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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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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Reaganomics is in Intensive Care

Two days of testimony by FED Chairman Bernanke brought unusually clear indications that the US economy is bad and that the risks of serious degradation are very high. While the Administration, President Bush and his mignons, continue to indicate that the “Underlying Economy is strong” the FED chairman talks about the dislocations in the market are serious. The Administration indicates that if you eliminate the losses of the Financial and Housing Sectors corporate earnings are at all time highs. While this is an exaggeration, it is true that other sectors are holding up fairly well. The problem is that our economy is Financial and Housing. We call it the Service economy. I call it the smoke and mirrors economy.

The most important comments by the FED chairman concerns the imminent failure of smaller banks with exposure the mortgage industry. The FED chairman also indicated that the number of failures would be inferior to the Savings and Loan failures of the late 80s. Further questions by the committee brought an unusual clarity to the discussion. Inflation is a problem however the FED believes the slowing economy will place downward pressure on demand. Oil and other commodities will most likely stabilize thus reducing inflationary pressures from raw materials.

To a direct question about alternative solutions the chairman indicated that should inflation remain strong there is little the FED can do without destroying the economy. In other words, if we are unable to stimulate the economy quickly and inflation continues because of the deterioration of the dollar’s value, the resulting environment could be disastrous.

Notwithstanding these clear indications our political leaders refuse to look at the “why” we find ourselves at this point. They somehow believe that fixing the housing market will make everything better. The economists promoting Free Trade and Open Borders continue to say that labor costs are the most important part of costs of goods produced. They lump labor costs along with advertising and transportation indicating that raw materials are only 18% of costs of goods.

While our structural problems are numerous the highest cost responsible for inflation is energy. Labor costs have been driven so low that they no longer count in the top 5 costs associated with the production and sale of goods. Obviously a business oriented government will support this breakdown because a reasonable person would find the immediate solution in producing goods locally and strengthening the dollar. How could big business compete with this geographically distributed model? How could a CEO siphon a $150 million dollar salary when locally produced goods could do without his infrastructure? Where would the lobbies get money from to pay off the politicians? How would the politicians survive without free vacations and free travel?

The road is still long. Without a doubt there will be more layoffs. There will be more foreclosures and bankruptcies. There will be more people who have to choose between heating and eating. If left to our politicians things will go from bad to worse. They will hold hearings and create stimulus programs that make the problems ever greater. They will try to find someone to blame. If we want to avoid or attenuate the inevitable we, the people, must force our politicians to think about the good of America and not the good of their pocket books.

Note: For my Australian readers I have had the opportunity to speak with a group of individuals heavily involved in the economy there. From their comments I believe you can substitute America for Australia and have a home grown article.

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Why are CEOs portrayed as Corrupt and Greedy?

In today’s literary world CEOs are rarely portrayed as compassionate individuals. The lobbies for corporate America and the news agencies pandering to big business often defend CEOs as morally and ethically sound individuals. They ask, “Why are CEOs always portrayed as bad people?” To the average individual this question seems reasonable. Most reasonable people will agree that things are never black and white. Not all Muslims want to kill Americans and not all CEOs would sell their mother’s kidneys to buy a better cigar.

You are now thinking that I am exaggerating. No one would sell both kidneys for a cigar. Maybe a liver for a new Mercedes would be a better analogy.

CEOs are portrayed as greedy, ethically challenged, snakes because they are. These individuals have forgotten or never learned the concepts of honor, word, or compassion. They are the equivalent of slave traders. They do not care about the consequences of their actions as long as they make a buck. The primary justification is, “If I do not do this someone else will.” This is not just an opinion. I always view the world through actions. Words mean little to me. If a tree bears apples, it is an apple tree. The CEO can say all he wants that it is a pear tree. He can run huge marketing campaigns and even show his passion for the apple bearing pear trees but it is still an apple tree. This strong characterization is evidenced by corporate America’s actions.

Liz Moyer with Tatyana Shumsky of Forbes.com writes:

Bank of America told thousands of its cardholders in recent weeks--even those with good payment histories--that they faced a rate hike from 9% to as high as 28% if they didn't pay off their balances at the old rate and stop using their cards. The bank, the largest credit card issuer, since its 2006 acquisition of MBNA, says it's all part of its "periodic" review of customer credit risk.
...
Bank of America (nyse: BAC ) gives card holders the chance to opt out of the higher rate by paying the account off, but such a request must be made in writing.

This is wrong. This is the reason why we need greater regulation of the financial sector. If Bank of America wants to change its rates on a revolving account it can do this but it cannot change the contractual rate for previous purchases. It also cannot require those in financial difficulty to pay off the entire amount to avoid the higher rate. For the rich, paying off the amount will not be difficult. For the family, massacred by the disastrous policies of Reaganomics, paying of the amount is just not an option. This means that they will now pay usurious interest rates even though they have been regular in their contractual agreement. This operation, to be followed by all of the institutions, will create a new group of slaves in bondage to the financial institutions.

Most of these debtors are good, hardworking people. Whether or not they have met their contractual obligations is not important. They will find themselves in the position to work indefinitely for the financial institutions or declare bankruptcy. We should not be surprised that the new bankruptcy laws will not allow credit card debt to be written off entirely.

These immoral and unethical actions are the fruits by which we can measure the moral fortitude of our business leaders. We cannot allow these individuals to hide behind corporate structures. It seems that today the outrageous is widely accepted. We raise independent thinkers and those who stand out to the highest pedestals. Raising the mignons of corporate America to star status undermines our country and destroys the hope that is the American Dream. These individuals must be set apart and publicly ostracized. No matter how much money these corporate elites have or command they must be put in the streets and locked in stocks and pillory so that those whose lives are forever maimed by their actions can show their displeasure. Perhaps after a thwacking CEOs would learn why the good of the many is more important than the needs of the few.

