The United States is facing the possibility of a severe economic correction. Yet most of the causes of such a correction are, for the most part, being completely ignored in preference to partisan bickering. It is the proverbial elephant in the living room - except it is not just one, but several elephants that everyone is doing their best to ignore. While the likelihood that any of these issues could result in disaster is low, these are issues worth taking the time to discuss.

The first elephant is debt. There are 3 kinds of debt that are of concern: Household debt, the budget deficit, and the current account or trade deficit. Of those three, it is only the budget deficit that gets any real attention, and even then it is often brushed aside.

The current US budget deficit stands at $413,000,000,000 in the 2004 fiscal year. This is a record deficit. To put it in perspective, that's 3.6% of the Gross Domestic Product, almost a quarter of total federal spending, or 80% of the total receipts from Federal income taxes. Clearly such a situation is not good. But there are deeper implications for such a large fiscal gap. Some economists argue that such large deficits are detrimental to private investment. The deficit effectively soaks up a large portion of the US's savings, which would otherwise be invested back into the private sector. There is historical precedent for this - investment fell to record lows during the previous record budget deficits under President Reagan. But there is something else to consider as well. This debt is managed by selling Government bonds and securities. These securities can be, and often are, sold overseas.

Currently, the two largest foreign owners of US Government debt are Japan and China. Japan had an economic boom, but collapsed in the 90s and has been struggling since. The Japanese government is very conservative, and has been remarkably slow to introduce reforms that are seen by many as necessary to stimulate the Japanese economy. Recently however, the Japanese Prime Minister, Junichiro Koizumi, has been fighting to push through the necessary reforms, with some success. In the last couple of years the Japanese economy has shown signs of improvement. Meanwhile, the Chinese economy is strong, and only getting stronger. Why is this important? Because as both of these economies gear up there will be far less interest in investing overseas, and much greater emphasis in investing the the local growing economy. This would essentially amount to a mass sell off of US debt in the form of government bonds, something that would almost certainly fuel higher inflation in the US, putting pressure on the Federal Reserve to take action by increasing interest rates. That is to say, it would almost certainly lead to a large scale recession in the US.

The US current account deficit stood at $530,668,000,000 in 2003 and $313,341,000,000 for just the first two quarters of the 2004 financial year. That's a record figure for each of the first two quarters of 2004. This could represent a country living beyond its means, or it could represent an economic power attracting large amounts of foreign investment. Certainly as long as the US remains a significant economic powerhouse it can sustain high current account deficits. That is, as long as the US remains an attractive place for foreigners to invest, an imbalance is of limited concern. Whether such a high current account deficit is sustainable is a complicated issue affected by many factors. A reasonably coherent explanation of some of those factors can be found in a 2002 paper by Catherine Mann. In rough précis, the current account deficit is balanced by private savings, but widened by budget deficits, yet at the same time is driven by the attractiveness of US investments to foreigners. Should the current account grow too large, the perception of the ability of the US to repay the investment may decrease, causing an economic correction. In the conclusion of her paper Mann indicates that a change in trajectory (from growing to shrinking) is inevitable, and the concern is whether this will occur through slow structural and policy changes, or whether it will be caused by a sharp correction in overseas investment. Two of the major requirements she lists for structural change are greater fiscal discipline (resulting in budget surpluses) and increased personal savings. Since the paper was published in 2002 we have seen massive increases in the budget deficit, as just discussed. At the same time, the prospects for increased personal savings are very limited (which I will touch on in a moment). Add to that the beginnings of resurgent Asian economies attracting investment, and the risk of a sharp correction is certainly much greater. The consequences of a sudden shift in global investment away from the US would be extremely rapid depreciation of the US dollar, most certainly resulting in considerable economic hardship in the US.

US household debt stood at $8,454,400,000,000 in 2002, and has grown since. A quick look at the associated chart shows just how serious the upward trend in household debt is. This debt is driven both by mortgages, and by credit card debt in an increasingly consumerist society. Do you recall the "Shop for America" campaigns following September 11? It is exactly that kind of thinking that helps to drive the consumer society even further into debt. In 2004 household debt increased 4 times faster than the economy, and average credit card debt for households with at least 1 credit card increased 300%, to over $9000. Of course this is not necessarily crippling, as a recent speech by Alan Greenspan points out. It is, however, trending in the wrong direction, and getting worse fast. It is certainly far from the increase in household and personal savings required to help curb the current account deficit.

