Chances are good that soon you will be hearing that we have gone into a “double-dip” recession. I will beg to differ – we have never risen from the recession in spite of super massive bailouts and stimulus.
From where I stand, this has more of the feel of a depression rather than a recession.
The government’s specious argument is that we can spend our way into prosperity.
We’ve been waltzing in chains.
And the Republicans are equally complicit with the Democrats in this sad dance. Ironically, if you think about it, when each blames the other it turns out that they both are right…
I must admit to having a certain fascination with the intrigues of the study of economics, but I don’t want to take you down the pathways of formulas and advanced theory. That stuff does have its purpose and place, but as I see it, economics is pretty simple and straight forward.
For example, if you want something, you have to pay for it. Perhaps you can borrow the money to pay for that something, but then you have to pay that money back (plus interest) while meeting your regular obligations. It works the same for you as an individual as it does for every business and every government. So you can jazz economic theory all you want, but it actually is always relatively simple. I’m going to do my best to keep it that way.
Food Stamps
40 million out of approximately 309 million Americans are receiving food stamp benefits. Do the math – that’s about one in 7.67 people relying on the government to eat. In the land of the most prosperous nation it has come to this…
Unemployment
We’ve lost 8.4 million jobs during the last few years. We certainly are not robustly adding jobs presently and all factors indicate that job growth will be at best stagnant for the foreseeable future.
The government calculates the percentage of unemployment without including the unemployed workers who have run out of unemployment benefits. The true unemployment rate is in the range of 17% and rising.
Foreclosures
Nobody knows what their home is worth. And nobody is really going to know until the foreclosure mill shuts down. Based on the number of existing and projected foreclosures, the actual process could easily take six plus years.
Real estate is most likely not as valuable as we would like to think.
Stock Values
Stock prices are like beauty – it’s an eye of the beholder thing. One key factor in stock value is the ratio of the earnings of the company per share to the cost of a share. This is the Price-Earnings ratio (PE). So if a share of stock costs five dollars and the company earns a dollar per share in a year, the PE ratio is 5:1. In that scenario one could expect to recoup one’s investment in five years through earnings alone. Today, PE ratios routinely amount to at least a 15 year payback period. That’s not investing in business; it’s pretty much holding a mortgage.
I expect the stock market value to decline, perhaps considerably in the near future.
Government Ethics
The government, through its incessant and growing meddling with the economy, is substantially the reason for the housing bubble burst, which cascaded into the failures in the investment and banking sectors. Of course, We the People “bailed out” the business friends of the politicians. The complicity between government and business in this matter is at the least criminal to me.
Government Presence in the Economy
Back in 1900 government spent less than 5% of the gross domestic product (GDP). OMB projects that the government will take 24.6% of the economy this year.
USA Today recently reported that federal employees earn twice as much in pay and benefits as employees in the private sector. Government employees at the state and local levels earn substantially more than private sector employees as well.
The federal government is the largest employer in America.
Studies indicate that at least 40% of our income goes to pay direct and indirect taxes (income, property, sales, excise, etc.).
Budget Deficits
The government will roll some mega deficits in the foreseeable future. There’s no end in sight.
National Debt
Dividing the national debt by the number of Americans, each of us is presently responsible for $43,000.
But when you factor present unfunded liabilities for social benefits (Social Security, Medicare, etc.), it turns out that the real liability that we each face is about $355,000. For a family of four that is $1.4 million.
Sidebar: The mandated health care law will substantially add to this number while most likely reducing the availability and quality of care.
The Worst Good News
We, as a nation, have a lot of national treasure and assets. Greece is selling its islands in order to pay down its debt. How much would the Statue of Liberty be worth?
Seriously, it is a means (as horrible as it would be) of honoring our debts and the obligations we have committed to. Of course future generations may legitimately feel robbed by us.
The Good News
We are still a very talented and innovative people. New advancements in technology in all fields of study are becoming exponential. Never, ever count the American people out.
Summary
Number of people on food stamps increasing
Percentage of true unemployment is rising towards the Great Depression levels
Foreclosures will continue to be significant for years ahead. Home values will likely fall
The stock market remains too pricy and will likely lose value. The bond market will follow
Government will spend (a lot) more than it receives in the foreseeable future
The national debt is massive and will continue to grow
The government threw We the People under the bus in bailing out their good time business buddies
Government intrusiveness into the economy (and every facet of our lives) will continue to grow
Likely Outcome
I anticipate that the government, caught in the web of its own making, will stay the course.
My Bet
Somewhere down the road, rather than change the entitlement system, government will hyper inflate the money supply, which will devalue the purchasing power of the dollar. Everybody will get the amount they were told they would get, but it will buy a lot less.
