the economy

The money for the war will have to borrowed from other countries - do it too much and eventually no one will lend us anything and start calling their loans.

Not the best article but I just happened to be reading it now:

http://www.guardian.co.uk/Iraq/Story/0,2763,922217,00.html

If you measure the economy by the GDP, then no, it has overall been increasing. But there is a lot of controversy about whether the GDP is an accurate measure of how "well off" a society is - for example, real wages for the average worker have been falling since the 70s.

>and that the 'boom' of the 90's was largely based on speculation and weird accounting practices?

The stock market bubble was definitely caused by these, but the stock market isn't the entire economy.

The boom was in large part based on easy easy consumer credit, resulting now in massive personal debt. This is one of the major thigns people point to when they say that the US economy is an illusion, fueled by money that isn't there.

The future productive capacity of most Americans is mortgaged to the hilt. Even if bancruptcies and defaults triple or quadruple from their present high levels, most Americans will still be slaving away servicing that debt and paying interest. That's very, very real money to the people who are paying their debts. And very real to the creditors, too. It is only a failure of imagination to think it is an illusion.

Of course, it is conceivable the whole system could collapse and usher in an era of anarchy. But I wouldn't bet on it.

Studying the economy is much more of an art form than a science, especially compared with finance (I might add that there is often a lot of friction between the two disciplines as a result.) Thus, there is often a wider degree of opinion and assessment when it comes to the economy--so-called authoritative views on the economy by dudes like Dr. Paul Krugman or Dr. Thomas Sowell are heavily based on how they approach their assessment which is why their views are frequently at opposite corners of the spectrum.

Thus, debating how "well off" a society is often results in colorful contradiction between intellectuals. I'm not sure who thinks that "real wages for the average worker have been falling since the 70s" but I am sure that there are probably many credible economists who would disagree with that statement (what, for example, is the "average worker" and how is it determined.)

The stock market is often referred to as a measure of confidence in the overall economy, since the activity within the market generally reflect the confidence of the future value of the market. I don't think it's used emprically beyond that (someone correct me if I am wrong.)

Finally, as for the stock boom/bubble of the 90s, it was definitely a matter of speculation--the market always is. Weird accounting practices--I'd more call them legal but ethically shaky--will always gravitate towards putting financial reports in the light that inspires stockholder confidence. That's why transparency and a lack of corporate conflict within the board of directors is so important.

Easy easy consumer credit wasn't nearly as significant as the growth of IRAs and 401(k) participation by the baby boomers in the 1990s stock market. In fact, the resulting increases in personal debt as of now could easily be attributed to the lack of confidence and poor performance in the market: when the market is a bull, everyone dumps their spare money in stocks (thus, investing or "saving" it.) When the market tanked, people lost money and investment rate (aka savings) is much lower and changes the debt ratio measurement considerably.

The main reason for an illusionary good economy (esp. from 1995-2000) is that the Asian crisis basically inspired investors to take most of their money out of Japan and other dead markets in Asia and pump it elsewhere. Since the US economy back then was much more healthy and growing, the US saw an enormous amount of foreign investment during 1997-1999. Many (if not most) economists have concluded that most of the US gains in the economy came as a result of the "Asian Flu," and I talked to one last summer who said that if the same conditions happened now, the EU might be the beneficiary of all that investment rather than the US. Back then, the EU wasn't really even around, and indeed, since the US economy has been flat over the past couple of years, the US has lost a lot of foreign money to the EU. It's obvious: if you have money to invest in a market, you pick the one that has the best rate of return or the most optimistic outlook. Lately, that's been the EU as far as worldwide investment goes.

All this foreign investment that flowed into the US markets during the late 90s did two things: one, it financed the fad that was the Internet Revolution and two, it created a stock market that was extremely overvalued. The falling of the market, while definitely tied into 9/11 and speculation about war, is also an obvious adjustment to overvalue. Many economists were bringing this up all through the 90s, and I'm sure there are plenty who still think it's overvalued as of now.

Again, economic interpretations are subject to a wide variety of opinion. The easy way out is to find some whom with you agree with and trust them on their instincts or assessments. But chances are, their political philosophy influences their interpretation a great deal.

Also, what Benjamin said. Currency value is market driven.

In reality, no one can really predict anything with any absolute certainty. In regards to the yen, the big question is what Japan will do with their $200-300 billion of US treasury bills they have. Japan has always stood by the dollar, though in recent years the Japanese finance ministers have gingerly talked about unloading some of that to shore up their sliding economy. The last time they semi-seriously brought up selling off t-bills and their holdings of the US national debt, it caused a huge drop in the US stock market. Wasn't really a big deal at the time because the market was so overvalued, but if Japan starts muttering about this again - especially if the dollar takes a dumper and the yen goes even worse, there's a potential for some economic damage that even Osama bin Laden could only dream of.

One interesting story that hasn't really been reported in the states (I heard it on Jordanian television) is that Japan gave a couple million in aid to Jordan for relief with the influx of Iraqi refugees. In exchange, Jordan pledged to "extend economic ties" with Japan. It doesn't mean much alone, but coupling that with this mornings refusal of Japan to kick out the Iraq embassy seems to indicate that folks are planning to deal the US out of the game (or at least to a cheaper table)

By the way, yes, Nixon ditched the gold standard, but it was due to the balance of trade. Lots of countries held lots of US debt, and the US was essentially given a choice between floating its currency or seeing interest rates get even more out of control. Nixon certainly took the right approach, even though the dollar immediately plunged (7% I think) in value.

Americans: travel now, because you won't be able to afford it in a year or two.

And you're right, I didn't include in what I wrote my belief that the war is merely forstalling the inevitable decline in the dollar, which is the logical step it would take to get to a suggestion that budget travel should be done in the short term.

But don't fret, Millar: even with a 20% decline in the value of the dollar, a Hong Kong tailor-made suit would be a pretty good deal.

If the dollar dropped that much (and the buying power of the avg. US worker with it) what would happen to those countries that we share such a massive trade deficit with, like China and Japan?

A lot of economists are very big on the deflation idea since it happened to Japan and most of those economists did not predict such a massive collapse. It's definitely possible, but now that the war has actually started it probably is less of a possibility.

If the dollar dropped that much it obviously hurts those countries we owe money to, as has happened to the US many times over the course of our pocket-emptying charity endeavors around the world. Politics is heavily involved, so the economic strategies (like military ones) are always situational.

Millar: you could argue that predictions made at any time are all pretty bogus: there was vociferous debate when Clinton raised taxes immediately upon entering office and how it would affect the growing economy; no one knew Japan would collapse and Clinton would reap the benefits, his repressionary tax increases obscured by robust growth. As I have posted before, the range of qualified, reasonable opinion on economic issues is pretty amazing--the right answers can always be found if you ask the right person. It always seems to involve going to the person you align with most politically.