Sunday 11 August 2002

Wise words

Thank goodness there are still lots of Americans like Mike!!!

by Michael Rivero

By now it is obvious that CEOs of public corporations have been engaging in a grand round of looting their own corporations, building their "golden parachutes" with reckless disregard for their investors, their employees, and the long term future of their corporations. It may well be that the CEOs, who are paid in part for their ability to predict the future of the business climate, know that these corporations do not HAVE a future.

It does not, after all, take a Harvard Business School Graduate to understand that the US Government is bankrupt, to the extent that all the income tax paid by all Americans cannot even keep up with the interest on the loans. Even during what were claimed to be unprecedented boom times of the 90s, the Federal Government had to raid Social Security and other trust funds for cash to balance the Federal books. This year, three states had to put holds on the tax refund checks issued to their own citizens.

Then there is the balance of trade problem. Again, anyone who understands business understands that long term profitability requires the manufacture of a product that can be sold. But America's manufacturing has been in decline for decades. Even products invented in the United States are licensed for manufacture in other nations. While the license holders may do well from such an arrangement, the jobs and profits from that manufacturing leave this nation. In the 80s, this loss of manufacturing was concealed behind the "service economy", a notion that the country could be made prosperous by doing each other laundry for a fee. The present circumstances show the folly of that belief.

Finally, there is the curse of the stock market derivatives. One of the reasons that this nation lost the love of making things is that people who had money fell into the derivatives trap. Derivatives are a high-stakes stock market maneuver which can make or lose a fortune in a moment. It is, from a psychological point of view, a form of gambling every bit as addictive as its Las Vegas counterpart. In an investment market, the worth of the stock and the dividends it paid were the important facts. In a derivatives market, the price of the stock is what counts, even if the price is not supported by the stock's real worth. Huge fortunes could be made if a stock price went up and since it was easier to drive up the price of a stock with chicanery than to drive up a stock's worth by making a better product that sold to other nations. Even the government fell into this mindset, via the "Plunge Protection Team" which worked to keep stock prices up but never addressed the problems of worth in the actual stocks themselves. The results have become obvious in recent months. The stock market is highly overvalued and with each "restatement" of profits, trust and confidence in the entire market erodes. Central banks have been dumping gold reserves to depress gold prices to keep investors from deserting the stock market, but that tactic cannot last forever.

Taken together, anyone with any business sense knows that the US dollar faces a steep devaluation in the near future. People of wealth based on fixed assets, such as houses, factories, etc. will have to ride that devaluation down. But for those people whose wealth is "liquid", they can convert their wealth into a foreign stable currency, such as Euros, and leave it there while the US dollar devalues. Then, that currency can be brought back into the US, where the buying power will be multiplied many times. As an example, let us say that I, as CEO of my company, looted $10 million from my company and stashed it in Swiss Francs in a bank in Stockholm. The US dollar is devalued, as it was back in 1985. When I convert those Swiss Francs back into US currency, I now have $20 million dollars, and can buy twice as much in the United States (labor, building supplies, raw materials, fancy cars, homes, etc.) as before. And that's just with a 1/2 devaluation as in 1985. A greater devaluation brings greater gain in this scheme.

This looming devaluation may well explain why stock market swindles are rampant, in order to convert the proceeds and take the cash outside the nation prior to a massive dollar devaluation, then to bring it back in after the devaluation at the new rate of exchange. Members of Congress, whose stock trades also do not bear close scrutiny, have stood silently by while this is taking place, forced to act only under public pressure (and producing little more than some photo-ops as an answer to the suffering of small investors and employees).

Long ago I wrote the observation that the last official act of any government was to loot the populace, and we may well be seeing that very process in the current epidemic of stock swindles and corporate lootings taking place before us.