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When it comes to the economy EVERYBODY has an opinion and this writer is no different. That said it is my opinion that we have hit the bottom and that the fundamentals are pointing toward recovery. The nature of the recovery is the unknown. Some think it will come right along, with the beginning of recovery in housing and that will add employment resulting in more consumer spending which will lead to increased production and more employment. The other camp seems to think that employment will languish as businesses are cautious about increasing inventory too quickly and housing starts haven’t lagged permits for more than a year so there is no production waiting in housing. Permits will be slow and housing starts for inventory (Speculation) will be very slow. In part because of the economic concerns and partly because banks still aren’t willing to lend.
From the very beginning I wrote:
10/27/08
Housing:
This is the core problem according to Bernanke and others. This month (September) was the best performance this year and has shown a real stability in units sold throughout the year averaging 5.5 million units. Well down from 2005 but showing real resistance to falling below the 5.5 million annual range.
Since then housing bottomed out at 4.799 million units in March 2009 reflecting another nearly 13% decline in the annualized rate of home sales (new and resale).
Housing, not health care, not unemployment, not anything else but housing is the cause of this recession and it’s recovery is essential to the economic recovery. Until we stop wasting energy on these other issues (GM, Chrysler, Finance, health care reform - granted all are important) and fix the housing problem we will not have the footing for a strong recovery. It will take political will from the leadership of both houses of Congress as well as the White House to put aside the other populist issues and do what is needed. It is the only way to create a vibrant tax base to fund those other important issues without massive increases in the debt.We have the equivolent of an elephant to eat. The only way to do it wothout choking is one bite at a time.and the first bite must be housing.
The stimulus did not work very well, (less than 25% has actually been spent) while housing languishes. Confidence in this country has always been based on the theory, “buy land, they ain’t making any more of it” – anonymous quotation. When land (housing) values are stable, we Americans have confidence. We take it for granted and when something that much a part of our lives is suddenly challenged it makes us very wary. Europeans have seen war, many parts of Asia have seen war. We haven’t seen war on the US mainland since the 1860’s. For most of us, it is a given like gravity. Housing value has always been there.
Housing will stabilize with or without interference by the government. How long that takes and how much it hurts ‘Main Street’ before it reaches stability is the factor. The government efforts should have been to help it reach stability more quickly and less painfully than the natural movement of the market would. It has, to date, not done that very well.
Once pricing stability is achieved in housing, people will begin to spend on other things. Since our economy is 66 – 70% consumer driven that will spur recovery. Businesses then can begin to hire and unemployment will at least stop rising. That, too, will add to the consumer confidence and increase the pace of recovery. Here in Wilmington, NC that is even more critical because housing and its related employment are such a big part of our local economy.
On the bright side, we will be looking back in 2013 and see how it all worked out. Kids starting college this year will be graduating into better economic times. It will be up to them to take us to new economic highs and assure our position in the world economy.
Tuesday, August 25, 2009
Saturday, August 22, 2009
August 22,2009 Health Care Reform
Today is August 22, 2009 and the Republicans are opposing the Health Care reform on the grounds that a public option will create a situation where private insurance will no longer be available with in a few years. I don’t know, that maybe true but it will take awhile for the private sector to go away.
The Democrats don’t want reform without a public option (read Government run ala Medicare) but that will not control cost. Medicare is effectively bankrupt. Cost control and Government to my mind are an oxymoron. Princess Nancy (Pelosi) has said that the House WILL NOT pass anything that doesn’t include the public option while the President seems willing to accept half a loaf just to move this ahead.
Neither party is talking about TORT reform to basically put a muzzle on the law suits that have driven malpractice insurance to the point that some Doctors are leaving the profession, making it hard to get health care at any price. For example there is only one Cardiologist listed in Jacksonville (a city of 76,000) and eight in Wilmington (a city of 95000).
Wilmington is a better place to live, I believe. But what about Minot, North Dakota or Missoula Montana? How many cardiologists are there in those places? (Three and Seven if you really want to know and the population is 36600 and 107,000 respectively).
If Doctors already have concluded that lifestyle is important to them and their families, then trying to mandate cost structures will simply reduce the number of Doctors. As the current Doctors reach the point of retirement, will there be replacements in the ready? How many of our Doctors today are not American by birth? In no way am I suggesting that they are not as great as American born, but they represent a brain drain on their country of origin. As those countries (mostly third world emerging countries) begin to offer a similar lifestyle to the USA then the young Doctors may decide to return to their homeland after training leaving us short handed at best.