Historically, the end of great cultures and civilizations is marked by a large government imposing taxes and regulations in abundance. For an excellent and informative reference:
“For Good and Evil: The Impact of Taxes on the Course of Civilization” by Charles Adams
Some musings, some random thoughts to be further explored, and probably some rambling too:
BP & The Feds
Watching BP dance like a puppet on a string makes me more concerned about the relationship of government and big business. It’s all a little too choreographed…
Judge Andrew Napolitano reported on Fox News (FYI, I’m no fan of Fox or any other blatantly biased news agency) that Louisiana approved BP to drill at a depth of 500 feet, but the federal government insisted that drilling be done at 5,000 feet. Oh yeah, that and the deal the feds made (after the Exxon Valdez spill) limiting future legal liability to $75 million for environmental accidents.
If true, that’s a bit of an oil slick for all concerned. Of course, we, the people, are screwed either way.
Libertarianism Going Mainstream?
Fox (did I mention that I’m no fan of Fox News?) is now airing a libertarian based show hosted by the aforementioned Napolitano. I never, ever thought I would live to see this day.
Back in the early 80’s when I would mention that I felt an affinity for libertarian philosophy, those that knew what I was talking about would pretty much just laugh at me. When I gave the explanation of libertarian philosophy to those who didn’t know about it, they would pretty much laugh at me too.
Thus, I have been a big maker of mirth during the last three decades.
Pro Politicians & Political Parties
I am so done with professional politicians and the political parties that they associate with. Same Old, Same Old, ad nauseum. Government of the politicians, for the politicians, and by the politicians.
I’d like to vote for the politician who refused to take corporate/special interest (better phrased selfish interest) money, a politician that had no interest in a career in politics, a politician not for sale.
Why do I feel like Diogenes with his lamp looking for an honest man?
Can We Talk?
And furthermore, while Americans have always been a rather contentious and cantankerous lot, I believe that we are in a time when unity may be more important than ever.
We sure could use some open dialogue in this country.
The Economy
I think that there is a very strong possibility that the economy is in a lot worse shape than we are being led to believe. I’ve been looking at the numbers a little more closely and I don’t like what I see. I do hope I am wrong.
Additionally, the stock market, as a whole, still seems pricy to me. I am not comfortable with the typical price-earnings (PE) ratio these days. This is business risk, not mortgage holding.
Can We Be Done With The Bailout?
I guess I haven’t gotten over the Bailout…seems to me that the systemic risk was a manufactured hysteria (not dissimilar from the terrorist threat routine) to cover government’s basic failure to properly regulate and enforce its own rules.
The idea of giving money to loser parasites so that they can keep their cushy jobs, and do this to us all over again in the future is repugnant to me.
And they did this in plain sight. Right in front of us. I have to admit that they are pretty, pretty slick.
War, What Is It Good For?
Were we not in Afghanistan to hunt down Bin Laden and serve him up some American justice? I believe that our presence there is the longest military engagement in our history. Yikes! Seriously, Yikes!
I lived through, opposed and protested against the Vietnam War. In a relatively meaningless gesture, I even burned my draft card. I reckon I’m going to have to find my peace signs, beads, incense, and bell-bottom jeans to get out on the front lines once again…if I could only remember where I hid the hookah.
Don’t even get me started on Iraq.
Imperialism
Why do we devote so much of our resources to imperialism when we have more serious human need problems here at home? If we know so much that we are compelled to police and rule the world, why are we not doing a better job within our own country? Sentient non- Americans must wonder at our hypocrisy, unless it serves them as well.
Terrorism
Just as the “War on Drugs” fuels the very problem it fights against, the “War on Terrorism” actually produces terrorism. As in my thoughts above, by removing our overwhelming presence from foreign lands, we will also reduce the threat of terrorism. That’d be some good blowback for a change.
Give Me That Old Time Religion
My biggest fear for our longevity on this planet is the combination of government & organized religion. That’s some toxic stew.
In Conclusion
This is how I see things: We live in a wonderful time and I am blessed to have the life I do. I must confess that the foregoing is completely rooted in my idealistic hopes for things to be. Because as good as it is, it really could and should be better.
As I age, I am more cognizant of what I don’t know. I am more aware that there is no utopian solution to anything. And I would very much like to think that I am more open to understanding differing points of view. I welcome all discussion.
Sometimes I can be a curmudgeon, and sometimes I am proud of that.
I’m waiting in the drive-thru lane, I’m still waiting, I can see myself aging, pigs are flying above my car, Hell is freezing over. OK, I’m overplaying it, but it seems like an undue amount of time. And all I want is a black coffee.
I’ve long maintained that the propensity to get “order screwed” in the drive-thru lane is the price that one pays for convenience, but I can’t even get up there to place my order.
Finally, I’m at the window. The young lady rejects my money and hands me my coffee. She says that it’s on the house for the wait. I offer to pay again, but she insists that the manager insists.
