Tuesday, October 07, 2008

BAILOUTS for Wall Street and Corporate America; Is the US Economy Safe?

The US government has spent unfathomable amounts of money attempting to attenuate the consequences of thirty years of Reaganomics. Still there are signs that the economy is deteriorating as more people realize that the polyannesque view of the US is not realistic. Banks do not lend to each other because they do not believe the financial statements of their counterparts. Financial institutions do not lend to individuals because they have realized that credit ratings mean little or nothing. People cannot buy products and services because they have always bought things on credit in fact living past their means. Companies are firing people, foreclosures are increasing, and the latest shoe to drop is the credit card defaults.

Bank of America, just before announcing it would attempt to raise an additional $ 10 billion, released its financial statements. Among the normal $ 6 billion in additional mortgage right-downs slipped in that is was taking a “prudential” $ 1.2 billion in credit card losses. As other institutions announce their results we will see that the credit card losses will rival the CDO and mortgage paper sectors.

This week Corporate America announced another 100k firings of employees and new unemployment claims has been touching 500k. The government says Unemployment is at 6.1 %. Unfortunately if you do not find a job in 6 months or are new to the labor market you do not count. Perhaps the most telling sign of the disastrous economy is that retailers have decided we are going to skip Thanksgiving altogether and start the Christmas sales right after Halloween!

Some “talking heads” are telling us to have patience that all will be well. Others are telling us that the problem was caused by the EU and they must make the same mistakes the US administration is making to “Save us All”. How dare the Europeans employ the wisdom and experience of 3,000 years of finance and trade instead of tanking their economies to support the USA. WE ARE NUMBER 1!

The worst is not here yet. The depression has just begun and we will not be able to stabilize the decline until we recognize the real problem and start working as a nation to fix it. The problem is the service economy. We no longer produce anything. Our greed has focused us on the short-term gains to the detriment of long term stability while borrowing more and more money from the future. Yes we are consumption junkies, always searching for the next fix.

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Tuesday, September 30, 2008

Defending the Culture of Corruption

The application of Reaganomics has changed America. Our infrastructures have been neglected and are falling apart. Production has been shipped to third world countries where regulations on child labor, noxious materials and working environment are inexistent or without enforcement. Costs associated with production facilities in unstable states are pushed onto the US state department and our military. It only seems appropriate that Hank and Ben suddenly realize that the fundamentals of the economy are not sound, requesting that the US taxpayer fund a $ 700 BILLION bailout of financial institutions.

Business and Washington are unified in their cries that “Main Street does not understand that this is to save them!” They propose purchasing bad financial products at higher than market prices so the banks will lend to Joe Worker. Right… Banks will lend according to their current risk parameters. That is the way banks work. Buying these “assets” will only make the US taxpayer responsible for bad investment decisions made by greedy Wall Street dudes.

There is a much darker aspect to this plan. US banks are not the major holders of these securities. With a blossoming trade imbalance US dollars are held in the TRILLIONS of dollars by China. Many US corporations are shutting US facilities and investing great sums in China to take advantage of lax regulations. Perhaps, one day last week, Hank received a phone call from his Chinese buddies indicating that they did not intend to lose money on these bad financial instruments and held the US government responsible for lack of financial regulation. Perhaps they also reminded Hank of the value of US investments currently in China.

As one life insurance company’s advertisement states, “Hank got the message.” Suddenly the administration’s presentation of the US economy went from “We are number one”, to “Armageddon is upon us!” It happened so fast, the Republican candidate for president, John McCain, stated, “the fundamentals of the economy are sound” on the same day that Hank and Ben were telling Congress that end of the US economy is nigh.

This BAILOUT WILL NOT FIX ANYTHING. It will increase public debt. The real problems are serious. The US can return to wealth and prosperity but we must recognize and cure the real problems, not the symptoms. FYI the real problems are that 72% of our economy is consumer spending. We no longer produce a reasonable portion of the goods we consume. We confuse smoke and mirrors services with real assets. We have expanding income inequality and finally our government is corrupt. Our politicians and business leaders are pillaging the equity of this nation for personal gain. Do not fall for the talking points. This BAILOUT IS NOT FOR MAINSTREET.

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Friday, September 19, 2008

Reaganomics RIP September 19, 2008

I have not written in a while. My previous post marked the beginning of the end of Reaganomics. In the Pollyanna state that the US has adopted over the last thirty years it was useless to continue to be “negative”. Today will be recorded as the Death of Reaganomics. Treasury, FED and Whitehouse representatives finally admitted that the “fundamentals of the economy are not sound!” The immediate financial cost to the US taxpayer will be in excess of 1 trillion dollars. Unfortunately this money will have to be repaid in the toughest economic times since the 1930s.

