Memo to the IMF and World Bank:

It's time to add another category to your country classifications, "Submerging Nation" to be defined as the reciprocal of Emerging Nation, or 1/Emerging Nation. An Emerging Nation is generally a Third World country, whose economy is growing and evolving towards developed nation status. It stands to reason that a Submerging Nation is a developed country whose economy is evolving in the opposite direction towards Third World status.

Here are some of the more obvious characteristics of third world countries. Start with debt-laden economies, and budget deficits that periodically stress their banks; resulting in occasional crises requiring central bank interventions. Currencies are depressed, inflation understated, and both official government and private sector statistics are generally considered unreliable. Their infrastructure tends to be crumbling, bridges collapse, chaotic airports teem with people hurrying up and waiting in grungy facilities, utilities hang on to outdated technologies. And as to their electoral characteristics, including unreliable vote counts, let's not go there here.

Most readers recognize these characteristics and trends in the US, but can't conceive the US as evolving to third world or developing economy status. After all, aren't we are the world's lone "Super Power"?

Memo to the Presidential Candidates

The next President of the world's only remaining super power will inherit an economy exhibiting many third world characteristics. Tom Friedman recently described the dismal contrast between his departure from JFK Airport and arrival at Singapore Airport, one of several state of the art airports around the world. Our deteriorating infrastructure, lo-lighted by Katrina and a collapsing bridge, and grungy mass transit terminals are beyond dispute.

Now Kevin Phillips' documents in his latest book and Harpers article the dismal state of government statistics. He adds weight to arguments made by hedge fund manager/ writer Bill Fleckenstein, and John Williams of Shadow Government Statistics that real inflation and unemployment rates, as measured by the Misery Index of the '80s stagflation days and felt by Main Street, is between double or triple the official statistics, and official GDP stats vastly overstate economic growth. As to the reliability of private sector data, look no further than the Triple A ratings of all that sub-prime mortgage paper circulating around the global financial system as the US version of toxic exports.

The crisis in the banking and financial sector needs no elaboration here, and the US dollar has weakened to the point even Larry Kudlow, chief cheer leader for the administration, economy, and stock market, refers to it as the Peso! As is his want, Mr. Kudlow describes the economy as "The greatest story never told" and the stock market as "Goldilocks", even as the more apt fair tale is "The Emperor Has No Clothes".

Economists, especially the Wall Street and think tank varieties, will marshal all kinds of arguments and statistics to the contrary, because that's what they do. But as candidates you have traversed the country, talked to the American people, and seen the economic realities. Meaningful jobs, healthcare issues, foreclosures, crumbling infrastructure, Social Security and Medicare liabilities are some of the more obvious daunting economic challenges requiring your attention.

Addressing these challenges will severely test your messages of unifying change, hope, and straight talk. The best place to start is with straight talk - leveling with voters about the seriousness of these challenges. Use accurate statistics that acknowledge and reflect voters' daily realities of stagnant growth, private sector job losses, and withering cost of living increases in the face of Kafkaesque claims by economists that inflation is tame, because official statistics say so. If they are technically correct, then the whole concept of "inflation" requires a more relevant definition! Without using relevant and honest statistics, you will not convince voters to buy into your proposed policies and solutions. These, unfortunately, will require shared sacrifice and pain.

Surely history and encountering all those voters has provided you enough confidence in the American people's ability to respond to challenge. Their willingness to do so will depend on their confidence and belief in leadership that is straight with them, and the solutions proposed are fundamentally fair. Should you need further confidence, consider that the US economy has survived (after a fashion) despite eight years of the most wonton economic mismanagement.

Memo to the Next President: Solutions - Draft, Private Equity, & Sovereign Wealth Funds

Nobel Prize winner and MIT Economics Professor Paul Samuelson began a chapter of his classic Econ 101 textbook with a quote from Charles Dickens' David Copperfield. Micawber offered David invaluable advice, now known as the "Micawber Principle" which went something like this: "Earn 20 spend 19, eternal happiness; earn 20 spend 21, eternal misery." As a metaphor it helps clarify important economic issues at stake today.

