Swimming against the deflationary tide

There was a small, unobtrusive article in today’s Wall Street Journal: “A Deflated Fed Battles to Keep Prices Up”

Here are the bullet points:

* “In March the consumer-price index slipped 0.4% below its year-earlier level, the first decline in over 50 years”

* “It is hard to imagine [consumers] returning to their spendthrift ways anytime soon”

* “Falling prices would make it tougher for borrowers to pay off debt, leading to even more defaults and even tougher lending standards”

* To fight back… “the Fed could buy the Treasuries issued to finance such moves. In practice, that is like printing money and handing it out to households, and it is pretty much what is happening now.”

* “When the fight is between falling prices and the Fed, it is hard to predict which will prevail.”

Add to this mix, 30-day T-Bills now yield nearly zero (0.02%). Soon, one may have to pay the Treasury to hold short-term deposits, but nonetheless if deflation persists or worsens, equities and bonds will not be able to compete with cash. Everyone is expecting inflation as a consequence of government spending, but prolonged deflation would be a Black Swan with potentially serious consequences. Gold fell more than $13 an ounce today, below a technical support level, another indication that inflation may not be the main worry.

A Bridge For the Ages

Perhaps there is a time and place for every book. Some are instant successes while others are discovered and appreciated or even become classics long after the author is deceased. Similarly, there is a time or place for a particular book in a reader’s life. For me, I should have read the one I recently finished, David McCullough’s “biography” of the Brooklyn Bridge (The Great Bridge, 1972) when I lived in Brooklyn during the 1960’s. I say “biography” rather than history as after reading his work, it feels like a living, breathing bulwark, a creation for the ages, one that was built while New York was just beginning to become a vertical city. When it was built, its 275-foot towers dwarfed everything in New York and Brooklyn, except Trinity Church, the tallest structure in Manhattan when it was built in 1846, at 281 feet. But the bridge’s two towers are massive as well.

Over the years, New York, and Brooklyn, grew around the bridge, and by the time I lived in Brooklyn, to most New Yorkers it was just part of the skyline. Although I appreciated its architecture, particularly the few times I had crossed the bridge on its walkways, I confess I was somewhat oblivious to its extraordinary engineering (particularly for the time) and its intricate history. After college in Brooklyn, I lived mostly in downtown Brooklyn, at 175 Willoughby Street and also at 234 Lincoln Place in the Park Slope section. After Chris was born in 1965, a favorite destination for a Sunday walk was the Brooklyn Heights Promenade, the Brooklyn Bridge rising majestically at the north end.

Oh, had McCullough’s magnificent history been written before then. I might have had a greater appreciation for how the bridge transformed the city and the engineering genius and architectural greatness of the structure. McCullough writes a biography as a novel, putting the reader into the times and the minds of the main characters. It is his later work, such as his Pulitzer Prize winning biography of John Adams that is leading me to his earlier histories. Here is his finely crafted description of the completed bridge, prose worthy of any novel: “The very shabbiness and stunted scale of the old neighborhood beneath the tower worked to the advantage of the bridge, which by contrast seemed an embodiment of the noblest aspirations, majestic, heaven-directed, lifting into the light above the racket, the shabbiness, and the confusion of the waterfront, the way a great cathedral rises over the hovels of the faithful. And the twin archways in the tower, seen from the street level, looked like vast vacant windows to the sky. For a child seeing it at night, the tower could have been the dark and mighty work of medieval giants. Where on earth could one see so many stars framed in granite?”


The building of the bridge is a microcosm of everything that is great and deplorable about mankind. John Roebling, a German born engineer and builder of The Roebling Suspension Bridge, spanning the Ohio at Cincinnati, completed plans for the Brooklyn Bridge but an accident led to his death before work commenced in 1869. His son, Washington Roebling, also an engineer, took over the plans and the responsibilities of the bridge, but during the construction of the massive foundations – to the depth of almost 45 feet on the Brooklyn side and 78 feet on the New York side – he suffered the effects of the bends from being in one of the huge caissons that had to be constructed and sunk for that purpose. As a consequence, he had a nervous condition and supervised the remaining construction from home on Brooklyn Heights. He did not even have the strength to attend the opening (his wife, Emily, was his steadfast emissary for such occasions). Meanwhile he had to contend with charges of kickbacks (his family owned one of the suppliers of steel cables) and a changing political scene ranging from Boss Tweed to various showdowns with politicians trying to grab headlines for themselves. He was even asked to resign at one point; he refused and insisted they (the Directors of the New York Bridge Company) fire him, which he knew they dared not. Throughout it all, he survived to build a bridge for the ages. It enjoyed its one-hundredth birthday anniversary in 1983. Engineers have estimated it could last another one hundred before the cables have to be replaced and if they are, perhaps the bridge will go on forever.

