Fiddling While Rome Burns

The expression "fiddling while Rome burns" may not be historically accurate, but the meaning of the expression, which is "to occupy oneself with unimportant matters and neglect priorities during a crisis," is an appropriate way to describe the leadership of President Obama when it comes to the budget crisis.

Back on Feb. 12th President Obama sent his $3.7 trillion fiscal 2012 budget plan to Congress.  Since the President's State of the Union speech announcing his intention to freeze spending at this unsustainable level there has been a fire burning in congress.  Yet the the President's leadership has been absent. Obama is seriously risking that growing possibility that a government shutdown will be the defining moment for his presidency.

It's been said, "For now, Obama is content to let lawmakers snipe at each other, with a little more than a week before the March 4 shutdown deadline."  Does he think that congress, a dysfunctional partisan body that is as divided as ever can reach a decision on the most contentious and enormous political challenge in a generation without leadership?

The parties are not negotiating! They are arguing over $60 billion out of a $3.7 trillion budget!    They have drawn battle lines and Washington can't agree on cutting even 2% of the budget! Time is on the side of the Republicans and the Tea Party since if a continuous spending resolution is not passed much of the Federal Government will automatically come to a screeching halt. 

As both parties in congress play a game of chicken, betting the other will blink first, the risk is rising. "Shutdown" is fast becoming the buzzword used by both parties in Washington, and those covering the situation. Each party believes Americans will blame the other for any shutdown. But I doubt most Americans have given much thought to the impact of either budget option (a shutdown or major cuts) on the Nation and the State's operations?  While Washington is "fiddling" the States are going up in flames!

I don't care how good a speaker Obama is, when the Feds and the States face the inevitable reality that they have to restructure labor agreements, health benefits, and retirement packages/pensions there is nothing the President can say that millions of Americans expecting those entitlements will want to hear!  Try to imagine angry protests and job actions across the nation backed by the likes of the Teamsters, AFL-CIO, Rail Unions, Teachers Unions, The TSA, Police Unions, Postal Workers, and dozens of others. According to a 2/24/11 Article in NPR, "In fact, he (Obama) has only made one comment on the union battles, and that was last week."

Obama is fiddling, so when the flames rise up we better hope the firemen don't go on strike!!

Other Related Stories:
Shutdown Is No Joke - NPR
What Would a Government Shutdown Look Like - PBS
Memories of 1995 Haunt GOP 
State Budget Crisis Looms Over Governor Meeting  
Opinion: Wisconsin Exposes Deeper State Budget Crisis
Will California Fall Into 'The Black Hole'?

Going To Get Ugly

The budget crisis, which up to this point has been merely a debate, is about to become full blown crisis.  By March 4th the federal government needs to pass a Continuing Resolution (CR) in order to fund continuing federal government operations for the rest of the 2011 fiscal year, while making the largest single discretionary spending cut in the history of the nation. If the CR is not enacted before the current funding measure’s deadline of March 4^th, Congress must pass another short-term funding resolution or else risk a government-wide shutdown.  


The current CR is making its way through congress and about to end up on the President's desk for signature contains some $100 billion in cuts and the President has already promised to veto it because it has cuts the President doesn't support.  But those cuts don't even begin to touch entitlements and the Pentagon budget!  There is simply NO WAY we can seriously deal with our national deficit and debt without doing so!   And, since the Federal government still lacks the will or wear-with-all to tackle the 1.5 trillion deficit, the stage is set for the next big standoff - the vote to raise the Debt Ceiling.


Federal debt could exceed the current limit by as early as April 2011. If Republicans don't raise the limit, they risk defaulting on the country's debt obligations, which would be disastrous for the economy.  By the same token, the Tea Party is digging in its heels and will use the threat of a filibuster to stop a bill to raise the Debt Ceiling as a means to get what it considers serious spending cuts. It's going to get ugly.

Because States must balance their budgets and because they lack a mechanism for buying their own debt, like Washington has through the Federal Reserve, the budget shortfalls have become a critical problem that have to be addressed. What's begun to happen at the State level in Wisconsin is the beginning of what will be going on across the country. In order to address their State budget shortfalls one State house after another is squaring off against those trying to protect their entitlements (pensions, medicare, social security, union contracts, collective bargaining, etc.).  It's going to get ugly.

It's going to get ugly as unions, pensioners, teachers, police, transportation workers, government employees, and other large groups of citizens have their livelihoods threatened.  It's going to get ugly as municipal bond holders discover that their believed to be secure investments are being devalued.  It's going to get ugly as property owners face the threat of large tax increases. It's going to get ugly when higher property taxes combined with accelerated property tax sales and foreclosures combined with fewer buyers force another leg down in housing prices.

