According to this report, in the USA, there over five job-seekers for every job opening. This ratio is likely to expand in the coming months. Most job-seekers are deluding themselves if they think they will be getting hired at all.
If these people want to be gainfully employed, they are going to have to employ themselves - either going into business by themselves or joining with others to form businesses. This is going to be a difficult transition for those who choose to undertake it.
Starting a business can be enormously demanding and prone to failure. Those who have been used to working under supervision need to learn self-management skills. They also need to take care of any number of tasks ancillary to producing their main product, such as marketing and bookkeeping. The self-employed often work long hours for little compensation and no fringe benefits.
We believe the forced entry of tens of millions of American workers into self-employment will ultimately lead most of them to earning sub-minimum wage levels. The loss of purchasing power will further depress consumption and the economy as a whole.
Tuesday, June 30, 2009
Monday, June 29, 2009
Mistaking Economic Depression for Deflation
There is a great debate raging in the blogosphere at present, over whether or not the United States is undergoing deflation. It is a question to which there is no easy answer, as systems like the United States' economy are incredibly complex. We personally feel that the U.S. is undergoing deflationary trends, which will almost certainly turn into significant inflation at some point in the future, but we don't think that deflation proper is underway.
Let us explain what we mean by deflationary trends: certain things are getting cheaper. We've been seeing some great deals on meat and meat 'products' recently, and our local grocery is carrying organically-raised medium eggs for 97 cents a dozen. Some other food products have also gotten cheaper, like the roasted almonds we are partial to, but for the most part our food bills have remained relatively stable.
In short, deflationary trends are scattered drops in price within a broader niche of the economy, but not the entire niche experiencing overall drops in prices. In proper deflation, one could expect all prices within an effected niche to experience reductions, caused by a concurrent rise in the purchasing power of one's currency. Although our perceptions of the situation are indeed limited - as we are but one person - we have not seen evidence of an across-the-board increase in the purchasing power of our U.S. dollars.
What we expect the 'deflation' that commentators see is the effects of the 2007 Depression. Those eggs we mentioned are probably not getting 'cheaper' per se, but rather the company which owns the chickens which lay the eggs are selling said eggs at liquidation prices. We posit the same goes for meat and meat 'product' producers as well.
To put the situation in more general terms, the 2007 Depression is exerting enormous pressure on the entire economy, and certain companies are moving faster than others in order to liquidate excess products. This will create the appearance of honest-to-goodness deflation, when the situation is perhaps more along the lines of a liquidation of certain niches or industries. Muddying the waters, as it were, are the concurrent bursting of various bubbles (such as housing prices, automobile manufacturers, et cetera), the products of which are dropping rapidly in value.
To conclude, the U.S. economy is cratering, pure and simple. The prices which one may expect to find on products one wishes to buy may fall to some degree or other, but we don't expect to see full-on deflation in this Depression. Rather, and as long as the economy catastrophises faster than money creation by the Federal Reserve, we posit that prices will stay relatively the same. The exciting part will come sometime in the future, when the economy completes its face-plant; it will be at that point when the Fed's money-printing will come home to roost.
Let us explain what we mean by deflationary trends: certain things are getting cheaper. We've been seeing some great deals on meat and meat 'products' recently, and our local grocery is carrying organically-raised medium eggs for 97 cents a dozen. Some other food products have also gotten cheaper, like the roasted almonds we are partial to, but for the most part our food bills have remained relatively stable.
In short, deflationary trends are scattered drops in price within a broader niche of the economy, but not the entire niche experiencing overall drops in prices. In proper deflation, one could expect all prices within an effected niche to experience reductions, caused by a concurrent rise in the purchasing power of one's currency. Although our perceptions of the situation are indeed limited - as we are but one person - we have not seen evidence of an across-the-board increase in the purchasing power of our U.S. dollars.
What we expect the 'deflation' that commentators see is the effects of the 2007 Depression. Those eggs we mentioned are probably not getting 'cheaper' per se, but rather the company which owns the chickens which lay the eggs are selling said eggs at liquidation prices. We posit the same goes for meat and meat 'product' producers as well.
To put the situation in more general terms, the 2007 Depression is exerting enormous pressure on the entire economy, and certain companies are moving faster than others in order to liquidate excess products. This will create the appearance of honest-to-goodness deflation, when the situation is perhaps more along the lines of a liquidation of certain niches or industries. Muddying the waters, as it were, are the concurrent bursting of various bubbles (such as housing prices, automobile manufacturers, et cetera), the products of which are dropping rapidly in value.
To conclude, the U.S. economy is cratering, pure and simple. The prices which one may expect to find on products one wishes to buy may fall to some degree or other, but we don't expect to see full-on deflation in this Depression. Rather, and as long as the economy catastrophises faster than money creation by the Federal Reserve, we posit that prices will stay relatively the same. The exciting part will come sometime in the future, when the economy completes its face-plant; it will be at that point when the Fed's money-printing will come home to roost.
Sunday, June 28, 2009
More about the Streets
In a recent post, we made the case for looking for the distress in the objective, as opposed to believing what people are saying. Upon further investigation, it seems decay in public spaces is fairly prevalent around the USA. Here's a short list of things to look for besides potholes: grass growing in the streets; wash-outs due to leaking or bursting water or sewer lines; gravel patchwork in place of asphalt resurfacing; crumbling curbs and sidewalks; grown-over sidewalks; rails, wood posts, wood planks, concrete, or other former roadways protruding through the asphalt; neglected safety-painting and centre lines; rusting signs and guard-rails, if present; obsolete guard-rails (does not apply to Vermont).
*****
As every profligate who has blown through an inheritance knows, at first - when your spending exceeds your income - the erosion of your capital is very slight. If spending is not cut, more and more of the capital is drawn upon and spent until it is completely exhausted.
Such is the position many households, and in the USA, society as a whole finds itself. Society is collectively taking draws upon its stock of sunk capital even as it degrades (for example, roads). Even worse, many investments made during the 'good years' are beginning to be seen as malinvestments, not only not producing any income, but also being a squandering of the resources deployed.
A good deal of the 'investments' of the last 50 years or so, are turning out to be malinvestments: the Interstate Highway System and Suburbia to name two stand-out examples. Not only will these investments stop producing income, there will be little to nothing to recover from their ruins to deploy elsewhere. Rubbing salt in the wound, so-to-speak, is the galling fact that the building of that Way of Life destroyed much of what came before and could still be producing value had it not been destroyed - for example, the enormous package shipping industry on the Nation's inland waterways and in its inland coastal towns, or the dense mixed-use neighborhoods of the Nation's cities.
If there is to be a recovery from this Depression, it will rest on a rebuilding of capital - both private and public. Savings rates will need to rise to levels currently considered inconceivable by almost everyone except East Asians: in the neighbourhood of 50% of income. We doubt that this might come to pass in any sort of timely fashion to halt further tremendous decay of the USA's cities, utility systems, and household finances.
*****
As every profligate who has blown through an inheritance knows, at first - when your spending exceeds your income - the erosion of your capital is very slight. If spending is not cut, more and more of the capital is drawn upon and spent until it is completely exhausted.
Such is the position many households, and in the USA, society as a whole finds itself. Society is collectively taking draws upon its stock of sunk capital even as it degrades (for example, roads). Even worse, many investments made during the 'good years' are beginning to be seen as malinvestments, not only not producing any income, but also being a squandering of the resources deployed.
A good deal of the 'investments' of the last 50 years or so, are turning out to be malinvestments: the Interstate Highway System and Suburbia to name two stand-out examples. Not only will these investments stop producing income, there will be little to nothing to recover from their ruins to deploy elsewhere. Rubbing salt in the wound, so-to-speak, is the galling fact that the building of that Way of Life destroyed much of what came before and could still be producing value had it not been destroyed - for example, the enormous package shipping industry on the Nation's inland waterways and in its inland coastal towns, or the dense mixed-use neighborhoods of the Nation's cities.
If there is to be a recovery from this Depression, it will rest on a rebuilding of capital - both private and public. Savings rates will need to rise to levels currently considered inconceivable by almost everyone except East Asians: in the neighbourhood of 50% of income. We doubt that this might come to pass in any sort of timely fashion to halt further tremendous decay of the USA's cities, utility systems, and household finances.
Saturday, June 27, 2009
FDIC Bank Closure Report (Revised)
Blogger seems to be having trouble with scheduled posting. Apologies on the lateness of today's, and yesterday's, post. If you missed yesterday's, please scroll down.
This week the Federal Deposit Insurance Corporation closed five banks: Mirae Bank (Los Angeles, CA); MetroPacific Bank (Irivine, CA); Horizon Bank (Pine City, MN); Neighborhood Community Bank (Newnan, GA); and Community Bank of West Georgia (Villa Rica, GA). Total assets of the five closed banks were $1,044,600,000. The cost to the FDIC is estimated at $264,200,000. The percentage of FDIC loss out of total assets for the five is 25.29%.
These closures bring the total assets of FDIC-failed banks (since December of 2007) to $409,703,680,000, with cost-to-FDIC brought to $26,218,100,000 - this includes the assets of Washington Mutual, whose closing offered no cost to the FDIC. The percentage of FDIC losses to total assets presently stands at 6.40%, up from 6.35% as of last report.
Upon elimination of WaMu's assets from the analysis, total assets are $102,703,680,000, and total cost is $26,218,100,000. The percentage of FDIC losses to total assets now stands at 25.53%, even with 25.53% as of last report.
We have determined the ratio of bank closures to population, and the ten most afflicted states are:
1. Nevada
2. Georgia
3. Utah
4. Kansas
5. Minnesota
6. Illinois
7. Oregon
8. Missouri
9. Colorado
10. Washington
A perhaps more telling indicator of stress in each state is the total losses-to-assets ratio in each state. The worst are as follows:
1. Utah - 40.32%
2. New Jersey - 40.13%
3. Idaho - 39.11%
4. Michigan - 39.03%
5. Florida - 38.11%
6. West Virginia - 36.52%
7. Maryland - 35.00%
8. Minnesota - 33.01%
9. Georgia - 32.42%
10. Washington - 32.39%
***
This week the Federal Deposit Insurance Corporation closed five banks: Mirae Bank (Los Angeles, CA); MetroPacific Bank (Irivine, CA); Horizon Bank (Pine City, MN); Neighborhood Community Bank (Newnan, GA); and Community Bank of West Georgia (Villa Rica, GA). Total assets of the five closed banks were $1,044,600,000. The cost to the FDIC is estimated at $264,200,000. The percentage of FDIC loss out of total assets for the five is 25.29%.