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The FED is a victim of its own SPIN

In the ongoing saga of the disastrous US economic situation the FED dropped interest rates an additional % 0.50 today. This makes % 1.25 in the past 8 days. The Reaganomic Pimps applauded the FED’s action. The Dow Jones Industrial Index went up 200 pts only to close 40 points down by the end of the day. Some time ago I wrote that the FED could drop rates to a negative return rate and it would make no difference. I suggested they drop by % 1.00 just to get the monkeys to shut up so we could talk about the real problems. As I proposed the FED rate cuts have not made any difference. Even the Administration’s plan to pump $150 billion will do little more than create a short-term bump in the economy. The real problem is structural and band-aids just will not heal the patient.

The last 2 years have seen the Administration and the FED to say that the economy was strong. FED Chairman Alan Greenspan, when asked if housing was a bubble, he stated that data did not support this. He stopped short of using the popular phrase, “They are not making any more land!” It was obvious to all that the housing market was in an abnormal cycle but the FED’s data did not support it.

The current downtown, recession or depression, was also obvious to most thinking people. Still today the FED’s data does not support that opinion. The illness is the FED’s data. Since the inception of Reaganomics the FED has been tweaking the way data is counted and elaborated. Just as soon a real data would show that the economy was having problems the data was either discarded or superceded by some other type of calculation. Some economists believe that it would be impossible to have negative GDP under the current system. These changes were effected for the sole purpose of allowing the destructive forces of Free Trade to progress without raising alarm signals and creating a national debate.

The current situation, augmented by the BIOTECH-Internet-Housing-Financial bubble, is now disastrous. Still today with all the DOOM and GLOOM we are still underestimating the structural damage to the US economy and America’s pocketbook. I do not believe that the FED is clueless. I do believe that either they are not scholastically prepared to understand the data or the data no longer has any value. In the latter case the FED would be a victim of its own spin.

Just a final note: The pundants are predicting great growth in stock prices over the next six months. I believe we will see a historically significant down day in the next 10 days followed by a slow and painfull slide. The slide will end as WE start taking on the real problems. The dollar will continue its move toward 1.75 against the EURO and inflation will skyrocket.

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Reaganomics causes Recessions – Economic Stimulus Needed

Secretary of Treasury Hank “Henry” Paulsen finally acknowledged that the US economy sucks. President Bush meekly accepted that there are mixed signals but the underlying economy remains strong. Perhaps he is talking about the Chinese or other third world economies that supply the 82% of US consumption because he cannot be talking about anywhere in the continental US. President Bush and Hank Paulsen spoke of stimulus packages for the US economy. In the spirit of no crisis is too grave to cut taxes on the rich, Mr. Bush talked about making permanent his tax cuts. Even if this would do anything other than make the rich, richer this would do nothing until 2010 when the current entitlements for the rich expire.

Other programs include bailing out the financial institutions. The push back from the general public was so strong that Countrywide, the poster boy of Corporate Greed and malfeasance, dropped another 30% today to begin trading at bankruptcy levels. In the true spirit of Reaganomics Financial Institutions continue to present vague and misleading information regarding their economic stability. Some institutions, like Countrywide Financial, are falsifying documents in court proceedings to inappropriately participate in the personal bankruptcies a direct result of their immoral practices.

There are stimulus packages that talk about rebates. This package would entail sending a refund check to taxpayers once their IRS return has been filed. While tax reductions are a great thing they would simply be a band-aid solution. This type of intervention is the only one guaranteed to get money into the system immediately but they leave the reasons for the economic problems in place. Unfortunately just the rebate, without further structural changes, will only increase our public debt.

There are stimulus packages that talk about eliminating corporate taxes. Obviously this comes from Corporate America. It does not merit discussion.

How about investing in America?

Inspect our ports for faulty and dangerous products.
Control our borders financing the fence.
Repair our bridges, levies and basic infrastructures.

These are not the superficial quick fix everyone seems to want but they will start America on a path to prosperity instead of the road to the poor house we are currently following. Every operation we undertake must be balanced. We must reduce our debt. We must create economic activity inside the US. We must reign in the power of Corporate America. Finally, we must legislate every aspect of the financial institutions operations. These things will create the greatest economic boom since the 1950s.

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Government by, for and of the Corporation

Americans, outside of the ivory towers, are aware that the US economy is in difficulty. There is no need to study the economic data, MM2 or MM3. They know things are bad because they are losing their jobs and having a hard time making it to the end of the month. Most Americans know that inflation is rampant since they have to heat their homes, drive their cars and buy food. Even the most supportive of President Bush are somewhat dismayed when they hear empty phrases like, “the economy is on a strong foundation” or “additional tax cuts for the rich are necessary.” In the real world things are bad and getting worse.

The Bobble Heads of Wall Street also know how bad things are. They can no longer talk about soft landing or Goldie Locks. Now they are looking for someone else to blame. They run around like chickens with their heads cut of ranting about how the FED “knows nothing”. They believe that America is contained inside the Island of Manhattan and that the only thing that is important is the salvation of Financial Institutions. They believe the hundred million dollar salaries of corrupt and incompetent management teams are more important than the jobs of the rest of America. They refuse to accept that Corporate America is the cause and not the victim.

These individuals are calling for an additional rate cut. They argue that this will increase spending by making more money available. They conveniently ignore the fact that the dollar has lost 50% of its value because of poor economic policy, American debt at historic levels, GDP based on smoke and mirrors service revenues, and forecasts for a much poorer America by international economist. They think that further augmenting the debt crisis by making even more money available will do something good. Rate cuts have proven, and will prove in the future, insignificant. World financial markets are more liquid than previous years and international investors will not buy the Polyannesque policies of the US.

