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.

Pleading For Bucks- Detroit Style

President-Elect Obama made a comment after the first visit by the Detroit Iron boys went to plead for bucks. He asked "What is the plan?" No one seemed to know. It is true that if the big three fold their tent that several million jobs are by the boards. I saw this happen in Lower New York when an inefficient Ford plant closed around 25 years ago. It took 10 years before all the lost jobs were replaced. Every business from mom and pop bodegas to grocery stores to furniture and appliance stores went South.

It is also true that just giving the clueless Detroit boys more money wouldn't solve much except to delay the inevitable.

What we need is a demand from Congress and Obama that a VIABLE business plan be developed just as if they were a new business venture looking for capital. The American people have lost faith in the car makers because they build in obsolescence and quality is second to gimmickry and cost increasing extras. Where is the 1966 Ford pickup that I bought new for $2100 that I sold for $300 when it had 265,000 miles on it? Would anyone in their right mind routinely expect any US made vehicle to last over 150,000 miles? And why not? Where is the basic transportation that we need.

Car makers take note. Trim the bloated overpaid manager overhead, negotiate with the unions to give the workers respect and a say in outcomes the same way they do in Asia and Europe and stop whining about how the unions are driving you out of business. The standards of living in many countries are passing us by so we can't say our workers are treated too well as compared to foreign countries' workers.

Make a car that has minimal defects and ones the public has confidence in. Build them to last more than 150,000 miles and stand behind it when there is trouble. Get rid of dealers that fake repairs and bill you the manufacturer for work not done, or try to push extra cost items onto the cost of the vehicles.

Spend the money on innovation to improve quality and dump gimmicks. Partner with developers of alternative energy, including natural gas powered vehicles that are so prevalent in the OIL PRODUCING countries that are mandated so they can save their oil to sell to us. Engineer a way to bring fuel cells into vehicles instead of building cars that increase our dependency on foreign oil.

In other words, bring the USA some true leadership.

Got To Have Confidence!

Confidence?

It's just past the Ides of October and some would refer to the economic climate as a bit of uneasiness. You need to have confidence someone said. Everyone is waiting for the move up. But wait a minute! If EVERYONE is waiting for the move then who will do the buying? Even precious metals aren't attracting attention- Why? Because no one knows where those prices are going either, and you can't pay the bills with bullion especially if the price has hit the skids due to lower inflation.

Fixed income is in a funk and money market rates are heading lower as well. The fed is thinking about lowering rates even more but the moneylenders in the temple are afraid to let the money out no matter what the rates! Paulson says we can't make them loan money out. The rest of the world will be reluctant to buy greenbacks if they will be devalued due to lowering interest rates.

The Germans are reluctant to participate in the financial banking bailout debacle as it will cost them since they have had the foresight to control the economics better than anywhere except China. The Chinese aren't worried about a little slowdown as they know full well that at the end of the day they will be in the catbird seat. Since the Chinese have been paying exorbitant rates for all commodities like oil, iron ore, tin, copper, aluminum and coal the dramatic drop in commodities is great news to our Eastern brethren. Also since the Chinese hold almost all of the US Treasury debt a tightening up of the US$ means that their holdings of US bonds are worth a lot more. To bad we can't find a way to put the blame them for something!

The leveraging out of US dollars was not in the best interest of a lot of folks, except of course the really FAT CATS at Countrywide, Washington Mutual, Lehman Brothers, Merrill Lynch, AIG, and whoever else has their hand out at our expense. The caving in of home values across the country and endless foreclosures have made the vast majority of those that received sub-prime mortgages the real unfortunates.

Buffett warned years ago about this developing charade as did Bill Gross of Pimco. Kevin Phillips virtually predicted the debacle in his two great books AMERICAN THEOCRACY and BAD MONEY. Too bad we didn't listen to them when we had the chance. I wonder who's going to pay the tax bill for all of the federal largess? I mean, $700 billion is a lot of money to some people.

Hey, Mom and Dad- About my allowance

Hi, Folks- Just a note to let you know that I probably won't make it home for the school break. Actually I had hoped to come home in style! I took the money you sent me for the Fall semester's tuition and figured that I could leverage up a bit- Learned that from some financial stocks that I've been following. This leverage stuff is cool!

