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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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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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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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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Don’t Worry, We Know Better!

In one of my previous lives I was a turn around artist. I would go into either just before bankruptcy or just after bankruptcy and attempt to “save the savable”. On several occasions I helped long time friends. Once I got comfortable with the situation and saw how close they were to failing I would ask why they did not call me in earlier.

They would invariably respond, “I have seen what you have done with other companies. I knew you would cut the company and change it from what it was. I did not think our situation was that bad. I was sure we could turn it around with just a little more time.”

This morning current data indicated further deterioration of the US economy. Inflation is registering at a 12% annual run rate while consumer confidence is down. The FDIC announced that credit delinquencies in mortgages, car loans, credit cards and commercial paper are at the highest level in 30 years. The Vice Chairman of the FED came out and said that there is greater risk of recession than inflation. For some reason he sees the two as exclusive events.

The international markets interpreted this as the FED’s tendency to continue to lower FED funds rates. The dollar dropped to its lowest levels ($1.49 to buy 1 Euro). Oil increased to its highest level (over $100). Wheat, corn and all other commodities priced in dollars increased proportionately to the fall in the dollar.

This time it is different. Our economy has changed. Commodities are no longer the center of our production costs. We are the silicon tech economy where ideas are more important than physical goods.

This type of wishful thinking keeps us from taking the necessary steps to fix our economy and move forward for the future. Einstein’s theory is that mass cannot be created or destroyed. It can only change form. Energy is catalyst or the byproduct. Mass is the commodity. Our economy will be different when we change the source of energy at the base of transforming mass from one object to another. As long as Oil is our energy source it is the same old economy that Henry Ford took on.

If we continue hiding our heads in the sand hoping that our economy will fix itself things will only get worse.

The talking heads blame Ethanol for the rise in commodities. They blame the drop in the dollar on the European Union’s holding interest rates to fight inflation. They blame the loss of jobs on lazy workers. They blame the high cost of agricultural products on the Congress for not passing Amnesty legislation for slave labor.

At the same time our “compassionate” President says that he will veto the new bankruptcy legislation because courts should not tell business what to do. The Presidential candidates are just now realizing that “It’s the economy stupid.” For some reason they thought that people were more concerned about the war in Iraq instead of feeding their family.

Our leaders are hiding their heads in the sand. They refuse to accept that we need structural changes to eliminate the policies of Reaganomics. We need to eliminate our public debt and force financial institutions eliminate their unethical and immoral practices. We need to raise taxes and reduce our presence in the rest of the world. Remember we cannot take on the world’s problems if our own country collapses. We need to regulate business and eliminate illegal immigration. Most of all we need to return the United States government to the people of the United States removing all influences of business in governmental policy.

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Stagflation The Challenge of the New President

The US economy is slowly playing out the results of 30 years of Reaganomics. The excesses of the various bubbles created by irresponsible economic policy are wrung out of the system. Everyday brings new evidence of resource dislocations. The dollar trades at historic lows. Gold rises to historic highs. Salaries, adjusted for inflation, continue to slide. Core inflation, the one without food and energy, retains its upward bias. Real inflation, the one that acts on consumers buying power, rises to the highest levels in 50 years. Unemployment, even with the FAUX calculations of the Government, is above 5%. All this data reported by the FED while expectations of GDP are falling. Obviously the FED will not project negative GDP but recent real data is showing negative growth. This is the dreaded STAGFLATION!

The candidates for President of the United States range in their rhetoric from, “times are difficult” to “the economy is on a strong foundation, we need to confirm the tax cuts for the rich.” In some ways I feel sorry for the new President. The President will inherit a disaster that may or may not have become evident by the end of the year. To fix the problem the new President will have to get away from the Pollyannesque view of the US economy and take on business to restructure what and where we produce goods and services. Given the extreme pillaging of the US economy by corporations the fix will also need to be extreme. So many of the current Reaganomic structures will be influenced that it would be prudent to add extra security around the President as this individual will most likely not finish his term.

Many ask, “why so negative?” In reality I am not negative, simply realistic. If we refuse to see the problems we face we cannot fix them. Like a tumor they grow and fester. One day they are so powerful that the only hope of survival is radical surgery and aggressive attacks with radiation and chemicals. Many times the patient still dies. We are coming to the point when the symptoms of the illness will no longer be masked by band-aid type interventions. Interest rate cuts and stimulus packages will do little or nothing just as painkillers mitigate the pain but do not eliminate the cause.

Our new President will need WE THE PEOPLE for support. Sacrifices will be needed by all and public consensus will have to be unwavering to reform corporate and fiscal law.

