August 2003 Newsletter
Issue Eight, Volume Four

THE MIKE GASIOR MANIFESTO

By Mike Gasior

I have been writing this monthly newsletter for what is now approaching four years and have made assorted forecasts and predictions along the way. Many of these predictions have been borne out and become true and I've had a few clunkers thrown in as well (although the clunkers tended to be more golf related than economically based).

My background and training is all economic and financial and those who read this publication regularly have learned that I tend toward macro viewpoints and long-term projections. This is the result of spending over 20 years focused on watching the financial markets and economies worldwide and learning my lessons from those poor individuals who live and die trying to predict short and intermediate trends. My tendency to focus on the long-term will be even more profound than usual in this month’s edition.

For reasons I cannot perfectly identify I have decided to dedicate this month to the outlook over the next 50 to 100 years for the U.S. and other major world economies both financial and politically. I have written previously that I read 4 to 5 newspapers daily along with another 15 to 20 monthly publications. Lately I have encountered a vast variety of information and statistics that have laid out a surprisingly clear vision to me for what the upcoming five to ten decades might look like; and I have chosen to share these views with you.

This edition may be a little longer than usual, but this is an extremely important topic to me and the scope of the information is pretty vast as well. With that said, this is the edition you should forward by email to all your friends and relatives as well as print a copy to leave in your desk drawer because it can help as a guide to planning future decisions and give hope when there seems to be no hope available. Anyone wishing to reprint any parts of this newsletter has my advance permission to do so as long as my name remains attached to the words.

With these warnings I will begin our journey.

THE 21st CENTURY WILL BELONG TO THE UNITED STATES

If it was the 20th century that gave rise to the United States as a global power in every regard, then 21st century will only continue that trend.

When the 20th century began in 1900 the United States had grown into a global power, albeit a somewhat young one, among 8 to 10 other countries who had similar sized populations, economies and markets. In 1900 the sun never did set on the British Empire, and there were also Germany, Spain and Russia who all viewed themselves as contenders to be world powers.

After two World Wars and the industrial revolution, the U.S. had grown into the world's largest and most formidable economy. During the final 25 years of the 20th century the U.S. added $5 trillion in real terms to its GDP easily making it the largest economy and engine for wealth creation in the world. Period. Paragraph.

The current anti-Americanism that has manifested itself in various portions of the world in recent years seem to indicate that perhaps the "glory days" may be ending for the wonderful growth and prosperity the U.S. has enjoyed. I do not agree with that viewpoint at all and believe that the stage has honestly been set to let the U.S. actually accelerate away from other economic contenders. Before accusing me of rank patriotism or flag waving, I will do as I always do, and back these feelings up with hard facts. Obviously there are huge unexpected events that could occur that I have no way of predicting (such as North Korea launching a nuclear warhead toward a neighbor or giving one to a terrorist) but the evidence is very compelling in support of my viewpoint.

At the current rate of immigration along with the natural increase in population, the United States should reach a population of about 400 million people by the year 2050. This will coincide with an almost definite population shrinkage in both Europe and Japan and probable population loss in China and India as well. While there might be reasons to believe that this isn't an enviable situation for the U.S. it should, with other factors, set the stage for even more dynamic growth in coming decades.

The U.S. educational system, while far from perfect, is trending toward improvement and recently SAT scores reached their highest levels in more than 20 years. Not to mention that the United States takes in more educated immigrants than the rest of the entire world COMBINED. This mix of facts ensures a large, educated and eager work force in a free market, entrepreneurial economy that rewards hard work and innovation with personal wealth along with personal freedoms with little governmental interference. This is a potent mix that will guarantee continued expansion of the U.S. economy for a very long time.

THE REST OF THE WORLD

I have written previously about the upcoming social upheaval that will need to be addressed in both China and India due to the huge explosion in their populations as well as the severe imbalance between boys being born versus girls. The economic growth in both countries has been astounding and both will continue to flex their newfound economic muscle in the coming decades. Both countries, however, face many issues before they can truly become any sort of real competition to the U.S. economic machine.

It will be difficult for the China to thrive in any earnest way as long as any remnant of the Communist regime is in power and it is difficult to imagine when a change of that magnitude will ever occur. No matter who is in power, the Chinese government will certainly need to deal with the over population of young men who resulted from the "one child per couple" law instituted by the government to slow down the exploding population. In many parts of China this rule resulted in almost 120 boys being born for every 100 girls. As these young men reach adolescence and adulthood there will obviously be men who will be unable to find women to marry simply due to this imbalance. You can also imagine that the ones left without a chair to sit in when the music stops will be the stupidest, ugliest and poorest of the men in this musical chairs competition for wives.