I got a hot tip to buy some real estate down by the river. The guy that sold it to me said never mind the fact that a lot of it is under water, the financing can't be beat! Boy what a deal- Only 2 percent down and 30 years to pay at only 4% interest. I was able to buy a hundred acres with the tuition money you sent me as a down payment. The bank where I got the loan thought it was a real opportunity. They had a big sign on the door offering the same terms to most anybody that needs a loan. I'm not sure what the property's worth right now since I don't see any similar properties that are currently available. I guess they're all bought up!

I figured that I could go to the bank where I got the loan and see if they knew what the property was worth but the loan officer couldn't talk to me right then and there as he was going to Washington to see some guy named Paulson about an advance on his allowance and give the government the note on my property to secure it.

This appears to be a new type of government sponsored giveaway program since I'd be surprised if banks really got allowances. You never know though. The only thing that I see is that you have to have lent money out with little or no hope of getting it back. Seems like some taxpayers or somebody with money to burn has given this guy Paulson a truckload of money to give away- What a great country! Do we know any taxpayers?

We learned about some guy named Ponzi in Economics 101 last semester that sounds a lot like what this Paulson guy and the banks are doing. The bank guy said it was using "leverage more aggressively," a more efficient use of capital.

Do you think that the president is aware of what these guys are doing?

Anyway since I spent the tuition money plus my allowance buying that property I could use a little advance myself since I've got a payment due on my real estate loan- Things got a little tight and I missed the last one. What do you say? If a bank can get some cash from the government with no obligation I'll bet you could spot me a few bucks. And you know of course that it's only a loan and that I'll pay you back some day. If things are tight maybe you could visit this Paulson guy and get some of that free money!

Lots of love, Your kid

Signing on to the Pickens Plan

I am a proponent of alternative, renewable energy and find a lot to like in the Picken’s Plan.

Having said that I think that it may be a tough row to hoe. We, as American citizens have watched for decades while we became more and more dependent on foreign oil to where it is now approaching 75% of our consumption.

Our leaders in congress or in the White House seem to care little about the country or its citizens, focusing all their energy on getting elected or reelected rather than dealing with issues affecting our future. Where are the incentives to promote alternatives? They pretty much died when Carter left office with little since then. The lip service we currently receive from government is mostly just that- Lip service. Our leadership is of the “make ‘em happy right now- To heck with future generations.” attitude.

Without people like Pickens giving some thoughtful direction and Congress doing something about it this energy crisis will be ignored and forgotten when prices drop a little.

The convenience store where I buy most of my gasoline is run by a family of Pakistani. I asked Kahlil one day about gasoline prices in Pakistan. He replied that gasoline was only used in rural areas. In urban sections everyone uses compressed or liquid natural gas instead of gasoline.He said that it is very expensive to use gasoline in autos and trucks and is avoided whenever possible. LNG is fairly available and causes little pollution.
Do you think they may have something there? Why didn't we think of that?

I find it pretty interesting that an oil baron is talking alternative energy- He's got my attention! Pickens also pointed out that Iran, as a country was doing everything they could to convert all ground transportation to LNG so that they could continue to sell us oil to produce gasoline at $4.00 per gallon rather than burn it in their own vehicles!

Look up pickensplan on the internet search engine of choice- You won't be disappointed.

More Energy! More Tinkering! More Dawdling

Oil at $136 a barrel ? Say what?

Even though oil is through the roof with no end in sight, why is it that many of the oil majors, have seen stock prices decline for the year so far? Even the drillers have marginaly higher stock values year to date. The exploration companies are quietly reaping the rewards. Exploration companies like Southwest Energy and Noble are making it in gas and oil exploration. China has just whet its ravenous appetite for energy. It's importing all the coal it can get- Makes for happy Aussies, and Petro China is maxed out in exploration/production so China is looking wherever it can for the black gold. Commodities like foodstuffs, fertilizers and metals are also in much demand from emerging markets like Brazil and Peru as well as China.