Although I still visit New York occasionally, I have no reason to go downtown, other than, now, traveling on the East River by boat. We brought our own boat up from the Chesapeake some fifteen years ago, passing under the Brooklyn Bridge with the World Trade Towers rising in the background. It would have been inconceivable that either landmark could be gone during my lifetime. But they both go on in my mind’s eye, with wonder.


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When a man is tired of London…

...he is tired of life. Samuel Johnson uttered those famous words to his biographer James Bosewell some two hundred and thirty years ago. I’m still basking in the glow of President Obama’s and First Lady Michelle’s London visit to attend the G-20, replaying in my mind the images of London, our President’s news conference and Michelle’s moving visit to a girls school in Islington, north London.

If I could live in any place other than where we have, I would choose London. I often visited there during my career usually to confer with our distributor, Eurospan, run by my late dear friend, the charismatic Peter Geelan. I would also see numerous UK publishers with whom we traded copublications, or go to the London Bookfair, or stop by London on my way to the Frankfurt Bookfair.

Frequently Ann would accompany me for the London part of the trip so we managed some vacation time there as well. After staying at several London hotels, including the Dorchester where we had to nearly pole vault into our bed at night, we sort of settled at The Cavendish, which in the Edwardian era was run by Rosa Lewis, the infamous “Duchess of Duke St.” Located across from Fortnum and Mason on the corner of Duke and Jermyn Streets, it is ideally situated near Trafalgar Square, St. James and Piccadilly Circus, the heart of London’s great theatre district where we went as often as our schedule allowed. So it was at this hotel where I would meet Ann during my business travels, and later, we brought Jonathan as well, the first time as young as 14 months old. Here Ann is stepping out of a London taxi having just arrived for one of those visits.

We were at the Cavendish when a young British policewoman was killed in 1984, shot by someone from the nearby Libyan Embassy on St. James Place. Between the Irish Republican Army threats and other clouds of terrorism, traveling in London was sometimes filled with anxiety, but the British people take such adversity in stride. The Cavendish became an armed camp during the standoff with the Libyan Embassy and right outside our window, which had a view to the Embassy, there were police sharpshooters. We slept on a mattress on the floor that evening, along with 8-year-old Jonathan, all of us anxious to stay out of the line of fire. We were leaving the following morning and that standoff lasted at least a week longer.

I treasured going to Eurospan’s offices at 3 Henrietta Street facing the venerable Covent Garden. This area is rich in literary tradition. Number 3 had housed the publishing home of Gerald Duckworth, Virginia Woolf's stepbrother and no doubt Henry James and John Galsworthy had visited as well, as Duckworth published both. Jane Austen’s brother Henry, a banker, lived at 10 Henrietta Street and she had stayed there when in London, saying the house was “all dirt and confusion, but in a very interesting way.”

The scenes from My Fair Lady that were filmed in Covent Garden were right outside the door of 3 Henrietta Street and, according to Peter, a scene from Alfred Hitchcock's 1972 film Frenzy was made in the building itself. As per Wikipedia, “much of the location filming was done in and around Covent Garden and was an homage to the London of Hitchcock's childhood. The son of a Covent Garden merchant, Hitchcock filmed several key scenes showing the area as the working produce market that it was. Aware that the area's days as a market were numbered, Hitchcock wanted to record the area as he remembered it….The buildings seen in the film are now occupied by restaurants and nightclubs, and the laneways where merchants and workers once carried their produce are now occupied by tourists and street performers.”

Of course, I remember when Covent Garden was a public square mainly devoted to the fruit and vegetable market, but in its transformation to today’s tourist attraction, its character was mostly retained. Eliza Doolittle might still recognize it while selling flowers from the portico of St Paul's.