This situation will also make them the angriest group of men who will cause a host of social problems for whoever is in power. Throughout the centuries governments have usually sent these angry young men to war just to give them something to do. We are about 10 to 15 years from this manifesting itself in China, and North Korea definitely seems as though they are looking for a fight with someone. North Korea seemingly wants to tangle with the U.S. but they might find themselves getting their butt kicking from China instead.

India, who is graduating some of the finest engineers and scientists in the world, also suffers from an exploding population and the same imbalance of boys to girls. India also doesn't need to look very far for a mortal enemy to fight since the tension with neighbor Pakistan remains very thick. Both countries are easily capable of a nuclear first strike if provoked since both countries have the “bomb” along with huge populations that could be sacrificed in the eyes of their leaders. Industry within India has been continuing to grow and should remain in a growth phase, but many political landmines remain that could throw obstacles in front of them.

The EMU countries have found themselves stuck in the same economic rut the U.S. has been in recently. In the future they will find themselves burdened with aging populations, exploding social expenses and overall shrinking populations due to declines in childbirths and restrictive immigration laws. While the creation of the EMU and the Euro were steps toward earnest competition with the North America, there is now little expectation that the EMU will ever rival the U.S. economy in size or wealth creation. Not to mention the possibility for political infighting among the member countries. Just this past week it was learned that France would suffer a budget deficit in excess of what is allowed by the rules set forth for EMU member countries. It will be amusing to see what the other member countries are prepared to do to France for this failure, and even MORE amusing will be how much France will care less what they think.

The U.K. economy continues to suffer many of the same problems the EMU countries are suffering and the future looks the same as well. It will be difficult to imagine that England can achieve earnest growth economically in the future without joining a larger trading cartel. Even though it would seem the most likely choice, I still personally cannot see the British joining any alliance that includes Germany and France.

I read an extremely interesting article by a British academic several years ago at the outset of the EMU that suggested that the day may someday come where Britain, Australia and New Zealand may actually join the United States to create one global country. His suggestion was to merge these other English speaking countries into the United States making everyone American citizens with voting rights, adopting the U.S. dollar as their currency and giving these new "states" immediate representation in Congress and the Senate. While it was an interesting read, I will confess that although written by an academic, it will likely prove to be fiction and I cannot imagine such a thing ever occurring in my lifetime. Then of course, I could have never pictured a 757 slamming into the side of The World Trade Center either. It can certainly make you think though.

Russia is currently the most troubling and sad to report on. Their population is currently shrinking and life expectancy is actually falling. And per capita consumption of vodka just reached a record high suggesting epidemic alcoholism. There is also little faith currently in the credibility or honesty of much of the politicians who run Russia or the other former Soviet countries. One cannot deny the enormous natural resources possessed in much of Russia as well as the abilities of their people. However, since the fall of communism, many of the most talented individuals have immigrated to other countries leaving a void for those seeking to build Russia into a capitalistic powerhouse. Should Russia ever get religious regarding free markets and true democracy they could quickly climb the world's financial ladder. Sadly, none of the proper ingredients seem to be in place right now and I can see them languishing for decades to come, and that is a shame.

Eastern Europe also seems to be stalling in large part to the loss of manufacturing jobs to Asia. Just last November IBM moved 3,700 jobs from Hungary to China because labor would be 75% cheaper. With that said, eastern Europe is still in better general condition that the rest of Europe thanks to the fact they had much more upside potential in the first place. Although wages might be lower in Asia, plenty of manufacturing will continue to move to Hungary, Poland and the Czech Republic due to their proximity to Western Europe. Overall, I think this region will continue to grow steadily and these economies will expand at a rate faster than Western Europe along with improved standards of living.

Japan is unlikely to disappear but is also unlikely to compete in the coming century at the level they have competed during the previous 100 years. Their population is aging and shrinking and although there has been signs of life in their financial markets lately, the Japanese consumer still doesn't seem to be coming out of their long hibernation. Much of the manufacturing that Japan seemed to steal away from the United States during the past 50 years is now in turn being stolen from them by China, Korea, Vietnam and the Philippines. Japan created massive wealth during the second half of the 20th century and has invested that wealth across the globe and they will remain a large player in the world. My prediction is that it will be extremely difficult for Japan to grow their economy in any earnest way and will continue to struggle to keep it from shrinking even more. Japan's future war will be one of attrition.

