Too Much Borrowed Is Making Us Blue : Wall Street: The dice are no longer hot and the awful truths are becoming apparent to a no-longer-competitive America.
When the stock market plunges 190 points in one day--and 154 points in the span of 65 minutes--on news of a bad deal gone awry, then something more than just that one deal is wrong.
And when, after a weekend of international telephone calls and global handholding, the market rallies by 88 points, with blue chips climbing, more stocks losing than gaining overall and troubled junk bonds sinking--then that same something is still wrong.
What’s wrong is no secret: We are living on borrowed time. These are days of phony, soap-bubble prosperity. Wall Street is America’s Potemkin village. A paper-thin veneer of economic well-being covers over the deep structural problems of an economy burdened by too little real productivity and too much assumed debt.
The gyrations of the stock market only serve to remind us of what we already know. That’s why the slightest whiff of smoke can so easily spook the crowd to rush for the exits.
As in any gambling casino, as long as the dice are hot, no one wants to be the first one out. And once they go cold, no one wants to be the last one in. Call Americans greedy if you will, but they are not stupid. And in our hearts and stomachs, we know the hard, uneasy truth: Our companies are not meeting the test of global competitiveness; our prosperity is borrowed, not earned.
No one knows this better than American managers. According to the results of a survey of Harvard Business Review readers, which will appear in the November-December issue, top managers think that they are the cause of America’s serious, and worsening, competitiveness problem. A full 96% say that the United States is falling behind our Asian rivals; of that number, 85% say the problem is getting worse, not better. Sixty-two percent say that their own industries have a competitiveness problem; of those, 90% say it is getting worse.
One solution, endorsed by 74% of those readers surveyed, is a sliding scale on capital gains, with a rate as high as 50% on short-term investments and as low as zero on investments held for 10 years or more.
The message is clear: We need to begin to remedy this out-of-whack market, fueled by takeover excesses, that both terrorizes companies and mortgages the country’s economic future.
It’s a message that needs to extend beyond the borders of Wall Street. Before there even was a United States, there was a saying: “He that goes a-borrowing goes a-sorrowing.” On the same day that the stock market rebounded enough for Americans to breathe a collective sigh of relief, the federal government missed the Gramm-Rudman-Hollings target for reducing the grotesquely bloated federal budget deficit, triggering an automatic across-the-board cut. The United States remains the world’s largest debtor, depending on Japan, our arch-competitor, for 30% of our debt financing. The trade deficit with Japan defies the devaluation of the dollar against the yen--while invisibly reducing American’s standard of living. And as individuals the American people remain at the bottom of the list of savers among the industrialized nations of the world.
We are consuming, borrowing and leveraging ourselves into competitive decline. The question is, if we all know what the problem is, when will we get to work on the remedy? Only after the Wall Street bubble finally bursts?
