Re: pkt seminar on the economics of the crisis

["Henry C.K. Liu" <hliu@xxxxxxxxxxxxxx>]

Business, represented by the Conference Board, has already officially demanded an
immediate government stimulative package, taking issue with Greenspan's advice to
Congress and the White House of wait and see for at another week or two.  But
what Business asks is not a Keynesian package as it was historically understaood:
demand stimulation and market stabilization.   What Business asks is a supplyside
stimulative package to save firms from cashflow problems which were only
exacerbated, but not directly caused, by the 9:11 attacks.  Airlines were is a
structural mess heading for financial disaster way before 9:11.  Singapore
Airline is in relatively good shape mainly because it has no debt and owns more
planes outright than any other airlines, the typical of which are merely leasing
planes from GECC who paid for them from short-term GE commercial papers
proceeds.  Thus for the US air transportation sector, saving the airlines has
nothing to do with keeping planes flying.  The likes of US Air, and Delta can go
bankrupt and a new air sector, more healthy, may indeed re-emerge for the ashes.
When London was hit by IRA terrorism in 1986, Cunnard survived the fear of travel
by merely offering unheard of deals.  The way to keep the planes filled is to
have $10 or $9.11 round trip NY/LA for the rest of the year.

What is needed is more hardnosed analysis of deregulation and privatization, and
risk management and run-away leverage.  One the greatest fear after 9:11 was not
how much the Dow would fall.  It was if the stock market can survive, and not for
technical malfunction.  The fear was whether any buyers can be found.  One of the
Bass brothers of Texas had to liquidate 135,000,000 shares  of Disney, to meet a
margin call. The shares were not sold in the free markets but thru cozy
"arrangements." The shares, which closed down 8 percent on the day, were bought
by Disney and Goldman at a discount to the market price. Goldman  Sachs intends
to resell its Disney shares into the market, said Disney,  which had about 2.1
billion shares outstanding on June 30. Disney shares fell $1.52 to $16.98 by
midday on the New York Stock Exchange,  hitting as low as $15.50, its lowest
level since January 1995. Disney's stock repurchase is part of a 386 million
share buyback authorization. Chief Financial Officer Thomas Staggs said on Monday
the company started repurchasing shares and would use a portion of proceeds from
its $1 billion bond offering to fund some of those purchases.

Already the market looks more like a private club everyday.  The end of market
fundamentalism is at hand.  The prospect of all stock markets being shut down for
extended periods is not radical speculation.

The Peace Dividend was eliminated last week.  Military Keynesiansim may not have
the same effects as it did from the "old" warfare as it does from the "new"
warfare on terrorism.  There is a likelihood that "militant" spending on the new
war on terrorism, instead of being stimulative, would in fact be depressant,
because the spending will be focused on putting obstacles to the fast truning
wheels of finance and business in the name of security.  For example, if new
rules on the free flow of funds are instituted by the Treasury Dpartment, in an
effort to curb money power of suspected terrorist groups, it may cause serious
problems to the financial markets.  Money not free to one is not free to all.  If
suspected crooks face restrictions on money, all of us face the same
restrictions.  Already, the day-trip to a nearby city for busisness is a thing of
the past. Coming up from DC to NY for a meeting is now is three-day affair.  The
list goes on and on.

Whitalone@xxxxxxx wrote:

> Thank you Ric for returning our conversation to the politics of economics.
> The WTC and related events has changed the scope and analytical discussion of
> what to do next. No doubt, Keynesian types of stimuli are already
> forthcoming, via a $40 million investment on security and fighting terrorism,
> not to mention the ill-advised tax rebates.
>
> Now to the major problem.  In ordinary times, if such times truly exist, such
> a stimulus might prove useful over the long term.  In the real short term
> however, the propensity to spend is at a basic level for most Americans. Even
> more important, there is no demand for true investment, meaning investment
> that creates jobs via capital spending. Perhaps defense industries might
> enjoy some outfall from our current situation, but even that is open to
> question given the type of "war" that would be needed to truly control
> terrorism.
>
> I have in recent months come to appreciate Dr. Davidson's insight into
> letting the natural market forces of capitalism via government help being the
> driving force behind employment issues rather than some type of elr program.
> Yet when faced with the current crisis that America faces, such a program
> might be advisable given the mass layoffs that are occurring and will
> continue to occur through the rest of this year. There is no doubt that the
> "animal spirits" of capitalism have been terrorized by the events of Sept 11.
> With true uncertainty controlling the markets, it is only natural to assume
> that government will have to take a greater role in the marketplace in
> America and elsewhere.
>
> The problem will be on HOW the government perceives this role in the
> direction of the market. The free-flow of capital markets has undoubtly
> contributed to the terrorists ability to finance their activities. The
> collapse of the airline industry and travel is a major shock to the
> productivity and economic stimulus of a modern society. These are just two
> areas that I am sure will need to be addressed.
>
> If PKT theory is to be relevant, I think it is important that we not exploit
> the tragedies of our recent collective past, but offer a solution and
> critical thought on how we move forward as a civilized world in this crisis.
> We stand at a crucial historical moment in history that will be recorded for
> as long as man exists.
>
> Questions
>
> 1.  What can any government do to stimulate demand under the current
> situation while not evolving into what has been labeled Military Keynesian?
>
> 2.  Would capital flow restrictions, something akin to what Dr. Davidson has
> outlined, provide more stability and demand, as well as, provide a trace for
> terrorists activities?
>
> 3. In the short term, would a elr type of program might be useful and
> beneficial to our world given the current lack of demand?
>
> There are I am sure more serious questions to address at this moment, but
> hell folks of PKT, this is a start!
>
> Best regards
>
> Scott Simpson