Vol. 23  No.7

March    2000

 

 

Last month, we focused on maintaining personal family lifestyle.  This month, we want to take a “world view” to consider the effects of Y2K on people in other countries and on the world economy.  Writing a newsletter about a future world that nobody really knows about is tricky to say the least.  First one should have a grasp of the way things are supposed to work under normal circumstances.  From there, departures from the norm caused by the millennium bug can only be guessed at.  And to add insult to injury, we have to extrapolate the effects of these changes from the norm and the most productive response of our readers to them.

 

First, let’s look at the bright side as if only minimal effects of Y2K were felt around the world.  Since World War II, the most advanced nations of the world have been drawn ever closer together by mutual self-interest. Some 60 years ago, the United Nations Charter was signed and the Marshall Plan inaugurated peace time aid to rebuild the European economy.  50 years ago the North Atlantic Treaty Organization was signed.  40 years ago, the planning for the European Common Market began.  For decades the South East Asia Trade Organization (SEATO) together with Australia’s and New Zealand’s ANZAC have sought to enhance and expand trade among Asian countries.  In more recent years the General Agreement on Trade and Tariffs (GATT), the North American Free Trade Agreement (NAFTA) bound Mexico, Canada, and the US together.  Ten years ago the Berlin Wall came down, unifying Germany and bringing countries in Eastern Europe into the trade sphere with Western Europe.  At about the same time, South American countries formed their own trading alliance, and China began trading in earnest with the West.  What does all this mean?

 

World markets have become too interdependent to fail for very long IF all nations work together to overcome the effects of Y2K.  Trillions of international trade dollars and hundreds of millions of jobs that effect the quality of billions more human lives are at stake.  Up until late 1999, because the millennium bug was deemed to be “the American disease” by most of the other nations of the world, it was given scant attention against the backdrop of more pressing political and economic needs.  Any Y2K problem will be met with a high degree of cooperation between countries to contain the damages and to assist each other so as to maintain trade relations.  They must succeed or face economic and political turmoil.  America will be central to these efforts.

 

The only time in history that the entire world confronted problems of this magnitude came in the aftermath of World War II.  Early on American leadership recognized that our recovery from the wartime economy and return to prosperity was directly linked to the recovery and political stability of our pre-war trading partners, friend and foe alike.  Before the rifles had cooled, we had begun sending food, supplies, military and civilian personnel, money, and credit overseas.  In the 1940s, while McArthur was bringing a new constitution and democracy to Japan, Eisenhower was forming NATO, General Marshall, as Secretary of State had implemented the Marshal Plan, Curtis LeMay’s Airlift was shuttling food by air past Russia’s blockade into beleaguered Berlin.  On a smaller scale, the largess of the American taxpayer and influence of our government could be felt on every continent.

 

The whole world changed politically and economically.  The United Kingdom began dismantling its world-wide empire.  Millions, including Mahatma Ghandi, were slaughtered when two large segments of its Northern territory became Eastern and Western Pakistan.  Germany was divided between East and West Germany.  Millions of Chinese fled the Chinese Communists’ run-away inflation to start a new nation in Taiwan.  North Korea fell under the political influence of China while South Korea struggled for independence as a new democracy.  South Africa tried to separate the races.  Y2K could be a unifying event.  Or it could bring political and economic chaos.

AMERICANS WILL LEAD THE POST-Y2K WORLD ECONOMY . . .

 

Harking back to the post-war period, in the US, a way had to be found to deal with the millions of returning G.I.s who were essentially out of work once they’d been discharged from service.  The government instituted a short term financial relief program which called “52-20”.  It paid returning servicemen $20 a week for 52 weeks.  Jobs were scarce.  The G.I. Bill funded low-cost loans to enable veterans to start up new businesses, buy homes, and enter college.  This helped, but the thing that gave the American economy the biggest jolt, creating the most new jobs, was the rebuilding of the rest of the world.

 

The grants and loan credits we provided were recycled back into purchases of American goods and services, putting millions of young men back to work, generating billions of dollars of purchasing power that got our economy back on its feet.  The phenomenon, termed the “post-war boom”, became self-perpetuating.  It fed on itself and spread from country to country.  The example set by the American economy has influenced the politics and economics of most of the countries of the world, most recently in Asia.  The lessons learned in the last half-century can serve us well as we enter the new millennium.  What are these?