While meetings with Eurospan would easily last the entire day, there was always time for fun in the evenings, sometimes a party at the offices itself, or at Peter’s flat, typically ending in a crowd moving on to dinner at a nearby favorite restaurant. And in those days, and since, London has some of the best food in the world if you’re the guest of someone in the know. When I retired, Peter’s son, Michael who took over the business with his partner, Danny, who was in charge of finance, presented me with a montage of photos of those years, which I proudly display on my bookshelf next to my desk.

When Jonathan was along, Ann and I made it a point to journey by underground to Pinner in west London to visit Danny and his family. Over the years we became close to them and they visited us in the US as well. When my older son Chris, who was a superb high school soccer player, was invited to play in Europe, he stayed with their family and visited English football clubs with Danny, who played competitive amateur football.

Here we are with Mum (Danny’s mother), his wife, Pat, and their two beautiful daughters, Claire and Lisa. I can still see them all in my mind’s eye, as they were in the photograph here skipping down the streets of Pinner, so reminiscent of the streets of Kew Gardens near where I grew up, obviously modeled after these London environs. One year I hand carried Cabbage Patch dolls for his girls so they would be the first in the UK to have the “prestigious” dolls. When they were introduced in the early 1980’s around Christmas time in the US, there were long lines and even fistfights to get one. Ann was not to be messed with though when she waited on line for them at a local toy store before we journeyed to London.

So I watched the Obama news coverage with a mix of nostalgia and pride, reminded not only of the special kinship the United States has with the United Kingdom but also of my own close personal ties. It was my fervent hope that as President, because of his political views, his multicultural background, and his leadership abilities, Obama would help repair what, by any objective measure, was diminished respect for the United States abroad.

What better place to start than London town? I had not anticipated what First Lady Michelle would bring to the table. Her speech to the Elizabeth Garrett Anderson School, her genuine, heartfelt emotion, and the outpouring of love to her resonates with reciprocal devotion. And who could not be impressed by the arm in arm embrace with the Queen?

Repairing a tarnished reputation takes time, it takes mutual respect; and if the G-20 accomplished nothing else, it seems to have established the right direction. Perhaps a new sense of confidence begins to percolate the world economy as well because of agreements made at the G-20. So much remains to be seen on that score and I have been pessimistic by the accelerating debt that is being incurred. But as economics relates to trust, in the system, and between nations, this may be a start to break the vicious cycle of gloom and doom.

I was struck by President Obama’s news conference, where he seems so much at ease, affable, and his responses clearly belie the attacks by some of his critics as his being teleprompter dependent (as if his predecessor was not). I conclude with the question that was posed by Jonathan Weisman, the Washington Post Congressional reporter, about America’s standing in the world and our President’s reply. It’s the kind of truth that does inspire the “hope” that became a campaign mantra.

Q: Thank you, Mr. President. During the campaign you often spoke of a diminished power and authority of the United States over the last decade. This is your first time in an international summit like this, and I'm wondering what evidence you saw of what you spoke of during the campaign. And specifically, is the declaration of the end of the Washington consensus evidence of the diminished authority that you feared was out there?

OBAMA: Well, first of all, during the campaign I did not say that some of that loss of authority was inevitable. I said it was traced to very specific decisions that the previous administration had made that I believed had lowered our standing in the world. And that wasn't simply my opinion; that was, it turns out, the opinion of many people around the world.

I would like to think that with my election and the early decisions that we've made, that you're starting to see some restoration of America's standing in the world. And although, as you know, I always mistrust polls, international polls seem to indicate that you're seeing people more hopeful about America's leadership.

Now, we remain the largest economy in the world by a pretty significant margin. We remain the most powerful military on Earth. Our production of culture, our politics, our media still have — I didn't mean to say that with such scorn, guys ... you know I'm teasing — still has enormous influence. And so I do not buy into the notion that America can't lead in the world. I wouldn't be here if I didn't think that we had important things to contribute.

I just think in a world that is as complex as it is, that it is very important for us to be able to forge partnerships as opposed to simply dictating solutions. Just a — just to try to crystallize the example, there's been a lot of comparison here about Bretton Woods. "Oh, well, last time you saw the entire international architecture being remade." Well, if there's just Roosevelt and Churchill sitting in a room with a brandy, that's a — that's an easier negotiation. But that's not the world we live in, and it shouldn't be the world that we live in.

