Blaming the Messenger: When Greece Met Goldman - Editorial Commentary - Thomas G. Donlan - Barrons.com
Question: Isn't it the unethical and destructive nature of the big banks that is ruining the world economy? I believe the destruction will continue so long as the present structure continues and out-sized bonuses are offered as a reward to their conduct.
Answer: Maybe the next bubble is really the out-of-control attempt by developed economies to present their citizens with benefits they can't afford (either individually or societally).
As a result, these economies are all borrowing too much. Ask yourself why banks would be lending so much to governments (e.g. French banks $75 B to Greece), which goes into consumption, rather than to businesses, which can create real long-term jobs?
As such, blaming the banks may be more like blaming the messenger to the king in the old days. Here, the banks and financiers are helping governments continue their populist charade.
Should the banks be blames or the governments? And, if the governments, isn't it the citizens that are to blame for putting them and leaving them in office?
Sunday, February 28, 2010
Thursday, February 25, 2010
No Gain, Continued Pain for Housing - Up and Down Wall Street Daily - R. Forsyth - Barrons.com
No Gain, Continued Pain for Housing - Up and Down Wall Street Daily - R. Forsyth - Barrons.com:
"If sovereign rates go up and Bernanke wants to keep rates down - hmmmm, what is likely to happen?
Will Mr. Bernanke have to buy treasuries big time to keep rates where he wants them?"
"If sovereign rates go up and Bernanke wants to keep rates down - hmmmm, what is likely to happen?
Will Mr. Bernanke have to buy treasuries big time to keep rates where he wants them?"
The Euro's Final Battleground: Spain - WSJ.com
WORKER AND EMPLOYER BACKPACKS: The Euro's Final Battleground: Spain - WSJ.com
It's interesting to see how all of the problems in Spain also exist in certain states in the US (e.g. California). And, the result is in the US that businesses move out of the state.
If Spain had its own currency, the devaluation would cut the value of salaries in real terms if not in nominal terms.
Perhaps, as was said recently by a commentator on Bloomberg re: air line unions, legacy jobs and benefits are going away and people are frustrated. Not that there is a clear answer - the idea that things can go back to the way they were (in terms of jobs and benefits and share of the world's resources, while concomitantly people are living longer, demanding more and better health care and trying to have society provide more and more benefits to those who aren't paying for the benefits themselves) - well, we are putting more and more demands on an economic model that doesn't produce any more than it did before.
Thus, it's like trying to take 4 gallons an hour from a well that only produces 2. You can borrow the extra 2 from a neighbor, but eventually the neighbor wants to get paid back.
Likewise, it's like going mountain climbing and the climber is the employee or employer. Society decides to put taxes on both in the form of a heavier and heavier pack. Eventually, climbing goes from slower and slower to no climbing at all.
Thus, as seen in Spain and the US, there is a higher unemployment rate because the business person or investor decides the 'tax pack' put on them is too great (either not enough return to the investor or business person; or, the product or service gets priced out of the market). Either way, the jobs disappear.
Similarly, workers have burdens and don't make enough (i.e. their pack is too heavy), so they decide not to work. Better to take a rest; or, better to do less, strive less, study less, etc.
One way out is clearly to reduce the weight of social redistribution taxes to lessen the weight in the 'packs' put on the back of workers and businesses.
But, this will mean less for those who want to shift and add to the weight these people and businesses are being asked to carry - i.e. some people will have to make do with less in government benefits. And, some will have to do more for themselves.
It's interesting to see how all of the problems in Spain also exist in certain states in the US (e.g. California). And, the result is in the US that businesses move out of the state.
If Spain had its own currency, the devaluation would cut the value of salaries in real terms if not in nominal terms.
Perhaps, as was said recently by a commentator on Bloomberg re: air line unions, legacy jobs and benefits are going away and people are frustrated. Not that there is a clear answer - the idea that things can go back to the way they were (in terms of jobs and benefits and share of the world's resources, while concomitantly people are living longer, demanding more and better health care and trying to have society provide more and more benefits to those who aren't paying for the benefits themselves) - well, we are putting more and more demands on an economic model that doesn't produce any more than it did before.
Thus, it's like trying to take 4 gallons an hour from a well that only produces 2. You can borrow the extra 2 from a neighbor, but eventually the neighbor wants to get paid back.
Likewise, it's like going mountain climbing and the climber is the employee or employer. Society decides to put taxes on both in the form of a heavier and heavier pack. Eventually, climbing goes from slower and slower to no climbing at all.
Thus, as seen in Spain and the US, there is a higher unemployment rate because the business person or investor decides the 'tax pack' put on them is too great (either not enough return to the investor or business person; or, the product or service gets priced out of the market). Either way, the jobs disappear.
Similarly, workers have burdens and don't make enough (i.e. their pack is too heavy), so they decide not to work. Better to take a rest; or, better to do less, strive less, study less, etc.
One way out is clearly to reduce the weight of social redistribution taxes to lessen the weight in the 'packs' put on the back of workers and businesses.
But, this will mean less for those who want to shift and add to the weight these people and businesses are being asked to carry - i.e. some people will have to make do with less in government benefits. And, some will have to do more for themselves.
Wednesday, February 24, 2010
Get Shorty: A Loser's Answer - Up and Down Wall Street Daily - R. Forsyth - Barrons.com
Get Shorty: A Loser's Answer - Up and Down Wall Street Daily - R. Forsyth - Barrons.com
I always like the old saw about "crowding out". If the money invested in the bonds is 'really' saved (vs. printed new) then there are two questions?
a) Is this money that can't find any other home (i.e. no investment into job creating business, technology, research, etc.).
b) Or, is there so much money around that there's no crowding out of money that could go into financing cars, houses, businesses?
Somehow, with all this government borrowing by developed countries to fund entitlements and bureaucrats, one can't help but think crowding out of private investment is or has to be taking place.