Why Thank You, Wendy’s…I’ll be back again.
What a unique experience. One that I’ve never had before at fast food: understanding of the customer and the desire to mitigate the delay.
Imagine that, it’s almost like they think my time might be valuable. I’ve had that notion before, but it is affirming when others feel that way as well.
I’d like to think that I’m easy to please, that I’m as understanding and forgiving as the next guy, but I’ve seen the next guy in action on many occasions and it hasn’t been pretty. And I have had my moments too.
I don’t mean to take my pleasant surprise over the top. I know it was just a coffee, but it is a response worth noting nonetheless.
Recently, a CNN/Opinion Research Corporation poll found that 84% of Americans do not think that Congress has done enough to create jobs.
I’m reminded of:
“There’s no trick to being a humorist when you have the whole government working for you” – Will Rogers
But this is no laughing matter.
I would submit that if Congress had anything to do with jobs, it took them away from the working people in order to bail out their rich friends. That’s right, I said it.
Here’s how I see it: The relationship of business and government is like that of a sports game. Business is represented by the players on the field. The referee of the game is government. The problem is that government is not content to just play the role of referee – it also plays in the game itself. Sometimes it plays for one team, sometimes it plays for the other team, and often times it plays for both teams. And no matter how well intentioned, if you play in the game, you cannot be truly unbiased as a referee.
The President (as the Executive Branch) has a duty to regulate national commerce and the Congress (as the Legislative Branch) has an oversight duty to see that the Executive Branch is doing its job.
Had the government done its job of enforcing its own regulations, this economic mess that we are in may not even have happened, or at the least, been substantially minimized. Government officials should be sued for gross negligence.
Do you see the sick spin in all of this? Government didn’t do its job in the first place and then it is acting like it is coming to the rescue. And Americans are obviously buying into it. Yeah Government!
For me, it’s like being stuck inside of a Woody Allen movie…
Time to bring out the ”those that don’t learn the lessons of history are doomed to repeat them” line.
Nobel Prize winning economist Milton Friedman detailed how the American government was complicit in the Great Depression and further went on to show how through its actions and inactions, the American government worsened and prolonged the Great Depression.
But again with the spin, who got blamed? Evil Unbridled Capitalism, of course.
However, there is nothing wrong with American business – there never has been. In reality, American business is the most powerful economic engine in recorded history. Our lifestyle and standing in the world prove that.
Business creates wealth. Government cannot create wealth – all it can do is take away wealth from one and transfer it to another.
“A government which robs Peter to pay Paul can always depend on the support of Paul” – George Bernard Shaw
And it is taking a lot away from a lot of folks.
As citizens, we are forced to buy from the government store. Expensive prices and poor product are what we get in return for our hard earned money. On the other hand, we do make some pretty, pretty good bombs and weapons…
How about we stop giving in to the temptation of all pervasive government? We must instead require government to be a good, responsible servant, within its defined role.
So I would suggest that government get out of business and return to its Constitutional duties before the American Dream becomes something that our kids learn about in history class.
And if you vote for the same old, same old politicians who promise you the same old, same old things, you will continue to get the same old, same old.
Charles Adams, in the book, “For Good and Evil: The Impact of Taxes on the Course of Civilization” traces superior civilizations and comes to a universal conclusion: every civilization in recorded history taxes and regulates itself to death. While I think this should be intuitive, it really is a remarkable study.
Perhaps not the most tantalizing of subjects, but the message is far more encompassing than just business taxes. This is a positive message though – through easy simplification, we can live better.
We’re going to take a look at an issue that seems to get a lot of attention – “Evil corporations not paying their fair share of taxes!”
Unfortunately, it is misdirected, either unintentionally or as propaganda.
Here is the unequivocal truth: No matter how much a business may pay in taxes, those taxes are not paid for by the business – those taxes are paid for by the consumer, you and me.
Here’s a simple example that should provide a clear understanding of how this works. If you want to go into business, it requires money. Money has value. Investments require a return based on the risk associated with investment. The less risky the investment, the less the rate earned. Therefore, if you invest in an FDIC insured bank savings account you are willing to accept a lot less interest than if you invest in a start-up business.
So for the sake of example, let’s say that a business can get the debt/equity investment that it needs, but this requires a 10% net income level in order to do it. Assuming that the business has sales of $100 and expenses of $90, there is $10 of net income. Thus the 10% debt/investment requirement is satisfied. Everything is good or at least as good as it gets in the very scary world of being a business owner.
Now let’s assume that the federal & state governments tax the net income of this business at 20%. On the net income of $10, the business would have to pay $2 in taxes. This leaves $8, which is an 8% return and less than the 10% that the creditors/investors require.
The business has only one alternative – it must raise its prices to the consumer. But the consumer does not pay just the $2 in taxes that the business has to pay. Actually, the consumer now has to pay $2.86 more.