Many still do not understand what I am talking about. Sure things are a bit tougher than times past but still pretty good. They are more interested in discussing whether or not gays should get married or if the appropriate drinking age is 21. These topics will become less important as the number of homeless increase. Those with homes will face the choices made in the 30s, pay the property taxes or eat dinner. The House Poor will be the new phrase. Times are changing. The data is clear. Save your money and pay down debt if you can. Cash will be king.

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US Values Special Interests more than Education

Why should the United States be concerned with providing education for its youth. The HB Visa program has taken care of America’s future. If we do not have enough Cheap University Graduates we can just import them from some country that provides free University Education to its citizens. Most Americans at this point are thinking this is crazy, he is just upset about something or that I am a Commie Pinko Fag (term from the 70s). Unfortunately, none of the above are true. The proof is in the legislation.

The Georgetown Voice writes:

The College Opportunity and Affordability Act of 2007, currently before both houses of Congress in different forms, would reform the corrupt student loan industry and make textbooks more affordable, among other admirable goals. Unfortunately, though, the bills also contain clauses that instruct universities to crack down on file-sharing on college campuses. While the Voice does not condone illegal file-sharing, Congress should not be roping universities into the fight against it, and Georgetown should not be diverting any of its limited resources into investigating students’ downloading habits.

If WE THE PEOPLE are interested in a strong and vibrant America then we must make education available to all no matter what one’s social status.

This is a bold statement. It sounds populous. It surely will upset those born into the Upper Class who enjoy a road less traveled. Thoughtful consideration instead leads us to believe that the strength of the United States in the future is best served by free University Education to all who desire it.

In any population there is a certain portion of a population that does well with manual tasks, others are thinkers, communicators, organizers or athletes. Rarely are the same genetic characteristics passed from parent to child instead they as the population mixes and mingles certain traits appear and go dormant skipping generations. Very complex children can be born to very simple parents and vice versa. Additionally science has found that mixing very different genetic characteristics produce better more adapt offspring.

The very mathematics of genetics teaches us that the best and the brightest will not come from the rich upper class. As a country interested in its future we should be facilitating the education of those least likely to fit the normal profile.

Our politicians are so corrupt and the collusion between business and politics is so great that our legislators have decided that it is more important to protect a corporation’s profits then to teach the greatest minds.

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NAR Lobby suspends funds to Congress

FED Chairman Ben Bernanke and Treasury Secretary Hank Paulsen spoke before the Senate Banking committee today to talk about the credit mess and the ensuing recession. Eliot Spitzer, Governor of New York, along with his Insurance Regulator, Eric R. Dinallo, addressed the U.S. House of Representatives’ Financial Services Committee’s Subcommittee on Capital Markets, Insurance and Government Sponsored Enterprises. They also talked about the ensuing recession and collapse of the US financial system. The Congress is now involved because years of corruption and unbridled greed created “complex instruments” that magically transformed junk grade investment paper into AAA top grade paper.

It would be reasonable to think that this was the most important thing going on in Washington. News Services ran continuous real time coverage, without advertising, for several hours. A small headline on the newswires instead caught my attention. It received no major coverage. Not even Lou Dobbs picked it up. The title read:

NAR Lobby suspends funds to Congress

The press release (yes, they sent out a press release) states that the NAR will not contribute further funds to politicians for their lack of action to resolve the housing crisis.

A fantastic watchdog group, The Center for Responsive Politics, puts this into context. During election years the lobby contributes about $ 4 million to politicians. This means that this year the lobby will not donate the expected funds to campaign coffers unless Congress passes some law that lobby feels is beneficial to the NAR. This press release interestingly occurs just 1 day before the EARMARK pork season begins.

These funds from the lobby are clearly kickbacks and should be identified as such with criminal prosecution. We have serious problems with our country. One of the most important is the public debt. The US government’s insolvency is so pronounced that the government must break its contractual agreement of social security and reduce benefits to working men and women who have paid into the system for 20 to 50 years.

Let’s talk clear. This is corruption.

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Michael Jordan Supports Sweatshops with Child Labor

One of the ways professional athletes make big bucks is by lending their name and image to some company to sell products. These testimonials say, “I vouch for this product. It is good. If you use this product you can be like me.” In the advertising industry they call these endorsement contracts, “giving a face to the product.” Michael Jordan is the prime example. He has been so successful with Nike that Nike has split out the Jordan endorsement portion in a separate company called Jordan Productions.

We like Michael Jordan. We think he is a good guy. He made us feel good with his basketball prowess. He also seems to be a really nice individual. Any company Michael Jordan represents surely acts like Michael Jordan does. How could Michael Jordan endorse slave and child labor? The situation is so bad that the production facilities have been subjected to four strikes in the last 12 months. I thought Michael Jordan was a Christian guy. He has kids. Would he want his children working in sweatshops?