The concern about debt for the US is, in the end, quite simple. US debt, in all three forms, is huge, and it is only getting larger. All three forms of debt, while different, are connected in that both household debt and government debt have a significant influence of the sustainability of such a large (and growing) current account deficit. At the same time, either the current account deficit or the budget deficit, if they continue to grow, could easily trigger a rapid and severe depreciation of the US dollar. Which brings us to our next elephant.

The second elephant is the US Dollar. At the time of writing, the US Dollar is running at about 0.77 Euros to the Dollar. One could claim that this is simply due to a strong Euro, but in reality most world currencies, including the Japanese yen and the Great British pound are trading strongly against the US Dollar. A quick look at the historical record of the US Dollar against the Euro, the yen, and the pound shows a distinct downward trend over the last two years in all cases. Of course this need not be seen as a bad thing, certainly it is beneficial to US exports, an increase in which would be highly beneficial for the current account deficit. There are potential issues however. The US dollar has, to some extent, remained as strong as it has due its position as the de facto global currency, in which most major commodities, including oil and gold, are traded. The Federal Reserve estimated that in 2003 around $400 billion of the $680 billion US dollars in circulation were held outside the United States. This high demand for US Dollars overseas is an effective prop for the US Dollar, meaning it is unlikely to ever fall too low too quickly. This prop could, however, disappear. The possibility of the Euro becoming a new alternative global currency is increasing.

In 2001 Alan Greenspan gave a cogent speech on the possibilities of the Euro as a global currency. The first salient point is the fact that a global currency tends toward a natural monopoly - as use increases, it becomes an increasingly attractive currency to hold, while the decreasing liquidity of competing currencies makes them less and less desirable as a global currency. Transitions can of course be slow, for example the transition from the Pound Sterling to the US Dollar between the world wars, but once it begins it becomes inevitable. Greenspan then notes that, at least on the surface, the Euro possesses all the traits required of a global currency (a stable currency based in a strong economy with a well developed financial system and deep, liquid financial markets). Greenspan continues by discussing reasons why the US Dollar remained so dominant after the introduction of the Euro. He cites the strength of the US Dollar against the Euro (the Euro depreciated against the US Dollar in its first two years after introduction), the strength of the US economy on comparison to the EU, and the Euro's apparent inability to expand into foreign equity markets. As already noted, the strength of the US dollar against the Euro, and in fact most world currencies, has been in decline. On the other hand, while the relative strength of the EU economy to that of the US has increased during the US recession, the US economy is beginning to show signs of increasing growth. Lastly, however, the Euro is now beginning to extend into foreign equity markets, most notably oil. An increasing amount of Middle Eastern oil is being traded in Euros, and while the US Dollar remains dominant, both Iran and Saudi Arabia have flirted with the idea of completely converting to Euros. Equally significantly, Russia, the second largest oil producer in the world, has expressed serious interest in trading their oil in Euros instead of US Dollars, though it has not yet embarked on such an en masse conversion. For now the US dollar comfortably remains the dominant player, but there are enough signs for concern, and as Alan Greenspan pointed out, a transition will have a tipping point, after which it will be carried by its own momentum.

The threat to the US economy is that this transition, if it occurs, may not be slow. Because the strength of the US dollar is currently supported in part by its position as a global currency, a shift toward the Euro could trigger further collapse of a weakening dollar initiating a panic driven feedback cycle resulting in an almost complete collapse of the US dollar from its current point of strength. Such a collapse will only be compounded by the fact that the US currently repays its debt in US Dollars - the only country in the world that is granted the privilege of paying off debt in its home currency. Should the US Dollar destabilise significantly (or the Euro establish itself as the global currency) many debt holders could choose to request payment in Euros. This would force the US to purchase Euros (at a markup) to service its debt, both reinforcing the Euro as global currency, an inflating US debt. Such a situation would only serve to exacerbate the US Dollar's collapse.

Of course ideally such a collapse would be halted by the closing current account deficit as the price of imports skyrockets, and US exports become ever more attractive. The US populace is, however, a heavily addicted consumer, more than willing to spend its way into increasing household debt (as already noted). Worse still, US exports have been on the decline despite the recent weakness of the US dollar. Increasingly, the US is importing goods from China, and services from India. Which leads us to another elephant.