Here’s the math for those interested: Sales need to be $102.86. Cost of sales stays constant at $90.00. Sales less the cost of sales equals income before taxes of $12.86. Taxes on income before taxes at 20% equals $2.57. Net income is $10.29, which is 10% of sales of $102.86. Q.E.D.
Of course, the actual amount that the consumer pays is more than this because now the business has more costs. It must pay accountants for preparing tax returns and lawyers to provide tax guidance. Then there are the inevitable audits at the federal and/or state level for which the business incurs more costs. Each cost raises the price that you pay for the product. Getting the idea?
For those who truly care about the poor, note this: Taxes on business are much more devastating upon the poor than upon the middle or upper economic classes, but there’s so much blatant hypocrisy in this area anyways…
So, if we were to eliminate the taxes on businesses, the price that we pay, as consumers, would be less. We would reduce the cost of government regulation as well, so taxes would be reduced. We wouldn’t need so many lawyers, accountants, software and all the other related special (Selfish) interest money that goes into this area – those resources would be able to be better utilized for our overall economic good.
Would individual taxes need to go up as a result? I doubt it, but, even if they did, I do know this without question – taxes would not need to go up as much as the savings we would benefit from. We pay one way or another, but this way, we pay less.
Will such a logical thing happen? No. Government is going to get more expensive and more intrusive into our personal lives. I just had to provide an alternative while I still have the chance.
There is no greater priority; Energy Independence is my Number One issue. Actually, now that I think of it, Energy Abundance would be even better. We could trade our surplus energy to a world in fast growing need of it. Trade balances would quickly swing our way for a long overdue change.
And let me give you my point of view straight-up: Energy self-sufficiency is more important to me today than clean emissions. I’m willing to gamble that if we can develop the technology to become energy independent, we will have no trouble developing the proper ecology cleansing technology as well.
Note also that I strongly believe that we should be a good neighbor on the planet that we inhabit. I hope it won’t be too long before we all readily agree that throwing pollutants into the planet is just as dumb as throwing waste on the streets where we live.
Nietzsche said, “From chaos comes order,” which I consider a semi-no-brainer. I would counter it with, “From chaos comes profit.” One person’s waste may profitably be another person’s living.
Lack of geographical frontiers can be potentially deeply vexing to our species – this is really the first time in recorded history that there are no more readily available lands to explore and inhabit. So we must change our focus to other frontiers. This may be the most wonderful time in our history to be American.
T. Boone Pickens is sure behaving like an American! And I’m glad that he is fundamentally a cowboy, whether he is right or wrong. Let’s bring on more Yankee Ingenuity.
President Kennedy boldly asserted in the early 60′s that we would land a man on the moon before 1970 – a goal that was pretty far fetched at the time. The nation became properly challenged and powerfully motivated. We did it.
Lincoln asserted, “No man stands still, he either moves ahead or falls behind.” I believe Honest Abe was correct in that observation. So it is true with nations.
In conclusion, I do not suggest the foregoing to push for an isolationist future; I just think that we should not be dependent upon other earthlings.
I’ve been suspicious about the sage financial advice provided by the media, especially from people that yell a lot. The Daily Show’s segment (above) confirms my cynicism.
I am amazed that the media, and the government as well, can so easily get away with such abuse of fiduciary responsibility. On the other hand, it doesn’t seem that the American people really care about it either…Could there be a connection?
Have ‘Em Over
Government, in all of its collective wisdom, does not seem to know financial reality anywhere near as well as the average American household. Maybe our government officials should eat their daily dinner in our homes for some on the job training in managing money and listening to what’s important. If I am ever dumb enough to run for political office, and if by some weird chance, I am elected, I will do my best to have dinner with all of my constituents, at their house…bringing with me a special dish to share, of course.
Here is Reality
We are a competitive society, we are naturally a competitive people. Structurally, it is survival of the fittest. It hasn’t been anywhere near true free enterprise in a long time, but we are still fundamentally a capitalist people. It’s what we do best. We’re really good at it. And it works. We should encourage and celebrate our unique talents. We have altered world history after all…
There is No Reward for Failure
It seems that we have government officials giving away our money (YOU KNOW: IT IS OUR MONEY) to upper level institutions and people who make large sums of money. These people have shown by their actions in losing so much of our money that they are not “fit” to do what they do. Enough with them!
Conclusion
The best thing that we can do to get over this is to let the natural business cycle take its course. Back in the 90′s, the Japanese tried to spend their way out of a similar situation and they still have not recovered.
We’ve gotten off track and we are being led, by government, even further away from the tracks.
There are those who would say that the liberation of humanity, the freedom of man and mind, is nothing but a dream. They are right. It is the American dream – Archibald McLeish
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