OTHER FACTORS IN FAVOR OR AMERICAN EXPANSION

I always remind people that the United States also remains rich in terms of their own natural resources and can continue to feed this population themselves along with providing adequate power and energy to them. Although the U.S. may purchase much of its energy from foreign providers, this is due only to better pricing and availability. I have always been somewhat baffled to hear Americans lament a supposed reliance on Middle Eastern oil. Wouldn't they rather pump and burn a gallon of oil taken from the ground of Saudi Arabia and leave another gallon safely beneath the ground of Texas or Alaska to be used later when the rest of the world has been depleted? Doesn't the American public understand that this is a strategic decision to use resources offered for sale by other countries seeking economic relationships with America while saving at least some of their own resources for the future? Isn't this fairly obvious?

By the year 2050 the U.S. economy will be at least twice the size of the European economy and maybe three times as large. The United States alone will account for more than 25% of the total global output. I am tremendously confident of these predictions and there would need to be massive and unexpected changes in the global condition to make me budge from this outlook.

AN AMERICAN EMPIRE?

There has been much written since the conflict in Iraq about a supposed U.S. Empire and there seems to be some evidence of one, but I prefer to give a conflicting viewpoint to this evidence. A book was released recently written by a former member of the Reagan administration named Clyde Prestowitz called "Rogue Nation" and in the book there is a chapter titled "The Unacknowledged Empire". There is also a group that has formed to educate Americans about the risks of empire building, which recently added C. Boyden Gray who served as counsel to the elder Bush to their roster. I have personally read many articles that reference this supposed American Empire and while I believe some of what I read, I also strongly contend that much of has been taken out of context.

Truthfully, the word empire has been used for a very long time in regard to the United States.

George Washington spoke about "the rising American empire".

Thomas Jefferson referred to the United States as an "empire of liberty".

My issue rises with the word and the more classic "empires" of world history like the Greek, Roman and British empires. I believe that nothing about the behavior of the United States recently conveys that they are seeking any sort of empire of this classic kind.

People have watched some of the behaviors exhibited by America and mistakenly believe that these actions portend a similar ambition of creating a world empire in the classic sense. They saw the U.S. decide to move into Iraq with very few allies. After the Cold War ended the Republicans and many Democrats continued the call for increased spending on the military. Many saw these as signs that Americans want only to increase their global influence and power.

Well from the very beginnings of the U.S. as a country, it has always felt it was up to them to show everyone else in the world how to live. I will quote President Kennedy who said almost 50 years ago in his inaugural address that the United States must be wiling to "pay any price, bear any burden, meet any hardship, support any friend, oppose any foe to assure the survival and success of liberty". American Presidents have always used almost religious sounding rhetoric to preach to their own people and the world population about freedom and the appropriate way for people to live and conduct themselves.

The United States also seems to have a bottomless, God-given reservoir of resources that allows them to carry out this mission around the globe too. When necessary they are not above using covert operations to topple governments who stand in the way of freedom and liberty for their people as was the case in Iran, Chile, Guatemala, The Congo and other countries to name just a few.

Not only did President Reagan call the Soviet Union the "Evil Empire", he proceeded to set policy that dismantled it. This President Bush made reference to the "Axis of Evil" in a State of the Union address and is in the process of pursuing policy to take it apart. But whether it is the previous two references, or the U.S. involvement in the World Wars, Korea or Vietnam, the United States only tends to get involved in actual conflict when it threatens their own livelihood and that is the case today in the "war on terrorism".

By and large the United States historically will postpone any actual military involvement as long as possible until it can no longer be avoided. The U.S. resisted getting involved in World War II but could no longer ignore the German's unfettered submarine warfare and finally Japan's bombing of Pearl Harbor when they reluctantly joined the war. The Cold War was totally the invention of the Soviet Union and Joseph Stalin and the United States was at best hesitant to join the arms race.

If you look at the eight years of the Clinton administration and the hundreds of American lives lost to terrorism worldwide, President Clinton did what other presidents had done and ignored the problem hoping it would go away. It took the spectacular attack of September 11th and the outrage that came with it for an American president to finally engage the terrorists. The war on terror will ultimately be won because America usually prevails when it sets itself upon a mission like this and there is already evidence that progress has been made.

What has complicated the viewpoint around the world is that America suddenly seems eager to pursue conflicts outside of its own borders and this seems to lend itself toward the belief that they harbor aspirations of being a global empire. I suggest the more simple explanation is the proliferation of weapons of mass destruction and a small, dedicated, but militant group of terrorists who despise the U.S. and everything it stands for who are willing to martyr themselves in the name of religion. The other ingredient is the utter failure of the United Nations to settle even the most minor disputes around the world and their total inability to keep the peace anywhere. With the prospect of violent dictators like Kim of North Korea having sophisticated nuclear weapons programs as they admitted to in more detail this week, the United Nations becomes an even more ineffectual body and America's duty becomes more and more clear.