It is simple economics. If I were smart enough to make it through med school I’m probably smart enough to do almost anything for a career. If the Government is going to dictate what I can and can’t do for a patient, what I can and can’t charge for services I may seriously question spending several hundred thousand dollars on the education to become a doctor. Maybe I’d become an engineer or an electronics wiz kid and develop some new high tech gizmo instead. These could be the “unintended consequences” of the public option. Of course, Nancy and her crew could care less. They have the Congressional Health Care Plan which assures them of the best of everything, AND it is there for them after retirement too. So voting them out of office doesn’t hurt them one bit from the health care perspective.
The economy is showing signs of bottoming. Housing re-sales finally went plus to last year in July selling at an annualized rate of 5.24 million units. This is the highest rate since August 2007. However it was in part due to the sale of many foreclosed properties at ridiculous prices. It is nonetheless a significant positive move and it makes a dot above the “0” line. If we can string a couple more dots together above the line then we will have a trend, regardless how humble. The Philadelphia Fed Index and the Empire State Index have both been trending upward all year but only crossed the “0” line into positive territory in July. Again one dot doesn’t a trend make but both indexes have established solid upward trends just finally going positive.
Some of the headwinds to a robust recovery are the continuously skyrocketing debt, the continuous impending layoff announcements numbering between 75,000 and 100,000 per month. This is shown to be just the tip of the iceberg as first time unemployment applications continue in the 560,000 range each week. This is improving, it had hit a peak of 669,000 the fourth week of March.
The progress is fragile and could be halted by any number of things. Confidence in this country’s economy is weak, Consumer Confidence is well below 50% sort of the “0” point between contraction and expansion. Consumer sentiment, which is highly correlated to spending continues to trend downward. People are afraid. They are afraid of losing their jobs, afraid that their home values will continue to plunge, afraid that their retirement nest egg will continue to be eviscerated. They are saving their money to help them through any tough times that come their way. Smart, yet self defeating. Since our economy is 66-70% consumer goods driven, the increase in savings has a negative impact on the largest single sector in the economy, slowing recovery and endangering their jobs.
As I tell my economics students, check out the opening line of the Constitution. It says “ We the People” . That is all there is, just us. You can tax business all you want, they raise prices and we pay (the tax. You can tax the rich, but they will find ways to earn that money in the lowest tax environment, even if that is the Cayman Islands or Bermuda or wherever. We the people live in a dynamic environment. Nothing is locked in forever. This is a free country. We are free to leave or free to stay. Most of us descended from ancestors who came here from some place. They came because they saw opportunity. Let us not have our smartest, most productive citizens searching for that opportunity elsewhere.
The top wage earners, the often maligned top 1% of Americans, pay more than 40% of all the taxes collected. The next 24% (making up the top 25% of wage earners) pay 46%. So that the top 25% together pay more than 86% of all the taxes collected to run government. The rest of the citizenry, (75%) pay the remaining 14% of all the taxes collected with the bottom 50% paying less than 3% of the dollars collected. So for every dollar the government spends (on health care for example) the lowest 50% of the wage earners (all those who earn $32,000 or less per year) as a group contribute 3 cents. The top 1% already pays 40 cents (in taxes in addition to their own health insurance costs). If that seems a little Robinhood-esk to you, you understand the problem. If the top 1% gets smaller who will pay their share? You, me and our kids and grandkids maybe for generations to come. We dare not cause the rich and famous to seek their opportunity else where. Remember the story of the Golden Goose. Let us not be the generation whose greed killed the goose.
The Democrats don’t want reform without a public option (read Government run ala Medicare) but that will not control cost. Medicare is effectively bankrupt. Cost control and Government to my mind are an oxymoron. Princess Nancy (Pelosi) has said that the House WILL NOT pass anything that doesn’t include the public option while the President seems willing to accept half a loaf just to move this ahead.
Neither party is talking about TORT reform to basically put a muzzle on the law suits that have driven malpractice insurance to the point that some Doctors are leaving the profession, making it hard to get health care at any price. For example there is only one Cardiologist listed in Jacksonville (a city of 76,000) and eight in Wilmington (a city of 95000).