These closures bring the total assets of FDIC-failed banks (since December of 2007) to $409,703,680,000, with cost-to-FDIC brought to $26,218,100,000 - this includes the assets of Washington Mutual, whose closing offered no cost to the FDIC. The percentage of FDIC losses to total assets presently stands at 6.40%, up from 6.35% as of last report.
Upon elimination of WaMu's assets from the analysis, total assets are $102,703,680,000, and total cost is $26,218,100,000. The percentage of FDIC losses to total assets now stands at 25.53%, even with 25.53% as of last report.
We have determined the ratio of bank closures to population, and the ten most afflicted states are:
1. Nevada
2. Georgia
3. Utah
4. Kansas
5. Minnesota
6. Illinois
7. Oregon
8. Missouri
9. Colorado
10. Washington
A perhaps more telling indicator of stress in each state is the total losses-to-assets ratio in each state. The worst are as follows:
1. Utah - 40.32%
2. New Jersey - 40.13%
3. Idaho - 39.11%
4. Michigan - 39.03%
5. Florida - 38.11%
6. West Virginia - 36.52%
7. Maryland - 35.00%
8. Minnesota - 33.01%
9. Georgia - 32.42%
10. Washington - 32.39%
Friday, June 26, 2009
Where to Look for Distress
We had a conversation the other day with a friend of ours, who was wondering where and when he might begin to see signs of the Depression we've been incessantly talking about for months. "When will people start saying that they can't afford anything? When will they realise they cannot spend money on their trinkets anymore?" was the general thrust of his questions. We wish to expound on our answer here, in today's post.
The problem with looking to people for signs of the effects of the 2007 Depression is simply that human beings have an immense capacity for self-deception. People tell themselves - and anyone else who will listen - that things will get better as soon as the economy recovers; or as soon as Ralph gets a new job; or when the widget factory reopens; or any number of things. In our opinion, none of these things are ever going to happen (i.e. the economy is not going to recover; Ralph is not getting a new job; the widget factory is permanently shuttered).
The reasons that human beings have this awe-inspiring capacity for self-deception are not clear, and indeed a full half of Sociology is devoted to discovering said reasons (the other half being devoted to profiting from the phenomenon). However self-deception comes about, it is a force which cannot be overstated, estimated, or compensated for.
Self-deception also makes it impossible to look at what people say or do in order to judge the extent and depth of the Depression. Typically speaking, a person will never admit that their situation is dire... or indeed, that he or she is experiencing difficulties of any sort!
An issue now arises: how does one look for evidence of the 2007 Depression if one cannot look to people? Our suggestion is to look to the infrastructure one constantly uses in one's daily life. As a South African woman once wrote to James Kunstler, "It began with a few potholes in the road... Potholes may well be the singular measure of the calamity we are in or about to face." Read that letter, Dear Reader, and watch the roads around you. We've been watching our city's roads, and we are very disturbed with what we see.
The problem with looking to people for signs of the effects of the 2007 Depression is simply that human beings have an immense capacity for self-deception. People tell themselves - and anyone else who will listen - that things will get better as soon as the economy recovers; or as soon as Ralph gets a new job; or when the widget factory reopens; or any number of things. In our opinion, none of these things are ever going to happen (i.e. the economy is not going to recover; Ralph is not getting a new job; the widget factory is permanently shuttered).
The reasons that human beings have this awe-inspiring capacity for self-deception are not clear, and indeed a full half of Sociology is devoted to discovering said reasons (the other half being devoted to profiting from the phenomenon). However self-deception comes about, it is a force which cannot be overstated, estimated, or compensated for.
Self-deception also makes it impossible to look at what people say or do in order to judge the extent and depth of the Depression. Typically speaking, a person will never admit that their situation is dire... or indeed, that he or she is experiencing difficulties of any sort!
An issue now arises: how does one look for evidence of the 2007 Depression if one cannot look to people? Our suggestion is to look to the infrastructure one constantly uses in one's daily life. As a South African woman once wrote to James Kunstler, "It began with a few potholes in the road... Potholes may well be the singular measure of the calamity we are in or about to face." Read that letter, Dear Reader, and watch the roads around you. We've been watching our city's roads, and we are very disturbed with what we see.
Thursday, June 25, 2009
Some Realistic Information on Collapse
Building on the previous two posts, we present further information on the rapidity of economic contraction in the world. As we've been harping on for quite some time, the severity of the 2007 Depression is not to be underestimated. At the same time, many Government and other official statistics appear to be 'cooked,' to say the least.
The IMF has recently predicted that the Republic of Ireland's economy is going to contract by 13.5%... between 2008 and 2010. This is hopeful, in our opinion. The Irish Republic has had quite a binge on easy-credit-leveraged growth, via the Euro. The time, we posit, has come to pay the bills, and we aren't exactly confident that the Irish economy has any depth of resiliency to draw upon in this situation. We frankly expect that the IMF's drop of 13.5% in the Republic's economy could be realised - even exceeded - in just this year alone.
The most realistic data we've seen so far is from the UN Office for Drugs and Crime. According to this BBC article, in 2008 opium production fell 16% world-wide, and cocaine production in Colombia has dropped 28%. We suspect that these drops occurred in the second half of 2008, as the onset of the Depression neared. In all honesty, we're not sure how drug production and economic activity are correlated... but we suspect that the collapse in opium and cocaine will be mirrored by collapse in the greater world economy.
The IMF has recently predicted that the Republic of Ireland's economy is going to contract by 13.5%... between 2008 and 2010. This is hopeful, in our opinion. The Irish Republic has had quite a binge on easy-credit-leveraged growth, via the Euro. The time, we posit, has come to pay the bills, and we aren't exactly confident that the Irish economy has any depth of resiliency to draw upon in this situation. We frankly expect that the IMF's drop of 13.5% in the Republic's economy could be realised - even exceeded - in just this year alone.
The most realistic data we've seen so far is from the UN Office for Drugs and Crime. According to this BBC article, in 2008 opium production fell 16% world-wide, and cocaine production in Colombia has dropped 28%. We suspect that these drops occurred in the second half of 2008, as the onset of the Depression neared. In all honesty, we're not sure how drug production and economic activity are correlated... but we suspect that the collapse in opium and cocaine will be mirrored by collapse in the greater world economy.
Wednesday, June 24, 2009
A Depression Trajectory
As a sort of follow-up to yesterday's post, we will muse a bit on how much world GDP decline to expect to this Depression.
One assumption that we are making is that over the next twenty years or so, fossil fuels will become too expensive to use very much as... well, fuel. The world is not going to run out of oil, gas, or high quality coal - but their fuel use will mostly be limited to its highest ends (i.e., not for mass private cars, heat, or electricity). In the post-fuel hydrocarbon era, much of the remaining supply will be used for non-fuel uses such as fertiliser, plastics, and specialty chemicals.
Its a rather uncertain thing modelling collapse, but it is not unreasonable to say that hydrocarbon production may decline 90% or so in the next 20 years. That may seem outrageous, but many people like ourselves who make a study of this matter are arriving at similar conclusions. Consider this recent post at The Oil Drum. It's a bit technical, but Figure 3 is worth a thousand words.
As every schoolchild knows, or at least ought to know, the industrial economy grows or shrinks with the supply of fuel. If fuel production declines 90%, the economy will fall by a similar amount. There will be efficiency, nuclear power, solar power, hydropower, and many other ways to mitigate the loss of energy available to society - hopefully enough to keep things civilised. And once Civilisation has weaned itself off fossil fuel, economic growth just may well resume from a new, low base and at a slower rate.
We believe an energy-intensive economy such as the USA's will experience roughly a 90% decline over the next 20 years. At the end of the Depression, per-capita income is likely to be in the neighborhood of $5,000 a year in current dollars.
We suggest the Reader consider what life might be like for them on such an income, or a bit more or less - depending on their skill level. Also to consider what sort of means they would have to produce any income in a world where most people can afford very little beyond the basics of food and shelter.
It will be very difficult to hope that investment capital will produce much income. Which industries will even survive this depression? Virtually all bonds are sure to default, including government ones - either directly or through inflation. Successful investors will likely be the active, hands-on sort.
To earn income will require being involved with a surviving industry, such as agriculture. Otherwise you will need to become entrepreneurial, and hard-working. Though challenging, the changes ahead are manageable - as long as you keep a positive outlook.
One assumption that we are making is that over the next twenty years or so, fossil fuels will become too expensive to use very much as... well, fuel. The world is not going to run out of oil, gas, or high quality coal - but their fuel use will mostly be limited to its highest ends (i.e., not for mass private cars, heat, or electricity). In the post-fuel hydrocarbon era, much of the remaining supply will be used for non-fuel uses such as fertiliser, plastics, and specialty chemicals.
Its a rather uncertain thing modelling collapse, but it is not unreasonable to say that hydrocarbon production may decline 90% or so in the next 20 years. That may seem outrageous, but many people like ourselves who make a study of this matter are arriving at similar conclusions. Consider this recent post at The Oil Drum. It's a bit technical, but Figure 3 is worth a thousand words.
As every schoolchild knows, or at least ought to know, the industrial economy grows or shrinks with the supply of fuel. If fuel production declines 90%, the economy will fall by a similar amount. There will be efficiency, nuclear power, solar power, hydropower, and many other ways to mitigate the loss of energy available to society - hopefully enough to keep things civilised. And once Civilisation has weaned itself off fossil fuel, economic growth just may well resume from a new, low base and at a slower rate.
We believe an energy-intensive economy such as the USA's will experience roughly a 90% decline over the next 20 years. At the end of the Depression, per-capita income is likely to be in the neighborhood of $5,000 a year in current dollars.