For those who care, this bailout is a bad idea. The money should be used finance infrastructure reconstruction. Congress should be focusing on making business pay the real costs of good produced in foreign countries adding criminal responsibility for US importers and retail locations when foreign products kill or harm US citizens. Healthcare should be nationalized and banks seriously reigned in. No one will listen. It is true that our government is the face of the people. It is our own fault. See you in the bread lines.

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Monday, March 24, 2008

Consequences of Things as Usual

I will be publishing only on Monday for the next couple of months. Corporate Greed, Excessive CEO Pay, and Corporate Loopholes seriously affect Joe Citizen. The world is changing as Washington DC and Wall Street slowly recognize that “Houston, we have a problem!” False prophets arise in the darkness proclaiming, “Lower Interest Rates, Bailout the Financial institutions from their ills and all will be well!”

The United States is suffering from Structural Dislocations. Tax Rebates, Lower Fed Funds Rates and other stimulus packages will do little more than slow the decline while boosting up foreign economies supplying the US. All this will come at the expense of our children who will be left holding the bag. The US government is acting like the homeowner who bought too much house for their earning capacity and then refinanced every year leveraging up each time. At a certain point the bubble bursts and the faux earnings come out of the system leaving the homeowner upside down in his house. This is where we are with the US economy. We continue to spend our nation’s equity without increasing our productive capabilities. The result is always bad.

In some areas the decline is breathtaking while other areas still do not show the perilous times ahead of us. When the US dollar traded at 1.44 Euro I said it would go to 1.75 Euro. I believed that to happen over the next year not the next 30 days. Continuing Unemployment Claims are at historically high levels as the Labor Department says that we will not see the 20% unemployment of the 1930s. I suggest we are well past that level when calculated with the same formula used in the 1930s not the faux calculations imparted after the beginning of Reaganomics.

Eliot Spitzer has been shown for what he is: a corrupt public servant that used his office for his own personal gain. Corruption is the only result that can come from collusion between unscrupulous business executives and lying politicians.

Bear Stearns, the financial institution, has to be bailed out by JP Morgan. JP Morgan will only do the deal if the Federal Reserve guarantees their investment. Yes your tax dollars are going to buy out Bear Stearns. All this while the government is trying to unilaterally reduce Social Security Benefits for which you paid your entire working life. This is just the latest example of why legislation must be passed to limit CEO pay. The CEO of Bear Stearns has received more compensation in the last five years than the entire net worth of the company!

Our politicians continue to squawk about the war in IRAQ, tax cuts, buying entire neighborhoods, relaxing regulations to allow companies to employ more unethical and illegal practices instead of looking at the real problem: The United States no longer produces a reasonable portion of its internal consumption.

Washington must go cold turkey. They must break all ties with business and lobbies. They must take a hard look at our economy, our culture, and our nation and create a framework in which hard work is valued and entrepreneurs can actually create businesses and not Ponzy Schemes. They must allow Americans to have hope for a better tomorrow for themselves and their children.

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Friday, March 07, 2008

Boeing Loses tanker contract – Out come the Lobbies!

It is all about a contract worth thirty-nine billion dollars in about 10 years. A consortium of Northrup Grunman and EADS (Airbus) beat Boeing in a sealed bid process. Analysts were surprised. Boeing has been making the tanker for decades. Boeing has even set up facilities across the world to feed parts back to California and Washington for the baseline production. Wall Street is outraged. Even the most adamant supporters of offshoring US jobs were outraged. Nancy Pelosi, Representative of California, announced an investigation. The big politician on the Appropriations Committee said, “We [in the committee] hold the purse strings. If we do not like it then it will not happen!”

Therefore, it is ok to rip apart the basic US infrastructures, allowing millions of jobs to transfer to countries that allow slave labor and unsafe working environments in the name of profits but touch Boeing’s project and the world is coming to an end.

Why would Ms. Pelosi be so concerned about one contract, and the purported loss of jobs, and not care when Boeing is moving most of its production facilities to China and Vietnam?

The new production of the 787 will be executed outside of the US only to be “assembled” by US workers. Just because Boeing is incorporated in the US does not mean that it is a US company yet the rhetoric coming out of Washington DC is that the US military is giving US jobs to a European company.

Boeing has a long history of paying off politicians. They have been convicted of this several times in the past. It is obvious that Boeing is now calling in its markers. Some politicians have gone so far to say that it is a question of national security. These individuals indicate that given Europe’s disagreement with the warmonger policies of the Bush Administration that European suppliers will slow down the production of certain pieces necessary to make the tankers. “America will no longer be master of its own destiny!” is their fear based rhetoric.

It could be valuable to remember that Boeing is under investigation for sharing sensitive technology with China and the basis of their new facilities in China is the sharing of technology.