Wilmington is a better place to live, I believe. But what about Minot, North Dakota or Missoula Montana? How many cardiologists are there in those places? (Three and Seven if you really want to know and the population is 36600 and 107,000 respectively).
If Doctors already have concluded that lifestyle is important to them and their families, then trying to mandate cost structures will simply reduce the number of Doctors. As the current Doctors reach the point of retirement, will there be replacements in the ready? How many of our Doctors today are not American by birth? In no way am I suggesting that they are not as great as American born, but they represent a brain drain on their country of origin. As those countries (mostly third world emerging countries) begin to offer a similar lifestyle to the USA then the young Doctors may decide to return to their homeland after training leaving us short handed at best.
It is simple economics. If I were smart enough to make it through med school I’m probably smart enough to do almost anything for a career. If the Government is going to dictate what I can and can’t do for a patient, what I can and can’t charge for services I may seriously question spending several hundred thousand dollars on the education to become a doctor. Maybe I’d become an engineer or an electronics wiz kid and develop some new high tech gizmo instead. These could be the “unintended consequences” of the public option. Of course, Nancy and her crew could care less. They have the Congressional Health Care Plan which assures them of the best of everything, AND it is there for them after retirement too. So voting them out of office doesn’t hurt them one bit from the health care perspective.
The economy is showing signs of bottoming. Housing re-sales finally went plus to last year in July selling at an annualized rate of 5.24 million units. This is the highest rate since August 2007. However it was in part due to the sale of many foreclosed properties at ridiculous prices. It is nonetheless a significant positive move and it makes a dot above the “0” line. If we can string a couple more dots together above the line then we will have a trend, regardless how humble. The Philadelphia Fed Index and the Empire State Index have both been trending upward all year but only crossed the “0” line into positive territory in July. Again one dot doesn’t a trend make but both indexes have established solid upward trends just finally going positive.
Some of the headwinds to a robust recovery are the continuously skyrocketing debt, the continuous impending layoff announcements numbering between 75,000 and 100,000 per month. This is shown to be just the tip of the iceberg as first time unemployment applications continue in the 560,000 range each week. This is improving, it had hit a peak of 669,000 the fourth week of March.
The progress is fragile and could be halted by any number of things. Confidence in this country’s economy is weak, Consumer Confidence is well below 50% sort of the “0” point between contraction and expansion. Consumer sentiment, which is highly correlated to spending continues to trend downward. People are afraid. They are afraid of losing their jobs, afraid that their home values will continue to plunge, afraid that their retirement nest egg will continue to be eviscerated. They are saving their money to help them through any tough times that come their way. Smart, yet self defeating. Since our economy is 66-70% consumer goods driven, the increase in savings has a negative impact on the largest single sector in the economy, slowing recovery and endangering their jobs.
As I tell my economics students, check out the opening line of the Constitution. It says “ We the People” . That is all there is, just us. You can tax business all you want, they raise prices and we pay (the tax. You can tax the rich, but they will find ways to earn that money in the lowest tax environment, even if that is the Cayman Islands or Bermuda or wherever. We the people live in a dynamic environment. Nothing is locked in forever. This is a free country. We are free to leave or free to stay. Most of us descended from ancestors who came here from some place. They came because they saw opportunity. Let us not have our smartest, most productive citizens searching for that opportunity elsewhere.
The top wage earners, the often maligned top 1% of Americans, pay more than 40% of all the taxes collected. The next 24% (making up the top 25% of wage earners) pay 46%. So that the top 25% together pay more than 86% of all the taxes collected to run government. The rest of the citizenry, (75%) pay the remaining 14% of all the taxes collected with the bottom 50% paying less than 3% of the dollars collected. So for every dollar the government spends (on health care for example) the lowest 50% of the wage earners (all those who earn $32,000 or less per year) as a group contribute 3 cents. The top 1% already pays 40 cents (in taxes in addition to their own health insurance costs). If that seems a little Robinhood-esk to you, you understand the problem. If the top 1% gets smaller who will pay their share? You, me and our kids and grandkids maybe for generations to come. We dare not cause the rich and famous to seek their opportunity else where. Remember the story of the Golden Goose. Let us not be the generation whose greed killed the goose.