(The number in yesterday's WSJ on the cost to start a business in Greece (>$10,000) vs. US (<$200) was rather telling of another aspect of this 'crowding out' (or maybe, 'crowding up' to pay bureaucrats?))
I always like the old saw about "crowding out". If the money invested in the bonds is 'really' saved (vs. printed new) then there are two questions?
a) Is this money that can't find any other home (i.e. no investment into job creating business, technology, research, etc.).
b) Or, is there so much money around that there's no crowding out of money that could go into financing cars, houses, businesses?
Somehow, with all this government borrowing by developed countries to fund entitlements and bureaucrats, one can't help but think crowding out of private investment is or has to be taking place.
(The number in yesterday's WSJ on the cost to start a business in Greece (>$10,000) vs. US (<$200) was rather telling of another aspect of this 'crowding out' (or maybe, 'crowding up' to pay bureaucrats?))
Tuesday, February 23, 2010
Consumer Confidence Plunges - WSJ.com
Consumer Confidence Plunges - WSJ.com
At least the public isn't buying that with more jobs lost there is something positive that creates a drop in the unemployment rate. What's the old say: "fool me once, shame on you; fool me twice, shame on me"?
Guess the public doesn't want to be shamed!
And, now we have a poll (today in WSJ) saying that 85% of people think the President's health plan should be scrapped - yet, he's still trying to get it passed. There was a good opinion piece in the WSJ within the last few weeks summarizing a Republican health care proposal that wouldn't cost but could actually save money. Here the Pres. wants $950 B.
If the bond vigilantes start demanding higher rates for all this sovereign spending, I can't see rates staying down.
If the economy is going to have the government taking 30% of GDP instead of 20% - ummm? What is the private economy going to have to give up so the Democrats can have the extra cash to give away to unions and non-producers?
Somehow there has to be some basic math here that never got taught to the political class but somehow is known by the average American. Or, it would at least seem so.
At least the public isn't buying that with more jobs lost there is something positive that creates a drop in the unemployment rate. What's the old say: "fool me once, shame on you; fool me twice, shame on me"?
Guess the public doesn't want to be shamed!
And, now we have a poll (today in WSJ) saying that 85% of people think the President's health plan should be scrapped - yet, he's still trying to get it passed. There was a good opinion piece in the WSJ within the last few weeks summarizing a Republican health care proposal that wouldn't cost but could actually save money. Here the Pres. wants $950 B.
If the bond vigilantes start demanding higher rates for all this sovereign spending, I can't see rates staying down.
If the economy is going to have the government taking 30% of GDP instead of 20% - ummm? What is the private economy going to have to give up so the Democrats can have the extra cash to give away to unions and non-producers?
Somehow there has to be some basic math here that never got taught to the political class but somehow is known by the average American. Or, it would at least seem so.
Friday, February 19, 2010
Behind the U.S.'s Growth Lead Over Europe - WSJ.com
Behind the U.S.'s Growth Lead Over Europe - WSJ.com
It may also be that a socialist collosus like Europe just pushes the entrepreneurial to leave.
When they leave (of course there are exceptions, but in general and relative terms), they aren't looking for loans or financing to build or expand business or to create jobs.
(Likewise, when Spanish unions don't want to loosen up their labor restrictions, jobs also stay away.)
So banks in Europe - even more so and for longer than in the US - have been buying government debt. They support socialist governments, but, these governments don't have economically sensible job creation policies. Thus, everything in Europe is going to lag.
Lots of Europe is run on the UAW model for economic development - and, everyone knows what happened to GM.
So, if anything can be said, it's that America is only part way to Obama's goal of instituting the full build out of the European's stultifying social and economic construct.
It may also be that a socialist collosus like Europe just pushes the entrepreneurial to leave.
When they leave (of course there are exceptions, but in general and relative terms), they aren't looking for loans or financing to build or expand business or to create jobs.
(Likewise, when Spanish unions don't want to loosen up their labor restrictions, jobs also stay away.)
So banks in Europe - even more so and for longer than in the US - have been buying government debt. They support socialist governments, but, these governments don't have economically sensible job creation policies. Thus, everything in Europe is going to lag.
Lots of Europe is run on the UAW model for economic development - and, everyone knows what happened to GM.
So, if anything can be said, it's that America is only part way to Obama's goal of instituting the full build out of the European's stultifying social and economic construct.
Wednesday, February 17, 2010
Failure of Liberal Governance - WSJ.com
Failure of Liberal Governance - WSJ.com Ring up that credit card!
Meanwhile the 'national credit card' is being charged up as never before and plant and equipment are wearing out.
When (and if) we come out of this mess, there will be lots of old and near-old people who will find the magic of a well-funded (by government substantially) retirement that gives them roughly the same number of years not working as working is a nasty mirage.
To right the economy, we can't take more money out of it for entitlements. We need to take vastly less.
As the credit card is charged higher and higher - it's like a family in the same situation. Too often bankruptcy is the only way to get out from under the burden of debt for a restart.
Will America need to inflate its way through a bankruptcy????
Meanwhile the 'national credit card' is being charged up as never before and plant and equipment are wearing out.
When (and if) we come out of this mess, there will be lots of old and near-old people who will find the magic of a well-funded (by government substantially) retirement that gives them roughly the same number of years not working as working is a nasty mirage.
To right the economy, we can't take more money out of it for entitlements. We need to take vastly less.
As the credit card is charged higher and higher - it's like a family in the same situation. Too often bankruptcy is the only way to get out from under the burden of debt for a restart.
Will America need to inflate its way through a bankruptcy????
Holman Jenkins: Rethinking the Bailout - WSJ.com
Holman Jenkins: Rethinking the Bailout - WSJ.com: "Perhaps what he is getting at is the forest, not the trees?
In other words, the current hoopla in Washington (blogs, comments, etc.) is out there trying to shift the blame to the banks, the Federal Reserve, etc.