For every 25 basis point drop in the interest rates the dollar will weaken proportionally. Oil in turn will cost more as producers realign the value paid for oil to represent real dollars and real buying power. Since the US does not produce more than 12% percent of the goods it consumes, inflation will directly reflect the falling dollar. Lowering interest rates will do nothing of value. Lowering interest rates will cause a brief increase in stock prices so financial institutions will liquidate their stock positions to unsuspecting Americans. Who cares that the losses will then be recorded in the 401K and IRAs of working America.

We have a few choices. The FED can, and most likely will, lower interest rates by at least 50 basis points. I say why so little. Drop the rates by 400 basis points. Even though dropping interest rates will have no real benefit on the US economy, this would at least quiet the monkeys.

Another, more responsible, road is to accept Reaganomics for what it is. Reaganomics is economic policy designed to redistribute income from the working class to the governing class. Once we accept that Reaganomics do not work, we can implement sound economic and trade policies that would return the US to a productive powerhouse. We can require that any country exporting to the United States be required to follow all laws and regulatory entities for the procurement of raw materials, materials, labor laws, indenture, design and energy production. We can inspect and clearly identify all products regarding origin and content (including genetically cloned meats and by products). Finally we can invest in the United States infrastructures and the United States citizens.

These two strategies are very different and they will take us to different places. I believe we should be fighting for our country and our children’s future. I believe that America can be great again. I believe that if we continue on this road to destruction as mapped by Reaganomics we will see poverty never known in the history of the US. All our big guns and smart bombs cannot save us for the decay of our economy and national infrastructures.

It is time that we invest in America. It is time that we return the United States to its citizens. It is time that America returns to be a Union by, for and of the PEOPLE.

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Reducing Deficits – Can the FED

The United States Government has been running increasing deficits. The Government continues to spend excess liquidity from the Social Security fund paid by workers over the past 75 years. The government knows that the contractual agreement of Social Security will bankrupt the government if they do not replace these funds or cut costs. Their answer is to reduce contractually agreed benefits placing the burden on those who contributed to the fund.

I suggest a different answer. Let’s eliminate useless agencies. The FED has become nothing more than a Sugar Daddy for speculative financial institutions. When the cute smoke and mirrors service sector known as Wall Street makes mistakes the FED intervenes and congress bails them out. This makes the real economy, what is left of it, uncompetitive on the world markets. Originally the FED was designed to control dislocations and excesses of the financial markets however in today’s Reaganomic based financial scam Wall Street completely dictates the actions of the FED.
The FED costs the US taxpayer a great deal of money. Additionally it is responsible for bubble creation and facilitates the devaluation of the dollar by increasing M3, conveniently eliminated from FED policy several years ago. Banks are encouraged to enter into speculative operations by easy money. Individuals are encouraged to spend more than they make because there is no return on savings.

The FED is thinking only about the short term. It does exactly what Wall Street calls for but we have learned that short term focus is usually not in the best interest of any entity. I guess the old adage, “Eat drink and be Merry for Tomorrow We Die!” is the FED’s motto. The FED is doing exactly the opposite of what it should be doing in the long term. We see the disastrous policy expressed as LIBOR spreads continue to increase. In fact we see other interest rates remaining high while the FED lowers rates. The dollar is sold as the Economic Policies of the US are seen as creating greater future problems. All said, the FED is creating more problems than it solves. If an agency costs money and we need to reduce the deficit and the agency is not performing its mandate then get rid of it.

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The Season of Hope – Saving the US from economic collapse

Reaganomics has destroyed the basic foundation of the US economy. The smoke and mirrors “Service Economy” has more leaks than a sieve. The Housing crisis and current credit crunch are just predecessors of other and more serious symptoms of failed economic policies forced on the United States over the last 30 years. Those in the Ivory towers are yelling, “Everything is fine, go out and buy more this Christmas.” When asked why so Polyannesque in chorus the words resound, “because I love America!”

Thus to love America is to turn a blind eye to the problems facing Americans. To love America is to rape and pillage the working class to favor the “institutions.” To love America is to allow our children to be poisoned and our troops to die in the name of corporate profits. To love America is to allow our fellow citizens to live on the streets or die of curable disease. To love America is to dedicate our existence to furthering the true masters of government, the financial institutions.

Those who love America will further cut interest rates in face of raging inflation and a falling dollar. They will bailout the speculative positions of the financials institutions with our tax dollars and they lead us into collapse. They will pass legislation with tax breaks for oil companies to keep us dependent on fossil fuels. They will fight every law to clean up tax law and eliminate the special treatment for the rich and powerful.

I guess I am not a good American. I want hope. I want a brighter future where individuals are respected and every child has the opportunity and the education to become what ever he wants, whether that be a plumber or president. I want a government that represents the people. I want a government that tells us the truth and takes on the real problems we face. We Americans will make sacrifices. We will use our ingenuity to find new fuel sources. We will gladly work in the fields on family farms. We will innovate and find ways for all to have healthcare.

While those in the Ivory Towers shout their rhetoric I listen for an alternative. We need change. It cannot come from the existing institutions. It can only come from the people. We must do this before we have a new version of Hooverville. Every city will have Reagan County with Bush1town, Clintontown, Bush2town, and Reagan Central. If this happens it will be too late to make changes. After years of dominating the world the world will attack our weakness and we will risk speaking some other language.

The voice of hope is silent. The voice of America has been gagged. This is who we are. This is our genetic makeup. We are not cattle for the slaughter. Christmas shopping is not the most important thing for us. We will prevail!

