I for one really wish that all of those telling the world that the recession is over and that good times are around the corner were correct, that times are getting better, the contrary unemployment level gobbledygook notwithstanding. Some of the big financial centers may have had a good Thanksgiving but I fear many of the regional banks that are still afloat are starting to take on water.
I don't believe that the critical issues have been really thought out, or maybe they have been and nobody dares to tell anyone else.
The first is oil- Or the lack thereof. 35 years ago we were an oil based economy with then US oil and gas production satisfying somewhere around 65% of our energy needs. Alaska was pumping oil into Valdez through the Trans Alaska pipeline and life was good. Microchips were being developed and the personal computer was in its nascent stage. Microsoft wasn't even a household name at that point. GM, Ford and Chrysler were the three world kings of automobiles and muscle cars were still in high demand in spite of the 1973 oil crisis. Japanese cars sounded like sewing machines and rusted out in a few years.
Jimmy Carter at that time was preaching to the choir when he said that we must find alternative energy sources and reduce oil consumption. He was the only US president to really wave that flag up to that point. Car makers response? Build SUVs- Can't make 'em fast enough.
Well, here we are 30 years later and we are no longer an oil based economy- Lack of oil tells the story. Us car makers are going belly-up since they never retooled to supply a frugal oil consuming line of vehicles like the car manufacturers did in Germany, France, Italy and the rest of Europe. We pony up and pay the Arab nations and the rest of the oil cartel for the 70% of oil we consume that we don't produce at home. Anybody see a pattern here? T. Boone Pickens is attempting to rally an alternative energy focus instead of oil as the go to energy source. His big push is for natural gas to replace gasoline as it has in a good part of the world and then to heavily promote wind power as a long term solution. Go T. Boone!
Good thing our buddies the Chinese are willing to shovel a continuing supply of US Treasuries into the reserve closet even though they hardly pay any interest. If they didn't buy our treasury bonds we couldn't pay our bills. The ridiculous levels of leveraging are just starting to hit with a slew of banks biting the bullet every month. Are the bailouts over? I fear not. What we have seen so far is just the tip of the iceberg. Several research organizations this past week informed us that one in four mortgages are under water. Twenty-five percent of all mortgaged properties aren't worth the paper held by their lenders! Gee I wonder what happens in the event some of those unemployed are trying to pay back those mortgages.
The health care industry is getting messier all the time. It is true that we are the victims of our own technology- Tests that were only prescribed in dire cases are now on every doctors prescription pad. How could they not be? The doc that doesn't prescribe a test and something goes sour will be reading their name in the lawsuit lists. CAT scan equipment 10 years ago was only approved for a very few health centers. It seems that every medical practice has their own CT offices now. People that were considered on the fringe 15 years ago that promoted health care rationing are once again being listened to.
All this expense and the health care outcomes for US citizens aren't even in the top 10 nations anymore. This is world leadership? Check the World Health website for some real eye opening stats. It's true that we don't have to be on a long waiting list to have a procedure performed and we can't be refused medical care but the 20 some percent without health coverage almost certainly need to declare bankruptcy should a serious medical condition arise. You might say, "Let them buy insurance!" Shades of Marie Antoinette. Maybe these folks might be some of the newly unemployed that have underwater mortgages. Hmmm.
Boggles the mind. Economists estimate that it could take 10 years to reduce unemployment to pre sub-prime mortgage days. I'm not sure what happens to all those water logged mortgages in that scenario. What about the reduction in property taxes as a result of property values being lower? Does this mean a possible reduction in public services like police, fire, EMS, education, roads, parks and of course health care? Naw- Couldn't happen. Right.
As I started out writing this blog I said that I applaud the efforts of the soothsayers predicting all will be well in a year or so but I truly fear that they are whistling in the dark. Our standard of living will face severe trials in the next dozen years or so.
I don't think many of us will like that. Then again, maybe I'm too much of a pessimist.
Sunday, November 29, 2009
Friday, August 14, 2009
How Long is This Tunnel Anyway?