Sunday, August 9, 2009
July 9, 2009
Can you believe this discourse between Rep. Tom Price MD and the chair of his Congressional Committee?
http://www.youtube.com/watch?v=SD_YOlUBoIk
Talk about serious enemy making. Rep. Price is either the most courageous or most foolish person in Congress. He does, however state his position without doubt and, as a Doctor one would have to give his view point some credibility. Makes you wonder and it makes me concerned about why the hurry, who benefits from moving fast? What key elements get overlooked and what unintended consequences will there be?
This morning on Meet the Press there was a great segment with the Mayor of NYC (Mike Bloomberg (R)) and the Mayor of Newark, NJ (Cory Booker (D)) about several issues including Health Care Reform. They both stated clearly that cost control requires TORT reform, which is not in the current bill. Without this there is no way to provide Health Care and reduce costs. It is a key element in the formula. It would be like trying to bake a cake w/o flour.
It was incredible to sit and listen to two articulate, intelligent and thoughtful people with incredibly difficult jobs explain the issues. Even more impressive, they did it from the opposite side of the aisle, one Democrat, one Republican, one Black, one White most likely of different Religious backgrounds and never did they point any fingers nor deride any person while making the point. More over the points were understandable and even embraceable by most of us.
Can we elect these two to Congress??? Maybe they could get something done that we would all benefit from.
http://www.youtube.com/watch?v=SD_YOlUBoIk
Talk about serious enemy making. Rep. Price is either the most courageous or most foolish person in Congress. He does, however state his position without doubt and, as a Doctor one would have to give his view point some credibility. Makes you wonder and it makes me concerned about why the hurry, who benefits from moving fast? What key elements get overlooked and what unintended consequences will there be?
This morning on Meet the Press there was a great segment with the Mayor of NYC (Mike Bloomberg (R)) and the Mayor of Newark, NJ (Cory Booker (D)) about several issues including Health Care Reform. They both stated clearly that cost control requires TORT reform, which is not in the current bill. Without this there is no way to provide Health Care and reduce costs. It is a key element in the formula. It would be like trying to bake a cake w/o flour.
It was incredible to sit and listen to two articulate, intelligent and thoughtful people with incredibly difficult jobs explain the issues. Even more impressive, they did it from the opposite side of the aisle, one Democrat, one Republican, one Black, one White most likely of different Religious backgrounds and never did they point any fingers nor deride any person while making the point. More over the points were understandable and even embraceable by most of us.
Can we elect these two to Congress??? Maybe they could get something done that we would all benefit from.
Friday, August 7, 2009
July 8, 2009
Its been a little more than a week since I was able to update this blog. For those who follow regularly I apologize.
It has been an interesting week. It would appear that Cash for Clunkers is a huge success. Chrysler, who at one point had something like 180 days of inventory on the lots, is now running overtime to refill the pipe lines. Ford actually sold more cars this month (July 09) than they did in July ’08. That’s a stimulus package. If we’d done this six months ago maybe we wouldn’t have added a Trillion dollars to the debt. Germany did it late winter or early spring. But wait, what do they know.
The stock market has jumped up shouting the economy “ITS ALIVE” and the President is telling us that the stimulus is working. Let me put it into context for you. Unemployment is still rising, albeit more slowly than it was. The economy MAY actually grow in the third quarter. Anything less than 1% growth means it contracted were it not for Cash for Clunkers. $3 Billion in car sales equal at least 1% on the GDP. Since the definition of recession is at least two consecutive quarters of negative growth then lets not be fooled by one quarter of artificially contrived positive growth. We have a fundamental problem. It is unemployment. The work force grows at 1% a year fueled by kids that insist on growing up and pesky immigration (legal). America is the home of innovation and productivity is our middle name. Technology and innovation generally improve productivity by about 2% per year. Great stuff. Keep costs down.
That said however, it means that the economy (GDP) must grow by 3% just to keep the unemployment rate steady. At a robust 5% annual growth rate we could get unemployment down to 5% in 2 ½ to three years. If we could generate a 5% growth in each of the next 3 years, in would be very hard to control runaway inflation. Suddenly it would be a sellers market in employment so salaries would skyrocket, costs would spiral as more money chased the goods available and interest rates would explode. Do any of you remember Mr. Carter’s days as President? When mortgages were 16% and a fixed rate mortgage was NOT available. C’mon if you really don’t remember ask your parents, it was only 25 years ago.