And so that's not a loss for America; it's an appreciation that Europe is now rebuilt and a powerhouse. Japan is rebuilt, is a powerhouse. China, India — these are all countries on the move. And that's good. That means there are millions of people — billions of people — who are working their way out of poverty. And over time, that potentially makes this a much more peaceful world.

And that's the kind of leadership we need to show — one that helps guide that process of orderly integration without taking our eyes off the fact that it's only as good as the benefits of individual families, individual children: Is it giving them more opportunity; is it giving them a better life? If we judge ourselves by those standards, then I think America can continue to show leadership for a very long time.

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Waiting for someone to explain it

The global financial crisis: life imitating art? It’s hard to see the connection, but as with any great work of music or literature, we could be smack in the development section, when themes or characters, introduced in an earlier time, are permanently changed and emerge as something very different. This period in the financial crisis is being played out with the dissonance of a Shostakovich, or the absurdity of postmodern literature. As Eugene Ionesco wrote in the program notes for his play The Chairs, “as the world is incomprehensible to me, I am waiting for someone to explain it.” Perhaps we all feel the same way about the global financial crisis. It would indeed be an absurdity to conclude that after these convulsions, it will be business as usual.

But the day-to-day machinations of the market, bailouts, and politics obfuscate the possible outcomes. Are the capitalistic underpinnings of the new world economy at an inflection point, to be changed for better or worse after this economic turmoil has passed? For some insight into a speculative, but well argued bigger picture I give a hat tip to my friend Bruce who put me onto the article After capitalism written by Geoff Mulgan and published in the UK Prospect Magazine.

Capitalism, in spite of several boom and bust cycles has survived, although the US economy has changed drastically, abandoning some of its manufacturing capabilities to cheaper overseas labor, focusing on intellectual capital, and becoming more of a service oriented consumer economy. It is now just a part of a highly interconnected world economy dominated by multinational corporations. With an insatiable appetite for goods and energy, however, we’ve become a nation of borrowers, living on leverage and the largess of countries willing (still) to buy our debt.

At the same time the nature of capitalism has changed. The financial institutions that once existed to solely support industry are now an industry onto itself, trading derivatives and exotic financial instruments and, with this fundamental change, perhaps we’ve arrived at another precipice of “creative destruction,” Joseph Schumpeter's term for the consequence of radical departures.

Mulgan argues that capitalism is sure to change but will not disappear. Instead, it will not dominate in our culture as it did in the “greed is good” era. Capitalism has been adaptable but in some ways has sown seeds of its own destruction. He cites the “collapse of the savings rate—to around zero by 2007 in the US when it needs to be closer to 30 per cent to cope with ageing…a stark symptom of a capitalism that has lost the ability to protect its own future.”

Then, in retrospect, the Great Depression can be seen as both “a disaster and an accelerator of reform. One implication of [Carlota] Perez’s work, and of Joseph Schumpeter’s before her, is that some of the old has to be swept away before the new can find its most successful forms. Propping up failing industries is in this light a risky policy. Perez suggests that we may be on the verge of another great period of institutional innovation and experiment that will lead to new compromises between the claims of capital and the claims of society and of nature.”

Mulgan postulates, “If another great accommodation is on its way, this one will be shaped by the triple pressures of ecology, globalisation and demographics.” This will lead to changes away from consumption to savings and will underscore capitalism’s need to come closer in balance with nature rather than its destruction. Capitalism, in effect will become the servant rather than the master. But “it remains to be seen what political visionary will seize upon ‘servant capitalism.’ (Obama should be ideally suited to offering a new vision, yet has surrounded himself with champions of the very system that now appears to be crumbling.)”

Where today’s seismic financial activity will settle is still a black hole of the unknowable, but for an interesting macro view on the future of capitalism, check out Mulgan’s piece.
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He jes' keeps rollin’ along

Last night we had the pleasure of seeing the last of the season’s Florida Sunshine Pops series of concerts at our nearby Eissey Campus Theatre. I’ve written about the Pops before and its gifted, octogenarian conductor, Richard Hayman.

This was a special concert devoted to Rodgers and Hammerstein, the undisputed Broadway innovators who, with Oklahoma!, changed everything about the Broadway musical. Their contributions to the Great American Songbook are legendary.