We suggest the Reader consider what life might be like for them on such an income, or a bit more or less - depending on their skill level. Also to consider what sort of means they would have to produce any income in a world where most people can afford very little beyond the basics of food and shelter.
It will be very difficult to hope that investment capital will produce much income. Which industries will even survive this depression? Virtually all bonds are sure to default, including government ones - either directly or through inflation. Successful investors will likely be the active, hands-on sort.
To earn income will require being involved with a surviving industry, such as agriculture. Otherwise you will need to become entrepreneurial, and hard-working. Though challenging, the changes ahead are manageable - as long as you keep a positive outlook.
Tuesday, June 23, 2009
World Bank Forecasts Contraction
The World Bank has predicted that the world economy will contract by 2.9% this year. Although we suspect the Bank is being overly optimistic, it is good that some institution of repute, such as the World Bank, is talking about the ongoing contraction of the world's economy. People of the world need to get message that times, they are a'changing.
The 2.9%, as we mentioned, is ridiculously low. To back up our assertion, we present an interesting tidbit buried in the Bank's release: the stunning collapse in private capital investment. According to the Bank's press release, private capital has dropped "from $707 billion in 2008 to an anticipated $363 billion in 2009." That is, a drop of over 51%.
Our observation is this: if indeed private investment has dropped by 51% worldwide, we have serious doubts that the world economy is going to drop by only 2.9% this year. In fact, we suspect that the actual drop will be closer to 29% than 2.9%. Although investment drops faster than an economy - as there is legacy capital economies can burn through - the collapse of new capital will make itself felt.
One could argue that world Governments will move to pick up the slack, as it were, but we think not. Governments are not nimble; they cannot react as quickly to economic conditions as can private investors. At the end of the day, more investors will have jumped ship - taking their money with them - than Governments can replace with fresh capital. The end result will be a much greater economic contraction... we expect it will be both shocking and demoralising to many in the world who pinned their hopes on the fabled "green shoots."
The 2.9%, as we mentioned, is ridiculously low. To back up our assertion, we present an interesting tidbit buried in the Bank's release: the stunning collapse in private capital investment. According to the Bank's press release, private capital has dropped "from $707 billion in 2008 to an anticipated $363 billion in 2009." That is, a drop of over 51%.
Our observation is this: if indeed private investment has dropped by 51% worldwide, we have serious doubts that the world economy is going to drop by only 2.9% this year. In fact, we suspect that the actual drop will be closer to 29% than 2.9%. Although investment drops faster than an economy - as there is legacy capital economies can burn through - the collapse of new capital will make itself felt.
One could argue that world Governments will move to pick up the slack, as it were, but we think not. Governments are not nimble; they cannot react as quickly to economic conditions as can private investors. At the end of the day, more investors will have jumped ship - taking their money with them - than Governments can replace with fresh capital. The end result will be a much greater economic contraction... we expect it will be both shocking and demoralising to many in the world who pinned their hopes on the fabled "green shoots."
Sunday, June 21, 2009
Introducing the Economic Stress Report
We've developed a method of measuring economic stress by State within in the United States. We believe it is fairly accurate, but it is, at the very least, not doctored or focus-group tested for maximum warm-fuzzy-feeling-ness. Our method is a secret, but it is tied to each State's percentage share of the total U.S. population.
Related to that, our depth of data is presently not sufficient for us to analyse the economic condition of some of the States in the Union. In the coming weeks we expect our data quality to improve, and concurrently our ability to analyse these States.
With that, we officially launch our Economic Stress Report. On our stress watch list are the following States, in order of most to least distressed:
South Dakota, Maryland, Arizona, Hawai'i, North Carolina, Ohio, Connecticut, Oregon, New York, Florida, and Georgia.
Our of those States, the following have suffered bank closures - another measure of stress - since December 2007: Maryland (1), North Carolina (2), Florida (5), and Georgia (11). Based on this information, we have several predictions to make:
One: unemployment in Maryland is going to "unexpectedly" spike in the coming months. Although the State is touted as having strong support from the Federal Government, and currently is experiencing unemployment below the national average, it has ranked second place in our analysis, so we suspect the Government-supported economy will begin to fail catastrophically. Additionally, more bank closures in the State should be forthcoming.
Two: numerous bank closures should be imminent in South Dakota, as it is the most distressed State in our analysis. Considering Georgia has suffered eleven closures, proportionally South Dakota should have seen over one hundred closures this far into the Depression. Why there have been no closures in South Dakota is a mystery as it is an important banking centre - especially for credit cards, but we posit that the longer there are no closures, the worse the eventual collapse of the State's banking system will be.
Three: Arizona, Hawai'i, Ohio, Connecticut, Oregon, and New York should all be seeing bank closures in the near future. Florida and North Carolina should also see additional bank failures, if Georgia is to be taken as a benchmark.
We are uncertain how rapidly we will be able to provide updates on the Stress Report. However, at present we suspect not less frequentlly than monthly. Rest assured we will keep you updated.
Related to that, our depth of data is presently not sufficient for us to analyse the economic condition of some of the States in the Union. In the coming weeks we expect our data quality to improve, and concurrently our ability to analyse these States.
With that, we officially launch our Economic Stress Report. On our stress watch list are the following States, in order of most to least distressed:
South Dakota, Maryland, Arizona, Hawai'i, North Carolina, Ohio, Connecticut, Oregon, New York, Florida, and Georgia.
Our of those States, the following have suffered bank closures - another measure of stress - since December 2007: Maryland (1), North Carolina (2), Florida (5), and Georgia (11). Based on this information, we have several predictions to make:
One: unemployment in Maryland is going to "unexpectedly" spike in the coming months. Although the State is touted as having strong support from the Federal Government, and currently is experiencing unemployment below the national average, it has ranked second place in our analysis, so we suspect the Government-supported economy will begin to fail catastrophically. Additionally, more bank closures in the State should be forthcoming.
Two: numerous bank closures should be imminent in South Dakota, as it is the most distressed State in our analysis. Considering Georgia has suffered eleven closures, proportionally South Dakota should have seen over one hundred closures this far into the Depression. Why there have been no closures in South Dakota is a mystery as it is an important banking centre - especially for credit cards, but we posit that the longer there are no closures, the worse the eventual collapse of the State's banking system will be.
Three: Arizona, Hawai'i, Ohio, Connecticut, Oregon, and New York should all be seeing bank closures in the near future. Florida and North Carolina should also see additional bank failures, if Georgia is to be taken as a benchmark.
We are uncertain how rapidly we will be able to provide updates on the Stress Report. However, at present we suspect not less frequentlly than monthly. Rest assured we will keep you updated.
Saturday, June 20, 2009
FDIC Bank Failure Report
This week the Federal Deposit Insurance Corporation closed three banks: First National Bank of Anthony (Anthony, KS); Cooperative Bank (Wilmington, NC); and Southern Community Bank (Fayetteville, GA). Total assets of the three closed banks were $1,503,900,000. The cost to the FDIC is estimated at $363,200,000. The percentage of FDIC loss out of total assets for the three is 24.15%.
These closures bring the total assets of FDIC-failed banks (since December of 2007) to $408,659,080,000, with cost-to-FDIC brought to $25,953,900,000 - this includes the assets of Washington Mutual, whose closing offered no cost to the FDIC. The percentage of FDIC losses to total assets presently stands at 6.35%, up from 6.29% as of last report.
Upon elimination of WaMu's assets from the analysis, total assets are $101,659,080,000, and total cost is $25,953,900,000. The percentage of FDIC losses to total assets now stands at 25.53%, down from 25.55% as of last report.
Although the without-WaMu losses-to-assets took a slight dip this week, the trend in FDIC losses has effectively levelled out... at least for the time being. We sincerely doubt that the problems with the United States' banking system have resolved themselves overnight, so we expect to see a resuming of increasingly costly bank closures.
These closures bring the total assets of FDIC-failed banks (since December of 2007) to $408,659,080,000, with cost-to-FDIC brought to $25,953,900,000 - this includes the assets of Washington Mutual, whose closing offered no cost to the FDIC. The percentage of FDIC losses to total assets presently stands at 6.35%, up from 6.29% as of last report.
Upon elimination of WaMu's assets from the analysis, total assets are $101,659,080,000, and total cost is $25,953,900,000. The percentage of FDIC losses to total assets now stands at 25.53%, down from 25.55% as of last report.
Although the without-WaMu losses-to-assets took a slight dip this week, the trend in FDIC losses has effectively levelled out... at least for the time being. We sincerely doubt that the problems with the United States' banking system have resolved themselves overnight, so we expect to see a resuming of increasingly costly bank closures.
Friday, June 19, 2009
Culture, Positive Feedback, and Collapse
University of Toronto professor Richard Florida has made quite a reputation for himself introducing the concept of the 'creative class' and its effects on prosperity within a city. As we are sympathetic to the Florida's perspective, we are concerned that since the Depression is so hard on 'creatives', it is consequently hard on society and the economy as a whole .
The bohemian side of the population tends to live a bit on the edge economically and as a recent article in the New York Times points out, the Depression has been very hard on the creative entrepreneur.
Artists are not merely entertainers, but educators as well. The arts they practice help put others into more thoughtful frames of mind. The inspiration found through the arts can help solve problems in any field.
A society in which the arts are decaying is a society in which the mental atmosphere is stagnant. As most productive work is mental and not physical, the result will be somewhat shoddy and degenerate work.
Unfortunately, the Arts are first on the chopping block whether in the household budget or the Provincial budget. Society needs the Arts to thrive, but when times get tough, the Arts get the short shrift. It is almost as if Society were consuming its seed corn by choking off the arts.
The bohemian side of the population tends to live a bit on the edge economically and as a recent article in the New York Times points out, the Depression has been very hard on the creative entrepreneur.
Artists are not merely entertainers, but educators as well. The arts they practice help put others into more thoughtful frames of mind. The inspiration found through the arts can help solve problems in any field.
A society in which the arts are decaying is a society in which the mental atmosphere is stagnant. As most productive work is mental and not physical, the result will be somewhat shoddy and degenerate work.