But, what Holman is trying to point out is that this is all misdirection and a mistake.
What is driving the problem is that all of these governments have promised their citizens too much - promises that can't be kept.
The modestly perspicacious understand that these promised benefit can't be paid; but, as with the striking unions in Greece, the blissful UAW that destroyed the equity in GM, etc.,
the vast majority of the population would like to 'believe' these promises can be kept.
Thus, congressmen (and women) are fleeing and not seeking re-election. Right now there is a stalemate, but this is only because there are some who'd like to start addressing the problem; while there are others (read especially Obama and Pelosi), who can't believe all these promises can't be paid for by more and more borrowing and that substantive changes don't have to be made.
Holman is genteelly saying the government is 'lying' about our problems! The problem is the entitlements that can't be afforded.
And, the longer it takes us to right our economic engine by investing more and consuming less and transferring less to those who 'want' but 'can't afford', the more difficult any corrective steps will be."
In other words, the current hoopla in Washington (blogs, comments, etc.) is out there trying to shift the blame to the banks, the Federal Reserve, etc.
But, what Holman is trying to point out is that this is all misdirection and a mistake.
What is driving the problem is that all of these governments have promised their citizens too much - promises that can't be kept.
The modestly perspicacious understand that these promised benefit can't be paid; but, as with the striking unions in Greece, the blissful UAW that destroyed the equity in GM, etc.,
the vast majority of the population would like to 'believe' these promises can be kept.
Thus, congressmen (and women) are fleeing and not seeking re-election. Right now there is a stalemate, but this is only because there are some who'd like to start addressing the problem; while there are others (read especially Obama and Pelosi), who can't believe all these promises can't be paid for by more and more borrowing and that substantive changes don't have to be made.
Holman is genteelly saying the government is 'lying' about our problems! The problem is the entitlements that can't be afforded.
And, the longer it takes us to right our economic engine by investing more and consuming less and transferring less to those who 'want' but 'can't afford', the more difficult any corrective steps will be."
Sunday, February 14, 2010
The Greek Tragedy That Changed Europe - WSJ.com
The Greek Tragedy That Changed Europe - WSJ.com:
Question: "If the market implodes, then given the level of manipulation in 2009, one can only conclude that it is planned. The problem with manipulating the market upward is that everyone will blame you when it goes down too. I believe the cliche is "You (the central banks) made a deal with the devil (the large financial institutions)"
Answer: "If there was a deal, it was a deal to look the other way as governments' fiscal policies continued social transfer spending that was beyond the taxing capabilities of the various countries.
As such, the governments - faced with an inability to tell their citizens they had to cut back their social spending - borrowed even more. The Greek example is one; but, the US and Obama are clearly another - as is California, New York, etc.
We try to ignore the fact that tax rates both discourage and encourage economic activity (read: jobs).
California has high taxes and business moves elsewhere. This is typical; not atypical.
So, try and look to the underlying causes - which isn't the banks helping people feel good with lending; it's government taking too much from society to let it adjust and change (i.e. not enough jobs created); and, government promising entitlements that the country can't afford (i.e. read the articles on the real US deficit)."
Question: "If the market implodes, then given the level of manipulation in 2009, one can only conclude that it is planned. The problem with manipulating the market upward is that everyone will blame you when it goes down too. I believe the cliche is "You (the central banks) made a deal with the devil (the large financial institutions)"
Answer: "If there was a deal, it was a deal to look the other way as governments' fiscal policies continued social transfer spending that was beyond the taxing capabilities of the various countries.
As such, the governments - faced with an inability to tell their citizens they had to cut back their social spending - borrowed even more. The Greek example is one; but, the US and Obama are clearly another - as is California, New York, etc.
We try to ignore the fact that tax rates both discourage and encourage economic activity (read: jobs).
California has high taxes and business moves elsewhere. This is typical; not atypical.
So, try and look to the underlying causes - which isn't the banks helping people feel good with lending; it's government taking too much from society to let it adjust and change (i.e. not enough jobs created); and, government promising entitlements that the country can't afford (i.e. read the articles on the real US deficit)."
Friday, February 12, 2010
Sovereign Debt Payments Weigh on Euro Zone - WSJ.com
Sovereign Debt Payments Weigh on Euro Zone - WSJ.com
Question (re: deferred retirement):
Your idea is plausible if there were enough jobs for everyone including those who are entering the job market - especially those entering the job market. As it is, the US as well as Europe have not created enough jobs for everyone to be employed. If there aren't enough jobs then what do you do?
From what I read, and the trend employment is following in the USA and Europe, it would make sense in a perfect world to lower the age of retirement and get more young people in the job market - but that is in a perfect world.
Answer:
Have you ever come across the concept of "economic utility"?
It basically says we might substitute chicken for steak (or visa-versa) if the price or our desire for either product changed.
As such, there might be lots of work for say someone paid $100 a day. But, if it costs the employer $500, it makes sense that a lot of that work would be too expensive. (Read the burden of government mandated costs to pay for social entitlements - average multiplier 3-5x currently in US.)
Likewise, someone might be willing to work for $100 a day, but if they only get to keep $50, then its a different story.
So, you are right we have a mismatch in jobs and people willing to work; but, the problem is compounded by the government mandated costs that distort the relationship between the cost of labor and the income to the employee.
Since the basic equation:
Sales Price/Production Cost = cost of labor + cost of capital + cost of materials
You can see that (in terms of economic utility), 2 things can happen:
1) The cost of production is too great, so the product (read: new jobs, new industries, old industries, etc.) doesn't get produced. (read: close down of existing US manufacturing and services, reduced investment in new businesses and venture capital, etc.)
2) If labor is mispriced (see above discussion), then capital and other raw materials will be substituted as much as possible. This again means fewer jobs when the logical production input would be labor (except for its mispricing due to government, unions, etc.)