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Free Market - Only applicable for the working man

US Treasury Secretary, Henry “Hank” Paulsen, today announced the administration’s plan to fix the massive foreclosures a direct result of speculation by financial institutions as they greedily chased an expanding market completely ignoring the bare basics of lending. Loose lending standards propagated by greedy institutions have created serious resource dislocations and allowed consumers to access credit for homes they cannot afford. This is a serious problem with most major US financial institutions hiding losses that would result in their bankruptcy.

In traditional Reaganomics fashion the Secretary of the Treasury announced a bailout for homeowners in foreclosure. The unusual thing about this plan is that it will not help homeowners. Paraphrasing:

“The US economy is strong… blah, blah, blah … This is not a bailout… blah, blah, blah … We want to help American homeowners… blah, blah, blah … Three part plan… blah, blah, blah … Freeze interest rates for a period of time… blah, blah, blah … Only homeowners with good credit… blah, blah, blah … Only homeowners who can make future payments… blah, blah, blah … No homeowners that can afford higher rates… blah, blah, blah … Congress will authorize new tax free bonds (No opportunity is too serious not to propose a tax cut for the rich)… Fannie Mae and Freddie Mac will be an important part of this program … Whoa Nelly!”

Hidden in 30 minutes of political mumbo jumbo the bailout for financial institutions. Freddie Mac and Fannie Mae will have their loan limits increased, their reserve requirements relaxed and be forced to take on all of the junk. It is obvious that the implied US governmental guarantee will become a real guarantee. The $1.5 trillion speculative hole will weigh on the US taxpayer.

This is just another example of our corrupt and decadent mentality. We spout words of personal responsibility and adaptation. We pass legislation that eliminates the possibility of a new start for the individual. Free Market is our cry yet as soon as the disastrous consequences of Reaganomics show their ugliness we call for the government to bail them out. Cowboy Capitalism is only valid to rape and pillage the working class. Reaganomics exists only to protect the corruption of family dynasties.

The housing crisis is serious. The solution is simple. All those who created and profited the leverage in the mortgage industry should have their ill gotten gains sequestered. The future of Citicorp, Bank of America and Goldman Sachs is not more important than the future of our nation. Tax revenues must not be used in any form to bailout the financial institutions no matter what the cost to their balance sheets. We cannot afford to care for our sick, we cannot feed our hungry, we cannot house our homeless. We surely cannot protect the McMansions of Wall Street.

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Why Wall Street CEOs Earn Multimillion $ Salaries!

It should be a reasonable assumption that no single individual can bring the same value as what can be produced by 10,000 other people. This can be supported by the fact the great pyramids, the great wall and other truly major accomplishments were made by people who would have a hard time finding a dishwasher’s position here in the US today. So what makes some institutional investors believe that one man is worth more than 10,000, and in some cases 100,000, employees?

This week the FED has reiterated numerous times that it intends to bailout financial institutions with a move much stronger than the economically disastrous move it made it August. They ingenuously stated that the August move did not resolve the problem. It is comforting that our government employs individuals so astute. The new, and improved, bailout will be sold to the public as saving the poor homeowner.

This bailout will do the same as the last. The dollar will fall, inflation will exponentially explode, and the stock market, after a brief rally will tank again. All of this will occur and homeowners will still have the same problems as today. They will lose their homes. The banks rally on these proposed plans because the government will keep them from losing money on the foreclosures. Creating excess liquidity and low interest rates will create a new bubble in some other smoke and mirrors sector like Internet or Housing.

The FED knows it cannot fix the excesses created by institutional speculators who throw caution to the wind while playing the subprime roulette. The members of the FED have said as much. So why are members of the FED willing to throw away distinguished careers to be remembered in history as facilitators of the greatest depression in the US economy. A depression of this magnitude would most likely creep into the rest of the world and could trigger a deflationary period similar to the Dark Ages.

This is where the Wall Street CEO makes his pay. Only the best are employed in this activity. They must woo the regulator and convince the government that it is in the best interest of all that the interests of financial institutions are greater than the good of the country. He must engage his imagination and supply plausible mumbo jumbo talking points to make the pill edible. It takes a unique individual to play this role. Most Americans would puke their dinner every night as they consider the repercussions of their actions. Simply put, a normal human being could not live with himself. These superhuman CEOs are able to sleep at night knowing that while people are dying because we cannot afford health insurance, families are homeless and children have no hope for the future they will use public funds to enrich the coffers of financial institutions.

The result is simple. The losses from the speculative actions by financial institutions would cost the bottom line 1.5 trillion dollars. Through these gods of Wall Street the losses will be 1 or 2 billion. The 200 million dollar salary of the CEO is a cheap price to pay for the governmental bailout they can provide. Another example of Reaganomics at its best: A government of the corporations, by the corporations and for the corporations.

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Stagflation or Brain Stagnation?

The month of November brought a slower stock market. Most Americans were Giving Thanks for having jobs, any job, at any price. Those who were not so fortunate to find part-time employment in some Walmart or McDonald’s Gave Thanks for the numerous food recalls. The trash bins have never been so bountiful. A smorgasbord of free meat and vegetables were readily available even if they did carry a few uninvited guests. Never look a gift horse in the mouth. The government found an unintended ally to fight obesity. The 50% annual inflation in energy and food is helping Americans, if they can avoid the temptation of government subsidized, fructose based, foods from the supermarket shelves, shed a few pounds.

Our politicians continue to use their screened data to support that the economy is doing great even while consumer confidence hits decade lows, the falling dollar, energy prices at historically high levels, the housing market in the worst free fall since the great depression, and food pricing doubling every year. Governmental data indicates flat GDP. This is no small feat with the way the US government chooses to calculate GDP. We have seen this before. Most Baby Boomers have lived through it. It was the late 70s that we coined the phrase STAGFLATION.