The third elephant is the rise of India and China. Both the Indian and Chinese economies are growing very rapidly. These are the two most populous nations on earth, so they should not be taken lightly. Both countries are filled with young and talented people eager to make the most of their education and climb the global economic ladder. In the case of India this has taken the form of, for example, outsourced IT jobs from the US. Increasingly US companies are importing their IT service from India, where there is a vast pool of highly capable people who do not face the vast cost of living that their counterparts in the US do. In many ways this can simply be seen as globalization and free trade beginning to more evenly distribute the wealth of the world, and is not a threat as long as the US continues to innovate and create new industries for itself. There is a question as to whether this actually occurring however.

The most common statistic for measuring economic strength, Gross Domestic Product (GDP), shows the US economy to be in good shape. Current US GDP is between 10 and 11 trillion US dollars depending on whether you measure by Purchasing Power Parity (PPP) or Current Exchange Rate (CER). GDP does have problems, the most important to consider here being its ability to include work that produces no net gain, and its lack of consideration for negative externalities. It is worth considering how much work in the US is included in the GDP that has very minimal net gain. For those familiar with the SCO Group versus IBM court case, its worth noting that tens of millions of dollars have been spent, all counted toward GDP, and yet most observers would point out that, in comparison to the money spent, the gains are negligible if they exist at all. This is common to a surprisingly large number of other court cases in an increasingly litigious country. All of it counts toward GDP, much of it returns little if any gain. A more debatable issue is the current costs of management, particularly in larger corporations that have exceptionally high salaries for the many tiers of upper management - is the net gain provided by management actually comparable to the money being spent. It is certain that management provides significant value, what is unclear is exactly how much value, and how that compares to the salaries involved. As stated, this is a point for debate. The fear is that if, in fact, US GDP is inflated by such issues, the economy could find itself hollow when it comes time to compete in earnest.

Currently India is exporting low and mid level IT services to the US, but given current Indian growth, it is only a matter of time before India is in a position to cease selling its services piecemeal, and instead sell complete packages. At present, while a certain amount of work is being outsourced to India as their economy grows, management and the corporations have remained in the US. Given the growing number of capable and experienced IT workers in India however, it is inevitable that new companies will arise in India taking advantage of the considerably lower cost of living to compete head to head with US corporations for complete solutions. Again we have to question the ability of the US to forge ahead into new industries. It could be argued that ambition for education, science, and research is lower for the current youth of the US than for their would be competitors in India, China, Korea and Japan. While there is involvement from the US in the very ambitious fusion reactor project, it will most likely be sited in Europe, and if not there, then Japan. On the other hand it was a US based company, Scaled Composites, that recently won the Ansari X-Prize and looks to be at the forefront of commercial spaceflight. The future remains uncertain, but this is certainly an issue for concern.

Finally, the rapid growth in India and China is having other visible effects. China, in particular, with its rapidly growing manufacturing sector, has had an an equally rapid increase in its demand for oil, adding a new element to the global oil market. While China is currently trying to slow its economic growth to more sustainable levels, the growth in its hunger for oil is not expected to be similarly dampened. Oil prices are already being driven ever higher, and unlike the crises in the 1970's, it is not due to disruptions in supply, but instead simply due to demand. That this is detrimental to the worlds largest oil user, the US, is obvious. Of more concern is that with increasing Chinese oil needs stretching current oil production capacity to its limits, a disruption in supply now could be catastrophic. This issue is discussed in detail in an article by Paul Krugman. In the wake of ever higher oil prices, alternative energy sources may prove to be one of the most significant new industries in the coming decade. With this in mind, the question must be asked: Which countries are going to be at the leading edge of research in alternative energy sources?

There remains one significant issue to discuss: the domino effect. This is the fact that the three major issues so far discussed are all interconnected. Increasing strength in the Chinese and Indian economies, providing goods and services to consumption addicted Americans willing to go into personal debt to maintain their standard of living, could easily lead to a widening of the US current account deficit. If the current account deficit grows too large it could easily trigger significant depreciation of the US Dollar. Should the US Dollar start too look too volatile, or become a significant financial risk to hold (due to depreciation), global markets could easily start to embrace the far more stable Euro, potentially sending the US Dollar into free fall. During a period of such extreme uncertainty in the US Dollar, foreign investors may well seek to diversify their investments away from the US towards rapidly growing countries such as India or China. That is to say, any one of these issues could trigger the others, to a devastating end.