Unfortunately, the Arts are first on the chopping block whether in the household budget or the Provincial budget. Society needs the Arts to thrive, but when times get tough, the Arts get the short shrift. It is almost as if Society were consuming its seed corn by choking off the arts.
Thursday, June 18, 2009
This Week's Herbert Hoover Award
One of the things that President Herbert Hoover showed is that, without a doubt, raising taxes during a Depression is a very bad thing to do. In the spirit of never-learning-from-History, we present this week's Herbert Hoover Award to (drumroll):
Governor Rendell wishes to raise his State's income tax from 3.07% to 3.57%, to help close a $3.2 billion budget shortfall; Governor Perdue is asking her State's legislature to raise up to $1.5 billion in new taxes, to help close North Carolina's $4.5 billion budget deficit.
Cutting spending is something that Governments often cannot do, as Governor Perdue makes painfully clear, when defending the need to raise taxes to protect the jobs of North Carolina's teachers:
Sorry, Governors Perdue and Rendell, but you both fail basic economic history. During economic contraction, a Government - if it wishes to alleviate the pain of said contraction - should shrink at least as fast as the greater economy. Better still, the Government should shrink its presence in the economy - specifically, its taxation rates - even faster than the economy is contracting. The reason is very simple: in order to help an economy regain its footing on a new, lower footing, the citizenry requires a larger share of their shrinking income to stabilise their personal finances.
If a Government moves aggressively to take a larger share of a shrinking pie, an economic contraction likely will become an economic collapse. During economic downturns, investable capital must be as liquid as possible, so that investors - via markets - can help build up viable enterprises and tear down the dead and dying refuse. Increasing taxation rates effectively prevents that, as savings is hampered. Governments will invariably spend their tax revenue on dead-or-dying enterprises (a.k.a. major campaign contributors) - misallocating capital which ought to go to promising ventures.
Congratulations, Governors. Your actions are an inspiration to us.
On a positive note, we give weak applause to the Government of Ohio for refusing to raise taxes, even in the face of an argument for raising taxes involving the old "think of the children" ploy. In fact, a planned tax reduction is being kept on schedule.
New tax cuts would be an excellent idea, but we suspect that's asking for too much. Still, here's hoping the Ohio Government will continue to resist the urge to kill the State's economy.
Pennsylvania Governor Edward Rendell and North Carolina Governor Beverly Perdue
Governor Rendell wishes to raise his State's income tax from 3.07% to 3.57%, to help close a $3.2 billion budget shortfall; Governor Perdue is asking her State's legislature to raise up to $1.5 billion in new taxes, to help close North Carolina's $4.5 billion budget deficit.
Cutting spending is something that Governments often cannot do, as Governor Perdue makes painfully clear, when defending the need to raise taxes to protect the jobs of North Carolina's teachers:
"We cannot increase class size. We cannot lay off teachers. We will not sacrifice North Carolina's economic future."Governor Rendell has his own version of that attitude, stating that he wanted to decrease taxes in his State, but the 2007 Depression “blew the wheels off that idea.”
Sorry, Governors Perdue and Rendell, but you both fail basic economic history. During economic contraction, a Government - if it wishes to alleviate the pain of said contraction - should shrink at least as fast as the greater economy. Better still, the Government should shrink its presence in the economy - specifically, its taxation rates - even faster than the economy is contracting. The reason is very simple: in order to help an economy regain its footing on a new, lower footing, the citizenry requires a larger share of their shrinking income to stabilise their personal finances.
If a Government moves aggressively to take a larger share of a shrinking pie, an economic contraction likely will become an economic collapse. During economic downturns, investable capital must be as liquid as possible, so that investors - via markets - can help build up viable enterprises and tear down the dead and dying refuse. Increasing taxation rates effectively prevents that, as savings is hampered. Governments will invariably spend their tax revenue on dead-or-dying enterprises (a.k.a. major campaign contributors) - misallocating capital which ought to go to promising ventures.
Congratulations, Governors. Your actions are an inspiration to us.
***
On a positive note, we give weak applause to the Government of Ohio for refusing to raise taxes, even in the face of an argument for raising taxes involving the old "think of the children" ploy. In fact, a planned tax reduction is being kept on schedule.
New tax cuts would be an excellent idea, but we suspect that's asking for too much. Still, here's hoping the Ohio Government will continue to resist the urge to kill the State's economy.
Wednesday, June 17, 2009
Coming Soon to Sprawl Near You
The demise of Detroit is the most striking example of the self-destruction of most US cities. We call it self-destruction because it was not by accident, but the result of unintended consequences of a series of decisions.
The common thread of these decisions was to abandon the thousands-of-years-old tradition of building cities around the scale of human self-propulsion. In the USA, this tradition was abandoned in favour of building the urban field - a better name for what resulted than city - around the needs of the motor vehicle.
Even most of those few remaining cities which have lively and livable downtowns are surrounded by a ring of strip malls, big box stores, and industrial and office 'parks'.
Now that the US has seen peak automobiles, and the age of the motor vehicle is drawing to a close, the USA will find itself very much in trouble. It has constructed a type of city - this urban field - which will find itself soon utterly obsolete and mostly useless.
Steps could be taken to correct this: allowing mixed-use zoning; promoting 'infill' and small lot redevelopment. But communities which allow this are few and far between. The norm is strict segregation of land use, and new development on big lots with copious parking. People will be living with the unhappy consequences of this ongoing, bad planning for decades.
Detroit is the city most molded by the automobile - right down to its broad, highway-like streets and its too-long-to-walk blocks. The average house in Detroit now sells for $6,000. You can say that it is the crime, or the unemployment, but we call it a failure of urban form.
This same failure of form exists in the suburbs of Detroit and the suburbs of every American city (as well as most of the cities), and the same decay and economic ruin that afflicts the rustbelt cities will spread to them. Expect to see $6,000 houses more the rule than the exception in the years ahead.
The common thread of these decisions was to abandon the thousands-of-years-old tradition of building cities around the scale of human self-propulsion. In the USA, this tradition was abandoned in favour of building the urban field - a better name for what resulted than city - around the needs of the motor vehicle.
Even most of those few remaining cities which have lively and livable downtowns are surrounded by a ring of strip malls, big box stores, and industrial and office 'parks'.
Now that the US has seen peak automobiles, and the age of the motor vehicle is drawing to a close, the USA will find itself very much in trouble. It has constructed a type of city - this urban field - which will find itself soon utterly obsolete and mostly useless.
Steps could be taken to correct this: allowing mixed-use zoning; promoting 'infill' and small lot redevelopment. But communities which allow this are few and far between. The norm is strict segregation of land use, and new development on big lots with copious parking. People will be living with the unhappy consequences of this ongoing, bad planning for decades.
Detroit is the city most molded by the automobile - right down to its broad, highway-like streets and its too-long-to-walk blocks. The average house in Detroit now sells for $6,000. You can say that it is the crime, or the unemployment, but we call it a failure of urban form.
This same failure of form exists in the suburbs of Detroit and the suburbs of every American city (as well as most of the cities), and the same decay and economic ruin that afflicts the rustbelt cities will spread to them. Expect to see $6,000 houses more the rule than the exception in the years ahead.
Tuesday, June 16, 2009
The Changing Face of Economic Power
It is our ongoing opinion that the financial hegemony of the United States Government is firmly on the wane. Between two costly and unwinable wars, massive bailouts, and grossly distended off-balance-sheet liabilities, we don't see anything other than a collapse of the U.S. Dollar at some point in the future. We can't say when, though... we are only certain that such a collapse will happen.
An interesting sign of the change in monetary power is the news that Brazil, Russia, India, and China (known as the BRIC) are holding their first-ever economic summit together. According to this article, the BRIC group together represents around 15% of the world's economy, and hold approximately 40% of the world's currency reserves. Such numbers make the BRIC group, if the member nations can act in concert, an economic force to be reckoned with.
Considering that the BRIC group is apparently weathering the Depression better than most nations - at least so far - that suggests the group will become a larger force in deciding the landscape of the world's economy. Specifically, we suspect the group will be taking a long, hard look at the U.S. Dollar's hegemony, and whether or not those little pieces of paper will have any value as a reserve currency for the future.
Frankly, we suspect not. The United States is going down a fiscal and monetary path blazed by Japan and Zimbabwe, among others. However, the meltdown of Zimbabwe and the constant doldrums of Japan weren't such a big problem, as those nations did not enjoy having the world's major reserve currency. The United States, on the other hand, does. Whether it goes the way of Japan or of Zimbabwe, will make it extremely painful for any nation to hold Dollars as a currency reserve.
It may take awhile for the collapse of the U.S. Dollar to sink into the collective minds of the BRIC group, as well as the European nations. But we expect that, sooner or later, it will; that will signal the end of the United States' credit line from the BRIC group, as well as the eventual collapse of the Federal Government's ability to grossly deficit-spend like mad.
When Governments fail, the currency need not. However, when a currency fails, the Government which issues said currency does fail. In the short term, we really can't say what will happen to the Dollar, nor of its status as reserve currency. Perhaps the world economy likes the abuse, and will therefore keep the Dollar around for awhile longer... or perhaps not. Whatever the case, though, we suspect the U.S. Dollar has a long-standing date with repudiation. The only question, in our mind, is when.
An interesting sign of the change in monetary power is the news that Brazil, Russia, India, and China (known as the BRIC) are holding their first-ever economic summit together. According to this article, the BRIC group together represents around 15% of the world's economy, and hold approximately 40% of the world's currency reserves. Such numbers make the BRIC group, if the member nations can act in concert, an economic force to be reckoned with.
Considering that the BRIC group is apparently weathering the Depression better than most nations - at least so far - that suggests the group will become a larger force in deciding the landscape of the world's economy. Specifically, we suspect the group will be taking a long, hard look at the U.S. Dollar's hegemony, and whether or not those little pieces of paper will have any value as a reserve currency for the future.
Frankly, we suspect not. The United States is going down a fiscal and monetary path blazed by Japan and Zimbabwe, among others. However, the meltdown of Zimbabwe and the constant doldrums of Japan weren't such a big problem, as those nations did not enjoy having the world's major reserve currency. The United States, on the other hand, does. Whether it goes the way of Japan or of Zimbabwe, will make it extremely painful for any nation to hold Dollars as a currency reserve.