Our government is moving with its usual competency. The FED is preparing for another bailout of the financial institutions along with lowering interest rates. Now that is just what we need, interest rates cuts, utilization of tax dollars to bailout speculative financial institutions further damaging public accounts, tanking the dollar and further increasing inflation.

Recent FED decisions and current statements by FED members has turned the FED into a joke. Market players and Financial Institutions know all they have to do is to shout a little and say how stupid the FED on national television and the FED will do whatever business wants even though the FED knows this will be disastrous for the US economy. This is not surprising considering we have the King of Wall Street as Treasury Secretary.

The current actions of FED will do no more good than the bailout in August. The current economic situation is a direct result of Reaganomics. To simplify America is spending more than it produces. Reaganomics has allowed the government to hide the pillaging of America as they count financial gains as part of GDP. America has become nothing more than marketing and financial institution. It is affectionately called the Service Economy but is nothing more than smoke and mirrors.

Whenever economists discuss the appropriate action of the FED those supporting the bailout proposal find themselves quickly without arguments. There is no good economic reason to reduce the FED funds rate. The final argument, usually shouted, is, “What do you want to do destroy the financial institutions? These are not the housing companies. These companies are America’s economy!”

The FED vice chairman declared today that these actions are necessary. “We must not hold the entire economy hostage to punish speculation in financial institutions!” Yes, American citizens must pay to protect America’s 100 million dollar CEOs from losses on their bad choices.

Corruption is the one thing capable of destroying any great empire. It has brought down the most vicious of dictators and the most democratic of societies. It is a scourge and it will bring America down if we do not take a stand and let our government know that this is not acceptable. I wonder if our current economic crisis is better denoted as STAGFLATION or BRAIN STAGNATION. Is it possible that these really smart people cannot see the obvious writing on the wall? Are they so blinded by their fairytale belief that you can create something from nothing? Have they not learned that Alchemy, just does not work?

To procure a better future we must throw away the rose colored glasses and make significant changes to our system. All traces of Reaganomics must be eliminated from our economy and our government. We must destroy the smoke and mirrors “service economy” and actually produce something of value. The short-term will be bad but the future can be better. If we continue on this path of economic insanity the very short-term may see a rise in the stock market but our short, medium and long-term prospects are nothing short of Armageddon.

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US Government’s Economic Policy ravages US markets – Financial Stocks Tank

The piper has come for payment. In August the Fed bailed out their buddies in the major US financial institutions. After years of speculating in credit derivatives the collapse of the housing bubble threatened the existence of most financial institutions. Instead of requiring the institutions to write down their bad positions the FED pumped in almost $1trillion in liquidity and piloted the purchase of Country Wide Financial, the poster child of bad lending practices, by 4 major banks utilizing funds lent by the Federal Reserve to these institutions. The FED lowered interest rates even though real inflation is through the roof. This was a really bad move but right in line with the disastrous ideology of Reaganomics.

The US dollar has been losing value for the past 5 years. A country’s currency can be seen as shares representing the country’s equity. Just like shares if you spend more money than you earn the currency diminishes in value to represent the new economic reality. If a company creates more shares the value of existing shares is diminished. If the company pays a dividend it receives a higher valuation. The dividend for currency is interest rates. A company may also receive a higher price if the future outlook for earnings (retained equity) is positive. The dollar has devalued because of the current account deficit, budget deficits, artificially low interest rates, and the lack of faith in the United States as a going concern.

The US has eliminated internal production of goods and services. The US only produces 20% of the goods it produces. The US is completely dependent on countries that do not have our values or our product safety laws. The excuse is for cheap labor but the reality is that products may be produced using materials and processes banned in the US. If a worker dies, well, “C’est la vi.” That glue is not available well GHB will do just fine for a child’s toy. The shipping costs are offset by cheap energy produced by high polluting processes. The US cannot complain about quality or the producer will stop shipping goods and stores in the US will have empty shelves. The economic impact of Free Trade at all costs is a reduction of middleclass jobs, lower wages across all segments, and a migration of wealth from the middleclass to the upper class.

The US lives on a smoke and mirrors “Service Economy”. US corporations have become nothing more than marketing companies. Research and Development, Intellectual property, quality workmanship are no longer important. We now make money without working. Wow! Experienced and educated professionals are the latest in the outsourcing scheme. In countries where University is free the PHDs abound and corporate America wants a piece of these low cost professionals. We are now emptying the US production machine, basis of any country, of the last remaining resource, educated scientists, engineers, and top managers.

Corruption is widespread in both Government and Business. Taxes are a cost of doing business. Corruption is a hidden tax on the economy. Corruption is paid for by the collective while the benefits are limited to the parties involved. Corruption is considered a victimless crime. This is like saying that dumping toxic waste into the watershed is a victimless crime. There are victims it is just harder to find the direct correlation. Corruption affects everyone in the country. It reduces GDP just a higher taxes or high interest rates. It causes the loss of jobs. I consider governmental corruption up there with mass murder because the economic effects are felt by rich and poor alike. This in turn results in people not being able to pay their bills, have homes or sometimes even eat. Corruption should carry a mandatory life sentence and lobbying by corporations should be made illegal.

Collusion between politicians and Corporate America has distracted resources from internal infrastructures. Lobbying is legalized bribes. In any other developed country the activities of lobbies would be considered criminal. In the early 90s Italy went through a cleansing process eliminating entire political parties and incarcerating corrupt politicians. The activities were no different than our politicians taking vacations (or the many other perks) on the corporate dime. Italy has since maintained a stable government, reasonable growth, and contained inflation. It would be valuable to discuss the pros and cons of corporate lobbies. It is a good thing that citizens can petition their government for change. It is a bad thing that corporations can petition anyone considering the fact that corporations are not citizens. Corporations have one objective: to make money and the corporation is often misused to further an individual’s greed such as a CEO that makes hundreds of millions of dollars.

