Posts
February 23, 2010
Ok readers, remember that I said this. Despite all the popular rhetoric, the big problem is still HOUSING!
Consumers need jobs but jobs are created by an expanding economy. The economy expands when you and I are willing to part with our money. When we feel safe. For most of us, wealth has always been in our homes. When home values are certain we generally don’t feel threatened. Are home values certain and stable? NO. No one is sure what their home is worth so they aren’t spending. They feel insecure. So the jobs market remains bleak.
Congress and the Executive branch has frittered while Rome burned, worrying about landmark legislation for health care reform and even now as they turn their attention to jobs bills which both sides appear to support, they are really not accomplishing the goal of putting Americans to work. HOUSING.
When they get serious about resolving the foreclosure problem (not all of which is the Banks fault, Congress had its hands in the pot trying to make homeownership possible for those who aren’t yet ready) then and only then will the economy rebound robustly enough to create jobs. The market place will eventually resolve the foreclosure problem but the longer that takes the longer small businesses will have trouble getting financing. Financing is critical to growth. Growth is critical to job creation. Job creation is critical to consumer spending. Consumer spending is critical to growth and growth is critical to the ability to obtain financing. You see it is a circle. The bridge that closes the circle and makes it all work, today, is HOUSING.
Until you see Congress start working on the foreclosure problem and making credit more easily accessible to small business, we will remain in the doldrums. My prediction is that we will remain in a depressed economic state for several years and that unemployment will not decline to the 6% range for another six or seven years. That is not to say it won’t get better. It will. Every year it will get a little better. But we will not be back to the heady days of 2005 until 2017.
The government has a conundrum. To help Main Street they are pumping money into the economy. Money we don’t have, so they are borrowing it. Some they are getting from our own citizens and some from the citizens of other countries who still believe that this is the most credit worthy of all governments. At some point as the balance financed rises the interest due will become a problem. To deal with the problem we will either have to spend less or get more income. Kind of like you and me. The problem, as I see it, is that more income for the government (Federal, State or local) comes from higher taxes. That hurts you and me and makes us look for additional forms of income. For those without a job, that is a problem that may not have a solution, since one way for small business owners to increase their revenue is to not hire or lay off someone.
We are in a pickle. Mr. Obama will be the whipping boy since he is in office today. It would have been Mrs. Clinton if she had been victorious. And it may have been Mr. McCain had he been the successful candidate. How fast we recover is the province of the Executive Branch and the Congress. If this recovery is taking to long in your judgment, then study up and vote accordingly.
The Executive Branch and the Congress need to get a grip on what is important and address it now. Waiting until next year of after the November election is politically comfortable but that just pushes recovery out further. If you’re one of the jobless, how does that make you feel? You, American citizen, are less valuable and less important than political comfort for the fat cats in Congress, from both sides of the aisle. Just doesn’t seem right.
Tuesday, February 23, 2010
Saturday, February 13, 2010
Feb 14, 2010
Happy Valentine’s Day to everyone.
The political front has been kind of quiet, hushed perhaps by all the snow in Washington. Perhaps Congress is taking the time to actually read the bills they may be voting on in the next few weeks. One can only hope.
The economy has had a couple of uneasy moments watching the Greek government try to manage its economy within the restrictions of the Euro common currency agreement. Before the Euro, the individual countries could just print more money to solve the conflict between demanded social programs and revenue collected in taxes. Under the Euro agreement they must maintain a certain fiscal discipline. That makes it hard to win re-election, especially when what must be done is painful to the voters. Greece is likely to find borrowing more difficult and more expensive.
Who cares? Greece is a mini-version of the problem that is playing out all across Europe at different levels. Spain and Portugal have similar issues to Greece. It seems one of our bankers, Goldman Sachs I believe, assisted Greece in borrowing money in a way that was not visible to the powers that be in the EU central bank. My intel says it did similar things for Spain and Portugal. The EU central bank doesn’t want any member to fail, but pulling together a rescue package requires the 27 countries that make up the Euro economic area to agree. Can you imagine? I’ll bet that is like herding mice.
What it means to all of us here in the USA is that these countries are going to be fiscally constrained. That could mean less of a market for our exports, and less tourism which will hurt our GDP growth and therefore slow growth in employment.
