Chris Sanders Seminar: The Illiquid Economy

Introduction

The working title of our seminar today is The Illiquid Economy. The title was intended to convey the sense of one of the most important characteristics of today's dollar-based international reserve system.

That is the role played in it by the proceeds of international crime. Why the use of the term “illiquid?” Simply because it is possibly the most important characteristic of cash generated from criminal activity. Until it can be moved into the legal economy, rather like Alice through the looking glass, its use and therefore its utility is constrained. Consequently, it is a highly illiquid asset. The numbers involved are very, very big. The US Department of Justice estimates that the annual volume of money laundered through the US banking system alone amounts to $500 billion to $1 trillion.

The UN estimates that the proceeds of organised crime worldwide are on the order of $1.7 trillion. A completely subjective guess on my part is that these figures are too low. Even so, $1.7 trillion is considerably larger than the GDP of the fourth largest economy in the world today, that of Great Britain.

This money at some point has to enter the banking system to have utility for its holders. If you imagine for the sake of argument that the banking industry earns net 1% on this volume, then one is looking at something like $17 billion in profits to the financial sector from this activity.

Applying a multiple of 20 to this gives you $340 billion in stock market value.

You can see immediately why we became attracted to this sector of the international economy. Imagine what happens if you can put a multiple of 50 or 100 on this number, and you begin to appreciate what the overused term bubble mania might really mean. For that matter, our estimate of a 1% net to the facilitators of the liquefaction of illiquid cash is also certainly a low estimate. Until it is laundered, it is next to useless. One would pay quite a bit more than a few percentage points to deal with that problem.

Quite apart, however, from the effects that money laundering might have on financial asset valuation, I have been struck by the close connection between narcotics trafficking, arms trafficking, and terrorism. This is talked about so much nowadays that it seems a rather trivial point. What is not trivial, however, is the documented history of American government involvement on both sides of each of these activities. In the time allotted today, I cannot go into this in detail, which you can find by attending our Spring Seminar and perusing the suggested reading list on our web site.

All I want to call your attention to today is the striking coincidence of American military activity with two natural resources and their transport: energy and narcotics. Indeed, each major post-Somalia military intervention has been in an area associated with narcotics production and/or trafficking.

Columbia we all know, Afghanistan and Uzbekistan produce most of the world's opium today, and Albanian gangs in the Balkans have been prominent in smuggling narcotics into Western Europe. I will address the energy issue presently. For now, though, the narcotics connection makes one wonder.

Is there more of a self-interst here than meets the eye?

As we proceeded to pull together the seminar, it became apparent that to understand this, one had to get at the raison d'etre of the economy, and to do that requires an understanding of the state's financing and particularly the role of debt in facilitating the state's extraction of wealth from its environment. I say environment rather than country or nation, because money is money wherever one finds it. We might therefore just as easily, and possibly more appropriately, have entitled today's proceedings The Extractive Economy. The state in every age has been in the business of extracting wealth from the population at large. The American economist Mancur Olson dubbed states “stationary bandits” as opposed to the roving kind of thieves that thrive in conditions of anarchy. The stationary bandit profits from an implicit contract with the population that gives him allegiance. In return for protection from other banditry, the population pays up. The population as a whole benefits from the fact that it can concentrate on making money rather than on matters of security. Olson's genius lay in his insight that this could lead under the right circumstances to the emergence of encompassing majorities in society prepared to share in the proceeds of the community's output in order to obtain the maximum long term return on the one hand; on the other hand that there practical limits to this. First, that this only works in the long run. What happens if, on the contrary, a ruling elite decides that it wants more now? Second, that in the process of social bargaining that inevitably accompanies any group activity there are inevitably free riders who will not cooperate.

Indeed, not only will they not live by the rules, but also they will forge alliances with other free riders to push the costs of compliance onto others. This problem is intimately connected to the idea of political legitimacy; that is to say, the unwritten compact between government and governed. John Laughland will be focusing on that this morning in some detail.

These are two important points to keep in mind during today's discussions.

Much of what we consider today to be modern, and therefore tend to accept uncritically, can seem very different when viewed through the prism of Olson's model.

The Power of Capital Concentration

Since the beginning of the last century, the institutional development of the modern industrial democracies has tended towards increasing centralization. This is true whether one looks at the monetary system, taxation, criminal justice or the development of markets. Centralization implies a concentration of control, and a shift (however subtle to begin with) in the balance of interests within the national community. Indeed, what I am arguing here is that monetary affairs are organised to serve particular interests, that the tax system is organised to serve those interests, that the markets are organised to serve those interests, and that the criminal justice system is organised to serve those interests. The rather vague term “those interests” will become clear, I hope.