Nike, a true success story, makes profits by using sweatshops and child labor. Their human rights abuses have been well documented over the past four years. Currently Nike is in a major public relations campaign designed to clean its tainted image. They say they have made great progresses but have a strict policy of paying market wages instead of paying a living wage. They also admit that their facilities, in communist Vietnam, use child labor.

Michael Jordan therefore not only supports but, endorses the use of sweatshops and child labor.

What does Michael Jordan’s lack of moral fortitude have to do with American Politics?

Michael Jordan is the perfect example of why Reaganomics must be eliminated and government given back to the citizens of the United States of America. A person that we consider good, in the name of a corporation, does culturally unacceptable things for money. He convinces himself that he is separated from the actual wrongdoing and finds solace in “not knowing” or not having the capacity to change what is going on. If he does not accept the endorsement then someone else will and he will lose a lot of money.

Companies have only one purpose. That is: make money. They cannot be expected to do anything other than greedily chase the latest money making scheme. If they can find a way to game the system they will. They do not care about humanity or the long term viability of a country. They will just move somewhere else and continue exploiting the system. They will fight tooth and nail to keep their end user markets open to the new junk they produce in some undeveloped country where they can use child labor or employ dangerous materials without safeguards. They do not care if children receive an education. They do not care whether or not people die from starvation or lack of medical care. They do not take any responsibility when people die working, producing their products.

Companies cannot be expected to express a country’s values unless the country’s values are greed and world domination. If companies do not have the same values as the citizens of a country then companies have no role in government.

I want to believe that Michael Jordan has not consciously decided to sell out his image to a company that employs child and slave labor. Just as I want to think that Mr. Jordan just has not thought about the correlation of Nike’s actions and his image, I believe that most Americans do not realize that the actions of Coca Cola, Dow, GE, Exxon, and McDonalds represent America.

Extremist groups that hate America or plot against America are not really upset with Joe Worker. They are upset with the immorality and greed expressed by US corporations. Whether we like it or not, America defined by what these corporations do.

Our government talks about using the military to protect US interests across the world. Our soldiers die and the treasury is depleted to guarantee that Nike, Walmart or Exxon can exploit world poverty. I see no difference in the actions of companies moving production facilities to China than Sex tourists who travel the world to find places where they can indulge any desire that may be prohibited in the US.

Michael Jordan may offer his image to a sex tourist but I believe that a majority of Americans do not want to be associated with child prostitution, child labor, slavery, unsafe or deadly working environments.

Since companies, by their statute, cannot encompass these values it is our responsibility, as Americans, to conform corporations and their executives to the values of the nation. Companies must be regulated and controlled. They must be held responsible for their actions and their movements controlled and limited.

Perhaps the best response to a global unrest would be restricting US corporations instead of threatening military action.

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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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Huckabee – Ignorant or an Outright Liar?

The title is a bit much but the question is accurate. It is highly improbable that Mr. Huckabee prepared his tax program based on a consumption tax. It is a bit unnerving that a man who heralds himself as a man of the working class would support a fiscal program that would significantly reduce taxes on the UberRich and significantly increase taxes on those who have lost their jobs, are retired or are in the lower tax brackets. Mr. Huckabee touts his plan saying that European countries have an unfair tax advantage because they do not pay Ad Valorum Tax on goods shipped outside their country of origin.

Mr. Huckabee then goes on to explain that America needs to eliminate Federal Taxes and take on the European Ad Valorum tax. This would make America competitive. Unfortunately, by supporting this argument, Mr. Huckabee is either ignorant of tax structure or is a real snake hiding in the cloth of his religion.

The Ad Valorum tax, in Europe 20%, is sales tax. Each country also has the equivalent of Federal taxes that increase based on how much one earns. Each country has a different scale but they are generally inline with US tax scales.

Mr. Huckabee is not talking about a “Flat Tax” instead he is suggesting a consumption tax. A Flat Tax would be a fixed percentage on all income including capital gains. A Flat Tax would eliminate all deductions and loopholes. A Consumption Tax would exonerate all income from taxation that is not spent. Supporters say this would encourage saving since all interest would be tax free. All capital gains would be tax free. The unforeseen consequences include decreasing investments in start up or small businesses since there would be no way to offset the losses. To offset the increased burden on the lower and middle class citizens the government would cut a monthly check reimbursing the individual for taxes. I do not think this statement requires any additional comment.

The thing that caught my attention about this program is the hypocrisy of Mr. Huckabee. He first states that he wants to give America back to Americans and then proposes tax policy that would significantly burden the lower and middle class (more than 75% of Americans) and reduce investments in small businesses. Small businesses are the main source of new jobs. Unfortunately this is just another example that what politicians say has little to do with what they intend to do.

