November 29, 2010

HI Friends,

It is yet another week of political posturing both here and around the world. At home, the President has taken steps to appear as though he understands the American voters and has announced a pay freeze for government workers (assuming congress will approve – it is required). It is the first of his steps to stop blaming past administrations and to position the incoming congress as obstructionist if they hold out for more draconian measures. It put the Tea Party/Republicans in the same spot President Obama was in. It is easy to campaign and much more difficult to govern.  Still the pay freeze, though largely symbolic, is a step in the right direction when one in 10 has no pay to freeze.  It is tricky for the Democrats because labor is a major constituency of theirs and an easy target for the Tea Party activists.

Economically speaking, it is likely to result in nothing. The slight pinch that government workers will feel if they don’t get another 3-5% to spend over the next two years isn’t big money. It isn’t going to stop them from purchasing anything they really want. A tax increase, which is what will happen if the current tax rates are allowed to expire, will bite into them and everyone more. 

Then there is WIKILEAK. 250,000 pages of classified documents were somehow given out from the State Department. Makes the Obama administration look as inexperienced as it is. Really going to upset some people we count on.  It’s kind of like telling your friend something unflattering about your Mother-in-law only to find out she is standing behind you. It will take a while to re-establish harmony and trust. Not a good thing especially in the Middle East where we have few friends to begin with.

And North Korea. What is up with that? Mr. Kim (the elder –Jong IL) is setting up a power transfer to his youngest son Mr. Kim (Jong Un). It is the youngest son that has to establish his power base, especially with the military and in the past bad behavior has been rewarded by the world nations. So he throws a hissy fit and expects that the homies will think him brave and maybe ruthless and the world community, lead by the Chinese, will give him rewards to behave. Maybe not this time. China needs the USA and Europe to buy its goods. The USA needs China to help finance the USA debt structure.

Economically speaking, the more dependent China is on the rest of the world the better. It serves their self interest to keep the brothers Kim (I couldn’t resist the easy play on words), under control. If China was to ally itself with South Korea the North would be toast in days.  

All in all with Ireland getting an EU bailout, and Spain and Portugal closely watched, the giant USA economy still sputtering we may find that no one wants to hold currency...of any denomination. If this happens, if international confidence craters then watch gold, silver and other hard assets rise. That would probably not be a good time to be holding lots of cash of any denomination. But, if we somehow manage to keep things from coming apart, then I’d bet on the US dollar before the Euro as the world reserve currency.

A war in the Far East would really complicate matters and even China doesn’t want this. It would like the world to behave as it assumed in its most current 5 year plan.  I expect they will do whatever they can to make that a reality.

At home, the unemployment rate is slowly becoming the new norm. The spread between the haves and have not’s is widening and expect that to be the case for the foreseeable future.  The jobless benefits are running out and we will be an under performing economy for the next 5 years.

Novemebr 19 More of same

Hi All,


For those who are still wondering where are the jobs and when will they be here I have news. The jobs are here already, you, on the other hand, may not have the skill sets required to get them. If you’re looking for your old job back you are in trouble. It just isn’t likely to happen.

Those construction related jobs? Gone for the foreseeable future. Likely not back in the old way for a long time, if ever. New construction jobs using green technologies and methods will replace the old jobs and require new skills and new thought processes. If you aren’t on top of that shift, you could be hurting for a long, long time.

What we have in this country is a fundamental mismatch between skill sets and job needs. We have jobs going wanting and people without jobs in large numbers. Ife as you knew it has changed and party in power will have no bearing. The jobs are created by the market place and if they can’t be filled here they will move to wherever the talent pool to fill them is available. It isn’t only price that is driving jobs off shore.

Companies are folding because they can’t compete. This is partly because they don’t have the right products (which are created by employees with the right skills) and partly because they can’t get financing. Money is available but it is looking for projects that have a high probability of success. Expansion of the most profitable buggy whip makers just isn’t what the smart money is looking for. Expansion or additional R&D in battery companies that will support electric cars is getting funded. If you car trying to reinvent the wheel, it will be hard. If you are producing a more efficient wheel you can probably get the capital you need.