So yesterday’s concert was a “grand night for singing” and that is what makes this series so special: the level of the talent and professionalism that accompanies the orchestra. Last night’s featured performers were William Michaels, Lisa Vroman, and Stephen Buntrock all leading players on Broadway. They were joined by the Fort Lauderdale Gay Men's Chorus, giving a truly inspirational dimension to those particular songs that so readily lend themselves to choral accompaniment such as Climb Every Mountain or Oklahoma! (which we learned, last night, was written by Rodgers and Hammerstein in a half hour while the show was being previewed in New Haven).

Another highpoint was the Florida Pop’s rendition of the beautiful Carousel Waltz, no doubt orchestrated by the maestro himself, Richard Hayman. If it were not for Johann Strauss, Jr, I think Richard Rodgers would be known at the “waltz king” as so many of his greatest pieces were in three quarter tempo.

But for me, the solos by Michals, Vroman, and Buntrock, were especially remarkable, not only for the quality of their voices but as Broadway trained actors, by their ability to communicate the emotion of the song as they comport themselves on the stage.

Naturally, I had my favorites, Lisa Vroman has a Julie Andrews voice and in fact sung The Lonely Goatherd, the yodeling ditty so closely identified with Andrews from The Sound of Music.

William Michaels is currently appearing in the landmark revival South Pacific at Lincoln Center. His rich baritone voice lends itself to the role of Emile de Becque but last night he sang what some have called the greatest song from the American musical theatre, Ol’ Man River from Showboat (artistic license: music by Jerome Kern, but lyrics by Oscar Hammerstein). Hammerstein described it as “a song of resignation with protest implied.” Perhaps it is a song for our times and my piano rendition is here.

Then there was Stephen Buntrock’s rendition of Oh, What a Beautiful Mornin the opening song from Oklahoma!, sung by the cowboy, Curly. In fact, Buntrock recently appeared as Curly in the Broadway revival of Oklahoma! so he follows in the tradition of Alfred Drake, Howard Keel, and Gordon Macrae. It’s a delicate, beautiful song, an uncharacteristic opening song for a Broadway musical, but after all, this was the musical that established a new direction for the musical theatre, making the music intrinsic to the plot, driving character development. My piano rendition of Oh What a Beautiful Mornin can be heard here.

It’s All a Mystery

We were away the last few days, visiting Ann’s friend in Tampa, Arlene, to celebrate her 70th birthday, and then my cousin Joan and family in Sarasota the next day and my dear friend, Martin (my former English professor) the following day in his new Sarasota “digs.” Meanwhile, the economic scene continued to go from mildly inexplicable to downright unfathomable during the same short period of time.

The Federal Reserve is now buying up to $300 billion in Treasury securities, and $750 billion of mortgage-backed securities using the “Supplementary Financing Program” which in effect gives it the ability to raise its own debt: “The Treasury has in place a special financing mechanism called the Supplementary Financing Program, which helps the Federal Reserve manage its balance sheet. In addition, the Treasury and the Federal Reserve are seeking legislative action to provide additional tools the Federal Reserve can use to sterilize the effects of its lending or securities purchases on the supply of bank reserves.”

Then, the Congressional Budget Office claims the national debt under the president’s budget could be $2.3 trillion worse than the White House estimates. This could result in a $9.3 trillion dollar deficit over the next ten years, which would nearly double the present deficit. All this depends on so many variables that it really is impossible to forecast what they (the deficits) will be. (It is rumored that in the 1960’s Senator Everett Dirksen once said “A billion here, a billion there, and pretty soon you're talking real money,” something he later said he was misquoted on. Still this quote has persisted until recently when trillion has become the “new” billion. How long will it be before “quadrillion” becomes the new “trillion?”)

On Monday, while driving back from Sarasota, the Dow surged by almost 500 points, a Pavlovian response to the long-awaited Geithner “plan” of creating an auction mechanism for removing the toxic assets from banks’ balance sheet “Essentially the Geithner plans creates a vehicle in which private equity accounts for 3%, public equity for 12%, and the rest is provided as debt by the public sector (through the Federal Deposit Insurance Corporation, FDIC).” The latter is from Eurointelligence, which also has a number of good links with views on this development as well as an explanation of the proposed auction formula. It seems like another excellent opportunity to privatize gains and socialize losses.