It may take awhile for the collapse of the U.S. Dollar to sink into the collective minds of the BRIC group, as well as the European nations. But we expect that, sooner or later, it will; that will signal the end of the United States' credit line from the BRIC group, as well as the eventual collapse of the Federal Government's ability to grossly deficit-spend like mad.
When Governments fail, the currency need not. However, when a currency fails, the Government which issues said currency does fail. In the short term, we really can't say what will happen to the Dollar, nor of its status as reserve currency. Perhaps the world economy likes the abuse, and will therefore keep the Dollar around for awhile longer... or perhaps not. Whatever the case, though, we suspect the U.S. Dollar has a long-standing date with repudiation. The only question, in our mind, is when.
Monday, June 15, 2009
Housing Price Report for June
As promised, we are returning with our North American Housing Price Index. We do not claim that this is completely representative of North America as a whole, only that it is honest and not massaged to put a spin on things.
Our first result was a bit of a shocker, even to us: A drop of 9.65% in one month! So, whatever you might be hearing about 'green shoots' - it's not happening in residential real estate.
We noticed the pull downwards was from a lot of distressed properties (i.e. foreclosures) being brought to market. Since there seems to be no end in sight for the foreclosure flood, this trend will likely continue.
Tune in next month for our update.
Our first result was a bit of a shocker, even to us: A drop of 9.65% in one month! So, whatever you might be hearing about 'green shoots' - it's not happening in residential real estate.
We noticed the pull downwards was from a lot of distressed properties (i.e. foreclosures) being brought to market. Since there seems to be no end in sight for the foreclosure flood, this trend will likely continue.
Tune in next month for our update.
Sunday, June 14, 2009
A Huge Regressive Tax for Americans
We had hoped to report on further FDIC closures, but there were none.
The "Waxman-Markey" bill winding through Congress has an ostensible purpose of capping carbon dioxide emissions. According to US News and World Report, if passed, it will cost the average household as much as $1600 per year, "with low-income households carrying a heavier burden."
A puny, $160 per person tax credit is being proposed to offset the cost, but that will do little to help the average citizen.
Whatever the merits or demerits of a 'carbon tax', it should be presented in a revenue-neutral fashion. The current proposal will have a decided, depressive effect on the economy at a time when such effects are most definitely not needed.
The share of the US economy managed by government is at an all-time high, and still growing fast. This ill-conceived 'energy plan' along with similarly ill-conceived mandatory health insurance programs may push the Nation, already burdened with bailouts and nationalisations, too far down the road of a command economy.
Central planning does not necessarily wreck an economy, of course. Many European nations have a fairly high level of government involvement with the economy and still enjoy a high standard of living. But there, better social welfare results have been and can be expected from the taxes and regulation. We believe that is because socialism, whatever its demerits, is a proactive and coherent movement to distribute public benefits. In the USA, socialism is ideologically extinct, and government intrusion is reactive and self-serving.
A European level of government economic control in the USA will not yield European-style benefits, but an economic catastrophe. Mark our words.
The "Waxman-Markey" bill winding through Congress has an ostensible purpose of capping carbon dioxide emissions. According to US News and World Report, if passed, it will cost the average household as much as $1600 per year, "with low-income households carrying a heavier burden."
A puny, $160 per person tax credit is being proposed to offset the cost, but that will do little to help the average citizen.
Whatever the merits or demerits of a 'carbon tax', it should be presented in a revenue-neutral fashion. The current proposal will have a decided, depressive effect on the economy at a time when such effects are most definitely not needed.
The share of the US economy managed by government is at an all-time high, and still growing fast. This ill-conceived 'energy plan' along with similarly ill-conceived mandatory health insurance programs may push the Nation, already burdened with bailouts and nationalisations, too far down the road of a command economy.
Central planning does not necessarily wreck an economy, of course. Many European nations have a fairly high level of government involvement with the economy and still enjoy a high standard of living. But there, better social welfare results have been and can be expected from the taxes and regulation. We believe that is because socialism, whatever its demerits, is a proactive and coherent movement to distribute public benefits. In the USA, socialism is ideologically extinct, and government intrusion is reactive and self-serving.
A European level of government economic control in the USA will not yield European-style benefits, but an economic catastrophe. Mark our words.
Saturday, June 13, 2009
What the Average American Knows that We Don't
Consumer confidence as measured by the University of Michigan rose for the fourth month in a row in May. Historically, a marked rise in this measure signals the end of economic contraction. Perhaps happy days are here again indeed and the Frugal Scotsman and his loyal assistant - yours truly - will have to find other ways to occupy our time instead of reporting on a Depression that never quite materialised.
Perhaps Mr. and Mrs. Average, seeing the big banks pass their 'stress tests' with flying colours, know that the worst of the credit crisis is in the past. Never mind that bankruptcies in May are up 37 percent from last year, or foreclosures up 18 percent.
Perhaps our high school-educated economists sense immanent job recovery in spite of the chain of record continuing unemployment claims.
We really do wonder where they are getting their information. As far as we can tell, the economic scene is pretty horrid with little hope of anything better than further crashing ahead. But somehow the masses are optimistic. Why? How?
As best as we can reckon it, the recovery story runs something like this: Sure, the economy is contracting - but not as fast as it was at the end of 2008. So, since the contraction is decelerating, pretty soon the contraction will stop and turn into growth.
Perhaps this story will come true. Time will tell, of course. The key thing to watch for is if contraction rates continue moderating, or if the compounding of bankruptcy, delinquency, foreclosure, unemployment, and so forth will re-accelerate the collapse in production.
If the masses are right (and we certainly wouldn't mind if the are - we could use some prosperity ourselves!), then all will be well. If they are misjudging the situation, then the letdown, disillusionment, anger and psychological depression will be extreme. To us though, the recovery story looks like the Bargaining Stage of the grieving process.
Perhaps Mr. and Mrs. Average, seeing the big banks pass their 'stress tests' with flying colours, know that the worst of the credit crisis is in the past. Never mind that bankruptcies in May are up 37 percent from last year, or foreclosures up 18 percent.
Perhaps our high school-educated economists sense immanent job recovery in spite of the chain of record continuing unemployment claims.
We really do wonder where they are getting their information. As far as we can tell, the economic scene is pretty horrid with little hope of anything better than further crashing ahead. But somehow the masses are optimistic. Why? How?
As best as we can reckon it, the recovery story runs something like this: Sure, the economy is contracting - but not as fast as it was at the end of 2008. So, since the contraction is decelerating, pretty soon the contraction will stop and turn into growth.
Perhaps this story will come true. Time will tell, of course. The key thing to watch for is if contraction rates continue moderating, or if the compounding of bankruptcy, delinquency, foreclosure, unemployment, and so forth will re-accelerate the collapse in production.
If the masses are right (and we certainly wouldn't mind if the are - we could use some prosperity ourselves!), then all will be well. If they are misjudging the situation, then the letdown, disillusionment, anger and psychological depression will be extreme. To us though, the recovery story looks like the Bargaining Stage of the grieving process.
Friday, June 12, 2009
Incredible Shrinking Home Equity
Among other horrors, the Federal Reserve reported today, first quarter homeowners' equity is down to 41.4% of home value.
As we have stated repeatedly, about one-third of homeowners own their houses free-and-clear. This means that the 58.6% of aggregate house value that covers all mortgages falls to the two-thirds with mortgages. Running through a bit of algebra, we get to the point that homeowners with mortgages only have 12% equity.
In a world of crashing real-estate 12% is not a lot to fall further from the end of March. Given that prices are falling in something like a 20% annual pace, 12% is just a matter of months.
So, we hereby predict, by the end of 2009 - give or take a few months - homeowners with mortgages will be, in the aggregate, underwater - owing more than their houses are worth. Naturally, because of regional variations and the amount of mortgage debt people carry, many homeowners will be very, very underwater, though some won't be at all.
We further predict that most of the homeowners who are very, very underwater will default one way or another, as will quite a few of those who are merely very underwater. Among the many consequences of this will be the holders of the mortgages will lose most of their investment. This will be very bad for banks, especially the government-owned behemoths, Fannie Mae and Freddie Mac.
Bank losses will begin to mushroom to the tune of hundreds of billions, if not trillions. Another stock market crash will likely be part of the picture as the reality of this situation sinks in to the investing public. This all beginning in months, if we have our sums right.
As we have stated repeatedly, about one-third of homeowners own their houses free-and-clear. This means that the 58.6% of aggregate house value that covers all mortgages falls to the two-thirds with mortgages. Running through a bit of algebra, we get to the point that homeowners with mortgages only have 12% equity.
In a world of crashing real-estate 12% is not a lot to fall further from the end of March. Given that prices are falling in something like a 20% annual pace, 12% is just a matter of months.
So, we hereby predict, by the end of 2009 - give or take a few months - homeowners with mortgages will be, in the aggregate, underwater - owing more than their houses are worth. Naturally, because of regional variations and the amount of mortgage debt people carry, many homeowners will be very, very underwater, though some won't be at all.
We further predict that most of the homeowners who are very, very underwater will default one way or another, as will quite a few of those who are merely very underwater. Among the many consequences of this will be the holders of the mortgages will lose most of their investment. This will be very bad for banks, especially the government-owned behemoths, Fannie Mae and Freddie Mac.
Bank losses will begin to mushroom to the tune of hundreds of billions, if not trillions. Another stock market crash will likely be part of the picture as the reality of this situation sinks in to the investing public. This all beginning in months, if we have our sums right.
Thursday, June 11, 2009
U.S. Government's Latest Conflict of Interest
With the U.S. Federal Government firmly in the automobile manufacturing business, we make the fearless prediction that they will be staying into the business until the Government itself collapses into ruin. When that day may come is anyone's guess, but in the meanwhile the United States is stuck with a Government-owned car company. Prepare for even more waste, even more unreliability, and even more ugly to be found in your next new GM car, dear Reader - if you are fool enough to buy one.