Much of what has been discussed is speculative. Far from being probable, the potentially disastrous outcomes outlined are somewhat unlikely. Furthermore, even if the worst did come to pass the US would rebound, and may well come back stronger than ever. The reason to consider these issues, despite the low probabilities, despite the eventual recovery, is that the possible effects could be so pernicious during the time required for such an economic correction to shake itself out. The severity of the possible outcome demands our attention. These are issues that US politicians should be discussing instead of quoting the standard divisive talking points about the usual false dichotomies. You won't hear these issues raised, however, because with these issues politicians can't give a soundbite as to how they'll spend some money, or make a law that will fix the problem. Ignoring the problem won't make it go away, and just because there are no easy solutions doesn't mean that nothing can be done. What is certain is that nothing will be done if people aren't aware of the problems.

Two days ago I ran halves with Nick and Brent, and ran really fast.

Yesterday I took an exam and didn't do so hot.

Got another one tonight, should be better.

George W. Bush won the presidential election.

Jon Stewart makes the point that people arguing on either side of any political debate will make points they know are misleading or that they don't believe, because it will help their candidate or their point of view that they do believe in; they believe the ends justify the means.

I don't think that the ends ever justify the means. The means should determine the ends.

But then again, I'm also a bit aimless, so maybe that's not the right way of going about things.

Time to brush my teeth.

I ran a race today. Got 7th. Ran something like 17:35. Need to be about 2 notches faster, particularly in the speed department.

My ceiling is leaking water right onto my bed (noticed this at about 1am last night). I'm sleeping in the living room. The apartment people better get their asses on this one quick...

My wrists are killing me again. Well actually just the right one, like usual.

I'm trying to figure out who I am and what the hell I'm doing here.

Thst just about covers it.

Today I was involved in a three-person accident. Nobody was hurt, and all of the damage was reparable by hand. This because two people were on bike and the third on foot. People make stupid mistakes in traffic whether driving, biking or walking (in this case, the walker stepped right in front of me on the bike path, I ran into her, and then got hit from behind). When there aren't cars involved those mistakes don't have nearly the cost.

Holy shit!

Last night in Paxton I watched Rocky IV and Rocky III. True think pieces, them. For example, the fight between Rocky and the Lips d00d in Rocky III. The Rocky movies make heavy use of staged fights, and here was a staged fight, staged to look staged. And, because it was between Stallone and an actual pro wrestler that stages fights for a living, the staging was as convincing and sometimes more convincing than the staging of the other fights.

That fight leaves some uncertainty as to the nature of the fight in the movie world. However, its effect was no different than any of the other fights. It showed that Stallone had lost **THE EYE OF THE TIGER** just as his first fight against Clubber Lang did, and the second one showed how he regained it.

And Rocky IV... what a brilliant soundtrack. Particularly the song playing as Rocky's plane landed in the Soviet Union. That and the remarks from Rocky and Drago in their opposite corners, respectively: "He's a human" as Rocky gained confidence in his ability to hurt Drago, and "He's a piece of iron" as Drago gained respect for Rocky's toughness. A testament to the superiority of technology over weak fleshy humans.

So I was sick, all weekend. Saturday I was pretty bad and Sunday was awful. Jessica really took care of me, which was awesome. I'll have to do something nice for her this week :). Because our relationship is based on exchanges like that :-P. But thank you so much, you rock...

Then this morning I went over to McKinley to make sure I didn't have strep or the flu or Sudden Student Death Syndrome and I nearly passed out due to fatigue in the waiting room. But I've been getting my strength back through the day, my fever is gone and I should be able to make it through classes tomorrow.

So the gods of running somehow found out I was planning to race this weekend (bastards must be reading my e-mail), and gave me this shitty cold.

I was planning to go to a toga party last night, but that kinda didn't happen due to extreme fatigue and blowing my nose every 15 seconds. Strangely, before that, I ran speedwork, which went very nicely. Maybe that explains the fatigue.

So today will be a day of resting, and studying like a fiend, and I should buy some produce, and maybe watch some C-Span.

I have hard evidence that Al Dimond is harboring cookie programs... programs for cookies of mass destriction. And since I can't post images in here, I'll just have to link to the image:

Linky (ya 'know, for some reason, the picture just doesn't get across the kind of chaos that went on in that kitchen while these beauties were being pulled out of the oven...)

