In 2000, between the March launch of Vividence.com at a poshed-up Exploratorium and the November bankruptcy of Pets.com, it was possible most weeks to attend serious-minded presentations and panel discussions on how the “New Economy” would forever gild San Francisco.
These events, everyone knows in hindsight, were signs of impending apocalypse.
So I was in a fretful spirit last week going to hear a talk by Alex Maasry, a researcher with McKinsey & Co., a management-consulting firm that advises Fortune 500 companies.
Maasry was at San Francisco Planning and Urban Research, a smart growth think tank, to explain how prosperity will likely continue here and in the rest of the U.S., despite warnings from economists worldwide that America is at risk of a currency devaluation.
This is of special interest to San Francisco, since the terrible things that happen when a national currency enters free fall — exploding interest rates, plummeting real estate values, business failures, inflation, joblessness, despair — would hit San Francisco especially hard because so much of the region's wealth is tied up in home prices that would disintegrate in such a scenario.
After an hour of hearing reassurances from Maasry about our sustained prosperity, I came away with the same case of nerves I used to get when people fawned about the New Economy.
In the spirit of SF Weekly news you can use, we're recommending locals stock up on plastic sheeting, duct tape, bottled water, freeze-dried food, and, we may as well say it: loaded firearms.
This might really be the Big One.
We may not seem to be reliving a Year 2000–style fool's paradise of dot-com launch parties and stock-option-millionaire secretaries. But when one regards our current mild prosperity in the context of the economic storms around us, the city does seem to have the same sort of eerie vibe many of us recognized seven years ago. Think of San Francisco's planned 80-story Rincon condo tower amid a supposed national housing collapse, or America's worst-in-history consumer debt boom that seems to bother no one, or the crippling expense of the Iraq war, which our president says is benign.
The U.S. now borrows more than $2 billion per day to finance imports and to service our historically high $3 trillion foreign debt. These unusually large differences between what we earn in exports and other foreign income, and what we pay out for imports and on foreign-held debt, have economists worried. If this deficit gets big enough, it's comparable to a deeply indebted person whose only access to new credit is in the form of high-interest loans. In the case of a financially beleaguered nation, nobody wants to buy treasury bills denominated in that country's currency, so the currency's value declines. In this spirit, the dollar has lost 65 percent of its value against the euro since 2000. And Maasry said during last week's SPUR presentation that the greenback could stand to lose 30 percent more of its value against other major currencies.
But the thing about global currencies is that their value doesn't necessarily move gradually. If buyers believe their investment is going to lose value tomorrow or next year, they're apt to sell en masse. These kinds of selloffs shook Great Britain in 1992, flattened Latin America in 1995, and devastated Asia in 1997. Economists now worry that the United States could be in for a similar debacle. Few Americans worry, because during most people's lifetimes the United States has uniquely avoided economic catastrophe.
But people who live outside of our economic comfort zone are worried.
This week's overseas edition of Newsweek ran an 800-word essay by a Yale professor with the headline “Beware the Weak Dollar,” and warns that the United States “could have the worst of all worlds — inflation, high interest rates and recession.”
Chinese officials have been quoted recently making veiled threats that the country might sell off dollar-denominated investments, causing U.S. currency to rapidly lose value. A Sept. 4 report from the Economist Intelligence Unit says the U.S. faces a “moderate” risk of “collapse” of the dollar. Dow Jones MarketWatch headlined an August story “IMF Staff Still Worried About Sharp Dollar Fall.” And a recent Voice of America report announced the dollar was seen as weak and poised for further decline, quoting John Kenneth Galbraith's son, who's also an economist, as saying the dollar, like currency everywhere, “is subject to a shock, a crisis, a panic, a collapse.”
But in the spirit of 2000's nervous economic optimism, Maasry said during last week's SPUR presentation that there's little risk of a real dollar crisis. Foreign governments love buying reliable U.S. Treasury bills as a safe harbor for national reserves. And a steady depreciation of the dollar's value might actually help the U.S. by making our goods and services comparatively cheaper, thus boosting sales of U.S. products.
This idea is similar in spirit to statements currently coming from George W. Bush that the dollar needs to lose value against China's yuan in order to make America more competitive.
Frighteningly, the last time I remember hearing assurances that currency depreciation might be good for local business was in December 1994, when I covered Mexican financial markets for Dow Jones. The country's finance minister, Jaime Serra Puche, had been urged by business leaders to depreciate the peso to make their products more competitive with foreign goods.
Serra Puche obliged. On Dec. 20, the peso's value was allowed to drop 14 percent. Panicked foreign investors, who saw peso-valued stocks and bonds losing value, sold en masse. Foreign owners of special dollar-denominated Mexican bonds unloaded their investments for fear the country wouldn't be able to make good on them. By Dec. 31 the peso's value had fallen by 42 percent compared to the dollar.
