July 2, 2011

Happy Independence Day!!!




Today we celebrate all that is good about the United States. Tomorrow we must go about fixing what is wrong with the United States.

I believe it was Bill Clinton who said “It’s the economy, stupid”. And ours is in the worst shape it has been in since the Great Depression. It may actually be worse.

In 2009 I said recession is psychological. In a consumer driven economy such as ours, how safe and how rich the consumer feels determines how much the consumer spends, thus the direction and speed of the economy. Stable housing prices make consumers feel safe and rising housing prices make us feel rich. That translates into freer spending and a growing economy. “Until the housing problem is fixed we will not grow”. That was in 2009 repeated every so often in 2010 and now we are deep into 2011 and it is still a disaster. It could have been solved in 2010 and we could be leading the world into recovery but the government (House and Senate) was busy worrying about the wrong things and I’m not sure they get it yet.

If we’d have taken some of the $Trillions that we spent on ‘stimulus’ and bought up defaulted mortgages, took title to those homes and tore them down we would have stable housing values today. There would be no glut of distresses sales gutting the prices of nearby houses. Stable housing values would give a psychological boost to consumers who would have spent more freely, creating jobs and more demand for housing, resulting in rising values and still more consumer confidence.

We’re like the Army that wasted its ammunition shooting at mirages then when they had the opportunity to engage the enemy they were out of bullets. Our inept handling of the economy has left us with very few bullets. We now must use them carefully or risk being captured by the enemy.

We have spent $trillions to stimulate the economy trying for a quick fix. ‘Shovel ready projects’ were funded to create construction jobs. Unfortunately in this country even ‘shovel ready’ means months if not years away. A lot of money committed, not a lot of bang. Hence first time jobless claims are hovering around 425,000 each week. Better than 2009, but much higher (30% or so) from the levels of 2006.

G.W. Bush takes a lot of blame for two wars which cost us a fortune in money and lives but the current administration has done little to reduce that spending and has added Trillions in a misguided attempt to improve health care (which needs/needed improvement) while not focusing its energy on the economy until it had degenerated to the crisis level. The Obama administration owns that one. The real culprit was Speaker Pelosi and the real mistake by the current administration was letting her run loose. She led the health care charge on a partisan basis either not understanding the economic situation or, worse, not caring.

The American voter seems to have dealt with her, but the administration must lead us out of the crisis. At this point President Obama and his administration does not seem to have the skill or the credibility to do that. In retrospect, Hilary is looking good. Who will replace her as Secretary of State when she leaves in 2012? Who will be willing to risk taking over what could be a six month job if the Republicans unseat Barrack Obama in November 2012.

This is a real issue for all of us to consider. What will we do interms of paying down the deficit? How will we raise the money? Will we be brave enough to slowly raise taxes (to avoid dumping the economy back into recession) while recognizing that we must reduce spending, even when it hurts.

I’m no longer young and I look at Social Security differently than when I was younger, but we cannot afford to payout benefits for 20, 30 or 40 years. Retirement benefits must be tied to life expectancy. Retirement age has to rise. The government is talking about 67. Realistically, they probably need to be talking about 70 or even higher for people who are just being born today. They will live into their 80’s and 90’s. Benefits for 10 or 15 years is affordable, while 30 or 40 years is not. Ask your financial planner how much money you will need to equal Social Security payments (and its cost of living increases) based on retirement at age 65 and your life expectancy. My best guess is he’ll tell you that you need about $1 million. You may need more. On that basis, with a large portion of our population in the ‘boomer’ group, think about the government having to provide each one of us with a $1million. A Billion is 1000 million. A Trillion is 1000 Billion. So about $1Trillion for each 1 Million baby boomers. And there are 39 million people already over 65 and more coming each day. How much money do we need to support Social Security? I don’t know, but it seems like a lot. Medicare is another issue. Older folks, I am learning first hand, require more and more medical attention. Just like an old car requires more and more maintenance. As we live longer, we cost more to maintain. So Medicare expenses are going to rise as those in the system age and as the boomers enter the system in large numbers the base cost grows and the future cost grows exponentially.

So enjoy the Holiday and then get to work next week looking carefully at all candidate, local, state and nationally to find those who you believe have the best plan. But be sure to look for specifics. Generalizations and platitudes aren’t going to get it done. Neither is great skill as a speaker. For all our sakes, look at the substance, not just the package. Skin color, hair color, age, gender nor any of those sorts of things are important. Skill, intelligence and experience coupled with honesty and integrity are important.

Taxes are likely to increase in 2013, they have to. Spending cuts will be with us for the next decade, they have to as well. Accept that and evaluate candidates based on what they are saying relative to the reality you know. If they don’t recognize that both must happen, then they lack integrity and either honesty or knowledge, in which case I hope that you would disregard them and try to find a better candidate to support.

New economic stats are out next week and I’ll bring them to you with the usual attempt to explain what they mean.

Happy Independence Day!!!