So do we solve the problem in three years creating a new problem while doing so or do we live with higher unemployment for 5 or six years. Neither choice is much fun to think about. It may just be the only two options.
On the brighter side, housing is slowly, very slowly, starting to crawl out of the shadows all around the country. This is particularly good news for us here on the Carolina Coast. We are a destination. When people in other places can once again sell their homes they will flock here again. Like the water pressure at the narrow end of the funnel, every little increase in pressure at the wide end increases the pressure in the narrow end geometrically, and we are the narrow end. Things here are getting brighter and will continue to improve more quickly than the country as a whole. We have this time, this respite, to do the things that will make the next surge profitable for our businesses and for our communities. While costs are low, we need to look at schools and other infrastructure opportunities and get them built. It is my belief that if we build it now we can stay ahead of development for the next decade. If not, we will be playing expensive catch up.
Oh, don’t be surprised if some of the information you’ve been hearing turns a bit less optimistic. This was the worst recession since the 1930’s and this time we can’t rely on exports to help us out. It will take a couple more years if all goes well. Longer if it doesn’t. Economics is color blind. It doesn’t care what your skin color, ethnic origin or socio economic classification might be. Every group has been hurt and hurt badly. It will take the co-operation of everyone to help our communities not only survive but prosper over the next five years.
It has been an interesting week. It would appear that Cash for Clunkers is a huge success. Chrysler, who at one point had something like 180 days of inventory on the lots, is now running overtime to refill the pipe lines. Ford actually sold more cars this month (July 09) than they did in July ’08. That’s a stimulus package. If we’d done this six months ago maybe we wouldn’t have added a Trillion dollars to the debt. Germany did it late winter or early spring. But wait, what do they know.
The stock market has jumped up shouting the economy “ITS ALIVE” and the President is telling us that the stimulus is working. Let me put it into context for you. Unemployment is still rising, albeit more slowly than it was. The economy MAY actually grow in the third quarter. Anything less than 1% growth means it contracted were it not for Cash for Clunkers. $3 Billion in car sales equal at least 1% on the GDP. Since the definition of recession is at least two consecutive quarters of negative growth then lets not be fooled by one quarter of artificially contrived positive growth. We have a fundamental problem. It is unemployment. The work force grows at 1% a year fueled by kids that insist on growing up and pesky immigration (legal). America is the home of innovation and productivity is our middle name. Technology and innovation generally improve productivity by about 2% per year. Great stuff. Keep costs down.
That said however, it means that the economy (GDP) must grow by 3% just to keep the unemployment rate steady. At a robust 5% annual growth rate we could get unemployment down to 5% in 2 ½ to three years. If we could generate a 5% growth in each of the next 3 years, in would be very hard to control runaway inflation. Suddenly it would be a sellers market in employment so salaries would skyrocket, costs would spiral as more money chased the goods available and interest rates would explode. Do any of you remember Mr. Carter’s days as President? When mortgages were 16% and a fixed rate mortgage was NOT available. C’mon if you really don’t remember ask your parents, it was only 25 years ago.
So do we solve the problem in three years creating a new problem while doing so or do we live with higher unemployment for 5 or six years. Neither choice is much fun to think about. It may just be the only two options.
On the brighter side, housing is slowly, very slowly, starting to crawl out of the shadows all around the country. This is particularly good news for us here on the Carolina Coast. We are a destination. When people in other places can once again sell their homes they will flock here again. Like the water pressure at the narrow end of the funnel, every little increase in pressure at the wide end increases the pressure in the narrow end geometrically, and we are the narrow end. Things here are getting brighter and will continue to improve more quickly than the country as a whole. We have this time, this respite, to do the things that will make the next surge profitable for our businesses and for our communities. While costs are low, we need to look at schools and other infrastructure opportunities and get them built. It is my belief that if we build it now we can stay ahead of development for the next decade. If not, we will be playing expensive catch up.
Oh, don’t be surprised if some of the information you’ve been hearing turns a bit less optimistic. This was the worst recession since the 1930’s and this time we can’t rely on exports to help us out. It will take a couple more years if all goes well. Longer if it doesn’t. Economics is color blind. It doesn’t care what your skin color, ethnic origin or socio economic classification might be. Every group has been hurt and hurt badly. It will take the co-operation of everyone to help our communities not only survive but prosper over the next five years.
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