Increased taxation is probably the most painful and in the long run the most inefficient way to improve the finances of a country, a corporation, or of an individual.

In the last forty years, a California-based economic professor, Lafler, who discovered the Lafler Curve, introduced what is called deficit financing.

In the 1980s, economic crisis hit Chrysler and its new chairman Lee Iacocca discovered an economic principle which is perhaps closest to the current Hungarian example. Iacocca used the combination of old-fashioned economics: (a) extend payments, (b) cut expenses, (c) negotiate with workers, suppliers, bankers, to gain time. At the same time he introduced at terrific expense new cars, which eventually were selling, and the newly found billions from the so-called Iacocca K cars, paid back multi-billion dollar borrowings, loans granted by the government. The stock skyrocketed from $2 to $30.

The Iacocca recovery has now become a legend, but unfortunately it can only apply to a field where new sources of revenues can be found which are not yet taxed, which have not been hindered from production, but can generate the required revenues and the corresponding taxation to pay off the deficit.

Hungary has possibilities which are at the moment politically clouded but unnecessary. There is a reluctance by the government to sell the vast agricultural farmland to foreigners. An old-fashioned stock market theory, if put into practice, can suddenly create a large amount of dollars which were not there before and which does not give away national independence. Forming a real estate investment trust from agricultural land and selling less than half of the shares to foreigners would create instant revenues, which could be used to pay off debt and the security that actually could be quite enterprising in the long run.

If we assume that a real estate investment trust could be capitalized at $500 million, of which we sell $150 million to overseas markets, it is a good start. If we postulate that every year additional 5% or 10% is put on the markets, it is again a source of revenue which has not been calculated in the budget. In other words, this is a K car from Iacocca's library.

The annual market for agricultural waste is $30B, more than the total foreign debt of Hungary.

Unexpectedly, there is a very important sideline benefit which may turn out to be more important than we have thought. Living in the energy shortage market, the manufacture of methanol and ethanol and other related products like bio oil from agricultural waste is an issue of the 21st century and an issue which is likely to carry us through in the next decades.

No less an authority than the chairman of General Motors has stated that alternative energy from agricultural waste, including sugar, including corn, may be the only answer to gasoline consumption from oil. Now, an agricultural land like Hungary is a gold mine for the raw materials of the various programs. We may go into partnership to actually sell real estate investment trusts, the agricultural land, but Hungary is entitled to and should go into partnership with companies -- and they are all new companies, most of them new companies -- who will exploit the waste for ethanol, for diesel oil, and bio oil.

And here comes a surprise. In fact, I would like to interject that the stock market wouldn't be the stock market if it wasn't full of surprises. Some companies like Pacific Ethanol and Methanol have market capitalization of a billion to two billion dollars. However, this is the early stage of the game. The companies who have access to the raw material and provide actually deliverable alternative fuel have become capitalized well now and look for the billion dollar level. Frankly, as an analyst I would like to point out that if that trend continues, some of these companies by the year 2010-12 will have $10 billion capitalization for the very simple reason that they serve a market which is practically unlimited.

Let's look at the market. We start with 84 million barrels of oil a day. At $70 a barrel, this cost is $5.88 billion a day. If a single day we replace 10% out of the $5.88 billion, we are talking of an annual market of $22 billion. Agricultural raw material, agricultural waste, sugar waste, at whatever price, is the market we are talking about. As the price of oil goes up, we are talking about a target of $30 billion.

Accordingly, there is a potential market for "agricultural waste" of $22B a year, a market that can top $30B by 2010.

If companies can invade the valuable Hungarian agricultural markets or REITs, if companies can invade the fertile ground of the agricultural waste, there will be the K-Car for Hungary's foreign income and render a new set of companies which will be listed on the Budapest Stock Exchange, it would add 10-20-30-40% of the market cap of the Budapest Stock Exchange, and what usually happens, bringing along additional non-agricultural waste-related companies would add another five companies to be listed on the stock exchange.

The price of all commodities move with oil. The oil crisis is shaking up the world's monetary crisis. Three billion new capitalists entered the market from the Far East -- China, Russia, etc. These people all want cash. Cash cannot always mean dollars. It will mean Euros, it will mean gold, it will mean silver, it will mean Swiss francs. With the intellectual resources of Hungary, isn't it time to have a wide, growing gold market in Budapest?

My previous theories of agricultural waste, synthetic fuels, gold, if put together represent the cars Iacocca produced that created not only world fame for himself, a big amount of money for himself, but also a company today called Daimler-Chrysler, an industrial giant and is a pride to the civilized world. It is not a shame to study history, and to bring about a state of affairs which is not conventional but logical. In the current crisis why do we look back? Raising taxes is going back to the communist era, to some extent the fascist era. Those dictators, whenever they needed money, raised taxes. Eventually, 10% was left and the lifestyle was more paralyzing than anything I have ever known. Why not look to the future? Iacocca pointed out - find new products.

To a certain extent, very few countries in the world today can say as Hungary can, that we have agriculture, we have agricultural land, we have agricultural waste, we have gold, we have a stock market. No wonder President Bush came to visit us and talked about Hungarian history.

Here I would like to stop. President Bush, head of the most powerful, most influential nation in the world, not only visited our country but quoted proudly Hungarian history. If we go through the current crisis, if we then in turn, as Bush quoted Hungarian history, we take the newspapers and pick up the good from American history, we become at least in spirit, if not in size, the partners of the United States of America to create a better 21st century in every way we can.

All in all, our task for this century centers around the monetization of our assets. That means the stock market. It means that the economic recovery of Hungary will begin on the floor of the Budapest Stock Exchange.

I would like to end with a personal note. I left Hungary in 1956 and I walked easily to Cambridge University from the doors of the school in Szemere-Utca. For this achievement, and an achievement it was, after all I was in the same college with the Chancellor of the Exchequer, Kenneth Clarke, with the leader of the Conservative Party, Michael Howard. For this achievement I give 20% of the credit to myself, 30% to my two uncles who reluctantly paid the bills, and 50% I always attribute to the spirit, to the manners and to the knowledge I gained in Hungary, in Budapest, at Szemere-Utca. I entered the door of Szemere-Utca on March 3, 1945. There was already water and electricity, the school served free hot soup for lunch. On April 30, Hitler committed suicide.

Fifty years later we were in the twenty-first century.

(Article 31 - posted July 3, 2006)

e-mail: mlikar@aol.com

Home | Biography | Links | Contact

All Content & Articles of This Web Site

© 2005-2006 Andrew G. Racz