Of course we here in the USA have issues as well. Sooner or later the Chinese are going to begin to exercise their financial influence by either reduced willingness to buy US bonds or by demanding higher interest rates. Either one is a problem for you and me. The latter means higher interest costs across the board for all of us. The former means that the Treasury will have to find other buyers for the debt. The easiest target is you and me. But where will we get the money? 401(k)’s, IRA’s and Roth IRA’s contain an enormous amount of money. If even a portion of that was required to be in US Bonds (the safest investment available) that would help absorb the bonds and help keep the interest rate artificially low. I don’t know how you feel about that but I hate being mandated to do anything. I have Treasuries in my personal portfolio because I am diversified. But I like choosing to do that and balk at being told.
That aside, the Chinese present a growing problem, not because they are bad guys but because we are a nation of borrowers. My father had a saying, “It’s the Golden Rule son, he who has the Gold makes the rules”.
所有暂时，有一个了不起的星期。
The political front has been kind of quiet, hushed perhaps by all the snow in Washington. Perhaps Congress is taking the time to actually read the bills they may be voting on in the next few weeks. One can only hope.
The economy has had a couple of uneasy moments watching the Greek government try to manage its economy within the restrictions of the Euro common currency agreement. Before the Euro, the individual countries could just print more money to solve the conflict between demanded social programs and revenue collected in taxes. Under the Euro agreement they must maintain a certain fiscal discipline. That makes it hard to win re-election, especially when what must be done is painful to the voters. Greece is likely to find borrowing more difficult and more expensive.
Who cares? Greece is a mini-version of the problem that is playing out all across Europe at different levels. Spain and Portugal have similar issues to Greece. It seems one of our bankers, Goldman Sachs I believe, assisted Greece in borrowing money in a way that was not visible to the powers that be in the EU central bank. My intel says it did similar things for Spain and Portugal. The EU central bank doesn’t want any member to fail, but pulling together a rescue package requires the 27 countries that make up the Euro economic area to agree. Can you imagine? I’ll bet that is like herding mice.
What it means to all of us here in the USA is that these countries are going to be fiscally constrained. That could mean less of a market for our exports, and less tourism which will hurt our GDP growth and therefore slow growth in employment.
Of course we here in the USA have issues as well. Sooner or later the Chinese are going to begin to exercise their financial influence by either reduced willingness to buy US bonds or by demanding higher interest rates. Either one is a problem for you and me. The latter means higher interest costs across the board for all of us. The former means that the Treasury will have to find other buyers for the debt. The easiest target is you and me. But where will we get the money? 401(k)’s, IRA’s and Roth IRA’s contain an enormous amount of money. If even a portion of that was required to be in US Bonds (the safest investment available) that would help absorb the bonds and help keep the interest rate artificially low. I don’t know how you feel about that but I hate being mandated to do anything. I have Treasuries in my personal portfolio because I am diversified. But I like choosing to do that and balk at being told.
That aside, the Chinese present a growing problem, not because they are bad guys but because we are a nation of borrowers. My father had a saying, “It’s the Golden Rule son, he who has the Gold makes the rules”.
所有暂时，有一个了不起的星期。
Wednesday, February 3, 2010
February Economic outlook
Blog Feb 3, 2010
Hi all,
I hope you didn’t worry when I fell silent for a short while. I was trying to catch up on my reading so that I could make heads or tails of the political/financial arena. Arena may be a good choice of words because it has been somewhere between a 3 ring circus and the Roman Arena. I’m still not sure who the lions are.
The loss by the Democrats in Massachusetts was a big deal politically. What, exactly, it means is the subject of many but no one really knows, other than it made the US Senate a two party debate once more. How that will change things will be seen over the coming months.
The stock market has rebounded nicely over the last year, although January has not been positive. As goes January goes the year is the old saying. It is right about 75% of the time. So where do we go from here?
The economy is recovering, however it is doing so slowly. Very slowly. Housing sales are starting to show signs of improvement over last year ( a truly horrible year) as are auto sales. Inventories are still being reduced but at a slower rate as they approach equilibrium with sales. This doesn’t mean that we will see a sudden jump in hiring, but at least the layoffs should stop That makes it a jobless recovery at least for the near term. I’m not at all certain a jobless recovery can last. The current statistics show that the jobless number is 10% or about 15 million people. The soft number which includes people whose benefits have expired and those who have given up looking for work and those who are working part-time is reported at 17% or 25,500,000 people. That is a lot of jobs. Add to that the fact that the work force is growing at 1% per year or another 1,500,000 people (kids do keep growing up and legal immigration continues). That means that if we could begin creating jobs, we need about 7.5 million jobs plus an additional 125,000 jobs each month that it takes us to create those 7.5 million jobs. Expanding the economy at a sustainable 4 or 5% per year it will take at least 5 years for us to get back to the unemployment levels of 2006. So we are looking at 2015 before we are “recovered” If the government, in its wisdom, decides to try to expand the economy faster than 5% we risk inflation in the neighborhood that we experienced in President Carters day with home loan interest rates of 16%. That will again kill the housing market and drive us back into recession.