While I make no argument that U.S. society is perfect, it is most certainly the closest thing we have to a microcosm of the world's societies. The fact is that the United States population is made up of people from every country on the face of the earth, containing every race and religion. All of these make up the largest democracy on the face of the earth. Any forces the United States has on the ground in Iraq, South Korea or anywhere else is more multi-national, multi-ethnic and multi-religious than anything the United Nations could ever put into place if they had the motivation and courage to do such a thing.

Hatred and jealousy for America in rampant in many places around the globe and this emotion stems from many things. American arrogance at times, the American lifestyle along with American success and affluence. This hatred is unavoidable and even if were isolated to small pockets of violent terrorists, the attacks they might bring to Americans around the globe and on American soil is the reason that the U.S. needs to decide whether we have the willpower to protect themselves and protect their ideals. Clearly the U.N. is not going to be the source of this protection and America will need to decide soon whether or not it is prepared for this epic and global task it has already begun in Afghanistan and Iraq.

I have listened to people in the media and elsewhere debate what the American government is really doing to combat terrorism as well as their resolve for the fight. I happened to be in New York City this past Saint Patrick's Day and can honestly say that I don't think I'd ever seen so many drunks in funny hats at once. Every Irish pub in Manhattan had people stacked to the rafters and pouring out onto the sidewalk. It was then that I considered the AMAZING fact that since the outrage of September 11th, there has not been even a single life lost to terrorism on U.S. soil. Considering the attacks that occur on a seemingly daily basis in Israel and around the world this struck me as an amazing thing.

Obviously I don't know exactly what it is that the U.S. government is doing exactly to combat terrorism, but as we approach the second anniversary of those horrible attacks I know they are doing something. Except for some small inconvenience when traveling by air, American citizens have not had their day-to-day lives interrupted very much due to the war on terrorism and continue to enjoy an extremely open society with all of their freedoms and liberties intact. This is obviously thanks to the men and women in uniform fighting on the front lines against terrorism and people within the government who will never be known for their heroism. I might remind my fellow U.S. citizens to keep these people in our hearts as we celebrate the American Labor Day holiday this weekend in the quiet, safety and freedom of our backyards with friends and family.

So in summary, the United States continues to be poised to lead the world both economically during the coming century but also in search of freedom and liberty for people everywhere. This why people from around the globe will continue to risk their lives and die while swimming rivers, hiding in the bellies of ships and freight containers in search of the "American Dream" of financial success, religious freedom and representative democracy. It isn't perfect by any stretch but it's better than anywhere else on earth.

The economy is struggling currently and the recall election in California is fairly amusing but these are simply distractions from the well-oiled machine that is the United States. The economy will improve and grow eventually, because that's what it always does. And some guy who emigrated from Austria, smoked pot and took steroids openly, was quite a ladies man in his day while even having some sort of show business career AND is married into the Kennedy family might well wind up the next Republican Governor of California. What better theater can anyone hope for? Best of all, even if he winds up Governor Arnold, California will still figure some way to get out of the mess they are in and the state and country will survive and thrive. Where else but in America? And the beat goes on.

NEXT MONTH

I have no regrets for dedicating this month to the very big picture, but I promise next month to get back to more current events. I did take quite a rash of you-know-what over my top 10 groups of all time and I will share some of those viewer comments with you.

ANOTHER OLYMPIC BRAIN TEASER

Last month people at least got off my back about the brainteasers being too easy and I hope to keep up the trend toward the more difficult this month. When I first read the following question I frankly thought it was amazingly difficult. The logic behind it is quite sound however. Let me know what you think.

In a 14 stage cycle race there were 100 competitors, among them "Crazy" Charles.

In all 14 stages "Crazy" Charles finished in the exact same position: 93rd. However, at the end of the race, "Crazy" Charles was declared runner-up in the competition: his accumulated time was less than that of all the other competitors except one, the champion.

Bearing in mind the fact that none of the 100 competitors withdrew from the race, how is it possible for "Crazy" Charles to finish second if he never even made it into the top 90 competitors?

Rather than torture you again by putting the solution to the problem days after the newsletter is sent out. Please give it some thought before bailing out and checking the answer. Click the following link for your solution.

http://www.afs-seminars.com/brainteaser_Aug2003.html

http://www.afs-seminars.com

Copyright 2003, Michael Gasior. All Rights Reserved.

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