positive and pretty high. Now it's gone negative, and investment is more and more in land and financial securities.

Once upon a time the US profited from other people's wars. Now it pays for its own.

Once upon a time the share of its wealth the US spent on weaponry was trivial. Now it's immense.

Once upon a time the US created jobs faster than its population grew. It hasn't done that for ages.

Once upon a time the US was the world's biggest creditor. Now it's the world's biggest debtor - both privately and publicly.

Once upon a time the US middle and working classes had employer-provided pensions. Now only a few do and it's getting fewer. 40% of baby boomers retiring in the next decade are estimated to have no savings and no pension apart from social security.

Throw in the immense costs of the US health services.

What does all that do to the spending projections? And the assumption that if Americans spend, it will benefit American manufacturers? Even the loans they use to buy imports with are more and more provided by foreign lenders - who therefore cream off the profits that result.

 

 



Well gcle nicely outlines the bigger picture, which I was trying to hint at with my remark about uncompetitive protectionism. If an economy is entirely dependent on continued prosperity simply because the market is optimistic, that's saying bad things about its real economic viability.

 Real economic strength comes from securing your fundamentals such as:

-investing in infrastructure

-education

-developing economies of scale in your nation's sources of comparitive advantage

-giving economic sectors first mover advantages through initial assistance (good examples where they have done this are the aerospace industry and Boeing)

-keeping borrowing to a minimum or at least sustainable levels and ensuring your middle class is not too heavily eroded by allowing too great a concentration of wealth in too few hands.

While it would be unfair to expect the US to live up to its economic position comparitive to the rest of the world in the 50s (when Europe and Asia were in the unnatural state of being in ruins), the US could certainly do better with its resource and security base than the direction it is headed in at the moment.
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Post Options Post Options   Quote Constantine XI Quote  Post ReplyReply Direct Link To This Post Posted: 08-Nov-2005 at 08:35
Originally posted by çok geç

That is an interesting insight Constantine XI.

many of US industries are witnessing decreasing quality of their products compared to Japanese, German, and suprisingly now some South Korea and Malaysia. What they need is to adopt seriously the Total Quality Management approach that has been adopted in Japan since 1950's and transferred Japanese products' quality from a low quality product (as much as China is today) to the highest reputable product on the market in less than 4 years!!

Ironically, the inventor of that approach of total quality management (TQM) is the American Edwards Deming whose idea didnt' please American companies' directors at that time!! 



Yes I find it quite the comic irony that an American invented a system which Japan is using to challenge American economic strength today. But it was only natural that TQM take root in Japan, the national culture is conducive to doing things to a high standard and with their country in ruins it was time to work hard and rebuild. At that time, the American economy was in a massively advantageous position and such a philosophy would have been regarded by most managers as superfluous and hardly necessary (the whole "if it ain't broke, don't fix it" philosophy).

I have actually read about TQM in the US, at Toyota's production plants in Detroit . It is amazing that the evolution of the Fordist production system is being so sluggishly taken up by the country that gave the world Foridsm in the first place.

I see the lobbyists in America as a key problem for that country, both economically and politically. Politically they give an interest group disproportionate representation and attention at the expense of majority representation. Economically they increase utterly unnecessary protectionism, rendering US industries increasingly incapable of competing globally. The short term cushiness of protectionism will inevitably bring about longer term competitive disadavantages for most areas of the US economy, while more adaptable and dynamic economies of other nations gobble up the abandoned US market share.
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Post Options Post Options   Quote sedamoun Quote  Post ReplyReply Direct Link To This Post Posted: 08-Nov-2005 at 08:58

Originally posted by Paul

Well according to the Economist, Europeans aren't spending they're hoarding sensing impending doom. Where as Americans are spending. So the only thing currently standing between global economic recession is the optimistic US consumer.

That's good, this guy knows what he's talking about !!! It is a fact that the US economy has been living on the consumers... but with to much consumption comes indebtedness. American households live their entire lives on credit, hence spending money they don't have.

What happens when american consumers stop their frenzy?

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Post Options Post Options   Quote çok geç Quote  Post ReplyReply Direct Link To This Post Posted: 08-Nov-2005 at 13:14

Total Payroll Jobs

http://www.factcheck.org/article234.html

I just found this graph of total employees in the US which is a better one that the typical manufacturing payroll job that does not include the growing service sector. Does anyone finds it funny that the graph line is stumbling down as of January 2001? President Bush sworn into the office on Januray 20th 2001

Is't it America being too dependant on speculation and economic forecastes or on real economic figures? which correlate to what of gcle2003 said too.

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Post Options Post Options   Quote Seko Quote  Post ReplyReply Direct Link To This Post Posted: 08-Nov-2005 at 13:31

Keep in mind that that graph shows negligible decline that coincides with higher insurance premiums after 9-11, Iraq war, Oil inflation and, of course, Bush.

Below is an article about Harry Dent's predictions on the economy. His focus is demographics. http://www.strategyletter.com/cp_1099/cp_ec.asp

_ _ _ _ _

What is driving the current economic prosperity in the United States?

