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February 5, 2002

Excess Capacity Highest Since 1982 Recession

According to Rudi Dornbusch, economics professor at MIT, additional time will be needed to get the economy back to the levels of the past decade. He says today's excess capacity is the highest since the '82 recession...a recession that resulted from massive cutback in inventories by companies trying to rebuild profitability in the face of strong price competition and the high costs of accumulated debt.

Dornbusch says the rest of the world offers bleak prospects for a turnaround...Japan is in a permanent recession. Europe is in a slump from an accumulation of supply-side strangulation and policy stubbornness.

And emerging markets are mostly on the ropes from over-borrowing and reform fatigue. That leaves the U.S. consumers, who have done their best to borrow and spend, due to deflation in retail prices (prices slashed 50% to 75% this past Christmas shopping season). And while the consumers aren't about to cave in, they're also not about to drive a vigorous upswing in the face of rising job losses.

If an upswing doesn't come, the borrowing that has kept the U.S. going will go sour, and tying our upswing to a monetary policy alone is risky. The answer is for the Congress to come forth with a bipartisan strategy for a fiscal stimulus...to move the economy forward.

From an industry standpoint, barter is enjoying a renewed interest in the marketplace, with additional members and renewed trading taking place. The only downside, exchange owners report, is on the collectable side of the ledger.


Small Business Survival Committee Says Bush Is Right On

"Small businesses across the country will welcome the fact that President Bush understands how tough things are and that he has good, sound ideas for speeding economic recovery," affirms Darrell McKigney, President of the Small Business Survival Committee, a Washington-based advocacy organization.

McKigney says that "small businesses create 75% of all new jobs, so the best economic proposals are those that will energize the small business economy."

Editor's note: The current recession, according to some noted economists, is a result of policy choices made by the Fed when interest-rate increases in 1999 and 2000 pushed the real federal funds rate to its highest level in ten years, coinciding with a peacetime record level of federal taxes as a share of GDP.


White House Scored In Barter Deal For Super Bowl Ad

News Corp's Fox provided $3 million in "matching spots" to the taxpayer-funded White House Office of National Drug Control Policy, in exchange for their $3 million purchase of commercial time during the "Big Game." Reportedly the intent of the pro bono match program was to preserve the model traditionally used with public-service advertising.

With many advertisers being hesitant to purchase ads on the Super Bowl, Fox smartly used barter, i.e. offering enhancements, to get advertisers aboard. The enhancements took the form of ads prior to the kickoff and after the gun at the game's end, as well as extra billboards, and special positioning.



Here And There. . .

  • Enron's problems are indicative of accounting practices moving in the wrong direction...which doesn't instill confidence for the investing public. Accounting restatements, in which companies had to change and lower their previously reported sales or earnings have ballooned from an average of 49 per year in the '90s, to last year's record number of 156. (Reinstatement of earnings usually send stock prices plummeting.)

  • The Dutch government is investing 30 million euros ($26 million) in projects that will clean up outmoded plants and faster alternative energy sources from Romania to Latin America. In exchange, the Netherlands will get to count the reductions from these programs against its own emissions targets.

  • At the Davos World Economic Forum, held last week in New York City, the main topic, and concern, was whether U.S. growth will be strong enough to help economies in the rest of the world.

    The bottomline message was: it's up to the U.S. to shoulder the recovery...called a "Herculean feat" by Stephen Roach, chief economist of Morgan Stanley. (Noted was Japan's worsening condition, and Europe's nascent efforts at structural change haven't gone far enough to deregulate markets, and make labor more flexible and less costly.)

  • United Parcel Service reportedly sees no signs of an end to the economic slowdown, the gloomy outlook came after reporting an 11% decline in fourth-quarter profits.

  • Now, more than ever, promoting barter will pay off. Trade exchange owners looking for a proven way to motivate their client base and stimulate more trading activity can obtain a copy of the 16-year-old, proven, informational marketing tool: The Competitive Edge newsletter.

    The Competitive Edge is designed to be mailed to clients and prospects because research among the exchange owners shows that only a third of their members receive e-mail.

    E-mail bmeyer@barternews.com for a sample copy and details. (Be sure to include your complete mailing address and phone number in your e-mail.)

  • Hilton hotels said their fourth-quarter was "the most trying and difficult period in the history of the hotel business." The company's net income fell 94% with overall revenues falling 24%, due to the general downturn in travel last year.

  • A new book, The Spirit of Capitalism, suggests that it's unlikely that we will ever live in a borderless world of global capitalism. Furthermore, if we did (the author suggests) the world would be a poorer, less dynamic place than the world we live in now. He says Germany, Japan, and the U.S. have different versions of capitalism because they have different national cultures and different status aspirations.

  • The National Investor Relations Institute just-released survey reports that a majority of companies across a range of industries has embraced pro forma reporting. (Pro forma earnings typically exclude expenses such as goodwill amortization.) Critics contend that obscuring certain expenses is simply a way of reporting "earnings before all the bad stuff."



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