Question (re: deferred retirement):
Your idea is plausible if there were enough jobs for everyone including those who are entering the job market - especially those entering the job market. As it is, the US as well as Europe have not created enough jobs for everyone to be employed. If there aren't enough jobs then what do you do?
From what I read, and the trend employment is following in the USA and Europe, it would make sense in a perfect world to lower the age of retirement and get more young people in the job market - but that is in a perfect world.
Answer:
Have you ever come across the concept of "economic utility"?
It basically says we might substitute chicken for steak (or visa-versa) if the price or our desire for either product changed.
As such, there might be lots of work for say someone paid $100 a day. But, if it costs the employer $500, it makes sense that a lot of that work would be too expensive. (Read the burden of government mandated costs to pay for social entitlements - average multiplier 3-5x currently in US.)
Likewise, someone might be willing to work for $100 a day, but if they only get to keep $50, then its a different story.
So, you are right we have a mismatch in jobs and people willing to work; but, the problem is compounded by the government mandated costs that distort the relationship between the cost of labor and the income to the employee.
Since the basic equation:
Sales Price/Production Cost = cost of labor + cost of capital + cost of materials
You can see that (in terms of economic utility), 2 things can happen:
1) The cost of production is too great, so the product (read: new jobs, new industries, old industries, etc.) doesn't get produced. (read: close down of existing US manufacturing and services, reduced investment in new businesses and venture capital, etc.)
2) If labor is mispriced (see above discussion), then capital and other raw materials will be substituted as much as possible. This again means fewer jobs when the logical production input would be labor (except for its mispricing due to government, unions, etc.)
Sovereign Debt Payments Weigh on Euro Zone - WSJ.com
A New Retirement Age to Save the Economy: Sovereign Debt Payments Weigh on Euro Zone - WSJ.com:
"An interesting thought to ponder relates to retirement costs paid by government.
Historically, Bismarck has been credited with establishing the first social security type retirement plan in Germany back in the 1870's or 80's. At the time, the average life expectancy was 65. And, lo and behold, the age at which one got a pension was 65.
What would happen if government social security programs were rewritten to start at the age of average life expectancy?
This age could be constantly changing; and, there would be nothing wrong with people retiring earlier on their own money. But, by raising this age so substantially (well in the 75-78 area), we'd have much less cost pressure on young people to support old people; and, people on social security would know they were placing a much lower burden on the society at-large.
Of course, added incentives would be that such a later age (beyond the age most people would WANT to retire) would encourage more private saving. This would hopefully be available for investment rather than government consumption; and, we'd have better and more jobs (somewhat needed, if people work longer); but, overall, the societal standard of living would be much improved.
The current system makes no sense and is one of the major impediments to economies in the developed world getting back on track. (One could even posit a transition to these higher ages over say 10 years.)"
"An interesting thought to ponder relates to retirement costs paid by government.
Historically, Bismarck has been credited with establishing the first social security type retirement plan in Germany back in the 1870's or 80's. At the time, the average life expectancy was 65. And, lo and behold, the age at which one got a pension was 65.
What would happen if government social security programs were rewritten to start at the age of average life expectancy?
This age could be constantly changing; and, there would be nothing wrong with people retiring earlier on their own money. But, by raising this age so substantially (well in the 75-78 area), we'd have much less cost pressure on young people to support old people; and, people on social security would know they were placing a much lower burden on the society at-large.
Of course, added incentives would be that such a later age (beyond the age most people would WANT to retire) would encourage more private saving. This would hopefully be available for investment rather than government consumption; and, we'd have better and more jobs (somewhat needed, if people work longer); but, overall, the societal standard of living would be much improved.
The current system makes no sense and is one of the major impediments to economies in the developed world getting back on track. (One could even posit a transition to these higher ages over say 10 years.)"
Wednesday, February 10, 2010
Bernanke Outlines Exit Strategy - WSJ.com
Bernanke Outlines Exit Strategy - WSJ.com: "Hope you like fairy tales because that's all the Obama plan is.
He's taking more capital out of the economy to fund entitlements. If it goes to entitlements (read: consumption), then it's certainly not there for 'investment'.
He is counting on the fact that people will listen to what he says and hope; that any rational examination of his comments will not be there.
But, ask yourself - where are similar political games being played out?
Can we say Argentina, Greece - even in a way Venezuela?
If the Government is taking an extra 10% of GDP for its spending (which is the current situation pushing 30% vs. 20%), then ask yourself - is this really 'magic money' from the tooth fairy or something?
And, in addition to taking capital out of the economy, he and his administration are guaranteeing higher taxes. So, what's the reason to invest?
And, if you wanted to hope US corporations would locate jobs here, ask why the US had a corporate tax rate higher than competing countries.
As above, Obamanomics math fails the smell test.
The Fed is really funding the deficit - end of story."
He's taking more capital out of the economy to fund entitlements. If it goes to entitlements (read: consumption), then it's certainly not there for 'investment'.
He is counting on the fact that people will listen to what he says and hope; that any rational examination of his comments will not be there.
But, ask yourself - where are similar political games being played out?
Can we say Argentina, Greece - even in a way Venezuela?
If the Government is taking an extra 10% of GDP for its spending (which is the current situation pushing 30% vs. 20%), then ask yourself - is this really 'magic money' from the tooth fairy or something?
And, in addition to taking capital out of the economy, he and his administration are guaranteeing higher taxes. So, what's the reason to invest?
And, if you wanted to hope US corporations would locate jobs here, ask why the US had a corporate tax rate higher than competing countries.
As above, Obamanomics math fails the smell test.
The Fed is really funding the deficit - end of story."
Tuesday, February 9, 2010
Fannie and Freddie Stagger On as Troubled Wards of the State - WSJ.com
Post 2 on Responsibility: Fannie and Freddie Stagger On as Troubled Wards of the State - WSJ.com
Sorry, but the bigger issue should be 'clearing prices' for housing.