Everyone is looking for guidance as to what is happening to the economy and what the immediate future has in store for us. I believe that the tea leaves can be read without a lot of difficulty right now. It's really a function of how much money is available in the system compared to what demands for said money are extant. The one shot tax rebate last year caused a spike in buying (and a little credit card debt reduction) but it only lasted a month or two. The "clunker" program has gotten a few new cars off the lot but does nothing for the systemic problem- Too much leverage- Not enough capital-
The consumer everyone is waiting for to bring home the bacon is probably the wisest of all- Or maybe most fearful. Hunkering down probably isn't a bad idea right now. Savings rates have climbed significantly since the American public stopped drinking the big government Kool-Aid, you know, the part where Paulson said back in 2008 that we would undergo a slowdown but everything was OK. Right now government is worrying about how to pay for the corporate largess foisted on the American public- Let's see, we have to pay a lot of money for those fixed costs like Social Security, government payrolls, tax credits and pork barrel stuff. Hey- What if we just print more money and in doing so dilute the real costs of that stuff since we are paying in cheaper dollars. Who cares about inflation or the purchasing power of those on fixed incomes. When we get the bubble resuming people will forget all about the real costs. Keep the Now Generation happy and get re-elected. That's the mantra.
I don't know though, Can we print enough money so that we make up for the phony collateralized pools the finance gurus set up? After all, the asset base compared to what finance is available out there will be impossible to reconcile. Assets that aren't necessary any more will go unpurchased or sold at distress prices. Check out the prices of big screen TVs and other toys. Banks are, and should be afraid to lend money for home mortgages knowing in their heart of hearts that home values are already underwater before they take on a new mortgage. We are being told now that by the end of the year 50% of mortages in the country will be under water, that is, the mortgage will be higher than what the property could sell for.
The second home, the fun car, the Mediterranean cruise, the trip to see the kids are all on the block- The whole world economy save a few hardliners like China, Germany, Switzerland and Malaysia became a humongous Ponzi scheme that won't get fixed overnight. Some European nations had enough faith in the US finance schemes to buy collaterized debt paper to make up their reserves. Iceland is a good example. Sorry folks- You have to get in line just like the other investors who were sucked in.
How long until this mess is fixed? Some of the big finance outfits, you know, the ones that sold everyone on the Ponzi schemes to begin with are now fluffing up the equity markets and the end of the day's trading to make things look rosier, and stating that the worst is over- Investors get back in there and put your capital to work! This is getting to be a harder sell. Some of the small investor crowd is saying "I was already burned once and you want me to do what?"
The Feds are phasing down their debt purchase programs so in order to sell more treasuries the yields will have to increase. The government had hoped the investing public and the markets would have improved by now but they have indeed found a sticky wicket. If rates increase it could be bad news to the nascent recovery, but they can't continue to debase the currency forever. Some folks feel that the best way to deal with the situation is to let market economic rules do their stuff. However, the elephant in the room, you know, the big one with the best economy in the world holding $2 Trillion in US debt is looking a little worried here. Can you blame them?
So what do we do now? Obama must be thinking Franklin D. Roosevelt at this point like in WPA projects or some other kind of infrastructure fix. I really don't believe that there quick ways to unwind what took place over the last decade. The creating of asset bases on illusions can't be reversed overnight although many, through failure have ceased to operate. Are we done failing? As in banks, foreclosures, personal and corporate bankruptcies? Sorry, kids- No instant gratification this time. School of hard knocks here we come.
The trade deficit must eventually be recognized as the real barometer of this country's health and as long as we keep importing energy at the rate we do our standard of living's future is murky at best. I don't believe that the Chinese are willing to keep funding our deficits forever. Are the people of the country ready to do whatever is necessary to reduce our energy consumption? We'll see.
The consumer everyone is waiting for to bring home the bacon is probably the wisest of all- Or maybe most fearful. Hunkering down probably isn't a bad idea right now. Savings rates have climbed significantly since the American public stopped drinking the big government Kool-Aid, you know, the part where Paulson said back in 2008 that we would undergo a slowdown but everything was OK. Right now government is worrying about how to pay for the corporate largess foisted on the American public- Let's see, we have to pay a lot of money for those fixed costs like Social Security, government payrolls, tax credits and pork barrel stuff. Hey- What if we just print more money and in doing so dilute the real costs of that stuff since we are paying in cheaper dollars. Who cares about inflation or the purchasing power of those on fixed incomes. When we get the bubble resuming people will forget all about the real costs. Keep the Now Generation happy and get re-elected. That's the mantra.