As a respite from this financial turmoil, I include a few photographs of our visit, first from Arlene’s 70th birthday party (the lady standing), her childhood friend, Arleen, on the left and Ann on the right.

Then we visited my favorite cousin, Joan, in her Sarasota home. As the unofficial family historian she gave me two photos, which I promptly scanned once I returned home. The first was taken in 1944 while my Dad was in Europe as a Signal Corps photographer. My mother is at the upper left, Joan is in the middle and my Aunt Lillian is on the right, while Joan’s mother, Marion, is seated on the left and our (Joan and my) grandmother is at the right.

The second photograph was probably taken on Long Beach, LI, in the mid 1920’s, with my Aunt Lillian on the left, then my father, my Uncle Phil, my Aunt Ruth, and then my grandmother and grandfather. I look at my grandfather and see a resemblance while my father has the same endearing smile he had as an adult. Joan and I speculate that her mother, my Aunt Marion, was not there as she was probably dating my Uncle Walter.

Enough for family history, but we concluded out Sarasota visit the next morning with my dear friend, Martin, my former English professor who is still actively writing poems and plays. Here we are in his new home in Sarasota.

Upon our return I checked some of my favorite blogs and was touched by my friend Emily’s mention of me in her “Your Blog is Fabulous” entry. Her words are humbling, particularly as I have a high regard for her writing abilities and the passion she brings to her love of literature. I worked with Emily and her husband, Bob, who is now a minister in Amish country. They were the kind of co-workers I admired the most, completely committed to excellence.

Her words made me think about why I do this and I responded in her comments section as follows: Oh, Emily, I am honored and humbled by your acknowledgement and more than slightly embarrassed by any notoriety, as my blog is such an unfocused botch of stuff. As I think I once said to you, I’ve always thought of myself as a jack-of-all-trades, master of none. I wish I could have lived many different lives, and among the ones I would like to have pursued, besides publishing which is the one I did out of economic necessity (but, loved nonetheless), is music (specifically jazz piano), writing, economics and investing (have always been fascinated by markets ever since I read Gustave Le Bon’s The Crowd: A Study of the Popular Mind in college – a pioneering work in social psychology -- which has applicability to “the market”), photography (I think of Diane Arbus or Alfred Stieglitz as role models). In fact, at one time I almost left the publishing business as I had developed a VisiCalc (the precursor of Lotus 1-2-3 which was the precursor of Excel) template to evaluate Convertible Bonds (best if you Wiki the term so I don’t have to explain here). Sometimes I feel like Mozart’s Salieri, having merely attained a measure of mediocrity. My on-and-off-again blog reflects my incongruous interests and of course, over the last year the historical presidential election encroached as well. So, I’m afraid your readers may be disappointed by the content. You have a central passion and your blog reflects that focus so well. Your blog IS fabulous.

Finally, my friend Bruce emailed me, “Did you read the Updike poems in the March 16th New Yorker? He writes these strange unrhymed sonnets. They are at times prose but become poetry on the strength of their emotions and concision.” I had not seen these but Updike mentioned his excitement about publishing again in the New Yorker in his last interview. I had heard that these new poems would be included in the collection Random House is about to publish, Endpoint and Other Poems, and some are about his final illness. I wonder whether this collection will include his 1990 masterpiece or others will match it in its stunning clarity about the mystery of life and death:

Perfection Wasted

And another regrettable thing about death
is the ceasing of your own brand of magic,
which took a whole life to develop and market -
the quips, the witticisms, the slant
adjusted to a few, those loved ones nearest
the lip of the stage, their soft faces blanched
in the footlight glow, their laughter close to tears,
their warm pooled breath in and out with your heartbeat,
their response and your performance twinned.
The jokes over the phone. The memories packed
in the rapid-access file. The whole act.
Who will do it again? That's it; no one;
imitators and descendants aren't the same
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$11,033,157,578,669.70

Here’s a landmark worth noting: From The Debt to the Penny and Who Holds It, over the weekend (as of March 16) the National Debt quietly surpassed $11 trillion, rising almost $50 billion during that brief period. Here’s what we can do to help out.
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