Why not let the market determine who is going to own all this real estate that needs to be in stronger hands?
Maybe the housing will have to be sold in bulk, at fire sale prices, to private equity funds? No one knows.
But, as long as the government insists on mispricing housing and all sorts of other parts of the economy, the distortions will inhibit the economy from righting itself.
As for regulation - ask yourself who bought houses for prices and with loans they couldn't afford?
And, why is it that there wasn't any competition with rating agencies?
And, why is it that Basel II let banks take triple A paper without understanding what they were taking on as an asset? (Isn't this a perfect example of one regulatory fix (i.e. Basel II) creating a worse problem down the road by removing the bank's own prudent thinking for process-oriented solutions?
And, why not spend more time thinking about how the Congress pushed for Fannie and Freddie to make loans which were imprudent at the time - all of which pushed the competitive envelope? Something which, we are clearly seeing again now!
Sorry, but the bigger issue should be 'clearing prices' for housing.
Why not let the market determine who is going to own all this real estate that needs to be in stronger hands?
Maybe the housing will have to be sold in bulk, at fire sale prices, to private equity funds? No one knows.
But, as long as the government insists on mispricing housing and all sorts of other parts of the economy, the distortions will inhibit the economy from righting itself.
As for regulation - ask yourself who bought houses for prices and with loans they couldn't afford?
And, why is it that there wasn't any competition with rating agencies?
And, why is it that Basel II let banks take triple A paper without understanding what they were taking on as an asset? (Isn't this a perfect example of one regulatory fix (i.e. Basel II) creating a worse problem down the road by removing the bank's own prudent thinking for process-oriented solutions?
And, why not spend more time thinking about how the Congress pushed for Fannie and Freddie to make loans which were imprudent at the time - all of which pushed the competitive envelope? Something which, we are clearly seeing again now!
Fannie and Freddie Stagger On as Troubled Wards of the State - WSJ.com
Fannie and Freddie Stagger On as Troubled Wards of the State - WSJ.com
There's no longer any question as to whether the US housing market has reached clearing prices. It obviously hasn't with all the artificial support it's being given!
One open question of course is as the economy is starved by Democratic entitlement programs for the resources to create economically competitive and viable long-term jobs, will the housing market follow the economy down in nominal terms or real terms?
Nominal, because if the Federal Reserve has to start buying Treasury paper to support all this borrowing in the face of higher interest rates, will inflation push prices up - even if in real terms housing becomes even 'less' affordable?
Certainly a subject being kept as far away from public discourse as possible by the politicians (of both parties) and the press (for appearing too negative).
There's no longer any question as to whether the US housing market has reached clearing prices. It obviously hasn't with all the artificial support it's being given!
One open question of course is as the economy is starved by Democratic entitlement programs for the resources to create economically competitive and viable long-term jobs, will the housing market follow the economy down in nominal terms or real terms?
Nominal, because if the Federal Reserve has to start buying Treasury paper to support all this borrowing in the face of higher interest rates, will inflation push prices up - even if in real terms housing becomes even 'less' affordable?
Certainly a subject being kept as far away from public discourse as possible by the politicians (of both parties) and the press (for appearing too negative).
Markets Flinch at Europe's Debt Woes, Fed Rate Plans - WSJ.com
Anti-Market and Anti-Job-Creation Forces Get More Recognition: Markets Flinch at Europe's Debt Woes, Fed Rate Plans - WSJ.com
Maybe investors are finally starting to think things through?
Examples:
1. Crowding Out: In the 1980's, the subject was briefly brought up with respect to the then current high levels of government borrowing.
If the government is borrowing, then they will get the loan before any private borrower - either a business or an individual.
Thus, the government will spend the money on entitlements before a business adds a new factory or an individual buys a new house.
(Is this what Obama and Geitner want us to believe?)
2. Highest corporate tax rates:
Since the US has about the world's highest corporate tax rates, is it logical that business will expand or come to the US; or, will it look elsewhere?
3. Possible Value Added Tax:
Hope you are familiar with the concept of 'economic utility'. Because, when the price of goods go up (due to VAT), then people either substitute or do without.
If the government is going to take 20% out of the economy from a European level VAT tax - and apply it to entitlements as its spending would imply - then again, private goods that could increase productivity and add jobs will be forsworn for government spending on entitlements.
You might need a new car to get to work or a new truck for work. But, with the price increased by 20%, you may try to stretch the use of the old car - even if it means more repair bills, higher fuel bills, etc.
Thus, the productivity of the economy slows down (somewhat tremendously) as the capital costs for any investment go up by 20%.
One can easily go on here. But, the bottom line is that government policies are inhibitors to job growth and any efforts with job credits, etc. just further distort the application of good common sense and supply and demand prerogatives.
Maybe investors are finally starting to think things through?
Examples:
1. Crowding Out: In the 1980's, the subject was briefly brought up with respect to the then current high levels of government borrowing.
If the government is borrowing, then they will get the loan before any private borrower - either a business or an individual.
Thus, the government will spend the money on entitlements before a business adds a new factory or an individual buys a new house.
(Is this what Obama and Geitner want us to believe?)
2. Highest corporate tax rates:
Since the US has about the world's highest corporate tax rates, is it logical that business will expand or come to the US; or, will it look elsewhere?
3. Possible Value Added Tax:
Hope you are familiar with the concept of 'economic utility'. Because, when the price of goods go up (due to VAT), then people either substitute or do without.
If the government is going to take 20% out of the economy from a European level VAT tax - and apply it to entitlements as its spending would imply - then again, private goods that could increase productivity and add jobs will be forsworn for government spending on entitlements.
You might need a new car to get to work or a new truck for work. But, with the price increased by 20%, you may try to stretch the use of the old car - even if it means more repair bills, higher fuel bills, etc.
Thus, the productivity of the economy slows down (somewhat tremendously) as the capital costs for any investment go up by 20%.