The formation of the Bank of England in the late 17th century was in many respects a stroke of genius allied by fortune. The fortune was that Amsterdam's position as the centre for international finance had been undermined by the long war between Holland and Spain. This left the field open for that other great north European commercial power, England, to fill the gap. The genius was in the sleight of hand whereby the formation of the Bank enabled the monarchy, whose credit rating was highly speculative, to substitute for it the credit rating of the Bank and the investors who created it. In exchange, those investors received the right to a monopoly on currency issuance and became the nexus of the cash flows between the country and the commercial centre of London. Thus was central banking born, and the partnership between bankers and the state was institutionalised in such a way that protected the interests of both parties. Not insignificantly, this also facilitated the development of a British capital market thanks to the role that the Bank came to play as “lender of last resort” to the banks.

The way was thus cleared for real wealth to be accumulated in a traded equity market priced against expectations of future earnings and for the growth of insurance as an industry to facilitate trade.

On the other side of the world, a different sort of financial and commercial revolution was under way. The East India Company, which had been granted a charter to colonise India, organised and regulated the production of opium poppies in Bengal. The company organised and taxed the auction of opium.

Traders and entrepreneurs bid for it and opened markets in China in which to sell it. It is probably not an exaggeration to say that opium made possible the British conquest of India. Here too a partnership between the crown and commerce was forged. When the Chinese government, after years of protest, finally used armed force to resist the inexorable growth of its addict population, British armed forces kept the Chinese market open, gaining in the process the crown colony of Hong Kong. Ultimately over the years the consequence was the weakening to destruction of the Chinese state, whose legitimacy was fatally undermined by its inability to withstand foreign commercial penetration and the corruption of Chinese society by the narcotics trade.

The Importance of Institutional Arrangements

It is not our purpose here in the limited time available to examine the history of central banking, markets, or the narcotics trade. It is useful by way of introduction, however, to a discussion of the modern international economy, because it shows quite clearly how the issues today are not so new, the advent of the personal computer and Blackberries notwithstanding.

The British Empire was an edifice built on three pillars: naval supremacy, the ability to concentrate capital, and the legitimacy that comes from successfully enforcing a system of justice that allowed the enforcement of contracts, itself backed by the moral and ethical authority that resulted from its abolition of the slave trade. I don't think that one has to agree completely with the detail of this assertion or be blind to its many hypocrisies to get the point.

Today we live in an international economy dominated by another power, the United States, which is increasingly seen by many Americans as a New Rome.

This sort of thinking is no longer the sort of speculative thinking common to organs like the American Spectator. It is back on the agenda of the establishment press with a frankness and boldness not seen, I dare say, since 1914. The Americans, like the British before them, have prospered from a combination of military might, control over cash flows enabling the concentration of capital so necessary for the projection of both commercial and military power, and a legitimacy born of a commonly perceived commitment to democracy and justice. When you think about it, these categories are not so discreet. They are in fact highly interdependent, and a discussion of one makes little sense bereft of consideration of the others.

America's military power is widely considered to be invincible. It may well be so, but if that is true, it requires qualification. What the US is undoubtedly good at is fighting conflicts in which its industrial might can be deployed to full advantage. World War Two, fought against two other industrial powers, neither of which had the population or resource base that were available to the United States, is such a conflict. The Gulf War in 1990 and 91 is another. This characteristic of the American way of war not surprisingly finds expression in the bureaucracy that supports it. The Pentagon is the world's largest industrial concern, with an annual budget of over $300 billion and a military and civilian workforce of over 4 million souls. The military machine has organised itself in a way that was originally intended to provide desired weapons and materiel in the quickest way possible to the forces in the field. To this end, contractors do not compete for contracts on price. Rather, they compete on specification.

The military specifies a weapons system with a set of desired capabilities.

The contractors enter what amounts to a sort of beauty contest, in which they submit designs and ultimately prototypes that are judged on their ability to perform against the specification. Once a contract is won, the contractor is reimbursed for the cost plus a margin.

It is not hard to see how such a system can be open to problems, especially in peacetime when the absence of mortal threat may well make oversight difficult and problematic. In practice it has meant that military procurement has an inbuilt cost escalator for the simple reason that contractors make more money the higher the cost of the systems they sell.