But that is neither here nor there; what we'd like to point out is that the Government is positioning itself for a conflict-of-interest situation. A "cash for clunkers" bill is presently making its way through Congress, and it seems to have a good chance at becoming law. The programme would give up to a $4,500 credit to buyers who trade in their older vehicle (25 years old and newer) for a brand-new vehicle. This will come with the price-tag of $4 billion... just a drop in the bucket, really.
The problem is, the Federal Government owns a couple car companies... and here it goes, putting out a bill to pay people to buy new cars! Instant conflict of interest: the Government would naturally prefer you, dear Reader, buys their cars, not the vastly superior Japanese or European models which might catch your eye. When the "clunkers" programme becomes law, we posit it's only a hop, skip, and a jump to legislation punishing those who purchase cars from the non-Government-owned manufacturers. Such a thing would fall loosely under the "Buy American" nonsense.
As an aside, and despite the concerns raised in this article about the possible bad effects the "clunkers" programme will have on auto repair shops, we suspect the new GM (and probably Chrysler) cars will suck so bad that they'll break some expensive - and functionless - part before the first oil change. Repair shops will have booming business for awhile, swapping out broken parts with faulty replacements.
***
At this point, we're officially putting Ford on the death-watch. Sure, the company may be able to limp along for awhile, but at some point Ford too will fail. The Government will be waiting with money in hand to add to its burgeoning car manufacturing empire.
But that is neither here nor there; what we'd like to point out is that the Government is positioning itself for a conflict-of-interest situation. A "cash for clunkers" bill is presently making its way through Congress, and it seems to have a good chance at becoming law. The programme would give up to a $4,500 credit to buyers who trade in their older vehicle (25 years old and newer) for a brand-new vehicle. This will come with the price-tag of $4 billion... just a drop in the bucket, really.
The problem is, the Federal Government owns a couple car companies... and here it goes, putting out a bill to pay people to buy new cars! Instant conflict of interest: the Government would naturally prefer you, dear Reader, buys their cars, not the vastly superior Japanese or European models which might catch your eye. When the "clunkers" programme becomes law, we posit it's only a hop, skip, and a jump to legislation punishing those who purchase cars from the non-Government-owned manufacturers. Such a thing would fall loosely under the "Buy American" nonsense.
As an aside, and despite the concerns raised in this article about the possible bad effects the "clunkers" programme will have on auto repair shops, we suspect the new GM (and probably Chrysler) cars will suck so bad that they'll break some expensive - and functionless - part before the first oil change. Repair shops will have booming business for awhile, swapping out broken parts with faulty replacements.
***
Wednesday, June 10, 2009
This Week's Herbert Hoover Award
There comes a time when leaders promising great change are elected, with the unspoken understanding that said leaders will make things stay the same. President Herbert Hoover was an excellent example of such a leader: as the U.S. economy crashed like a lead balloon during the 1929 Depression, he held innumerable (and pointless) meetings to help out the economy, and made vague promises for the return of "permanent prosperity."
In that particular spirit of President Hoover, we present this week's Herbert Hoover Award for wind-baggery and empty posturing. The prestigious award goes to (drumroll):
"Paying for what you spend is basic common sense," said the President on Tuesday, as he proposed the so-called "pay-as-you-go" spending policy on Federal outlays. "While short-term spending was necessary to get the economy moving again, our long-term fiscal problems became that much more urgent," commented Rep. Jim Cooper of Tennessee, a Blue Dog Democrat, in favour of this "PAYGO."
According to the CNN article, PAYGO would require that, if spending is to be increased in one part of the Budget, another part must be reduced that same amount. Additionally, if a tax is to be cut, tax revenue must be concurrently increased to offset the cut. The end result, as it seems to us, is intended to achieve a sort of steady-state of the Budget, as well as tax revenues. Some things, however, would be exempt under President Obama's plan, such as: estate and gift taxes, Medicare payments to doctors, and 2001/2002 tax cuts. For an overview of PAYGO, we recommend the Wikipedia article.
Upon pondering the part in the CNN article about taxes, we got a little confused. If tax revenue must be raised in correlation to a tax cut, does that not mean taxes would need to be increased to offset tax cuts? And isn't raising taxes during a Depression a really bad idea?
But leaving that all aside, let's take a hard look at what PAYGO would actually do for paying down the U.S. Government's deficit: absolutely nothing. PAYGO does not seem to have any mechanism that we can discover which would force the U.S. Congress to cease-and-desist on massive deficit spending. The Government simply couldn't increase the deficit beyond what it already is.
Problems arise even there, as it is difficult to discern exactly how big the Federal deficit really is. Is it around $11.3 trillion, as the Treasury Department suggests... or is it the vastly more monstrous $52.7 trillion that former Comptroller of the Currency David Walker revealed (see slide #17) in early 2008?
Even the exact figure is beyond the point, as we cannot seriously entertain the notion that the U.S. Congress would give itself iron-clad spending limits. If PAYGO is made the law of the land, it will do nothing to impede Congress' mad dash towards a quadrillion in debt, and probably beyond. So, we can only conclude that the PAYGO proposal from President Obama is yet another puff of hot air, floating up into the atmosphere and increasing global warming.
Congratulations, Mr. President. We guarantee your trophy will look great on your desk.
In that particular spirit of President Hoover, we present this week's Herbert Hoover Award for wind-baggery and empty posturing. The prestigious award goes to (drumroll):
The President of the United States, Barack Obama
"Paying for what you spend is basic common sense," said the President on Tuesday, as he proposed the so-called "pay-as-you-go" spending policy on Federal outlays. "While short-term spending was necessary to get the economy moving again, our long-term fiscal problems became that much more urgent," commented Rep. Jim Cooper of Tennessee, a Blue Dog Democrat, in favour of this "PAYGO."
According to the CNN article, PAYGO would require that, if spending is to be increased in one part of the Budget, another part must be reduced that same amount. Additionally, if a tax is to be cut, tax revenue must be concurrently increased to offset the cut. The end result, as it seems to us, is intended to achieve a sort of steady-state of the Budget, as well as tax revenues. Some things, however, would be exempt under President Obama's plan, such as: estate and gift taxes, Medicare payments to doctors, and 2001/2002 tax cuts. For an overview of PAYGO, we recommend the Wikipedia article.
Upon pondering the part in the CNN article about taxes, we got a little confused. If tax revenue must be raised in correlation to a tax cut, does that not mean taxes would need to be increased to offset tax cuts? And isn't raising taxes during a Depression a really bad idea?
But leaving that all aside, let's take a hard look at what PAYGO would actually do for paying down the U.S. Government's deficit: absolutely nothing. PAYGO does not seem to have any mechanism that we can discover which would force the U.S. Congress to cease-and-desist on massive deficit spending. The Government simply couldn't increase the deficit beyond what it already is.
Problems arise even there, as it is difficult to discern exactly how big the Federal deficit really is. Is it around $11.3 trillion, as the Treasury Department suggests... or is it the vastly more monstrous $52.7 trillion that former Comptroller of the Currency David Walker revealed (see slide #17) in early 2008?
Even the exact figure is beyond the point, as we cannot seriously entertain the notion that the U.S. Congress would give itself iron-clad spending limits. If PAYGO is made the law of the land, it will do nothing to impede Congress' mad dash towards a quadrillion in debt, and probably beyond. So, we can only conclude that the PAYGO proposal from President Obama is yet another puff of hot air, floating up into the atmosphere and increasing global warming.
Congratulations, Mr. President. We guarantee your trophy will look great on your desk.
Tuesday, June 9, 2009
Electricity Use Declines
This report from Communist China: Electric consumption is down 4% from last year. How the economy overall can be reported to show growth in the face of falling electricity use is perplexing. This simplest explanation is that the communist government is merely making up GDP numbers that make the government look good even while the country's economy is crashing.
Fabricated statistics in China is nothing new. It is one of the hallmarks of a failing political and economic system - in this case, the curious hybrid of communist totalitarianism with a capitalistic flair. Somewhat more reliable statistics can be found in OECD countries, but a fair amount of massaging goes on there as well.
In the USA, electric generation is down (as of February) 7.3% year over year, according to the Energy Information Administration. As it was not a mild winter, the drop can be logically associated with decreased need in industry.
We will be attempting to post further honest measures of the economic situation in the future. However, with the problem of faulty - or even make-believe - statistics, not to mention constant misinterpretation, the quest for quality information is difficult at best.
Fabricated statistics in China is nothing new. It is one of the hallmarks of a failing political and economic system - in this case, the curious hybrid of communist totalitarianism with a capitalistic flair. Somewhat more reliable statistics can be found in OECD countries, but a fair amount of massaging goes on there as well.
In the USA, electric generation is down (as of February) 7.3% year over year, according to the Energy Information Administration. As it was not a mild winter, the drop can be logically associated with decreased need in industry.
We will be attempting to post further honest measures of the economic situation in the future. However, with the problem of faulty - or even make-believe - statistics, not to mention constant misinterpretation, the quest for quality information is difficult at best.
Monday, June 8, 2009
Canada/U.S. Trade War?
We have been following the developments surrounding the "Buy American" policy of the United States with some interest. The return of aggressively nationalistic protectionism to U.S. policy is a very serious affair: the U.S. is presently the world's largest economy, and even as it shrinks it still is a disproportionate slice of the pie, if you will. When the number one economy puts up trade barriers, things will not be pretty.
As could be expected, Canada - as the U.S.'s single largest trading partner - would be the most affected, and quickest to notice. Indeed, notice Canada has: the Federation of Canadian Municipalities recently passed a resolution "to bar bids from companies whose countries impose trade restrictions with Canada." The FCM also voted to refrain from action for 120 days, but this is definitely a return salvo in a burgeoning trade war between Canada and the U.S.
It remains our opinion that integration with Canada is the U.S.'s best hope for economic salvation. If instead the U.S. insists on fomenting a trade war, it will likely only insure a very disastrous economic squabble. Although at present Canada needs the U.S. more than the U.S. needs Canada, a trade war will force Canada to rather more quickly cultivate trade with other nations. This will inevitably leave the U.S. bereft of the assets of its closest neighbour, and merely heir to a gutted industrial base (and collapsed banking industry, and a bankrupt Federal Government, and defaulted State Governments, and a grossly devalued currency, et cetera).