Chinese solar energy companies are promising growth of 30 to 75% a year for the next five years at least. These folks have been hard at work researching and improving their solar capabilities while we bemoan the fact that our gas prices are almost 2/3 what Europeans pay! There are a few small solar energy companies in the US and companies like Dupont are starting to supply some solar related material, but I don't see our leadership rallying around the flag for alternatives to our energy problems- No new policies- Unless you count begging the oil sheiks to increase production. This isn't the answer, folks. We are an oil based economy that's running out of oil- Except to import it. Our inflation will be a function of how much more money the government can print in order to pay the bill. Maybe we'll have another round of tax rebates- Yeah! That's the ticket! Our kids can pay the bill.

Presidential election year notwithstanding the market here may gyrate up as history promises it will in election years but the economy will have much pain for some time. There is just too much garbage debt to absorb. The clowns in the financial sector that brought this mess about should be in jail but I'll bet they probably got increases in their bonuses!

There is a strong move afoot led by Iran and Venezuela to cut loose from the US Dollar as the oil currency of choice. The US is pleading with the Saudis to keep the dollar as the official payment choice. Even the Saudis will run out of US stuff they can buy pretty soon. They have all the military toys they can spend US dollars on and are busy buying land and businesses in the Western hemisphere. The Fairmont Hotel empire was a recent Saudi purchase and condos in Colorado are hot. Right now the oil boys are our good buddies but when push comes to shove as it did in 1973-74 we could have better luck looking for oil in McDonalds restaurants rather than the Middle East.

Possibly with enough pain we as a nation and as (sometimes) world leaders would start a significant movement in the direction of alternative energy. Maybe $5 bucks for gas will be the tilting point. We had a move towards renewable energy under Carter but the Reagan administration let it die on the vine. After that the sense of immediate urgency dissipated.

Well, the sense of urgency is back. Fuel cells, solar energy, wind farms and geothermal projects may make even more sense now and may be approaching more feasible comparative cost levels. As a debtor nation that had the party with the inheritance, we must start the ball rolling, not just find a temporary relief that will put us back into complacency once more. Maybe the leadership will be there next year- I, for one hope so.

Some Thoughts About Gas Prices

I was reading this morning that the price of a barrel of crude oil is about $90 and by the looks of things will hit a hundred dollars pretty soon. This probably doesn't bode well for the price of gasoline.

Some of us remember the gas lines going around the block in 1973 after the price of gas got jacked up significantly by the oil cartel. I also read that at $100 a barrel the price will equal, in the equivalent of 1973 dollars the price of oil back then. That happening was considered responsible for the recession that lasted more or less into 1976. Jobs were scarce, interest rates were high and people were only interested in economic gas consumers. Remember the Pinto? I had one of those. Fading into memory were the production lines of mega gobblers with big block Ford, Chevy and Chrysler engines. Auto companies did what they could to build cars with better mileage. Lighter steel bodies and chassis, more aluminum, plastic everywhere replacing heavier components. Mercedes diesels that got 30 miles per gallon were drawing a lot of attention as were motorcycles.

That sobering episode in history started a flurry of movements to develop alternative energy sources, from windmills, solar collectors both water and photo-voltaic, energy cells and diesel car engines that could run on used French fry oil. The government developed incentive programs to encourage fuel efficiency and sponsored creative uses of existing energy. Unfortunately when things had calmed down in the '80s most of the federal tax incentives and energy research grant money programs were allowed to expire. Hybrid cars are still eligible for tax credit and incentives to some extent but the jury is still out on whether or not hybrids produce significant long term savings considering the extra cost of manufacturing. After all, those batteries need to be built too.

Perhaps what we really need is $5 a gallon gas. Maybe that would create the incentive we need to put a full court press on lessening the dependence on OPEC oil and reducing our horrendous trade deficit. Most of Europe has already faced such prices and have made sincere efforts to reduce energy consumption.

The fact that the Chinese hold approximately 90% of our treasury debt is not at all comforting. The economic growth in China is at a rate of 12-14% annually creating a skyrocketing demand for energy further tightening the supply available to us.

Where is the rhetoric we once heard championing hydrogen fuel cells, solar collectors, wind farms and safe nuclear power? It's time we heard them once again.