Our question should be, “Do we prefer to share technology and work with countries that have interests similar to our own or do we want to continue to send technology and jobs to a country that has shown and continues to show that they are not our friends nor do they share common future goals?”

Boeing is no longer a US company. China is not our friend. Politicians are corrupt. The choice of Northrup Grunman over Boeing is the best solution.

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Monday, March 03, 2008

Blueberries and the Death of Supply Side Economics

Yesterday I made Abbacchio Brodettato. I went to the store to pick up some fresh fruit to make dessert. Once in the Fresh Produce section I had a brutal surprise. Blueberries priced at $9 for a couple of ounces! Wow, it is a good thing that inflation is not the primary concern of our government. In fact, the price of Blueberries is emblematic of what is going on with all basic materials. The pundits will tell you the price increases are due to increased demand across the world. While this may account for about 10% of upward pressures the true culprit is the weak dollar.

Our government has destroyed the primary productive infrastructure of the United States shipping facilities and jobs to nations where quantity beats quality and producers can skirt US regulations. The result of “Supply Side Economics” better known as Reaganomics is that the US no longer produces even a minimal amount of what it consumes. The destruction of productive sectors has resulted in numerous speculative booms and successive busts. The most recent is the credit crisis. The failure of the housing and financial sectors has left the US naked to elements.

The government realizes the gravity of our current economic situation. Rising unemployment will be the final straw sending the US economy in a downward spiral. The traditional response is to forget inflation and drop interest rates. The FED acted according to plan and the dollar plummeted. Normally this would make US products cheaper and stimulate growth but in this era of Smoke and Mirrors where the US has no significant internal production, the result is simply increased prices.

Now to Blueberries. In a normal economy when Blueberries became a cash crop farmers would plant more Blueberries. The problem is that the farmers that would have produced Blueberries no longer exist having been driven into bankruptcy by shortsighted economic and trade policies. The farmers remaining in the US are conglomerates specialized in mechanized farming. Products that actually require work are now produced elsewhere.

Free markets would cause resources to go into the production of these high margin foodstuffs but farming is not like reallocating your 401k. It cannot be done by pushing a button. Farmers must be convinced that prices will remain sufficient for them to invest in new plots. They must plant, grow and care for their facilities for several years before they ever see a penny. Most farm products have the same characteristics.

Today prices are higher because of the falling dollar. Think what would happen if there were embargos or other types of political disruptions. America would not starve. We could always eat protein mush made from wheat germ and corn but it would be a different meal than what we are used to today. Unfortunately the commodities dislocations are not limited to fresh fruits and vegetables. Every basic sector from clothing to toys is under the same stresses.
Supply Side Economics is a bad idea. The proof is in the results. There is no need for discussion or debate. If a tree bears apples it is an apple tree even if the most persuasive of CEOs tries to tell you that those red juicy fruits are pears.

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Saturday, March 01, 2008

US Economy shows Structural Dislocations – The Illness of Supply Side Economics

One percent of US population is now in jail. The number of Illegal immigrants is now above 24 million. Unemployment is at record highs. The US dollar is at record lows. The US Financial System risks collapse as numerous banks seen failing in 2008. Foreclosures are at record highs across the nation. The housing market is on the verge of collapsing. Over 33% of Americans are “Food Insecure”. Personal debt is at record levels. 1% of Americans are homeless including 250,000 veterans. Inflation on primary goods and services is above 10%. Americans retirement savings have lost 5% since the beginning of 2008.

These are nefarious indications of a pending crisis in America. Business lobbies continue to say, ”Stay the course, everything is fine.” Our politicians respond to these problems with patches and makeshift policies to calm the public. Anyone of these realities, individually, would require serious measures from our government but when seen as a whole point to Financial Armageddon and the end of the US as the primary world superpower.

Interestingly we continue to see these realities as single events instead of viewing them for what they are: symptoms of structural defects brought on by Reaganomics.

Defining the illness is easy. We must simply look at cause and effect. Everything we do. Every choice we make. Every law passed. They all have consequences. The alchemy of securitization (changing subprime loans into AAA rated debt) initiated to save the financial institutions following the Savings and Loan Crisis resulted in the current $1.5 trillion mortgage debacle. Free Market tax incentives resulted in moving production facilities offshore. Tax Breaks for the Uber Wealthy created the financial liquidity bubble resulting in unrealistic financial operations in publicly traded companies and CEO compensation based on a CEOs tendency to “return equity to shareholders”, better known as raiding the corporate coffers, instead of looking at the company’s capability to pay its debts and fund its future obligations.

No matter what actions we take, including doing nothing, the future will be tough. There are no free meals. Sooner or later the piper will be paid. The questions we face today will determine if America will be better for our grandchildren. We must ask ourselves if we are willing to fulfill the promise of America immortalized in the words of JFK:

“Ask not what your country can do for you, instead ask what you can do for your country!”

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