As could be expected, Canada - as the U.S.'s single largest trading partner - would be the most affected, and quickest to notice. Indeed, notice Canada has: the Federation of Canadian Municipalities recently passed a resolution "to bar bids from companies whose countries impose trade restrictions with Canada." The FCM also voted to refrain from action for 120 days, but this is definitely a return salvo in a burgeoning trade war between Canada and the U.S.
It remains our opinion that integration with Canada is the U.S.'s best hope for economic salvation. If instead the U.S. insists on fomenting a trade war, it will likely only insure a very disastrous economic squabble. Although at present Canada needs the U.S. more than the U.S. needs Canada, a trade war will force Canada to rather more quickly cultivate trade with other nations. This will inevitably leave the U.S. bereft of the assets of its closest neighbour, and merely heir to a gutted industrial base (and collapsed banking industry, and a bankrupt Federal Government, and defaulted State Governments, and a grossly devalued currency, et cetera).
Sunday, June 7, 2009
June Credit Card Collapse Report
On June 5, the Federal Reserve released its monthly report on consumer credit. The first quarter drop in revolving credit was revised from 60.4 billion to 66 billion. The preliminary April data shows a 3.4 billion drop. So far this year the rate of decline is 7%, or 21% annualised. We expect as April data is revised, this rate will actually be considerably higher.
If the flow of credit is indeed the "life blood of the economy," as Mr. Obama states, then the USA has arterial sclerosis. Our opinion, of course, is entirely the opposite: the economy can be quite fine without consumer credit. The World got along fine for thousands of years without consumer credit and may again.
The flow of credit is only the life blood of banking profits. American households will of necessity become thrifty in the years ahead or face ruin. Banks will be increasingly cut off from the once fat profits of consumer lending. Their rump loan portfolios will soon turn into capital-annihilating loss generators.
It's a little known fact of lending that you can cover up dodgy portfolios by expanding quickly. Since loans sour as they age, if you keep a loan portfolio new (by always adding more and more accounts), your percentage of delinquent loans will seem low. If your growth stops, or even reverses, your deadbeats can't be hidden so neatly.
The result of that phenomenon as it applies to the current situation is that bank losses on their consumer credit book should begin to really mushroom over the next few months. Don't buy the media announcement of 'unexpected' increases in credit card delinquencies. The banks know its coming, but you read it here first.
If the flow of credit is indeed the "life blood of the economy," as Mr. Obama states, then the USA has arterial sclerosis. Our opinion, of course, is entirely the opposite: the economy can be quite fine without consumer credit. The World got along fine for thousands of years without consumer credit and may again.
The flow of credit is only the life blood of banking profits. American households will of necessity become thrifty in the years ahead or face ruin. Banks will be increasingly cut off from the once fat profits of consumer lending. Their rump loan portfolios will soon turn into capital-annihilating loss generators.
It's a little known fact of lending that you can cover up dodgy portfolios by expanding quickly. Since loans sour as they age, if you keep a loan portfolio new (by always adding more and more accounts), your percentage of delinquent loans will seem low. If your growth stops, or even reverses, your deadbeats can't be hidden so neatly.
The result of that phenomenon as it applies to the current situation is that bank losses on their consumer credit book should begin to really mushroom over the next few months. Don't buy the media announcement of 'unexpected' increases in credit card delinquencies. The banks know its coming, but you read it here first.
Friday, June 5, 2009
Expanding Government, Declining Economy
USA Today reports "Benefit Spending Soars to a New High". 'Benefits' being the euphemism for 'Welfare', now that there is no shame in being on the dole. In any case, state and federal welfare payments are now one-sixth of Americans' income.
As the Depression grinds on, there will be considerable pressure from all sides to maintain and expand 'benefits'. These 'benefits' will have to come out of taxpayer pockets, one way or another. Since visible taxes will probably not be raised enough to cover the swollen 'benefit' roles, there will be some of that hidden tax coming down the pike - inflation.
Redistributing income, up to a point, may have some merits. But if the productive elements of society - most of whom are having a fairly rough time of it lately, too - are overburdened with increasing taxes, there will be further decline in economic activity.
As we have discussed repeatedly before, there is a range of government spending in an economy which is optimal, and spending below or above that range is destructive. At present, government spending at all levels (according to the helpful folks at usgovernmentspending.com) is a 45.2% share of the economy as a whole. This is up from a 37% share in the last fiscal year.
The rate of increase in the share is a whopping 22%! If the share were to increase at that rate for just another two years, the USA would end up two thirds of its economy (mis)managed by the State - a comparable level to Eastern Europe in the Soviet era. And probably with similar results.
Of course, the Nation's leaders are emphatically stating that since recovery is around the corner, there will be no need for further increases. We beg to disagree on the recovery part. Recovery is not around the corner. Whatever spin may be being put on 'the numbers' - they are in fact truly terrible.
In the face of Great Depression II, Mr. Obama's administration will not be able to resist expanding 'benefits', as well as bailing out and nationalising banks, insurance companies, car makers, airlines, airplane makers, and God-only-knows who else.
We believe, with some confidence, the deeper Uncle Sam dives into the economy, the worse the economy will perform. Since the leadership seems infected with some sort of intervention mania, we also anticipate that the lack of recovery will promote ever-larger bailout and 'recovery' schemes. These in turn will hurt the economy even more. We can't anticipate how long these destructive cycles will continue, but probably long enough to turn the USA into a dramatically poorer nation.
As the Depression grinds on, there will be considerable pressure from all sides to maintain and expand 'benefits'. These 'benefits' will have to come out of taxpayer pockets, one way or another. Since visible taxes will probably not be raised enough to cover the swollen 'benefit' roles, there will be some of that hidden tax coming down the pike - inflation.
Redistributing income, up to a point, may have some merits. But if the productive elements of society - most of whom are having a fairly rough time of it lately, too - are overburdened with increasing taxes, there will be further decline in economic activity.
As we have discussed repeatedly before, there is a range of government spending in an economy which is optimal, and spending below or above that range is destructive. At present, government spending at all levels (according to the helpful folks at usgovernmentspending.com) is a 45.2% share of the economy as a whole. This is up from a 37% share in the last fiscal year.
The rate of increase in the share is a whopping 22%! If the share were to increase at that rate for just another two years, the USA would end up two thirds of its economy (mis)managed by the State - a comparable level to Eastern Europe in the Soviet era. And probably with similar results.
Of course, the Nation's leaders are emphatically stating that since recovery is around the corner, there will be no need for further increases. We beg to disagree on the recovery part. Recovery is not around the corner. Whatever spin may be being put on 'the numbers' - they are in fact truly terrible.
In the face of Great Depression II, Mr. Obama's administration will not be able to resist expanding 'benefits', as well as bailing out and nationalising banks, insurance companies, car makers, airlines, airplane makers, and God-only-knows who else.
We believe, with some confidence, the deeper Uncle Sam dives into the economy, the worse the economy will perform. Since the leadership seems infected with some sort of intervention mania, we also anticipate that the lack of recovery will promote ever-larger bailout and 'recovery' schemes. These in turn will hurt the economy even more. We can't anticipate how long these destructive cycles will continue, but probably long enough to turn the USA into a dramatically poorer nation.
Thursday, June 4, 2009
The World's Biggest Board of Directors
Now that GM and Chrysler are de facto (and soon to be de jure) owned by the U.S. Government, the government in the person of the U.S. Senate is taking an interest in the operations of its automobile manufacturing operations. The Senate held hearings on Wednesday 'reviewing' the decision of the two companies to disenfranchise a number of dealerships.
This brings into plain view the inherent problem of government ownership of businesses competing in a private sphere. The government has no mechanism to guide business decisions. Politics is reactive, and that is no way to run a business.
Sound arguments may be put forward for the government operating commercial operations such as a postal service, but then it is set up as a part of the machinery of the state. It may be subject to some political pressures (the placement of post offices, distributions of contracts, and so forth) but this is merely the sort of cronyism one expects from any part of government bureaucracy.
The government could proactively set up a Motor Vehicle Manufacturing Authority and assemble a bureaucracy to run it. We don't advocate such a move but it would be preferable to the current situation: taking over corporations, telling the management that the government isn't going to be involved in the day-to-day affairs of the companies, and then proceeding to second-guess and meddle with management's decisions!
This brings into plain view the inherent problem of government ownership of businesses competing in a private sphere. The government has no mechanism to guide business decisions. Politics is reactive, and that is no way to run a business.
Sound arguments may be put forward for the government operating commercial operations such as a postal service, but then it is set up as a part of the machinery of the state. It may be subject to some political pressures (the placement of post offices, distributions of contracts, and so forth) but this is merely the sort of cronyism one expects from any part of government bureaucracy.
The government could proactively set up a Motor Vehicle Manufacturing Authority and assemble a bureaucracy to run it. We don't advocate such a move but it would be preferable to the current situation: taking over corporations, telling the management that the government isn't going to be involved in the day-to-day affairs of the companies, and then proceeding to second-guess and meddle with management's decisions!
Tuesday, June 2, 2009
This Week's Herbert Hoover Award
Today, we will give the Herbert Hoover Award to the individual most obviously lying through their teeth. Without further ado, onto this week's winner! Presenting (drum roll):
Recently in China, Secretary Geithner had the gall to inform the students of Peking University that he "believe[s] in a strong dollar," and that "Chinese [dollar-denominated] financial assets are very safe." Apparently the Secretary hasn't been informed that the term "strong dollar" is now a punch-line. Additionally, reviewing the excellent graphs of John William's Shadow Stats, we notice several disturbing things.
First is the value of the U.S. Dollar: it appears to be taking another little dip. We would like to draw your attention to the last high in the power of the Dollar, as it was in 2002 or so. The recent 'strength' of the U.S. Dollar only reached the purchasing power of 2006 Dollars... nothing to write home about.