Their bottom line is not a function of cost reduction and higher productivity. Success therefore becomes as much a matter of successful politicking as anything else. The American economist Seymour Melman recounts a visit to Rockwell International, with an assembly line workforce of 5000 workers, 4000 administrators, and 5000 engineers. It was not for nothing that Eisenhower's farewell address to the nation included an admonishment to beware “the military industrial complex.” Indeed, the old general's original draft for that speech had called it the “military industrial congressional complex.” He excised this more inclusive and undoubtedly more accurate characterisation after thinking twice about offending congress.

Contractors justify higher replacement costs when competing for new weapons systems on the basis that they will be more productive; that is to say that they will cost less to operate and maintain than those that they are replacing. In practice, to my knowledge, this has in fact never happened in the fifty-six years since the end of WW2. The consequence is a prodigious cost escalator. This has gone on for so long that it has seriously affected military readiness. The huge increase in sunk costs paid for new weapons systems leads to longer service life for equipment, leading in turn to more downtime and higher maintenance costs. All this significantly adds to the all in cost for procurement. Additionally, the practice of personnel rotation between government, the military, and the contractors, and industry leads to ample opportunities for conflicts of interest. Consider too the startling fact that the most significant contractor operating and providing accounting and financial control systems for the Pentagon is the largest aerospace weapons contractor, Lockheed. In what other industry would a contractor be allowed to manage a client's finances?

Although these are what you might call the direct costs to society for maintaining a military budget many multiples of that spent by any conceivable rival, there are other costs as well. One of the most significant is the damage that this effective government subsidy does to other firms in the subsidised industry. The result is a decline in firms' ability to compete with foreign industry and an increase in foreign market share in the US domestic economy. Automobiles are an example, but there are many others: machine tools, steel, computers, shipping and more.

American productivity growth has been in secular decline virtually since the Second World War, contemporary popular propaganda to the contrary notwithstanding.

American infrastructure spending, whether on roads and bridges, transportation, airports and harbours, electrical generation and transmission, or oil and gas refining and storage, has fallen over the years.

Accepting for the sake of argument the necessity of the military and the facts of its logistical and operational nature, the importance of finance to the strategic primacy of the United States becomes clear. The ability to control cash flows and to concentrate capital is paramount. The financial history of the United States can be told as the account of the struggle to consolidate this control on the one hand and the stubborn refusal to allow it on the other. The ayes had it in 1914 when the Federal Reserve System was created. I am not the first observer to note the confusing nature of the name chosen for America's central bank. One would not know from the name that the Fed is in fact a privately incorporated bank owned by its members.

However, it does not divulge the identities of those equity holders. You will not find them on the Fed's web site. From its name, the Fed would seem to be a government entity, although it is not. On the other hand, it has not been shy about claiming such status, as in the long running matter of taxes on its headquarters building in Washington DC.

As was the case with the Bank of England before it, the Fed was given a monopoly on the creation of currency, and was structured so as to concentrate financial flows between the country, which was a net lender, and the financial centres such as New York that were net borrowers. Much of the political impetus behind the Fed's creation appears to have come from the experience of the 1905 slump, in which JP Morgan single handedly stabilised the banking system and prevented a run on the banks from becoming a rout.

This was taken to mean by the proponents of central banking that the country needed a lender of last resort.

Not surprisingly, therefore, men close to Morgan were prominent in the Fed's early history. From inception, it was also close to its British cousin.

Morgan himself secured a monopoly on financing British wartime imports, as well as a monopoly on the marketing of British and French securities in the United States. The war was hugely profitable to the House of Morgan, and when the war ended, Morgan and those over whom he had influence were more than willing to support British policy as it related to the restoration of the international monetary stability under a sterling reserve system based on gold convertibility. The British attempt to restore convertibility at the pre-war dollar parity was doomed to failure. The men involved in making the decision to do so were aware of the problems, but thought that if the Americans would inflate, that this would validate the unrealistically deflationary level chosen to peg to gold. The British problem was straightforward enough. Organised labour emerged from WW1 with unaccustomed prestige and with tremendous political clout. The bloodbath in the trenches had both decimated the available peacetime workforce and fatally damaged the ruling class's prestige. Pursuing a deflationary strategy, which would have simultaneously allowed wages to fall with commodity prices was politically impossible. Wages could not fall; therefore, if Britain was going to be successful in restoring pre-war parity with gold in dollar terms, America would have to inflate.