Housing was (and remains) a major issue. And it will take years for it to play out. Yet it would be faster if jobs recovered. Since that isn’t a cyclical problem but rather a structural problem. Only education of the work force, inactive and those still in school into the areas that have jobs waiting for them will solve the jobless structural issues and ultimately spur a recovery. Throwing money at the “problem” won’t help solve it. Funding fundamental change in the educational and job training offerings will help but it will take time. If we do the right things the problem will be solved in less than 10 years time. If we do the wrong things this problem could be around for decades and it could become so severe as to endanger this country’s position as a world leader. China will replace the USA as the largest economy on this planet by 2030. When that happens, what will be the likelihood of our being able to fund our deficit/debt? Will we become the next Greece?

Can it happen, really? Britain was the largest, most powerful empire on earth at one time with interests reaching to the tip of Africa and into New Zealand and Australia as well as North America. Today it is enacting draconian budget cuts just to remain viable at home. Most of Europe is in the same boat. Italy (Roman Empire) once ruled the world. Now where do they stand? France, Spain and even Germany, once powerful leaders of the world, today are struggling to keep their economies afloat. What makes the United States different? It what way are we immune?

Education had always been our strong suit. People from around the globe sent their brightest and best to University in The United States. In the interest of diversity we made space for them in our classrooms and they studied and worked very hard to learn all they could. Then they took what they had learned and returned home. Now they are using that education to help their people climb up the economic ladder.

It isn’t about fairness or anything of the sort. It is about hard work. The United States in unique in all the history of the world. Mr. Lincoln asked if a nation so conceived and so dedicated could long endure. We need to buckle down and really start working hard if we are not to become a footnote in history as the first nation so conceived and so dedicated… to fail to endure.

The economy is what it is. You can participate in the worst of it or the best. The choice is yours. The outcome is your fault either way.

I think we're still in Kansas Toto

Well hi there. I’ll be you thought I died or something. I haven’t put anything up for awhile because there was just so much noise out there and I didn’t want to contribute to it.

Now that the election is over I’ll start blogging again.

The election sent a message that people are unhappy. Why exactly we are unhappy varies. Some don’t feel that the administration has done enough and some feel that it has done too much and still others feel that it hasn’t given attention to the right things. It doesn’t seem like anyone thinks it was Goldilocks, just right.

The economy is turning around, albeit ever so slowly. The moves that the government has made has kept it from being as deep a recession as it might have been, but likely prolonged the pain. So instead of going through acute pain for a short time, we will live with chronic pain for yet another five or six years.  

 Unemployment will remain stubbornly high with few jobs created over the next two years. The US currency must be devalued to improve our balance of trade but that will make everything you and I purchase more expensive.  Hence the chronic pain.

If the Fed does inject $500 billion into the money stream then lending MIGHT get easier. It might also kick start inflation. It almost surely will cause the price of oil and other commodities to rise. I predict $3.00 or higher gasoline by late spring. That said, I’ve been wrong before. It could be that I’m wrong again.  

If anybody thinks that the economy is going to rebound or the deficit is going to stop growing  as a result of last night’s election, WAKE UP. No one wants higher taxes and no one wants cuts in key programs which make up the Lion’s share of the budget. You know which ones those are…Social Security, Medicare and the Department of Defense (Military).  So if you don’t raise taxes and won’t cut spending how exactly will you lower the deficit?

Expect to see both sides of the aisle touting spending cuts. They will be inconsequential programs which are small costs so the savings will sound good but be insignificant. Kind of like slashing your kids $5 a week allowance by 20%. Saves you a whole dollar. Sounds big, amounts to little. Add to that the definition of spending cuts ala Washington and what you would really do is cut the growth rate of the allowance. Next year, instead of doubling the allowance to $10 you will only increase it to $7.50. That, in government speak, is a 50% cut.

So don’t expect much. Times will not feel much different tomorrow than they did yesterday. I just wonder what we will do two years from now if there is no real change and no real improvement. How long will it be until the people really understand that the definition of insanity is doing things the same way over and over and over and expecting a different result? It may not be the players that need to be changed, it may be the game that needs to be changed.  Maybe it is time for a third, fourth and even fifth party to force coalition governments like they have in Europe. It requires that they play well with others and it adds a measure of civility to the campaign since you might find yourself working in a partnership with that other candidate.