 

1.  Our national and personal prosperity is directly linked to that of the world of consumers to whom we sell American goods and services.

 

2.  It is in our best national interests to invest hundreds of billions of dollars in aid to help them get back on their financial feet.

 

3.  The dollars that we send overseas to help stabilize the political and economic systems of our trading partners are returned many times over in creation of American jobs and rising incomes.

 

4.  When money we lend or gift is used to hire American management and technical know-how and to buy American products, it not only returns to us in payment for goods and services, but also gives American products a tremendous competitive edge.  Today, thousands of American companies derive a major percentage of their income in foreign markets.  American brands have become a status symbol in many areas.

 

5.  The contribution of Americans to the resolution of world-wide Y2K problems, and the foothold this is going to give us in foreign markets is going to be seen in the “bottom-line” profits of American companies for the next half century.  It heralds in a new epoch of prosperity in both real estate and the stock market that will dwarf that of the 1990s.

 

Money moves in giant circles.  For 35 years, the American consumer has been the force that has driven the world economy because we have bought more products from foreign sources than we have sold to foreign consumers.  It isn’t that people overseas don’t want our products so much as the fact that they either can’t afford them, or their government restricts their availability.  Japan provides an excellent illustration of this.  They make terrific, low cost products that are snapped up by Americans.  The money made by the Japanese is loaned back to our government via their purchases of U.S. Treasury bonds.  Money raised by the sale of these bonds is recycled back into the hands of the American consumer through various social programs and government subsidies.

 

Post-WWII America provides real clues to entrepreneurial opportunities for the near-term future.  An old adage says the best way to get rich is to “Find A Need And Fill It”.  In the 1940s, returning veterans needed housing, and those who developed land and built homes and apartments made fortunes.  One of these was Tampa’s Jim Walters who eventually became America’s largest builder of shell homes.  So did those who provided financing to all those eager consumers who bought these homes.  Those who buy, sell, and/or finance both “stick-built” and “factory-built” homes; or develop land to place them on, should do well as the world recovers from Y2K.  Fortunately, that’s what readers already know how to do.

IF COUNTRIES DON’T COOPERATE, Y2K COULD CREATE REAL PROBLEMS.

 

Y2K disruptions that have been deemed most threatening to the world economy by consultants are in four principal areas:

 

1. Power Generation and Transmission

2. Telecommunications

3. Transportation

4. Internal and External National Security

 

Loss of any one of these for a significant period of time would have devastating effects.  Without electrical power, we would have a complete breakdown of the infrastructure of any urban area in which it occurred.  No way to communicate via telephone, e-mail, radio, television, etc.  We’d experience malfunctioning traffic signals, rail and air transportation systems, local water and sewer utilities, heating, cooling, and refrigeration, businesses, factories, banks, schools and hospitals, medicare, police, emergency, fire, and social services, etc.

 

Without the ability to communicate other than by written or verbal means, the world would become an extremely inefficient place to live.  Think back to the old sailing days of the packet ships that took months to deliver mail from place to place.  How would modern businesses or governments be able to cooperate if they couldn’t communicate with one another except by physical mail?  How many times do you reach for a telephone, FAX, or computer to communicate with someone else?  Power plants, communication, national defense, settlement of financial accounts, the movement of aircraft, ships, trucks, and trains, world trade, and international relations all rely upon a functioning telecommunications system.  Without it, the wheels will fall off the wagon pretty fast.

 

It’s pretty hard to cooperate with someone with whom you can’t communicate.  And if telecommunications fail, cooperation between nations won’t happen.  If telecommunications systems transport information, transportation systems carry physical resources.  Parts and inventory, industrial and medical supplies, people, mail, food, trade goods and products, fuel, military forces, livestock, packages, etc.  Without fuel, no electricity.  Without electricity, no telecommunications.  Without telecommunications, no FAA or train operations.  Without these, no transportation.