The American Dream was built on an economy that created middle class jobs. These jobs paid Micawber's $20 to a single head-of-household wage earner, whose cost of living was $19. $1 was then available for savings and investments. Over time and much hard work, that investment created the world's economic colossus. Today's economy creates the equivalent of a $10 job for each of two head-of-household wage earners, while their cost of living has increased to $25. Yet government statistics claim that their cost of living is only $21 "seasonally adjusted". There is no acknowledgement of the additional $4 spent, which is financed with debt - credit card, home equity loans, adjustable rate, and no down-payment mortgages. In a globalized economy, where fewer middle class workers believe their children will have better futures than their own, is it really a wonder that nearly 80% of Americans believe we're going in the wrong direction?

Solutions are not readily obvious or easy, so here are some suggestions for the next president:

Private Equity - No, not the Wall Street "Three-Card-Monte" type of private equity based on "financial engineering" where the dealer/house always wins, but the General Electric and Berkshire Hathaway types that actually manage companies to grow their businesses, many of which are best in class. Why are these companies consistently successful, and how can that success be replicated to build our economy?

Sovereign Wealth Funds - If they are good for Russia, China, Singapore et al, why not for the United States? If global wealth is poised to grow, why shouldn't under-funded Medicare and Social Security be financed to some extent through the growth of global wealth?

Draft - For economic, social and cultural reasons, the next President should organize mandatory national service for each citizen. Choices could include a variety of fields - education, social services, and the military. In exchange for contributing to the national interest, each citizen would receive higher education and other benefits in the form of a modern day GI Bill.

But the real draft I'd like to suggest is for the next President to draft Warren Buffet to give advice, direction, and leadership for the economy. Buffet is a no gimmick straight talker, who gets it more than any other. He is not an ideologue, but a trust-worthy source of advice on assessing our problems and how to work our way out of them. Buffet has foreseen and avoided the dot-com bubble and the sub prime mortgage mess, while successfully managing a broad range of companies. He would be the most trusted choice to lead a group of business elders to vet non-ideological policy solutions, and oversee their implementation.

A first and easy step would be to quickly update the methodology of official economic statistics to reflect current economic realities, such as inflation/cost of living, job creation and GDP. Only by accurately reflecting where we really are, can the next President achieve buy-in from us for proposed solutions.

A house with two car garage, SUV, and flat panel TVs are not an American birthright. They have to be afforded, and in the near term the current economy isn't creating enough $25 middle class jobs. Americans may be in for a lengthy period of tough times and even more difficult belt-tightening. The cutting back of that $5 in deficit spending will create further stress, and social safety net policies must recognize and deal with the new reality, rather than pretending these are mere temporary challenges.

Finally, the economy must not be conflated with the stock market. The stock market is largely a reflection of the performance of the companies it tracks, not the other way around. Here's the problem: An expert or talking head will be talking about the economy; and slip into a discussion of the latest stock market gyrations and health of US corporations, as though their health reflects the state of the US economy. That's simply no longer accurate. Note that investment advisors are currently recommending investments in companies with international exposure, because that's where the growth is, not for their domestic outlook.

The next President should have every confidence Americans will rally for a call to sacrifice and do for their country; provided it is a genuinely shared sacrifice, and they are convinced they will share in the future benefits. A country whose citizenry live under the perpetual threat of job loss, and is one major illness from losing their savings, may be referred to as "resilient&uot;, but the US easily can and must do better! That's where Presidential leadership comes in.

Ernie Nounou
ernie@thethinktank.biz

*A graduate of Wharton, Ernie is a Founding Partner of Catalytic Group, Inc., a Technology consulting and execution firm. A former banker he enjoys writing on business topics and can be reached at ernie@catalyticgroup.com.