The Fed and the Treasury could certainly not be faulted for trying. The result was a policy of easy money and debt accommodation on a heroic scale.

It failed, largely I think, because no one was fooled. Britain was hamstrung by the combination of both a labour market straightjacket and the massive material losses and damage to her prestige done by the war. The intent was clear enough, however. In the system that her Treasury officials devised, other nations would hold sterling reserves, but only sterling would be convertible to gold. The effect of this economically is to institutionalise a concentration of capital in sterling. What is important for the context of my talk today is to draw attention to the similarities between this and the Bretton Woods system that came into being after WW2. They are for all intents and purposes the same, with the important difference that the Americans, unlike the British, faced no serious rival for top spot.

In the long run the Bretton Woods system failed for similar reasons.

America, like Britain, if for dissimilar reasons, pursued a frankly inflationary policy that resulted under her Bretton Woods Treaty obligations in an accelerating outflow of gold from her reserves. It was precisely the fact that these were obligations “openly negotiated and openly arrived at” that served to wreck the regime of dollar convertibility. It was impossible to hide the outflow of gold.

However, the end of the convertible dollar reserve system that we know as the Bretton Woods regime did not, contrary to many expectations, result in the end of the dollar reserve system. Despite many forecasts to the contrary, the dollar not only retained its reserve status, but has if anything broadened it. The consequence is more than two decades of an international monetary system that has no anchor to anything. People said it couldn't be done. Yet not only has it been done, but by one standard at least has been a fantastic success. When measured by its efficacy as a tool for concentrating capital at the lowest possible rate, the dollar reserve system has done its job well.

To be truthful, I am not entirely sure that I understand this myself, but there are several reasons for this. One of these is undoubtedly the replacement of the transparent and open regime of Bretton Woods with one that is far more opaque. As we shall see later this afternoon, gold reserve outflows are no longer something that an interested observer can easily track, if indeed they can be tracked at all. Many people seem to think that the Americans have invented a perpetual motion machine in the dollar, but this is not the case. Like the military, central bankers value secrecy.

The derivatives market and very sketchy statutory reporting requirements mean that Americans today have a very hard time finding out how their gold reserves are managed. Transparency, never ideal to begin with, has been eliminated by changes in accounting practices and by the expansion of the remit of the Treasury's Exchange Stabilisation Fund. James Turk will wind things up for us today with a discussion of just what is going on with America's reserves.

A second reason for the dollar's “success” is the nature of the agreements underlying the contemporary international monetary system. You may not be aware that the articles of association of the IMF forbid any member state from making its currency convertible into gold. This was supported by the international trading system embodied by the General Agreement on Tariffs and Trade, which has become the World Trade Organisation. If you want to play, you have to accept the rules. With the collapse of the Soviet Union, the alternatives to joining the game narrowed sharply.

So what is the game? Well, for the dollar reserve system to work, all the major nations need to participate. If the EU for example were to announce that henceforth the euro would be convertible into gold at say, $200 per ounce, the dollar would in all likelihood collapse. The reason is simply that there is no incentive to hold reserves in a currency whose only backing is prospective stock market returns and the thickness of Alan Greenspan's document brief. Keynes and others saw this clearly in the 40s when Bretton Woods was being negotiated. Everyone has to play for the system to work.

How does one ensure that everyone significant will play? This is a complex question with a comparably complex answer that we won't answer completely now. However, the US has consistently over the years shown a predilection for dealing with the elites in the countries with whom it treats. It has also shown a marked penchant for drawing those countries into military arrangements and “security” treaties. The key treaties have been NATO on the one hand and the Japanese American Mutual Security Pact on the other. As a quid pro quo, the US has been remarkably relaxed about allowing key nations access to its markets. So you can readily see the connection between the international trading system and the international network of security treaties.

This leaves the operation of the International Monetary Fund and the World Bank to consider. They are not central to the system's operation, but are nevertheless important. The IMF was central to the operation of the Bretton Woods regime, in which it played the role of monetary interlocutor for those nations having trouble keeping to their dollar pegs. With the end of Bretton Woods, the IMF found itself out of a job. Staffed by able international university graduates, bankers and politicians, it reinvented itself. We shall see this afternoon in Anne Williamson's discussion of Russia just how this reinvented entity works. In short, however, I don't think that it is unfair to either the IMF or any of the locals with whom it deals to say that its role is to co-opt local elites in a process of asset sales and economic “reform” that bring the country in question into the international trading system on terms highly favourable to those elites and international corporations.