Nine years of expansion, low inflation in wages and raw materials, and high employment - what is driving this growth? Many important factors include: free trade, capital availability, the declining power of US labor unions and decreased inventory cycles to name a few. Two important factors that we have not explored in past Compass Points issues are the underlying demographic trends and overall productivity improvements.

Harry S. Dent, Jr., author of The Roaring 2000’s, graphs the demographic shifts and looks at historical spending patterns by age of the populations to forecast long-term economic growth.

Graph 1 This demographic pattern generates the following spending pattern: Spending increases as one progresses through ages 20-30 and spending peaks at around age 46.5.

Graph 2

Graph #2   Dent predicts that as the baby-boom generation moves through this spending pattern it generates significant consumer demand generating growth through the year 2009.

Graph 1

In addition to demographic changes, productivity allows for economic growth with low wage and raw material inflation. These productivity improvements are largely driven by investment information processing equipment.


Graph #3 This graph shows how investment in information processing
equipment is directly correlated to the increase in the Dow Jones industrial average. Basic industries and service companies are unleashing the power of technology to enable more efficient, cheaper and faster products and services. This productivity enhancement will continue as companies harness the power of the Internet.

Graph 3

Graph #4 Compare this information revolution with the transformation that occurred in the 15th century when the Gutenberg press allowed for knowledge transfer to the mass population. Formerly, information was limited to those who had access to scarce manuscripts. The access to this information unleashed the imagination of the population in the 15th century.

Graph 4

Will the advent of the Internet combined with enhanced and affordable computing power unleash a similar revolution in the 21st century? Access to information and distribution channels will speed the progress of developing countries.

Demographics and productivity combine to make the long-term outlook bright. This does not mean that all industries will thrive in this positive environment. What can you do to take advantage of these
trends as you plan?

  1. Analyze the importance of these demographic shifts to your markets and to your customers’ markets.
  2. Assess your customers’ changing informational needs. What was good last year will seem like Stone Age next year.
  3. Will the Internet provide a new distribution channel for your business? How can you take advantage of this channel to penetrate international markets?
  4. How can you use the Internet to raise your company’s visibility throughout the world?

International Demographic Trends
While the long-term outlook in the United States is bright, what about the rest of the world? Mr. Dent analyzes the impact globally finding:

  1. Canada, Australia and New Zealand: demographics will drive growth much like the US.
  2. Europe: growth will be slower than the US, however the trend will last longer; into the year 2013.
  3. Japan: demographic growth is counter-cyclical to the US; growth will begin again in 2008.
  4. Far East: demographics will drive significant growth.
  5. South America: demographics will drive good growth.

While demographics are only one indicator of economic growth, it is one that can be predicted with accuracy far into the future. This demographic growth, combined with productivity, indicates a favorable
environment in the long-term. In the short-term this growth may be interrupted by specific events that cause disequilibrium in the economy.

These events could include:

  1. Overvaluation, over heating of the stock market and other financial assets, leading to a bust.
  2. Interest rate hikes by the Federal Reserve Board.
  3. Specific commodity shortages that may occur as developing economies recover or an international crisis limits their availability.

 



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Post Options Post Options   Quote sedamoun Quote  Post ReplyReply Direct Link To This Post Posted: 08-Nov-2005 at 16:04
Hey Seko,

It's a good article. Did you know that "Graph 1" is inspired (not to say copied) on Modigliani's consumption by age theory?

Here you go:

The Life Cycle Hypothesis

This is primarily attributed to Ando and Modigliani> > > >

The basic notion is that consumption spending will be smooth in the face of an erratic stream of income.> >

Working Phase:> >

  1. Maintain current consumption, pay off debt from youth years> >
  2. Maintain current consumption, build up reserves> >

Age distribution now matters when we look at consumption, and in general, the propensity to consume.  Debt and wealth are also taken into account when we look at the propensity to consume.  The dependence structure of the population will affect or influence consumption patterns.> >

Lester Thurow (1976) – argued that this model doesn’t work because it doesn’t presume there is any motive for building wealth other than consumption.  Thurow argues that their real motivation is status and power (both internal and external to the family).> >

The permanent income hypothesis bears a resemblance to the life-cycle hypothesis in that in some sense, in both hypotheses, the individuals must behave as if they have some sense of the future.> >

 
Find complete theory on: http://www.theshortrun.com/classroom/doctrines/consumption.h tml

Cheers my friend.
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Post Options Post Options   Quote sedamoun Quote  Post ReplyReply Direct Link To This Post Posted: 08-Nov-2005 at 16:06
Sorry, don t know where all the emoticons came from. I just copy/pasted the piece.

Sorry to all you who read it.
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Post Options Post Options   Quote Seko Quote  Post ReplyReply Direct Link To This Post Posted: 08-Nov-2005 at 16:43
Good man, Sedamoun! I didn't know about that theory. Can't wait to share it with my financial adivsor.
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