US shoppers shopped, until they dropped

You have to give them credit for doing the patriotic thing. American shoppers kept their economy going through 9/11 and the slump in industrial demand. As CNN Money puts it, American consumers ignored a recession, nearly 1.8 million job cuts and other horrors, as they tirelessly spent money in the past year, and much of that spending was fueled by borrowing.

Alas, now there is evidence that the American shoppers, who shopped until they dropped, may really be out cold. Consumers seem "to finally be losing their stomach for debt, meaning they will likely need to see real economic improvement if consumer spending growth is to continue with any strength." Consumer confidence sustained one of its biggest drops on record in 16 years of polls in the week ended Oct. 6, falling to its lowest level since January 1996, according to the ABC News/Money magazine Consumer Comfort index.

According to CNN Money, American consumers are finally watching their wallets, after propping up the US economy with all that borrowing and spending. Maybe, it was simply because the American shoppers have bought all the DVDs, microwave ovens and Palm Pilots they will ever need in this generation. They might have also lost their desire for the latest model cars or the speculative mood for a second vacation home.

That’s what some economists call, the saturation effect. Like the rest of this planet’s mortals, Americans may have adopted a back to basics mode. That’s the rational thing to do under present circumstances. But that’s a scary thought for the world economy.

Not too long ago, only the executives of the profit-hungry corporate world were being blamed for the depressed demand. Now, Stephen Roach of Morgan Stanley observed, "the weakness in the current period is shaping up to be broadly based." What’s more, Roach is talking of a "likelihood of a marked deceleration in consumer demand. September’s weakness in vehicle sales, in conjunction with disappointing department and chain store purchases, puts consumption on a very weak trajectory entering the fourth quarter."

Why is the mood of the American consumers important to us? Simply put, it is because they buy most of our exports. If it is true that they have decided to stop their legendary profligacy and start acting like responsible custodians of Mother Earth’s bounties, who will buy our exports? The United States, as a country, is not only the last remaining superpower on Earth. Its domestic economy is also the main engine that drives the world economy.

Mr. Roach estimates that "at market exchange rates, the US has accounted for 64 percent of world GDP growth since 1995; on a purchasing power parity basis, that contribution is closer to 40 percent. No matter how you cut it, since 1995, the United States has accounted for twice as much world GDP growth as its share in the world economy might otherwise suggest."

This is why American Presidents and trade negotiators act as if they owned the world. They do. Somehow, because of the inability of the rest of world to rev up their domestic economies, preferring to take the easy way of depending on the American market, we are hostages to the ups and downs of the American economy. Even China, with its untapped potential market that is on paper, three times as large as the US, enjoys a healthy trade surplus with the US. If the American consumers start counting their pennies, China will suffer a considerable economic dislocation.

But the time has now come when even an American President couldn’t use the old dependable threat of war to reverse the economy’s downward direction. The great Alan Greenspan has just about used up the tricks in his bag of monetary magic and is starting to look as helpless as everybody else.

And it seems that there are no real safe havens. It is simply back to basics for everyone. Maybe, just maybe, globalization will be moderated as countries look into the inner strengths of their domestic economies to survive in the meantime.

Dangerous Washington DC

Still about the United States, I am worried about the safety of my eldest sister and her family. She and her family are long-time residents of Washington DC. Now, the capital city of the world’s only super power has become as dangerous as Lamitan in Basilan. First, the mosquitoes carrying the dreaded West Nile virus killed birds around Rock Creek Park, near where she and her family lives in the Chevy Chase area. Then they found mosquitoes carrying, for heaven’s sake, malaria. That’s so, well... Basilan.

Worse, there is a crazy sniper who has killed seven or eight people so far, leaving police helpless. Earlier, there were street skirmishes during the World Bank/IMF meeting. Washington DC has become a dangerous third world city. Come to think of it, DC was the nation’s murder capital, not too long ago. George W. Bush should call Ate Glo and have a long talk about how to put up a "strong Republic." Our embassy should issue a travel advisory warning our citizens about the dangers of travelling to Washington DC.

Cable television

Now the shoe is on the other foot. Last year, when Star TV cut off Sky and Home Cable while discussions over financial matters were on going, Destiny Cable undertook an aggressive subscriber drive. They didn’t see the problem of Sky and Home as basically their problem too. They saw it as an opportunity to profit at Sky and Home Cable’s expense.

Now they are crying all the way to Momma. They got the NTC Commissioner to write Star TV a letter, like a schoolboy who can’t handle his own schoolyard problems. Funny that NTC’s Eliseo Rio now expresses fear that cutting off Destiny "may result to monopoly and unfair competition considering that it may give undue advantage to the other major CATV service provider." He should have written that letter too last year when Sky and Home were in trouble and there was danger of Destiny Cable becoming a monopoly. Why the favoritism now from the regulator?

Destiny Cable should realize that the cable business is a tough one and not one for the faint hearted. This is why even the industry leaders, Sky and Home, are in financial restructuring. Of course escalating programming costs are a major concern. Costs are rising in dollar terms and a depreciating peso magnifies those rising dollar costs even more. Yet, it is difficult to pass that cost on to subscribers, the way phone companies pass on forex costs.

The thing to do is to negotiate with foreign programmers for a special third world rate that would take into account our special circumstances. Yet, it would also be difficult for them to give us special rates if local cable operators continue to rip them off by declaring smaller than actual subscriber base. That was the problem of Sky and Home. As market leaders, they have to report the right numbers, translating in higher programming costs compared to smaller operators who can more credibly fudge their numbers.

And one more thing. It is silly for the cable association to threaten Star TV with a total boycott. Remove the imported programs and subscribers will have no reason to pay. You can‚t threaten the likes of Star TV with congressional investigations and NTC sanctions either because they are not even based here. The thing to do is strike a modus vivendi that would include reporting subscriber numbers honestly. And the cable industry must educate its market that if they want world class programming, they must be willing to pay the price.

Economy, up close and personal

This guy is walking with his friend, who happens to be a psychologist. He says to this friend, "I’m a walking economy."

The friend asks, "How so?"

"My hair line is in recession, my stomach is a victim of inflation, and both of these together are putting me into a deep depression!"

(Boo Chanco’s e-mail address is [email protected])