The 60s Changed More Than Music

When you put this all together, things begin to make some sense. The American military shores up its international network of alliances, bases and so on with a treaty system that allows access to the large integrated American market. At the same time American industry has itself become very close to the military through a national industrial policy that favours those companies with preferential access to government contracts. This analysis so far though is incomplete, because it has left out the most important part of all, which is the management of the American political economy.

In the late 1940s the newly formed National Security Council fretted about the ability of a democratically organised polity to compete with a totalitarian military industrial power like the Soviet Union. As far as I know, they did not arrive at a published conclusion on the matter.

However, by the late 60s the outlines of a conclusion had become clear. The staggering cost of the military required for global confrontation would not be met from savings, that is by increasing taxes, but rather by borrowing.

Johnson's guns and butter strategy for prosecuting the Vietnam War was matched by the institutional reforms of the so-called “Great Society.” Unfortunately for him the military itself was still stuck in a WW2 mindset and was attempting to fight a major land war in Asia with a conscript army.

As the cost of the war mounted, gold flowed out of American reserves. As the body count rose, protesters flowed into the streets.

The defeat in Vietnam, violent urban unrest, the humiliating closure of the gold window, and the inflation that took off like wildfire forced a major rethink in America. There were many significant results. The military eliminated conscription and created an all-volunteer force. At the same time, urban and state police forces cooperated with the Pentagon in the creation of militarised police units (so-called SWAT units). Army intelligence already had a long history of local operations and cooperation with local police forces. This took that one step further. By the middle 80s the criminal justice system had begun to adjust to this change with the introduction of the first asset forfeiture legislation that effectively suspended habeas corpus and made the search of property and the seizure of assets considerably easier. So easy, in fact, that by 1990 forfeiture proceeds had become a major source of revenue for a number of urban police forces. The criminal justice system was also reformed with the systematic use of private contractors to operate prisons. Indeed, as a result of the foregoing changes in operational and legal method, the prison population soared. From some 200,000 incarcerated souls in 1970, America's prison population has grown to over 2 million today, with more than 4 million more “in the system” through probation and parole programs.

Corporate America responded to the challenges of the 70s in several ways.

One was to create political action committees that allowed the corporation to mobilise the voters on its payrolls to influence both the selection of legislation and its outcome. It was in this period that the use of employee stock options began to grow significantly, an issue that we will hear more about today from Walter Cadette in his examination of corporate profits.

American industry began the long process of consolidation that continues today.

Citibank's invention of the CD in the late 60s had already begun the process of freeing banks from dependence on their depositors, and launched the phenomenon of wholesale banking. Technological changes in the form of cheaper processing power made possible by making economic the unbundling of financial instruments into their theoretical components, giving birth to the derivatives markets. The advent of derivatives intersected with a friendlier regulatory environment and closer industry-government cooperation. As government, that is to say the taxpayer, took on the cost of insuring corporate and financial failure, banking regulators took steps to shore up banks' capital bases by statute. The result was the first Basle Accord that imposed for the first time risk based capital adequacy guidelines. Not specifically associated with the Basle Accord was the quid pro quo in America, in which the regulators endorsed self-regulation of the banks' derivatives books, so long as they operated appropriate risk management programs. A result of this was to give a significant competitive edge to those American money centre and investment banks that made markets in derivatives. The rest of the industry had to come to them for product, and those that didn't faced extinction or acquisition. At the same time, the private real estate industry began to face competition from the Government Sponsored Enterprises, especially Fannie Mae and Freddie Mac. This has been tough competition, because the agencies enjoy a decisive funding advantage due to the fact that the market prices their debt preferentially thanks to the belief that they are actually guaranteed by the government.

Leverage Makes the System Work

The point of this rather breathless enumeration of the wonders of modern life is simply to point out the interconnectedness of these developments.

What they collectively represent is a very efficient reform of the strategic nodes of the American political economy in such a way that ownership and control were consolidated, competition eliminated, control over cash flows tightened, transparency obfuscated, and the mechanisms of enforcement strengthened. Absent this discussion so far has been analysis of some of the costs.