I later put them into bags to take home, and after that realized that the recipe I used (a self-modified version of a recipe that makes nice self-contained cookies) would probably work nicely for bar cookies. So maybe next time I do this recipe I'll do it in bar cookie form. Stay tuned for the next exciting episode of "Delicious Disasters from the Den of Dimond".

So clarinet is all good.

Jessica and I have been together 10 months and we celebrated that today.

I had a nice relaxing day.

GAH! The clarinet studio people won't give me a damn e-mail to tell me if I can be in that shit this semester or not. So if not I need to take another mother fucking class... so I hear about this other class I might want to take that involves building an electronic music system for children with disabilities, sounds like something I could do and good experience and stuff, and it's supposedly got open spots left, but it doesn't have open spots left. SO maybe I'll have to wait and see about clarinet and if not then start ECE 390 2 weeks late.

Outside of academics, I'm enjoying life tremendously. I think I'm going to do some Time Cube chalking on the quad tonight. Hey, it sure beats all the bullshit Greek system crap that's written there now.

And yeah, OMG the football team matched last season's win total this week at one. Next week they'll be going for their first win over a I-A team since 2002. Me, I'm hoping that we match last year's accomplishment of getting more Nobel Prizes than football wins. But next week's game is University Library Day, and we all know the whole community rallies around the football team and gets fired up for University Library day. So maybe the footballers can pull off another win.

I ran 800s this morning. Only 4. In 2:40. I'm in worse shape than I thought. Maybe I won't run under 17 next Sunday. Oh well.

OK, time for some homework.

I had an amazingly fun night last night with someone. But that's not the point of this post. I keep a reasonable separation of webjourno and romance here. Not enough separation not to mention that I baked some pretty hilarious looking cookies last night that will be pictured here in the future.

OK, so in Music History class today I was just continually reminded of how fucked-up ancient religion was and how it really is like that today too... I'm short on time, so just one example, we're in the 4th-9th centuries now (not much happened musically then because the church supressed people trying to do anything interesting), and in the Mass of that time there's a section called Credo. Which is Latin for "I believe". A section whose exact text was debated among scholars and then made immutable for the rest of time. And this is the section of the mass with the fewest different tunes to it, apparently because its text is the most immutable.

In ancient times ideas almost never survived to today on their merits, but rather on the military strength of those pushing them. Sometimes ideas conducive to military strength, and thus survival/spreading could go on. Now ideas often survive based on their commercial applicability or in politics on their ability to be made popular... which people as a whole at least have some control over. It doesn't always produce the best, most enlightened ideas, and often creates frustrating ones, but in perspective, it's a hell of a lot better than it used to be.

I woke up at 8:00 in the morning. Took a shower, ate some breakfast. Went to ECE440 (Semiconductors). Talked about valence bands, conduction bands, and the forbidding gap. Went to Econ 103 (Macro). Talked about society like the point of it was to produce goods and if it didn't do that it was failing. Went home. Ate some lunch. A crunchy soynut butter and jelly sandwich. And some spinach. Turned on C-Span. Barbara Bush was on. Turned it off. Went with Matt and Kyle to voice a few complaints to our landlady. Jumped to Music History (antiquity for now). Returned a book, bought another one (both on signal processing). Bought 3 Power Bars, ate 1. Did a bit of homework. Went to DSP class. Talked about... DSP... came home, changed, went running with Jason Razo. It was fast. Stretched, iced my ankle. Went to the fridge, grabbed my box o'spinach, and turned on C-Span. Barbara Bush was still on. Turned it off. Showered, ate some Carribean corn chowder. And the second Power Bar. Went to Engineering Career Services meeting. Learned Power Verbs for my resume. Didn't learn where to put the accent marks. Went to an improv comedy show. Left (it was over).

... So last night I got really drunk in my sleep and PARTYED HARD, and I'm so clever that to remind my future morning self of what I'd done, I took all the bottles from the 10 Corona Extras I downed and put them in my bicycle basket.

I must have been so drunk I didn't even remember to be hungover!

(That or some dipshit just used my bike basket as a garbage can. Least s/he didn't use it as a toilet.)

And then of course riding down the bike path on Wright street trying to get to class I nailed someone who walked right out in front of me without looking. It's not all *that* hard to be alert, and it's not like I'm flying around campus on my circa 1930 2-speed Schwinn.

Lots of things are happening and I don't really care to write about any of them.