I don't know though, Can we print enough money so that we make up for the phony collateralized pools the finance gurus set up? After all, the asset base compared to what finance is available out there will be impossible to reconcile. Assets that aren't necessary any more will go unpurchased or sold at distress prices. Check out the prices of big screen TVs and other toys. Banks are, and should be afraid to lend money for home mortgages knowing in their heart of hearts that home values are already underwater before they take on a new mortgage. We are being told now that by the end of the year 50% of mortages in the country will be under water, that is, the mortgage will be higher than what the property could sell for.
The second home, the fun car, the Mediterranean cruise, the trip to see the kids are all on the block- The whole world economy save a few hardliners like China, Germany, Switzerland and Malaysia became a humongous Ponzi scheme that won't get fixed overnight. Some European nations had enough faith in the US finance schemes to buy collaterized debt paper to make up their reserves. Iceland is a good example. Sorry folks- You have to get in line just like the other investors who were sucked in.
How long until this mess is fixed? Some of the big finance outfits, you know, the ones that sold everyone on the Ponzi schemes to begin with are now fluffing up the equity markets and the end of the day's trading to make things look rosier, and stating that the worst is over- Investors get back in there and put your capital to work! This is getting to be a harder sell. Some of the small investor crowd is saying "I was already burned once and you want me to do what?"
The Feds are phasing down their debt purchase programs so in order to sell more treasuries the yields will have to increase. The government had hoped the investing public and the markets would have improved by now but they have indeed found a sticky wicket. If rates increase it could be bad news to the nascent recovery, but they can't continue to debase the currency forever. Some folks feel that the best way to deal with the situation is to let market economic rules do their stuff. However, the elephant in the room, you know, the big one with the best economy in the world holding $2 Trillion in US debt is looking a little worried here. Can you blame them?
So what do we do now? Obama must be thinking Franklin D. Roosevelt at this point like in WPA projects or some other kind of infrastructure fix. I really don't believe that there quick ways to unwind what took place over the last decade. The creating of asset bases on illusions can't be reversed overnight although many, through failure have ceased to operate. Are we done failing? As in banks, foreclosures, personal and corporate bankruptcies? Sorry, kids- No instant gratification this time. School of hard knocks here we come.
The trade deficit must eventually be recognized as the real barometer of this country's health and as long as we keep importing energy at the rate we do our standard of living's future is murky at best. I don't believe that the Chinese are willing to keep funding our deficits forever. Are the people of the country ready to do whatever is necessary to reduce our energy consumption? We'll see.
Tuesday, February 10, 2009
Fixing What Ails Us
Here we sit several months since it was determined that the federal government needed to infuse the US economy with some corporate welfare into the banking system rather than tax cuts, business incentives, pork projects, work programs or more rebate checks. The pocket change handouts given to the public was nice but lasted only until the next credit card payment was due.
Now we have to go back to the basic Economics 101- Money is the core of an economy. Right now the "De-leveraging" has removed a huge hunk of money from the economy as a result of lost equity (both stock and housing) resulting in not enough to go around. The value of overall equity is down about two trillion bucks as we speak.
The federal government's only tool to fix what's gone bad is to add money to the system. This could occur in different ways, the most immediate effect of course is by force feeding lending institutions with $800 billion or so to jump start the increase in the "velocity of money," (velocity is that which actually drives the system)- More velocity- Better economy. Increasing the velocity of money could also be accomplished by creating jobs as in Roosevelt's WPA program in the 30s but that would take way too long to have any material effect- Took almost 7 years during the depression of the 30s- World War II finally got us out.
To put a brand of "socialism" on the distribution of money process is truly simplistic. The very existence of government is socialistic. Market dynamics cannot work without a centralized force to stoke the fire when needed. Obviously the value of currency will be affected negatively in the process but the alternative is totally unacceptable- We can see that aspect right now.
Unfortunately, doling out mega-bucks to fat cat bankers is nasty business. We saw first hand what happened to your tax dollars as the largess took place- The goobers gave themselves huge bonus payments and scheduled "retreats" to ultra high-end watering holes. The chief goober at Merril Lynch decided his office needed stuff like an $84,000 rug and a six figure furnishing arrangement. No doubt about it your tax money passed out without restriction WILL be squandered to a great extent. Trying to control the process is like it was 30 years ago in trying to establish price controls. You can control certain aspects like President Obama has done with limiting executive compensation to $500,000 for corporate recipients of TARP funds but the fat cats will easily find an end-around to that process.