Secondly, and this is the more damning graph, is the money supply; more precisely the M1 money supply (i.e. coin, paper money, and the deposits in chequeing accounts). As a general rule of thumb, increases in M1 usually correlate with inflation. So, if M1 is increasing at 16% or so, and the trend continues, one can reasonably expect inflation to be cooking along at a respectable 16% or so. We do hope the Chinese will do more than just laugh at the Treasury Secretary's bold-faced lie... perhaps they might use all their dollars to buy industrial and precious metals?
Congratulations, Mr. Secretary. Your trophy will be on your desk by Friday.
Runner-up in for the Award this week was Vice-President Joseph Biden, for stating the painfully obvious. "We know some of this money is going to be wasted," he said recently, referring to the Federal Government's bailout plan. Thank you, Mr. Vice-President, we already figured that one out.
As runner-up, Mr. Biden will receive a red origami crane.
U.S. Secretary of Treasury Timothy Geithner
Recently in China, Secretary Geithner had the gall to inform the students of Peking University that he "believe[s] in a strong dollar," and that "Chinese [dollar-denominated] financial assets are very safe." Apparently the Secretary hasn't been informed that the term "strong dollar" is now a punch-line. Additionally, reviewing the excellent graphs of John William's Shadow Stats, we notice several disturbing things.
First is the value of the U.S. Dollar: it appears to be taking another little dip. We would like to draw your attention to the last high in the power of the Dollar, as it was in 2002 or so. The recent 'strength' of the U.S. Dollar only reached the purchasing power of 2006 Dollars... nothing to write home about.
Secondly, and this is the more damning graph, is the money supply; more precisely the M1 money supply (i.e. coin, paper money, and the deposits in chequeing accounts). As a general rule of thumb, increases in M1 usually correlate with inflation. So, if M1 is increasing at 16% or so, and the trend continues, one can reasonably expect inflation to be cooking along at a respectable 16% or so. We do hope the Chinese will do more than just laugh at the Treasury Secretary's bold-faced lie... perhaps they might use all their dollars to buy industrial and precious metals?
Congratulations, Mr. Secretary. Your trophy will be on your desk by Friday.
***
Runner-up in for the Award this week was Vice-President Joseph Biden, for stating the painfully obvious. "We know some of this money is going to be wasted," he said recently, referring to the Federal Government's bailout plan. Thank you, Mr. Vice-President, we already figured that one out.
As runner-up, Mr. Biden will receive a red origami crane.
How overhoused is the USA?
The US Census bureau estimates for July 2007, approximately 128 million housing units. The average size is over 2000 square feet per unit. Together these combine to over 256 billion square feet or about 840 square feet per person. Were the US to have an Asian level of space use - about 300 square feet per person - the nation's housing stock could house about 850 million people, almost three times the current population!
Put another way, about 2/3 of the nation's housing stock is redundant. Even more directly put: becoming worthless!
But why should Americans be content with cramming themselves into Asian-sized houses? Because Americans are going to be enjoying Asian-sized incomes in the not too distant future, and even smaller incomes in the more distant future. It is presently a terrible waste of resources to maintain, or even just heat and cool the excess housing. The funds for that waste will be unavailable, and soon.
Which are the houses that will be abandonded? Generally three categories of building will be most likely to go: houses in metropolitan areas or rural counties with poor economic prospects and declining population; dilapitated, older housing or shoddily-made newer housing; houses away from city or town centers. When a building belongs to all three categories, it is a sure loser.
Ironically, at a time when large migrations are in order, many Americans will perceive themselves stuck in collapsing locales: unable to sell a house because it is worth less than the mortgage; unable to convert housing equity in the decling area to housing equity in a stable area because of the price differential. In such a circumstance it would be best to just walk away, but sentiment and inertia will sometimes prevent this.
If you want to avoid loss in the housing collapse, don't buy a house unless it is near a real town centre. Make sure it has a high Walk Score. If you already own a house that may not have much of a future, consider disinvesting yourself of it, pronto.
Put another way, about 2/3 of the nation's housing stock is redundant. Even more directly put: becoming worthless!
But why should Americans be content with cramming themselves into Asian-sized houses? Because Americans are going to be enjoying Asian-sized incomes in the not too distant future, and even smaller incomes in the more distant future. It is presently a terrible waste of resources to maintain, or even just heat and cool the excess housing. The funds for that waste will be unavailable, and soon.
Which are the houses that will be abandonded? Generally three categories of building will be most likely to go: houses in metropolitan areas or rural counties with poor economic prospects and declining population; dilapitated, older housing or shoddily-made newer housing; houses away from city or town centers. When a building belongs to all three categories, it is a sure loser.
Ironically, at a time when large migrations are in order, many Americans will perceive themselves stuck in collapsing locales: unable to sell a house because it is worth less than the mortgage; unable to convert housing equity in the decling area to housing equity in a stable area because of the price differential. In such a circumstance it would be best to just walk away, but sentiment and inertia will sometimes prevent this.
If you want to avoid loss in the housing collapse, don't buy a house unless it is near a real town centre. Make sure it has a high Walk Score. If you already own a house that may not have much of a future, consider disinvesting yourself of it, pronto.
Monday, June 1, 2009
GM: The Next Part of AmeriCar
With Chrysler firmly in the morass of bankruptcy restructuring, GMAC under the financial control of the U.S. Federal Government, and General Motors on course with its own bankruptcy court, we feel confident saying that the foundations of AmeriCar - our pet name for a Soviet-esque national car manufacturer - are almost complete. GM, according to the Obama Administration, will be 60% owned by the Federal Government, effectively making it a national auto-manufacturer. Please do not believe the Administration's promise to 'exit' the car business when GM is "bank on its feet;" that would shrink the size of the United States Government, and would run counter to the trend of increasingly large Government ever since President Andrew Jackson.
At the same time, the TARP programme will likely be made permanent, as expected; it will turn into a revolving loan facility for the Government, to nationalise - oh, pardon, "invest in" - various enterprises throughout the U.S. With various banks itching to pay back their TARP loans, the Government will have money to blow on other ventures. We suggest that Ford start watching its back: it's the last independent American auto-maker, which makes it the last major piece of AmeriCar. After Ford is nationalised, we posit that various car parts manufacturers and service providers will be next on the menu. The Obama Administration has already implied this, as it has put a Federal guarantee on all GM and Chrysler warranties... and one cannot fulfil a warranty without the expensive parts!
Eventually, we expect that GM, Chrysler, Ford, and a slew of parts manufacturers will be eventually consolidated into our concept of "AmeriCar." This will be an abomination of mis-managed, corrupt, resource-wasting 'manufacturing' not seen since the fall of the Soviet Union... and it will end just as badly. Simply put, the Obama Administration is betting the farm on a near-term recovery in the U.S. and world economies. There are problems with this attitude.
The Administration pinning its hopes, reputation, and trillions of dollars on a quick end to this 'recession' is asking for disaster. The Government seems to be unaware that this economic calamity is something altogether more potent. Nevertheless, we wouldn't be surprised if the Administration indeed orders its pet car manufacturer(s) to produce around 10 million cars a year, but we would like to ask the President from whence he thinks the citizenry will have the money to buy these spiffy new vehicles.
Because this Depression is destroying the citizenry's ability to produce income, the last things they will want to do is spend their dwindling resources on additional un-needed automobiles. If anything, people will: keep their cars longer; own fewer cars (say, one); share cars, either informally or through farsighted corporations like ZipCar; or, totally discard automobiles altogether and use public transportation, bicycles, or their own two legs.
We can't think of any reason why AmeriCar should outlast the Obama Administration; it just doesn't seem feasible to keep up such extraordinary waste on such a colossal scale, but it will probably happen anyway. In all honesty, we are putting the AmeriCar fiasco as one of an increasing number for which President Barack Obama will leave office in disgrace... as well as lay the foundation for a new Franklin Roosevelt to seize the presidency.
P.S. To the Government: in order to have a successful car maker, reference Tesla Motors. Their $100,000+ Roadster has a fifteen-month waiting list.
At the same time, the TARP programme will likely be made permanent, as expected; it will turn into a revolving loan facility for the Government, to nationalise - oh, pardon, "invest in" - various enterprises throughout the U.S. With various banks itching to pay back their TARP loans, the Government will have money to blow on other ventures. We suggest that Ford start watching its back: it's the last independent American auto-maker, which makes it the last major piece of AmeriCar. After Ford is nationalised, we posit that various car parts manufacturers and service providers will be next on the menu. The Obama Administration has already implied this, as it has put a Federal guarantee on all GM and Chrysler warranties... and one cannot fulfil a warranty without the expensive parts!
Eventually, we expect that GM, Chrysler, Ford, and a slew of parts manufacturers will be eventually consolidated into our concept of "AmeriCar." This will be an abomination of mis-managed, corrupt, resource-wasting 'manufacturing' not seen since the fall of the Soviet Union... and it will end just as badly. Simply put, the Obama Administration is betting the farm on a near-term recovery in the U.S. and world economies. There are problems with this attitude.
The Administration pinning its hopes, reputation, and trillions of dollars on a quick end to this 'recession' is asking for disaster. The Government seems to be unaware that this economic calamity is something altogether more potent. Nevertheless, we wouldn't be surprised if the Administration indeed orders its pet car manufacturer(s) to produce around 10 million cars a year, but we would like to ask the President from whence he thinks the citizenry will have the money to buy these spiffy new vehicles.
Because this Depression is destroying the citizenry's ability to produce income, the last things they will want to do is spend their dwindling resources on additional un-needed automobiles. If anything, people will: keep their cars longer; own fewer cars (say, one); share cars, either informally or through farsighted corporations like ZipCar; or, totally discard automobiles altogether and use public transportation, bicycles, or their own two legs.
We can't think of any reason why AmeriCar should outlast the Obama Administration; it just doesn't seem feasible to keep up such extraordinary waste on such a colossal scale, but it will probably happen anyway. In all honesty, we are putting the AmeriCar fiasco as one of an increasing number for which President Barack Obama will leave office in disgrace... as well as lay the foundation for a new Franklin Roosevelt to seize the presidency.
P.S. To the Government: in order to have a successful car maker, reference Tesla Motors. Their $100,000+ Roadster has a fifteen-month waiting list.
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