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Are We There Yet – Recession and Reaganomics

The discussion continues:

Is the US economy in a recession?

Will the US economy enter a recession?

Generally economists agree that either we are in a recession or we will enter one soon. Federal Reserve Chairman Ben Bernanke indicates that we are not in a recession but the downside risks to the economy outweigh the risks of inflation. There are those who say that we are not in a recession and that if we were in a recession this would be the most announced recession ever known. Their reasoning is that a recession cannot occur when it is widely expected.

The changes made since Reagan in the calculation of GDP make it almost impossible for the US to register a recession, defined as 2 consecutive quarters of negative growth. I wonder what would happen to 2004 to 2007 GDP if we eliminate the excess valuation and earnings now being discounted from the Housing and Financial sectors. Perhaps we would find that the GDP has been negative 12% for the last four years. Politicians would be happy, they could blame it on “9/11”.

I suggest further that while a recession is discussed, it is difficult to enter recession. In fact we are in a depression. The difference between a recession and a depression is the strength of the declines. A Depression is called when GDP diminishes by 10% while any negativity is a recession. The Federal Government will wait many years before making the adjustments to 2004-2007 GDP. The new President will use the modified data to say how good of a job he/she is doing. All of this has little importance except to help us understand what we need to do to make sure 4 years of depression does not become “4 more years”, as the presidential candidates like to say.

There has only been one other major depression in the US. It occurred in the 1930s. Again it was due to what was called at that time “Corporatism”. “Corporatism” also took off in the 1930s in Europe and is known as “Italian Fascism” (most interestingly banned from European politics in the 50s). The US resurrected it in the 80s. It is called Reaganomics. We worked our way out of it by investing in the US with the greatest program of structural investment ever known. The Italians did the same and the version in Germany, which added nationalism to the mix under the Nazi party, came out through the Marshal plan. The common denominator of the recovery is national investment.

It is no longer a question of whether or not the US economy will contract. The degree may be discussed but it is hard to see where the US economy will find 12% of GDP to substitute the smoke and mirrors sector propagated by the financial institutions. FED rate cuts will do nothing. Emergency intervention plans will be nothing more than band-aids when the patient has its guts spewed all over the street. We can decide to limit the damages and attempt to avoid the birth of Hoovervilles in parks across America.

We need Leadership from our Politicians. Leadership does not mean doing what Americans do not want to favor Corporate America or special interest groups like Amnesty for Illegal Immigrants and open borders. Leadership means going against those who are foraging the politicians with perks. Leadership means doing the good of Americans even though it may mean fewer “political contributions.” Leadership means putting the good of the country before the good of the politicians family.

We ask our soldiers to sacrifice their lives for the good of the country. It only seems reasonable to expect politicians to give up a few extra bucks to save this great nation.

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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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Whining Babies do not make good FED Policy

I do not agree with the stance to reduce interest rates taken by the FED. I think they should have stayed pat. I do understand that with the current administration so close to corporate America they had to give something to the whining crybabies on CNBC. For some reason they associate Wall Street’s gains with Main Street economy. Unfortunately this is not true otherwise I would not have anything to write about on my blog. Wall Street is still at historical highs while the economy is in the tank due to the disastrous policies of Reaganomics forced on the American workers for the last 30 years.

I am impressed. The FED did not do exactly what the financial institutions wanted. The FED did cut rates in the face of skyrocketing inflation but it was not enough. The market sold off. We should remember that the market is within 5% of all time high levels. The problem is not the sell off. The problem is that these bubbleheads have euphoric predictions for 2007. If the market does not meet their forecasts they lose credibility. Poor babies!

The FED put together a worldwide program to increase liquidity to solve a problem created by bad speculative investments made by the greedy financial institutions. How else could they justify paying some Knumbnutt CEO $200 million? The FEDs program primarily creates a temporary bailout by worldwide governments to allow the financial institutions time to get their books in order and buy back this crap.

Wall Street is in an uproar! “THEY KNOW NOTHING!” is shouted by monkeys who think the FED’s job is to protect financial institutions from their bad investments. Traders across the board are calling for Bernanke to resign. How dare he not do exactly what they wanted? The financial institutions have criticized the timing of the announcements. This clearly indicated that the Fat Cats in Wall Street think that the FED is at their beckon call.

I think the FED was too lax and should not have eased. I have called for the elimination of the FED. I have done this because I do not think that the working Joe should be guaranteeing Wall Street’s $100 million dollar salaries. With this premise, if the FED must remain, we need a Bernanke who can think of ways to save Wall Street’s buttes without destroying the dollar and sending inflation to 1500% a year.

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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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