The banks that have received money are bolstering their shaky loan portfolios rather than pushing it back into new lending. As long as this is the norm, TARP will have little or no effect. How do we force banks to lend? The bailout of General Motors needed to happen but the act was distasteful at best. The last thing the country needed was hundreds of thousands of GM workers and related industries and their employees folding their tents when demand for such products evaporated.
Depending on a totally botched lending system headed by clueless leadership to bring about recovery is not the answer. There are thousands of financial institutions in the country that did not offer sub-prime mortgages. They are now taking a hit because the loans that they did make are not being repaid since so many of their customers like small businesses have failed and too many workers are unemployed and are unable to repay loans.
So what's the solution? The immediate shot in the arm may be like castor oil but could be the best tonic. Infusing the public with a dose of cash could have the best overall benefit to the country. If one took a look at the $850,000,000,000 being dumped into a failed financial system and instead had distributed those funds to each household in the country that money would have been put to work immediately. Loans would be paid, expenditures made for autos, refrigerators and houses and investment- Values would increase. The American consumer puts over 60 percent of the US GDP on the ledger. The consumer is our leadership out of the mess the fat cats created.
This alternative makes a lot more sense than giving corporate welfare payments to those that just abuse the American public some more. Call it whatever you want- It's still corporate welfare.
Now we have to go back to the basic Economics 101- Money is the core of an economy. Right now the "De-leveraging" has removed a huge hunk of money from the economy as a result of lost equity (both stock and housing) resulting in not enough to go around. The value of overall equity is down about two trillion bucks as we speak.
The federal government's only tool to fix what's gone bad is to add money to the system. This could occur in different ways, the most immediate effect of course is by force feeding lending institutions with $800 billion or so to jump start the increase in the "velocity of money," (velocity is that which actually drives the system)- More velocity- Better economy. Increasing the velocity of money could also be accomplished by creating jobs as in Roosevelt's WPA program in the 30s but that would take way too long to have any material effect- Took almost 7 years during the depression of the 30s- World War II finally got us out.
To put a brand of "socialism" on the distribution of money process is truly simplistic. The very existence of government is socialistic. Market dynamics cannot work without a centralized force to stoke the fire when needed. Obviously the value of currency will be affected negatively in the process but the alternative is totally unacceptable- We can see that aspect right now.
Unfortunately, doling out mega-bucks to fat cat bankers is nasty business. We saw first hand what happened to your tax dollars as the largess took place- The goobers gave themselves huge bonus payments and scheduled "retreats" to ultra high-end watering holes. The chief goober at Merril Lynch decided his office needed stuff like an $84,000 rug and a six figure furnishing arrangement. No doubt about it your tax money passed out without restriction WILL be squandered to a great extent. Trying to control the process is like it was 30 years ago in trying to establish price controls. You can control certain aspects like President Obama has done with limiting executive compensation to $500,000 for corporate recipients of TARP funds but the fat cats will easily find an end-around to that process.
The banks that have received money are bolstering their shaky loan portfolios rather than pushing it back into new lending. As long as this is the norm, TARP will have little or no effect. How do we force banks to lend? The bailout of General Motors needed to happen but the act was distasteful at best. The last thing the country needed was hundreds of thousands of GM workers and related industries and their employees folding their tents when demand for such products evaporated.
Depending on a totally botched lending system headed by clueless leadership to bring about recovery is not the answer. There are thousands of financial institutions in the country that did not offer sub-prime mortgages. They are now taking a hit because the loans that they did make are not being repaid since so many of their customers like small businesses have failed and too many workers are unemployed and are unable to repay loans.
So what's the solution? The immediate shot in the arm may be like castor oil but could be the best tonic. Infusing the public with a dose of cash could have the best overall benefit to the country. If one took a look at the $850,000,000,000 being dumped into a failed financial system and instead had distributed those funds to each household in the country that money would have been put to work immediately. Loans would be paid, expenditures made for autos, refrigerators and houses and investment- Values would increase. The American consumer puts over 60 percent of the US GDP on the ledger. The consumer is our leadership out of the mess the fat cats created.
This alternative makes a lot more sense than giving corporate welfare payments to those that just abuse the American public some more. Call it whatever you want- It's still corporate welfare.
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