The Mexican currency's value continued its slide through the next year. To prevent a complete peso collapse — and the hyperinflation and global economic isolation that might result — the Mexican government raised interest levels to the point where rates on typical home loans topped 100 percent. Homeowners, most of whom had variable-rate mortgages, quickly owed vastly more to banks than their houses were worth, because their debt loads doubled while their property values plunged. Some people simply dropped off their house keys at the bank.
Variable rate mortgages aren't nearly as commonplace here. But the sort of giant interest rates that follow a currency collapse could still produce a foreclosure bomb, bring property sales to a standstill, drive down house prices, and cause many Bay Area homeowners to owe banks more money than they could ever hope to recoup.
When this happened in Mexico, businesses, even healthy ones, could not afford credit, and shut their doors. Much of the middle class slipped toward poverty. The poor became more destitute. Wages and ordinary people's buying power didn't recover to pre-1995 levels for years.
This might not happen in San Francisco — the U.S. has more lines of defense against such a catastrophe than Mexico did. But this is exactly the type of scenario economists worldwide now fret about.
Somehow, America and the Bay Area were unscathed by the 1995 Latin American financial crisis, nearly untouched by the 1997 Asian financial collapse, made a reasonably smooth recovery from the 2000 dot-com meltdown, and now the Bay Area- Traci Vogelremains relatively unharmed by the nationwide real estate decline. Perhaps we're protected by the ingenuity of Bay Area entrepreneurs, combined with America's massive domestic consumer market, and this country's ability to use political, economic, and military might to encourage other countries to invest in our ongoing prosperity. Maybe we'll be forever immune to the kind of economic peril that people the world over are accustomed to.
Or perhaps it's time to party like it was 1999.
Faced with California's crises in transportation, government finance, housing, environmental preservation, and clean water, San Francisco Assemblyman Mark Leno chose to tackle the problem most dear to his constituents: scarce supplies of birdseed and horse bedding.
You read right: Leno really thinks it's worth his and his staffers' taxpayer-salaried time to fight for pet supplies.
“California farmers are currently shut out of a multimillion-dollar industry because we don't allow farmers to grow” plants primarily used to bed horses and feed birds, said Leno, referring to Assembly Bill 684, which just passed that body and now awaits a Senate vote. “Our enterprising and innovative farmers should not be hindered by senseless regulation.”
Strangely, in pushing his bill, Leno hasn't mentioned hungry birds and sleepless horses. That's because he's talking about industrial hemp, the horridly overhyped non-psychoactive cousin to marijuana, which potheads falsely claim will save the world, and which farmers who've actually grown the stuff say is a waste of time.
Carole Migden, whom Leno is attempting to replace as our local state senator, isn't one to be outdone pandering to stoners. She introduced legislation to forgive taxes for medical marijuana dispensaries, which was unanimously killed in committee in July.
Senators “didn't have the guts to vote for it,” explained Migden aide Tracy Fairchild.
Aide Eric Potashner added that Migden's office will carry the bill next year after a closer study of the medical pot market.
Has our local state Senate race become the site of a drug turf war?
And more pressingly: Given it's unlikely that stoners actually get out of bed and vote, are they really worth fighting over?
Industrial hemp – think pre-nylon rope – is an ordinary cash crop with about the intoxicating power of alfalfa. Nonetheless, U.S. law bans the stuff based on the idea farmers might mix the identical-looking psychoactive marijuana plant with industrial hemp. This prohibition is silly, I agree. But I take issue with the claim by potheads and their hangers-on that this is a Very Important Issue.
Leno pushed a version of this bill last year to Governor Schwarzenegger's desk, where it was vetoed. This year's edition is less ambitious — only farmers in Yolo, Kings, Imperial, and Mendocino counties would grow the hemp, whereas last year it was the whole state. But the rationale is the same. Leno and his body-oil-slathering, scratchy-clothes-wearing hippie allies claim there's market for hemp as a raw material for paper, automobile parts, building materials, shampoo, plastic, food, and textiles.
Rather than relying on the agronomy and business-development expertise of potheads, as Leno apparently does, SF Weekly two years ago spoke with actual farmers and agricultural economists with expertise in growing hemp in Canada, where the crop is legal. In 2000, some California investors convinced a few farmers in Manitoba that hemp was the next big money crop. It wasn't, and the farmers found themselves sitting on product whose most important buyers were horse and bird fanciers.
In the name of sparing California farmers such a boondoggle — and of sparing taxpayers Migden's idea of handing pot peddlers a massive state subsidy — I urge you to just say no to Leno and Migden's drug war.