 

National security is totally dependent upon all of the above.  Here in America, our neighbors, Canada and Mexico, have been our friends and two most important trading partners for half a century.  We aren’t threatened externally as are many other nations of the world.  In the past few years, Haiti, Somalia, Kosovo, Kuwait, Iraq, the Falklands, Granada, Ireland, Macedonia, Peru, Mexico, Indonesia, South Africa, El Salvador, and Israel have endured civil war, invasion, insurrection, and all out war.  Only by means of modern military weapons systems have these countries been able to maintain their political stability.

 

Without effective defense forces, the map of the world could change dramatically within just a few short years or months.  Take another look at the list of countries.  If their governments changed hands, it would affect mutual security pacts, trade relations, production of natural resources, essential and strategic materials, etc.  How could countries cooperate to resolve Y2K problems if they were besieged by either domestic or foreign aggression?

 

We share a world that is much more fragile than we think.  If our leaders are unable to function for any of the above reasons, all of the progress of the past half century may have been wiped.  Self reliance at the level of the individual, the community, the municipality, county, and State may be the key to surviving the next year or so.  We may never see our citizens ceding power to the Federal and State governments to the degree that it has been done in the past.  If Y2K brings very much misery to very many people for very long, we may replace all incumbent politicians at every level in 2000 with new leaders, if we hold elections at all.

NO MATTER WHAT HAPPENS, PEOPLE WILL ALWAYS NEED HOUSING . . .

 

As long as there has been recorded history, people have lived in housing of one kind or another.  Except for caves, housing has been man-made.  That means, in one form or another, people have bartered, traded, sold or surrendered the space  housing was situated on as well as the materials from which the housing was obtained.  After water and food, housing comes next in the pecking order of things that are essential to survival.  Being able to meet this hiearchy of biological need is the key to surviving and prospering in the Y2K world.  Fortunately, readers of this newsletter already know how to do this.

 

Contrast glimpses of a world in which things are either “good” or “bad”.  In a “good” world, the global boom will make things get better and better for more and more people in more and more countries.  As demand for American goods and services expands, more people will want to “move up”, selling their old houses and buying new houses.  That will open up all sorts of opportunities for all the people who either directly or indirectly create housing.  A lot of people will make money.

 

Las Vegas is an excellent example of what happens when money comes into an area.  For 50 years, it has enjoyed continuous expansion of business, infrastructure and housing.  To expand a city, you must first have demand, then land, then roads, then land developers, then water, sewer, and utility lines, then builders, then residents, then commercial development, then recreational facilities.  All of these require a financial infrastructure that can drain the deposits of investors and lenders from around the world.

 

Think of all the jobs that this kind of urban expansion creates from start to finish.  For every new hotel room, four jobs are created.  Those four jobs represent 6 additional people who need housing, schools, shopping, etc.  This in turn creates more jobs.  America will lead the global boom because we will provide both a haven for wealth and opportunity to people all over the world the economies of under-developed nations improve and their citizens increase their ability to buy American products and services.

 

On the other hand, suppose markets collapse and world trade dries up?  Suppose the world economy goes into a deep recession?  As world trade contracts, the priorities of people will focus more sharply on the essentials.  Areas with the most opportunity will attract growing populations at the expense of others.  While many areas of the world may be engrossed in trying to deal with internal and external economic and political problems, America’s purple mountain majesties and fruited plains from sea to shining sea without external threats will best be situated to handle Y2K problems.  Our head-start on fixing Y2K problems will enable us to recover first economically.  When the pent up demand caused by Y2K finally explodes into the markets, everyone with something to sell is going to make a fortune.

 

For those who already have rental housing, the best course of action is to sit tight and wait for better times if possible.  For those who are just getting started, the best choices will be leases to control property and income, or Options to control future possibilities.  Both offer low cost, low risk ways to deal with uncertainty while taking advantage of any market up-swings or temporary down-turns with minimal investment.

 

If you are one of the unfortunates who has been placed “at liberty” by your employer or the economy, one of your first priorities is going to be to secure shelter for your family.  This would be an excellent time to relocate to one of the fast growing areas of the sunbelt.  Buy, or rent, new living quarters by bartering management and maintenance skills in return for a Lease/Option. Once things turn around in a few months, these arrangements are going to create fortunes for those who take advantage of the “down” market to start building equity.

 

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