One can easily go on here. But, the bottom line is that government policies are inhibitors to job growth and any efforts with job credits, etc. just further distort the application of good common sense and supply and demand prerogatives.
Monday, February 8, 2010
John Hofmeister: The U.S. Needs an Industrial Policy - WSJ.com
John Hofmeister: The U.S. Needs an Industrial Policy - WSJ.com
Sadly - perhaps due to length of article limits - the above is only half the picture.
The other half is what has to be given up to pay for all of this?
Let's start with overly generous middle and lower class entitlements. Yes, people will do without things they want and believe need (but, are they available to everyone in the world? No! So, don't ask other Americans to pay for them!
Stop squandering resources on the drug war!
No longer allow the teachers unions to hamstring education!
Recoup overly generous public employee retirement and other benefits.
Medicare recipients will have to pay more and have a more cost-containing approach.
As for Medicaid, it will have to be cut way back.
Every policy and activity that is consumption paid for by others has to be curtailed - and, drastically.
We need to look to the future and not consume too much today - especially, if we didn't earn it.
As children used to be taught with the story of the goose laying the golden eggs, we can't kill the goose. You only get the daily egg you get and you can't overspend.
Obama and his allies are trying to ensure middle class consumption. They don't care whether it's borrowed money or taxed - and, if it's not there tomorrow - well, that's not there fault - or, is it?
Let's hope the election in Massachusetts wasn't a fluke; and, that the Republicans have the guts to address entitlement spending and pandering to special interests (including the wackos on the religious right)!
Sadly - perhaps due to length of article limits - the above is only half the picture.
The other half is what has to be given up to pay for all of this?
Let's start with overly generous middle and lower class entitlements. Yes, people will do without things they want and believe need (but, are they available to everyone in the world? No! So, don't ask other Americans to pay for them!
Stop squandering resources on the drug war!
No longer allow the teachers unions to hamstring education!
Recoup overly generous public employee retirement and other benefits.
Medicare recipients will have to pay more and have a more cost-containing approach.
As for Medicaid, it will have to be cut way back.
Every policy and activity that is consumption paid for by others has to be curtailed - and, drastically.
We need to look to the future and not consume too much today - especially, if we didn't earn it.
As children used to be taught with the story of the goose laying the golden eggs, we can't kill the goose. You only get the daily egg you get and you can't overspend.
Obama and his allies are trying to ensure middle class consumption. They don't care whether it's borrowed money or taxed - and, if it's not there tomorrow - well, that's not there fault - or, is it?
Let's hope the election in Massachusetts wasn't a fluke; and, that the Republicans have the guts to address entitlement spending and pandering to special interests (including the wackos on the religious right)!
States Look to Expand the Tax Net to Services - WSJ.com
What is the Real Issue for the Next Election? A Slow Decline (aka Argentina socialism?) - States Look to Expand the Tax Net to Services - WSJ.com
Here we are with 'same-ol' thinking. Tax, tax, tax.
Let's have some cutbacks.
Obama laid out the issue of the next election - if the media will catch on to it:
This issue is whether the US will allow itself to go the way of Argentina (slow and irresistible decline, in order to try and preserve the idea that all old middle class (read: esp. blue collar) lifestyles can be maintained with tax dollars and borrowing.
Obama said it clearly in speeches in early Feb. as published in the Wall Street Journal, New York Times, etc.
As quoted on a debate on Bloomberg on the State of California going bankrupt, the socialist lament was "but, people need these services. Do you mean they'll have to do without?"
So this is the issue: do some people have to do without things they can't pay for on their own; or, does the rest of society have to give up a better future (i.e. Argentina-like) to provide for other than themselves?
I frankly haven't heard an articulation of this issue in such clear terms.
Here we are with 'same-ol' thinking. Tax, tax, tax.
Let's have some cutbacks.
Obama laid out the issue of the next election - if the media will catch on to it:
This issue is whether the US will allow itself to go the way of Argentina (slow and irresistible decline, in order to try and preserve the idea that all old middle class (read: esp. blue collar) lifestyles can be maintained with tax dollars and borrowing.
Obama said it clearly in speeches in early Feb. as published in the Wall Street Journal, New York Times, etc.
As quoted on a debate on Bloomberg on the State of California going bankrupt, the socialist lament was "but, people need these services. Do you mean they'll have to do without?"
So this is the issue: do some people have to do without things they can't pay for on their own; or, does the rest of society have to give up a better future (i.e. Argentina-like) to provide for other than themselves?
I frankly haven't heard an articulation of this issue in such clear terms.
Sunday, February 7, 2010
Opera-House Industrialism - Barrons.com
Opera-House Industrialism - Barrons.com
Such a good essay.
It highlights the problems with the Democratic agenda of trying to protect middle class lifestyles (as stated by Obama again this weekend).
Yet, by trying to do so with debt and entitlements, the very deprivation of the chance of renewal is evident.
Let's hope the voters are given a choice in November and take it to cleave off some of the burdens of all the entitlements.
Such a good essay.
It highlights the problems with the Democratic agenda of trying to protect middle class lifestyles (as stated by Obama again this weekend).
Yet, by trying to do so with debt and entitlements, the very deprivation of the chance of renewal is evident.
Let's hope the voters are given a choice in November and take it to cleave off some of the burdens of all the entitlements.
Saturday, February 6, 2010
Top 2009 Forecasters Saw High Unemployment - WSJ.com
Top 2009 Forecasters Saw High Unemployment - WSJ.com
More on Unemployment and Causes:
What you may be missing with salaries are several things:
1. As with any business, you pay what you have to for top talent. (In a normal environment, these high salaries should be promoting competition (not castigation or anger). The fact that more businesses aren't there to compete is what should be questioned (another subject).
2. As for a lack of raises for many workers, here again the government wants to obfuscate and hide the fact that it has increased the cost of all sorts of benefit programs - so added worker productivity gets channeled into support for such programs rather than into cash worker salaries.