The US economy today has a debt to GDP ratio of 280%. Gross derivatives exposure is on the order of $40 trillion, or 400% of GDP. Many take comfort from the fact that most of the debt is categorised as private sector, but this is not exactly true. Government Sponsored Enterprises are classified as private sector in spite of their clear public sector affiliation. The GSE's alone have gross liabilities of over $2 trillion, or 20% of GDP, and this does not of course include their derivatives books, which we unfortunately cannot examine. This amounts to a debt to equity ratio of around 33 to 1, compared, say, to Citigroup's comparable ratio of 5 to 1. Although it is true that the government in recent years has boasted a cash flow surplus thanks to windfall, bull market tax receipts, this too is open to question.

Quite apart from the fact that the surplus exists due to the inclusion of the present surplus in social security funds, the government's own accounting systems are in such a shambles that it is simply impossible to know how much money it spends and on what. The situation is particularly dire at the Pentagon, whose own internal audit concluded that in fiscal year 1999 alone that agency could not account for $1.1 trillion in transactions.

You will recall that Lockheed, which was awarded the prime contract for the Joint Strike Fighter only two weeks ago, also operates many of the Pentagon's accounting and financial control systems. However, it is not just the DOD. Across the government, most of its 24 agencies and departments have problems of this sort, not excluding the Treasury itself.

The point about the debt is that the US economy cannot grow without balance sheet inflation. As the balance sheet bloats the importance of controlling cash flows increases. The point too is that the economy is far more centralised than most observers either know or are prepared to admit. In a particularly telling development, Congress last week passed legislation that will allow Ginnie Mae to securitize privately originated mortgages for the first time. With the GSEs leveraged 33 to 1, this will allow the further expansion of the real estate related balance sheet this time under the direct guarantee of the taxpayer. Ginnie Mae, after all, is nothing more than a department of HUD. With interest rates at 2 percent and money growth in the strong double digits, it is clear that there will be no shortage of liquidity to interfere. Real estate accounts for around 14% of GDP. It is fast becoming a government monopoly. This is interesting for a variety of reasons, and not just the obvious. Real estate is a favourite tool for money laundering, not least because it is possible to move large amounts and because there is no enforcement mechanism for identifying money launderers.

Controlling All the Cash Flows

And so we come back to where we began. The proceeds of crime are just another source of cash. Crime is an attractive business either because you are forced to be a criminal because other avenues are close to you, or because the arbitrage between operating legally and operating illegally is lucrative enough to make it worth your while. Obviously annual cash flows of $500 billion and higher cannot occur without the knowledge and at least the tacit sanction of the regulators and the central bank through which the money has to move. If you doubt this, consider the fact that Citibank was found guilty of helping the Carlos and Raul Salinas move scores of millions of dollars generated by narcotics trafficking out of Mexico, and that the most senior management in the bank knew about it and condoned it. Citi was fined, I believe, but that was that.

The Bank of New York was caught facilitating millions in dollars worth of Russian criminal profits. Considering that the IMF was lending billions to Russia at the same time, money that has just gone missing you might think that more drastic disciplinary action might be taken. Not on your life.

In an economy as highly geared as the US economy is, it is too important a source of money to be cut off. From our back of the envelope calculation earlier, one can readily see that to cut off money laundering would invite a stock market crash.

This brings us back to Olson. As marginal tax rates rise, so do the returns for non-participation. Using taxpayer guaranteed insurance, for example, to backstop private finance for public housing is nothing but a way of structuring a cooperative framework for free riders, who are in effect extracting the equity from the communities that they are investing in.

From a financial point of view, this is not all that different from selling narcotics into a community and using the proceeds to finance a land deal.

At some point, so many people become free riders that the net returns from economic activity are negative.

As we said at the beginning, money is money, or as the Roman emperor Vespasian commented, “Money doesn't smell.” When the task at hand is to make the money sweat, every resource available is to be used. You might also think that taxpayers, whose credit is making all this possible, would think twice.

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AUTHOR NOTE: Chris Sanders has been a banker and asset manager for 21 years, and is a visiting professor in international finance at the School of Public Administration at the University of Göteburg in Sweden. He has degrees from in political science from Duke University and Arabic literature from the University of Michigan. He began his financial career as a private banker in Saudi Arabia in 1979. Since 1984, he has lived in London and worked in the international investment management industry. He founded Sanders Research Associates in 1996 and since 1998 has been a director of WorldInvest and head of its currency and fixed income investment business.

(c) Copyright http://www.sandersresearch.com, republished with permission.

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