Our system is on the verge of collapse. We need to make changes to the underlying system. The problem is grave. The difficulties we are current facing have been brewing for thirty years and cannot be overcome with a change in interest rates or throwing money at the problems. Change will not come without sacrifice but it is time to pay the piper because the piper will always get his due. Our politicians have no vested interest in change. They are more powerful and receive higher compensation than any time in history. To start to fix the problem we need to change the players. We need real working people in Congress. We need a President who represents us and will think about his country before he thinks about his legacy or other personal gain. We need an individual who is not a politician, someone who actually works for a living (or would if he had a job left). Perhaps one of the workers from middle America who has seen his job outsourced or the scientist who cannot pay his university loans because wages for professionals have been trending downward.

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The Bailout of Speculative Investments continues - The Mafia is Alive and Well

Recently I suggested it would be less expensive for the US government to give $1 trillion to the financial institutions to cover their speculative losses than to play the games with interest rates and liquidity which will have long term negative effects on the US economy. It seems that someone, who actually counts, had the same idea. The Treasury, yes Mr. Wall Street now Treasury Secretary, is sponsoring the creation of a bailout fund between Bank of America (BAC) and JP Morgan (JPM). The fund of $ 100 billion would buy distressed bad loans allowing the banks to not write off the bad loans.

These loans would then be packaged again and sold “avoiding fire sale pricing.” Where have we heard this before? Rumors are circulating, “the fund is guaranteed by the government”. It is so sad that we live in a country that will spend its money protecting the financial gains of speculators and “cannot afford to insure poor children!”

The examples of collusion and corruption are too numerous to list. Politicians are using our tax dollars to repay the favors from corporate America. We often think that the mafia has been eliminated in the US. I suggest that the mafia is alive and well. It has changed form. Now they call it Corporate America. The ills of corruption are the same. The economy suffers. The citizens are intimidated and freedoms are lost. So at the risk of finding a dead fish on my doorstep, this is CORRUPTION. Stop Collusion between business and government. Prosecute politicians receiving corporate bribes.

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Spinning Recession – Redistribution of Wealth from the Working Class to Corporate America

Unfortunately, we have another example of the US government spinning the data to give billions of dollars to financial institutions. About 3 weeks ago we were at the pinnacle of the credit crisis. Countrywide and other lenders were insolvent. Major banks would not lend money to each other because each bank knew they had significant exposure to bad debts but no one else knew how bad the situation was. The banks were thinking, “If I have this type of exposure who knows what is on the books or the bank that wants a loan?”

Since banks no longer keep sufficient reserves to cover the deposits the banks were facing runs on the bank. The banks only keep a very small percentage of their client’s money. Over the years the US Federal Reserve has reduced the required deposit reserve allowing banks to leverage their positions to ever greater amounts. If all the clients ask for their money in a short period of time the bank would have to liquidate their investments to raise cash. The investments would be sold at current market value (much lower than the amount written on the books since these are illiquid assets).

In this situation, the banks would stop repaying deposits, close their doors and declare bankruptcy. This would cause other banks in the world to have less faith in the US system and the ongoing reallocation of resources would favor the EU over the US. This would in turn eliminate 40% of GDP generated by the smoke and mirrors “service economy”.

The FED needed to do something however the people, rightly so, wondered why the US economy should pay for the speculative mistakes of the financial institutions. Strangely enough, out of the blue yonder, four days before the FED meeting on interest rates the Payrolls report showed a loss of 4,000 jobs during the previous period. Even more unusual was the drop in government employees and teachers. Somehow, just as schools were hiring new teachers for the opening of the school year the government lost 28,000 employees? The Wall Street Journal reported that the data was fishy. Adding up all of the States data the national data should have increased government payrolls by 88,000 instead of losing 28,000.

Again, strangely, the revised data present on Friday October 5, 2007 for the month of September increased the number of government jobs upward by about 50,000 employees. So the FED decreased the FED funds rate by 50 basis points based on the government employment data showing a loss of 4,000 jobs driven by losing teaching jobs at the beginning of the school year. The drop in FED funds rates allows financial institutions to get rid of speculative positions. The dollar drops 3% creating a 36% inflation rate for the month of September and costing all Americans 3% of their total wealth in one month. The next month’s payroll data shows that the very data that allowed the FED to lower rates was tremendously wrong. If it smells like a turd, looks like a turd, feels like a turd, do you need to taste it to know it is a turd?

The same institutions that are taking billion dollar handouts from your tax dollars and devaluing your savings are promoting personal responsibility for the average citizen. You must lose your house to foreclosure yet the companies can make bad decisions, speculate and get bailed out by the government using your money. This is just wrong. It is time to let your government know that you will not stand for this. Congress must investigate the FED and the way this information was compiled and presented and in the case of malfeasance ask Federal Reserve Chairman Ben Bernanke to resign.

Tags: Government Politics Recession Corporate America Finance Illegal Immigration Economy Reaganomics

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Just give the Speculators $ 1 Trillion – It will cost less

Our great public servants were on capital hill today answering questions about the economy and the credit crisis. Mr. Paulsen explained how strong the US economy is. In a separate press conference Mr. Bush explained how optimistic he is about the strong US economy. Mr. Bernanke explained that the Federal Reserve moved so aggressively because the US economy risked a depression due to the credit markets freezing up. WTF?