(A subtle example is the 'cost-shifting' government uses to support Medicare and Medicaid programs. You wonder why your health insurance costs go up - well, there's a subsidy for the government programs you pay through higher prices than paid by government.)
3. As for younger workers, besides the crazy minimum wage laws or unions, there is the basic 'nut' of extra costs for employment. So, if the government requires this and that benefit, then jobs just don't get done or they're outsourced because the economic cost is higher than the utility benefit to the purchaser.
After years and years - and, it is vastly worse under Obama, Pelosi, etc. - the distortion in the economic utility equation just gets worse and worse. Thus, fewer jobs!
More on Unemployment and Causes:
What you may be missing with salaries are several things:
1. As with any business, you pay what you have to for top talent. (In a normal environment, these high salaries should be promoting competition (not castigation or anger). The fact that more businesses aren't there to compete is what should be questioned (another subject).
2. As for a lack of raises for many workers, here again the government wants to obfuscate and hide the fact that it has increased the cost of all sorts of benefit programs - so added worker productivity gets channeled into support for such programs rather than into cash worker salaries.
(A subtle example is the 'cost-shifting' government uses to support Medicare and Medicaid programs. You wonder why your health insurance costs go up - well, there's a subsidy for the government programs you pay through higher prices than paid by government.)
3. As for younger workers, besides the crazy minimum wage laws or unions, there is the basic 'nut' of extra costs for employment. So, if the government requires this and that benefit, then jobs just don't get done or they're outsourced because the economic cost is higher than the utility benefit to the purchaser.
After years and years - and, it is vastly worse under Obama, Pelosi, etc. - the distortion in the economic utility equation just gets worse and worse. Thus, fewer jobs!
Opinions Are Split on How Best to Spur Jobs - WSJ.com
Opinions Are Split on How Best to Spur Jobs - WSJ.com
Let's keep it simple and consider some of the 'macro' elements at play here:
1) Just as we don't make buggy whips and buggies or keep horses for transport anymore, advanced economies need to grow with lots of new ideas (e.g. Intel expansion plans, chemical plant cutback announcements in this past weeks WSJ).
2) What is the most efficient way to allocate resources and encourage people to study hard, work hard, invest and save, etc.? It's a free market (which is exactly what there is less and less of).
3) Do people work to provide for themselves or for retirees or non-producers? A good suggestion was made to stop indexing social security and to cap Medicare and government pensions.
4) As long as the government is spending 50% more than it's taking in - entitlement cutbacks are essential (but not discussed).
5) Borrowing from the future to fund current consumption is what has gotten the US and Europe into the mess it's in. If government can come up with grand plans (like the trip to the moon or serious changes to automated transportation (akin to the changes brought about by the internet), then these are worthy efforts).
But, in the interim, taking productive resources and allocating them to make-work or unproductive government jobs (of which there is a plethora already - base value on economic utility - not wish lists or social want lists) - othersize, isn't it like a family that runs up too big a debt on their credit cards and then hasn't got much disposable income left?
All governments in Europe and the US seem to be spending too much through borrowing. Where will this continued flow of savings come from?
Isn't this one of the bubbles that will have to burst? I.e. too much social spending; too much money taken from investors, savers and producers; reduced incentives throughout life to get an education, work hard and take care of oneself?
Let's keep it simple and consider some of the 'macro' elements at play here:
1) Just as we don't make buggy whips and buggies or keep horses for transport anymore, advanced economies need to grow with lots of new ideas (e.g. Intel expansion plans, chemical plant cutback announcements in this past weeks WSJ).
2) What is the most efficient way to allocate resources and encourage people to study hard, work hard, invest and save, etc.? It's a free market (which is exactly what there is less and less of).
3) Do people work to provide for themselves or for retirees or non-producers? A good suggestion was made to stop indexing social security and to cap Medicare and government pensions.
4) As long as the government is spending 50% more than it's taking in - entitlement cutbacks are essential (but not discussed).
5) Borrowing from the future to fund current consumption is what has gotten the US and Europe into the mess it's in. If government can come up with grand plans (like the trip to the moon or serious changes to automated transportation (akin to the changes brought about by the internet), then these are worthy efforts).
But, in the interim, taking productive resources and allocating them to make-work or unproductive government jobs (of which there is a plethora already - base value on economic utility - not wish lists or social want lists) - othersize, isn't it like a family that runs up too big a debt on their credit cards and then hasn't got much disposable income left?
All governments in Europe and the US seem to be spending too much through borrowing. Where will this continued flow of savings come from?
Isn't this one of the bubbles that will have to burst? I.e. too much social spending; too much money taken from investors, savers and producers; reduced incentives throughout life to get an education, work hard and take care of oneself?
Thursday, February 4, 2010
Productivity, Jobless Claims Rise - WSJ.com
Productivity, Jobless Claims Rise - WSJ.com
In terms of Obamanomics, you wonder if jobs will come back and the economy will grow? Start from looking at the fiscal environment created by government policies. Make them personal:
It's sort of like your family going shopping.
If the paycheck is smaller (i.e. higher taxes), then you have less to spend.
When you go to the bank to get a loan to expand your business, the banker says - "sorry, we just spent our money buying government bonds!"
When you wonder where the extra tax money (or borrowed money went) by government, you here your neighbor who works for the government just got a raise; and, his/her retirement is still on track to be fully funded and available at an early age.
You go to the doctor and worry about the deductible (if you even can afford insurance). The doctor says your bill will be $150. You ask him why - "it was $75 just a year ago for the same thing?" He says, yeah - it was - but, we have all these Medicare and Medicaid patients and the government only pays us $35 for them to get the same treatment. So, we have to charge private patients more.
Hmmm - does this seem like the right way to grow the economy?
In terms of Obamanomics, you wonder if jobs will come back and the economy will grow? Start from looking at the fiscal environment created by government policies. Make them personal:
It's sort of like your family going shopping.