As all these citizen groups protests mount in cities, towns, and state capitals across the nation it will seem like there is unrest everywhere which will create a very uneasy feeling. Some protesters are bound to take extreme actions and one crazy action will inspire another.  Events could easily spiral and protests could put an unmanageable strain on safety officers to control crowds and the disruption they cause to traffic and the regular function of government, transportation, and other services.  It's going to get ugly when workers protesting their cuts decide to walk out on their jobs. It's going to get ugly when the protesters are the same people responsible for handling the protests. It's going to get ugly when teacher walkouts close schools and parents who need to go to work have to deal with children who should be in school.

As the daily news coverage of the protests and government gridlock and other consequences brought on by the budget battles takes over the media there will be a growing feeling of uneasiness in our country and this will take a severe toll on consumer confidence. It's going to get ugly as the budget crisis begins to take its toll on consumer spending and in turn threatens the economic recovery.  It's going to get ugly when the stock market prices in this change in reality.  It's going to get ugly when a previously rising stock prices change their direction and declining prices start taking back the wealth effect that Bernanke and the Federal Reserve has tried so hard to bring about. It's going to get very ugly when markets and economies around the world recognize that what is going on in America is a threat to world's economy!  It's going to get very ugly when sovereign debt problems, yet unresolved, become critical and unsustainable, and now the they have to factor in the USA's problems!

Related Articles:
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Hidden Debt Makes Government Insolvent
Bankruptcy Laws for States
Gov to Feds: Avoid causing states any more pain
Obama says government shutdown imperils economy
US Budget Gap is Top Worry of NABE Economists

Keeping It Real

WARNING:  This post is about stuff people don't talk about.  It contains scenes that could be offensive.

Mary and I haven't gotten out of the house together for 8 days. Mary's chemo regiment is high (strongest drugs and high dosage) and the effects are cumulative, so after round 4 a week ago last Thursday, we haven't been able to get out of the house together until yesterday.  Our first trip out was to the plastic surgeon to start planning for breast reconstruction.  It was exciting on a few levels.  One, just to get out together.  Two, the idea of moving to the forth phase of a five phase breast cancer experience. 

I figure there are five phases to cancer: 


Phase I - Holy shit, We have cancer:  The news of this disease hits you between the eyes.  It's a bombshell.  You're stunned and confused and scared.  You go from shock to what the f' do we do now!? Your mind races non-stop as you try to figure out and come to terms with your new reality. 
Phase II - The Battle:  Kill the cancer with chemotherapy. As of this post, that's the phase we're in. In this phase you have to mentally prepare yourself to fight for your life!  It's us against it!  You have to accept that it's gonna be tough. One of the things that gave me confidence that we could face this is that I know Mary is a strong and courageous warrior.  And, I was determined to stand by her side and help her fight the fight in any way I could.
Phase III - Amputation:  In a battle there are injuries.  We learned early on in the battle that we're going to lose the breast. 
Phase IV - Healing: Breast reconstruction is the first step in the process of getting back to normal.  At least a "new normal."  You're looking up and looking ahead and it feels so good!
Phase V - Live:  Live life with profound appreciation of how precious it is.  Live with the awareness that at any moment any one of us could have it all taken away.  Live life with the recognition of what matters and what doesn't matter. We're lucky that Mary's breast cancer is hormone positive because that gives us drug options to keep the cancer from coming back!

One of the important common denominators that is helping us get through it all is humor.  What's so funny about this?  You'd be surprised!  There's a lot of funny stuff!  Seeing yourself or your wife bald can be funny.  Wearing your wife's wig is funny.  Watching a man draw on your wife's breast is funny.  Heck, it looked like the surgeon drew eyes where here nipples are (there I said it).  I'm sitting there in a room with another guy, and my wife's breasts are staring at me.  Can't you see the funny in that?!  Mary and I will be laughing about that experience for years to come.

I realize that it's weird and awkward to talk about this stuff.  But it's real. Would you rather I talk about the economy? (Don't answer that.)  Shit, Mary's last blog post was about the awful constipation she's experiencing from the chemo.  Who talks about being constipated, let alone their wife's breast surgery?  WE DO!  We do because it's our life.  If we were traveling across Europe, we'd talk about that.  If we purchased a new pet we'd talk about that. But we're not doing that.  What we're doing is surviving cancer! 