What is it? Is the economy great or has irrational exuberance taken its toll on the US economy? The dollar hit historic lows again today. Oil is going to historic highs and gold moved up another $14. Little known is the fact that the Congress must pass new legislation to increase the public debt ceiling otherwise the government will shut down again. Every two years we have to increase the ceiling because we continue to raise the level at which we consider safe our public debt.

The situation of the US economy is serious. Inflation is rampant. Many middleclass families here in Texas are using their credit cards to buy food. Over the past year they have sold their vacation timeshares, they have decreased the number of times they go out to dinner during the week. One of the two parents has taken a second job. Yet they are using their credit cards to pay for food. Interestingly they have a fixed rate mortgage…

Much to the delight of Wall Street the administration is talking about using the GSEs (federally mandated corporations) to take on more of the bad debts floating around. These are the same companies who last year lost 50% of their market value because they had been cooking the books for many years. Under the guise of a limited period of time, in reality these corporations will enter larger markets and never get out creating greater exposure for the US Taxpayer.

When asked about inflation pressures from the falling dollar Mr. Bernanke responded, “It could be a problem, we are keeping a watchful eye…” We know that this is a government “of, by and for the corporation” so let’s get this out of the way. Just take $ 1 trillion and hand it out to all of the speculators who lost money by making bad investments. It will cost us less and we can start taking on the real problems of the US economy. Perhaps we can talk about rebuilding our infrastructures. We might even be able to afford healthcare for the US taxpayer. Who knows we may even be able to protect our borders and inspect imported goods.

Tags: Government Politics Recession Corporate America Finance Economy Reaganomics

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FED sells out to Financial Institutions – Risks Inflation to Bailout Speculators

My business mentor taught me, “If you have to go bankrupt make sure you create a very big hole.” His reasoning was simple, if banks were going to lose a great deal of money they would not let you go under. If you are responsible and try to keep your debt and equity ratio in line they have no interest in saving your company. The FED just cut the funds rate and the discount window 0.50%.

The FED stated that it was acting to help the market be more liquid. It is not important that food and energy prices are up over 20% (so much for inflation). The dollar responded dropping to a new historic low against the Euro. Oil went up and we can see that commodity prices will continue to increase. In a service economy, like the US, where we produce only 18% of what we consume, the lower dollar is inversely proportionate to increasing inflation. In other words, today the goods you buy to survive will cost 1% more than yesterday. That translates to a 365% annual inflation rate.

The financial analysts are already talking about moral hazard. The favorite saying is, “Do you want to make the entire economy suffer to PUNISH a few greedy individuals.” This is an obvious attempt to move the discussion from the Bailout of Financial Institutions to punishing some unknown hedge fund. In a country where we have 1% of the population homeless, 33% of the population “Food Insecure”, we cannot afford national healthcare and kids have to mortgage their future to pay for college, we can make the population pay to Bailout the Financial system.

The problem is not the seizing of the credit markets. Banks who do not have sufficient liquid reserves are insolvent. That is what the term means. They should be forced into liquidation. Remember these are the same companies where the CEO makes $100 million a year.

The real problem with the US economy is that we no longer make anything and in this “service” economy we have allowed our infrastructures to go to pot (and not the kind you can smoke). We must refocus our energies and fix our economy. The excesses must be eliminated and resources allocated to create value not just smoke and mirror services.

The housing market did not begin to deflate because of the credit crunch. The imbalances in supply and demand caused the stagnation in the housing market. This in turn made investors sell their houses causing an increase in inventories. This resulted in the inability to tap into the fake house equity appreciation resulting in borrowers defaulting on mortgages and foreclosures thus increasing inventories. The reason for all this hoopla is that we built too many houses accompanied by a bad economy. It always comes back to, “It’s the economy, stupid!”

I am really naïve. Although I know that our public servants think only about their own personal interests and how they can get more money from the corporations I always hope to be surprised. I want to be able to respect our government and the people in it. I want to have faith in our government when they tell that we need to do something that it is actually true. I want to know that politicians and government employees are doing the job they are paid for so I can worry about doing my job.

This move by the FED is a bad thing. The stock market will go up but this will not have a positive effect on the disastrous situation of the US economy. Unfortunately if people do not have jobs they have a hard time accessing credit. If food increases 20% a year at a certain point families must choose between eating dinner and buying clothes.

The only way I can think for the individual to offset this is for every working Joe to become a day trader and hope they can ride the wave before the financial institutions finish selling their holdings leaving the US economy in shambles. Greenspan was worried about some country in the Middle East cutting off oil supplies. I have serious doubts that when this happens that our economy will have a need for oil as we head into Argentina style inflation and 1930s style depression.

Good job, Mr. Bernanke. I hope you are well compensated. Just think, every time the TV gurus do not agree with you they will tell you, at full volume, just what you need to do.

Tags: Government Politics Recession Corporate America Finance Federal Reserve Economy Reaganomics

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Governmental Bailout for Corporate America

Labor day has come and gone. The new day’s dawn brings further evidence of the reasons why Corporate America should not be allowed to lobby your government. With Mexican truck scheduled to start rolling on US highways without any type of control or regulation the FED is talking about saving the Financial Institutions from paying the price of their greedy ways. Obviously the wolf in sheep’s clothing is that we must save American Home Ownership. The truth is that you will work an extra hour a day, every day, to subsidize the US financial institutions.

The first move is the made at the Federal Banking Window. Since the private equity deals have priced their paper under their risk level, the banks intend to finance these deals and then sell the paper to the Federal Reserve, obviously after they take their fees. The private equity groups will then break the companies up, fire as many employees as possible, remove pension funds and then take the companies public again.