If the paycheck is smaller (i.e. higher taxes), then you have less to spend.
When you go to the bank to get a loan to expand your business, the banker says - "sorry, we just spent our money buying government bonds!"
When you wonder where the extra tax money (or borrowed money went) by government, you here your neighbor who works for the government just got a raise; and, his/her retirement is still on track to be fully funded and available at an early age.
You go to the doctor and worry about the deductible (if you even can afford insurance). The doctor says your bill will be $150. You ask him why - "it was $75 just a year ago for the same thing?" He says, yeah - it was - but, we have all these Medicare and Medicaid patients and the government only pays us $35 for them to get the same treatment. So, we have to charge private patients more.
Hmmm - does this seem like the right way to grow the economy?
Tuesday, February 2, 2010
Capital Journal: Budget Deficit Threatens National Security - WSJ.com
Capital Journal: Budget Deficit Threatens National Security - WSJ.com
Isn't it clearly a combination of the "can't say no" welfare state, out-of-date retirement ages and benefits (particularly for public employee unions and unions that have legacy contracts), laws that make no sense (such as the anti-drug laws) that cost too much plus have negative international implications, etc.
None of these are really being addressed by the Obama administration and its ultra liberal allies.
The only reason for a business to spend or invest is if there is such an unambiguous and amazing opportunity (can we say 'rare') or a glimmering hope that the Democrats lose so badly in the fall elections that the new Congress has a veto-proof majority in both houses, along with a Republican party that has some guts to say no to spending, a willingness to cutback existing social redistribution programs and a new found financial rectitude they lacked under Bush.
Isn't it clearly a combination of the "can't say no" welfare state, out-of-date retirement ages and benefits (particularly for public employee unions and unions that have legacy contracts), laws that make no sense (such as the anti-drug laws) that cost too much plus have negative international implications, etc.
None of these are really being addressed by the Obama administration and its ultra liberal allies.
The only reason for a business to spend or invest is if there is such an unambiguous and amazing opportunity (can we say 'rare') or a glimmering hope that the Democrats lose so badly in the fall elections that the new Congress has a veto-proof majority in both houses, along with a Republican party that has some guts to say no to spending, a willingness to cutback existing social redistribution programs and a new found financial rectitude they lacked under Bush.
Monday, February 1, 2010
Knives Are Drawn for Proposed Budget Cuts - WSJ.com
Knives Are Drawn for Proposed Budget Cuts - WSJ.com
A serious question would appear to loom - i.e. is the Federal Government's fiscal policy going to produce a Michigan-like economy nationwide?
If so, the government is going down a very slippery slope. Greece, Argentina are all examples of socialist states that rely on government to provide jobs and benefits to the detriment of the private economy.
Clearly, the government of the US is allocating more resources to social benefit that people neither earn nor pay for nor restrain their acceptance of. As such, the burdens on the shrinking private sector become increasingly great.
We've seen what happens in Michigan and even California when government takes too much from the private economy. Is an economy like the old story of the straw and the camel? Probably not.
But, as every financial planner tells you - you should let 'compound interest' be your friend.
And, as widely accepted, if you don't have a job when young, it will impact you throughout much of your later working life.
So, would it be reasonable to try and contain even entitlements and to try and forge a business growth and rebuilding strategy - or, as evident from the current spate of programs, should the government continue the same-ole consumption and social redistribution programs which are sapping the strength of the private sector?
After all, if the government takes 30% out of the economy rather than 20% (this is Federal only), then it only follows that the private economy will have less to building businesses with and to create jobs with!
A serious question would appear to loom - i.e. is the Federal Government's fiscal policy going to produce a Michigan-like economy nationwide?
If so, the government is going down a very slippery slope. Greece, Argentina are all examples of socialist states that rely on government to provide jobs and benefits to the detriment of the private economy.
Clearly, the government of the US is allocating more resources to social benefit that people neither earn nor pay for nor restrain their acceptance of. As such, the burdens on the shrinking private sector become increasingly great.
We've seen what happens in Michigan and even California when government takes too much from the private economy. Is an economy like the old story of the straw and the camel? Probably not.
But, as every financial planner tells you - you should let 'compound interest' be your friend.
And, as widely accepted, if you don't have a job when young, it will impact you throughout much of your later working life.
So, would it be reasonable to try and contain even entitlements and to try and forge a business growth and rebuilding strategy - or, as evident from the current spate of programs, should the government continue the same-ole consumption and social redistribution programs which are sapping the strength of the private sector?
After all, if the government takes 30% out of the economy rather than 20% (this is Federal only), then it only follows that the private economy will have less to building businesses with and to create jobs with!
U.S. Deficit to Hit All-Time High - WSJ.com
U.S. Deficit to Hit All-Time High - WSJ.com
Isn't this all like a family with too many"I wants"?
Every deserving program - just like every deserving child in a family - has things they want; but, somehow, lots of families learn to live without and live within budgets.
One thinks of the American immigrant's typical story of coming to the country and scrimping and saving to give their child a better life.
Now, we have the "all-American" family borrowing from their kids to give themselves the immediate "I wants".
It's too bad the 'parents' (the Administration and Congress) can't discipline themselves or the family.
By discouraging investors and businessmen - who know they'll be asked to pay for all the 'largess' - the income to the country will be going down as well. It's just a shame!
Isn't this all like a family with too many"I wants"?
Every deserving program - just like every deserving child in a family - has things they want; but, somehow, lots of families learn to live without and live within budgets.
One thinks of the American immigrant's typical story of coming to the country and scrimping and saving to give their child a better life.
Now, we have the "all-American" family borrowing from their kids to give themselves the immediate "I wants".
It's too bad the 'parents' (the Administration and Congress) can't discipline themselves or the family.
By discouraging investors and businessmen - who know they'll be asked to pay for all the 'largess' - the income to the country will be going down as well. It's just a shame!
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