The New York Times Gives Me A Quick Laugh

Logging on to the NYT’s web site and the Sunday Magazine section, I noticed an article by Niall Ferguson (no relation). The website noted the title,

“Reason to Worry”,

along with the verbal bait

“Why you could be excused for feeling a little uneasy about the collapse in household savings, the rise in home-mortgage debt, a large and growing trade deficit and the fact that Asian countries hold so many U.S. treasuries. Go to Article”

I laughed because I am not worried about debt owed foreigners by the US. I figure if we owe somebody else something, as a country, they have to be careful of us, not the other way around.

Then I scanned the article. The writing is creative. How can you not appreciate this kind of language.

“Think of the economy of the United States as a dinosaur — one of those huge herbivores whose bulk shook the ground. A brachiosaur. A brontosaur. A diplodocus. Like them, the U.S. economy is mind-bogglingly enormous — two and a half times as big as the next largest economy in the world and almost as large as that of the six other members of the Group of Seven combined. The catch is that it has to consume almost incessantly to sustain its great heft.”

“Contrary to what we used to believe, leviathans like the diplodocus were not exactly sloths. It is now thought that they had the strength to stand on their hind legs in order to reach food at the top of trees. They may even have been able to run rather than merely plod. But it seems reasonable to assume that their reaction times were slow; it was a very long way from the diplodocus's tail to its brain. If a predator sank its fangs into that tail, it might have taken the diplodocus a few moments to feel the pain.”

“The big question about the dinosaurs is, of course, What caused their extinction? Why were so many species unable to evolve in response to environmental changes? The most common explanation is that a very sudden event, like a meteor's impact, gave the dinosaurs too little time to evolve and provided smaller and more dynamic life forms with an opportunity to take over.”

“An analogous question for economists is whether the United States is capable of evolving out of its present excessive indebtedness. Or could the global economic environment change so drastically as to threaten, if not extinction, then at least decline relative to smaller, more dynamic economies?”

No kidding, metaphor has become analysis.

Did I read right? “decline relative to smaller, more dynamic economies?” Isn’t that always going on? After all, if Microsoft goes up 1% and Widgets goes up 2%, then isn’t Microsoft declining relative to Widgets? A disaster in the making. Sheer genius.

At the bottom of the first page of the article, you see that Niall Ferguson is Laurence A. Tisch professor of history at Harvard University and the author of "Colossus: The Rise and Fall of the American Empire." Well, I guess that the American Empire will eventually fall. Probably the whole Universe, too, if I can believe Kaku. I’m just not so sure it’s as imminent as Prof. Ferguson makes out.

I continued scanning the article and found this nugget.

“As a result, there has been an immense rise in foreign ownership of American securities of all kinds, but especially government bonds. Foreign ownership of the U.S. federal debt passed the halfway mark in June 2004. About a third of corporate bonds are now in foreign hands, as is more than 13 percent of the U.S. stock market. One analyst has half-seriously calculated that at the current rate of foreign accumulation, the last U.S. Treasury held by an American will be purchased by the People's Bank of China on Feb. 9, 2012.”

Let’s see. Doesn’t this conclusion follow if the percentage of foreign owner ship of US debt increases, no matter by how little, and we forecast a continuation? Better yet, let’s do Prof. Ferguson one better and find, of all the possible period lengths ending with the most recent data, the period length with the biggest average daily increase in the percentage of foreign ownership of US debt. Let’s extend that. Maybe we can move doomsday a lot closer than 2012.

I am willing to bet Prof. Ferguson $1 million that on 1/1/2013, Some US debt will be owned by US citizens. Heck, I’ll even make it 12/31/2013.

I’m all for selling a lot more debt to the Chinese and using the proceeds to buy Chinese consumer goods. Of course, my strategy would be to default on the debt when the Chinese wise up. If third world countries are any guide, perhaps the UN would pay off our debt to the Chinese for us.

Next, I found this:

“So what's the catch? A sudden increase in the dollar price of American imports could stoke inflation in the United States. There is already some patchy evidence of an upturn in inflation. Whichever measure you use, prices are certainly rising at a faster rate now than they were two years ago, . . .”

Have you ever noticed that no matter which way an economic variable goes, someone says it is a disaster? From “patchy evidence” in either direction comes disaster. Actually, assuming prices are up faster more recently than two years ago, is this a statistically significant change? Does it make disaster really likely, sort of likely, or are we just seeing the normal random crud?

I sympathize with Ferguson’s concern over all the mortgage debt and that a lot of it is in ARMs. I think some of us are setting themselves up for hard times (there I go playing fortune teller). But, to tell you the truth, if this disaster happens, I expect to sit back and enjoy the fun. Nor do I think it will end the American Empire. I wonder. Would it be worse than the Great Depression? Now there was a real disaster, and look where we are now.