The second move by your government is to lower the FED Funds rate. It is thought that this will stimulate the movement of money. While it will most likely encourage further financial deals that would not have a place in the real world the true problem is that Reaganomics has assaulted the core fabric of the Middle Class. By artificially inflating the financial sector the FED will, in fact, create further inflationary pressures. This is accompanied by increasing unemployment forecasted by most economists putting further pressure on wages. Inflationary pressures by excess liquidity, falling wages, increasing unemployment and rising taxes to pay for the Financial Institution’s bailout are the recipe for stagflation that can then become a depression. Sadly economic cycles balance themselves over time. It has taken us 30 years to arrive at this point. It is reasonable to assume that it will result in a 30 year depression to eliminate the excesses.

The optimists ask “how can you get up in the morning with this view on life?” Somehow they believe that hiding your head in the sand will make the problem go away. I believe that if WE THE PEOPLE take back our government and eliminate the collusion between corrupt politicians and greedy CEOs with their $100 million salaries, we can mitigate the difficulties. Yes the price will be paid. There is no way to get around it. Sooner or later we must suffer the consequences of our decisions. The sooner we acknowledge the problems and take serious action to renew this great country, the lower the price. This is our country, comprised of WE THE PEOPLE. It is not the corporation’s personal bank. This country does not belong to illegal immigrants. This country is not a province of Mexico. It is our heritage, we must fight for it if we want to keep it.

Tags: Government Politics Recession Corporate America Finance Illegal Immigration Economy Reaganomics

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Mr. Bernanke, Save our $ 100 Million Bonus!

The whining CEOs of America are at it again. In chorus they are calling for the Federal Reserve to decrease interest rates. The tight monetary policy is destroying the economy. Mr. Bernanke, can’t you see that we are in a recession and we will lose our jobs. Mr. Bernanke, Please drop interest rates, our $100 million dollar bonus is based on stock performance. Without intervention from the FED our stock prices will go down. It will be a disaster, this year we will only make $2 million.

It does not matter that these CEOs have driven their companies to the brink of disaster. It does not matter that they have fired their US employees. It does not matter that customer service is now inexistent. It does not matter that these CEOs have lost their competitive advantage by purchasing shoddy products from “developing markets.” It does not matter that they have knowingly introduced into the US market dangerous products undercutting the profitability of US produced goods and services. All that matters is that these “Pezzi da Novanta” are going to lose their bonuses.

Yes, I agree, the US economy is in the pits. Yes, there are many problems. Yes, unemployment is really about 12% instead of the 4.5% listed in the government data. Yes, public debt is 70% of GDP as measured by GAAP. But inflation is also rampant and the only way to bring it down is with tough love economic policy. We must reduce our debt, not by breaking the contract of Social Security, but be eliminating tax breaks and removing tax relief for the top 0.5% of the population. We must stop subsidizing US companies who produce products outside of the US through wars to “protect US interests.” We must eliminate financial institution’s stranglehold on US citizens by passing tough usury laws making “fees” part of interest costs and limiting interest to 10% above LIBOR.

We must take on inflation. Interest rates are historically low. Lowering interest rates at this point will only increase inflation. It will not take on the reasons why we are in such a mess. We are in this predicament because corporate America has taken over the government. America is longer a place of dreams. Americans are simply cattle for the slaughter for corporations.

Do not worry corporate America. Mr. Bernanke will come to your rescue. Good economic policy is simply a matter of perception. You will get your interest rate cut. The stock market will go up and you will get your end of year bonus. Unfortunately the future will not be as bright. Monopoly style economic policy will create further dislocations in our economy and sooner or later the piper will be paid.

Tags: Government Politics China Corporate America Finance Economy Reaganomics

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Will The US Government Bailout the Chinese Banks on Sub Prime?

Bad economic policy by the US Government, corporate cronyism, comprehensive financial incompetence, and 30 years of disastrous interior and trade policies of Reaganomics will force you and I to bailout the Chinese Banks for about $ 300 billion. Impossible? On August 23rd the major Chinese Banks announced their exposure to US Sub Prime mortgages. The Chinese banks are in to the US homeowner for about $300 billion. That is more than any group of US based banks.

The banks immediately explained, “Standard & Poors, the US debt-rating agency, rated these loans within our statute parameters."

This sounds like a threat for future legal action to procure retribution. China also owns a great portion of US governmental debt. China has threatened to sell their holdings of both US currency and Governmental paper over much less important things. The US economy only produces 18% of consumption. A trade war would result in public panic, hoarding and empty store shelves.

The US cannot allow the Chinese to get upset about their loss. The politicians may determine they are less scared of the US voter than the Chinese government and intervene directly. It seems more likely that the US government will act more covertly. Today the Federal Reserve weakened its requirements even further. The FED is now allowing banks to provide “commercial paper” as guarantees and significantly increased the amount of money these banks can borrow.

Yesterday, it seems, the FED bailed out Countrywide Financial. Today it started financing the repurchase of Chinese owned Sub Prime debt. Nice to know that our government is using our tax dollars to take care of the US citizen instead of protecting greedy financial operators from losses. Justification for the FEDs action came so ingenuously truthful from a primary economic analyst.

“What did you want the FED to do, allow the country to enter a prolonged period of depression that will make the 1930s seem like an economic boom?”

The financial, economic and internal production situation in the US is precarious at best. Our Government must stop playing games and come clean with the American people so we can take on these problems. We are not talking about protecting America from a few terrorists who want to blow us up. We are talking about protecting America from the destruction of our economy that will leave hundreds of thousands dying of hunger. Come to think of it this may be Bush’s legacy. The only President except Hoover to reduce America’s waist size.


Tags: Government Politics China Corporate America Finance Economy Reaganomics

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