Politically 5 years is a long time. So politically the best course of action is to throw money at the problem and try to create jobs at any cost. If that is the course of action taken and which may feel good in November 2012, the price we pay in the following years will be very, very high. Be prepared.
My prediction is that the Federal Government is going to incur ever larger debt, it will begin reducing aide to States and States in turn to counties and municipalities as it “cuts costs”. This will result in either a larger debt burden at the local levels or substantial increases in taxes. Could NC be looking at 9% sales taxes or 10% income taxes? Will there be a mass exodus from NC by retirees to lower tax states like Florida or Texas?
What is the proper balance between spending and taxation? I do believe that Pay/go is the right answer. Borrowing to fund current expenses is a sure prescription for financial ruin. Maybe we need a state constitutional amendment to require any increase in debt by the state, in any form or fashion, to be ratified by referendum. Let the people decide. Decide what they want and are willing to pay for and for those who disagree there are choices. Stay and fight or move. The latter option is one which poses risks for those who stay but this is a free country.
My advice is save your money. There are going to be some really good deals on just about everything for the next 6 months, and cash will be king.
Hi all,
I hope you didn’t worry when I fell silent for a short while. I was trying to catch up on my reading so that I could make heads or tails of the political/financial arena. Arena may be a good choice of words because it has been somewhere between a 3 ring circus and the Roman Arena. I’m still not sure who the lions are.
The loss by the Democrats in Massachusetts was a big deal politically. What, exactly, it means is the subject of many but no one really knows, other than it made the US Senate a two party debate once more. How that will change things will be seen over the coming months.
The stock market has rebounded nicely over the last year, although January has not been positive. As goes January goes the year is the old saying. It is right about 75% of the time. So where do we go from here?
The economy is recovering, however it is doing so slowly. Very slowly. Housing sales are starting to show signs of improvement over last year ( a truly horrible year) as are auto sales. Inventories are still being reduced but at a slower rate as they approach equilibrium with sales. This doesn’t mean that we will see a sudden jump in hiring, but at least the layoffs should stop That makes it a jobless recovery at least for the near term. I’m not at all certain a jobless recovery can last. The current statistics show that the jobless number is 10% or about 15 million people. The soft number which includes people whose benefits have expired and those who have given up looking for work and those who are working part-time is reported at 17% or 25,500,000 people. That is a lot of jobs. Add to that the fact that the work force is growing at 1% per year or another 1,500,000 people (kids do keep growing up and legal immigration continues). That means that if we could begin creating jobs, we need about 7.5 million jobs plus an additional 125,000 jobs each month that it takes us to create those 7.5 million jobs. Expanding the economy at a sustainable 4 or 5% per year it will take at least 5 years for us to get back to the unemployment levels of 2006. So we are looking at 2015 before we are “recovered” If the government, in its wisdom, decides to try to expand the economy faster than 5% we risk inflation in the neighborhood that we experienced in President Carters day with home loan interest rates of 16%. That will again kill the housing market and drive us back into recession.
Politically 5 years is a long time. So politically the best course of action is to throw money at the problem and try to create jobs at any cost. If that is the course of action taken and which may feel good in November 2012, the price we pay in the following years will be very, very high. Be prepared.
My prediction is that the Federal Government is going to incur ever larger debt, it will begin reducing aide to States and States in turn to counties and municipalities as it “cuts costs”. This will result in either a larger debt burden at the local levels or substantial increases in taxes. Could NC be looking at 9% sales taxes or 10% income taxes? Will there be a mass exodus from NC by retirees to lower tax states like Florida or Texas?
What is the proper balance between spending and taxation? I do believe that Pay/go is the right answer. Borrowing to fund current expenses is a sure prescription for financial ruin. Maybe we need a state constitutional amendment to require any increase in debt by the state, in any form or fashion, to be ratified by referendum. Let the people decide. Decide what they want and are willing to pay for and for those who disagree there are choices. Stay and fight or move. The latter option is one which poses risks for those who stay but this is a free country.
My advice is save your money. There are going to be some really good deals on just about everything for the next 6 months, and cash will be king.
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