Calm Before The Storm?
Jim Raby
September 25, 2004
After unprecedented growth in Technology during the 1990's, the
strength of the economy seems to have ground to a halt. The growing
concern of many in the finance industry is that the U.S. economy
has stalled and we are facing a potential decline in the coming
months.
The U.S. Federal Reserve has approved two quarter-point raises
in interest rates since late-June, taking borrowing costs to
1.5% from a 46-year low of 1%. The Fed has said higher rates
are needed to pre-empt inflationary pressures, and most forecasters
expect further increases before the end of the year. While the
FED had hoped that historically low interest rates would give
a boost to the faltering economy by putting more money into the
hands of individuals and businesses, this boost is yet to be
seen.
Weak job growth has exacerbated the problem sending wages down.
Hiring came to a near standstill last month, with a net gain
of only 32,000 jobs, down from 66,000 in June, stunning economists
who had expected seven times as many. With the unemployment rate
holding steady at 5.9% and the ongoing outsourcing of US jobs,
it seems an economic recovery is not in the near future.
The manufacturing of small toys, shoes, and other similar gadgets
in China has been going on for some time. But it is important
to be aware that the exportation of manufacturing jobs is evolving
- rapidly. Go into any major retailer or call almost any customer
service center and you'll become aware of the iceberg ahead of
us. With call centers being set up in India and virtually everything
being made in China, the reality is that the jobs being lost
are not just industrial manufacturing jobs.
While it's true that the Information Technology boom of the 1990's
fueled our economy and brought about major changes with the Internet
and the World Wide Web, the globalization of information may
end up backfiring on us. As the world grows "smaller"
as a result of the high-speed information highway, it becomes
less necessary for people to live near the companies who employ
them.
Our office is not the first to point out the dangers inherent
in outsourcing American jobs and the possible effects it may
have on the U.S. economy. For months, Lou Dobbs, an anchorman
for Moneyline on CNN, has been ending each of his segments
by listing U.S. companies who are outsourcing jobs overseas.
Quite a few to say the least. What used to be a side issue is
quickly becoming one of the most important economic issues facing
the U.S. The McKinsey Global Institute estimates that
the volume of offshore outsourcing will increase by 30 to 40
percent a year for the next five years. Some estimate that as
many as 3.3 million jobs could be lost overseas by 2015.
According to projections, on top of the industrial manufacturing
jobs, the hardest hit sectors will be financial services and
information technology. In January testimony before Congress,
Hewlett-Packard chief Carly Fiorina warned "there is no
job that is America's God given right anymore." This is
evident in many of the new more liberal laws China has been passing
to protect private ownership and intellectual property. Furthermore,
these laws embrace public and private partnerships as well as
domestic and foreign partnerships. Making it clear that though
China remains a Communist country, the government sees the potential
and wants to encourage more foreign companies to invest in China
and Chinese workers.
Moves like this will ignite the Chinese workers' as they slowly
but surely get a taste of capitalism and all that it has to offer.
Similar things are occurring in India as well, with the average
computer programmers' annual salary in the US at over $60,000.00
and the same job in India paying roughly $5,800.00, it's no wonder
why companies are outsourcing jobs there. Rugs are being pulled
out from under the U.S. worker left and right.
As manufacturing jobs continue to go to China and IT jobs continue
to go to India, the U.S. faces much more than just high unemployment
rates. A smaller work force equals a smaller tax base and less
tax revenue putting more strain on an already weak economy. Also,
increased financial obligation via un-employment compensation
and welfare. A double whammy for the U.S. treasury. Add to that
the estimates that the Iraq war is costing us $5 billion or more
per month and we have the additional costs of homeland security,
an expense we've never had before, and it becomes clear that
we are facing a major crisis.
The budget shortfall is forecast to reach a record $445 billion
this year alone. In addition to a smaller tax base, budget shortfalls
and the cost of the war in Iraq, USA Today printed an
article on August 16 regarding the increase in the trade deficit,
saying the U.S. trade deficit increased more than expected in
June to nearly $56 billion. The total trade deficit approaching
$500 billion annually, and the total national debt is approaching
$8 trillion.
In 2003 the number of people who filed for bankruptcy exceeded
1.3 million. These figures along with the declining tax revenue
and problems balancing the budget make it obvious that the U.S.
will have a difficult if not impossible task of paying the bills.
As a result of these problems, the dollar fell 30% against the
euro in 2003.
It doesn't take a rocket scientist to figure out that when the
dollar starts to fall the worldwide interest in gold increases
dramatically. However, with a multi-billion dollar short position
in gold the international banking community has given the gold
market some real volatility. The stakes are very high and the
ride will be anything but smooth because this conflict of interest
between the bankers and the gold market will only add to the
turmoil.
Ultimately, however, the fundamentals of a global industrial
shift compounded with excessive spending and debt, should result
in a much weaker dollar.
September 25,
2004
Jim Raby
Jim and Walt
Raby have over 65 years combined experience in the securities
business, 45 of which have been at National Securities Corporation
in Seattle Washington. The major portion of Jim and Walt's business
is in Natural Resource stocks, mainly trading on the Canadian
and U.S. exchanges. Most importantly they are licensed to do
business and have clients in all 50 states. If you are interested
in working with them or have further questions they can be reached
at 1-800-431-4488 or 1-206-343-6225.
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321gold Inc
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