There is as much to cry about as there is to laugh about in life.  Frankly, I think either reaction is applicable to the same situation.  I can cry about the doctors cutting away my wife's breasts and replacing them with a "facsimile" as he called it.  Either reaction, seeing the humor and/or seeing the sad is OK!!    

We are just trying to "keep it real."  Keeping it real is our way of keeping it honest.  It's our way of sharing our lives, which is also an invitation to our friends to share their lives with us!

The Mighty Dollar ... Really?

The USA $ is the worlds reserve currency. Where ever you travel, they'll take your USA dollars. And every country keeps USA dollars in reserve. When ever there is a crisis in the world, the term "flight to safety" is synonymous with the purchase of Treasury Bills. And while the dollar has weakened against the UK pound and the euro, we remain the worlds most trusted currency. But what if that were to change? What if a flight to safety were not to translate into Treasury Bill purchases? Or what if countries like China decided the "mighty dollar" wasn't so mighty after-all and started to reduce their holdings?

These questions are hardly improbable! To the contrary, there are economists around the world who are warning of this possibility. If it were not for the fact that there are huge problems with euro member countries finances too, the dollar would be even weaker against the euro than it already is! China which funds our debt, does so because American imports are critical to their factories. But as their massive population raises its level of consumption the need for USA imports will diminish and the potential desire to finance our debt may wain. The Chinese may be planning for this which may explain why that they've been staying much shorter in their T-bill terms they purchase (e.g. more 2 yr, 5 yr. and less 20 yr. and 30 yr.).

Rumors have been circulating for years about the collapse of the USA dollar and its replacement with a new currency that would join the USA and Canadian dollar and the Mexican peso. That seems unlikely to me, but the mighty dollar doesn't have to collapse altogether for us to have some very serious problems. All that has to happen is for the USA dollar to lose its luster.

If the world starts to favor other currencies and shy away from USA T-Bills. Rising T-Bill interest rates would push up interest rates and USA borrowing costs. In turn, our massive budget deficit and debt would be far more expensive to carry. This effect would compound the challenge of balancing our budget!

Put it all together and this is a possible sequence of events: Interest rates on T-Bills rise to attract their sale causing Federal debt costs to rise. The government is forced to dramatically raise taxes and cut even more spending. The combination of higher interest rates and higher taxes and large fiscal spending cuts would represent an enormous drag on GDP. As the economy slips so would tax revenues. At that point we've created a terrible negative spiral! Add in the expectant massive stock market reaction. Add in the likelihood that consumer and business spending would cease up. Add it all up and we have an economic disaster! But this disaster would make the last "financial crisis" and recession look like the preview to the real show, a depression!

Far fetched? Not really. It could literally begin overnight. All it would take is for the collective concern that already exists over the way the USA is dealing with its deficit, to morph into collective fear over our ability to deal with our debt. Fear often turns into panic. Panic turns into over-reaction. Over-reaction results in a sell-off. If that happens, then we're off to races!

There is an alternative scenario. A much more positive one, thank goodness. But I'll save that for another time.

NOTE: Since publishing this post I find it interesting that this last week in February, despite world tensions that rippled through the world and USA stock market, there was not the classic strengthening in the US Dollar that we typically see. 

Related articles:
Three Investing Gurus See Dark Days Ahead for the Dollar
Traders 'Short' Dollars As Currency Loses Attraction
Debt Facts
The Dollar: Safe haven no more 
Truth-0-Meter:  USA Debt Compared to Other Countries

Stimulus In Reverse

We are about to face an important test! Can the economic recovery, which is undeniably underway, withstand the reverse of stimulus that not long ago rescued us from the financial crisis. Here's what I mean by Stimulus In Reverse:

• Rising Interest Rates
• Giant Fiscal Cuts (Federal and State)
• Less Monetary Easing
• Expiring Tax Breaks and Increasing Tax Rates
• Increased Fees, Fines, and Every Other Tax Substitute
  
• Diminished Government Support for Home Ownership
• Opening the Mortgage Foreclosure Floodgates
• A Challenging Municipal Borrowing Market
• Reduction of Long term Unemployment Benefits
• Tightening in China
• Worldwide Fiscal Austerity

During the crisis from Fall 2008 - Winter 2010, these monetary & fiscal forces provided a tailwind for the recovery. But now we're entering a phase of policy changes that are turning off the stimulus faucet and efforts to balance budgets. The populous opinion is that the spending is unsustainable. Since the 2010 election, the pendulum is swinging back over to austerity.

The question is whether or not we maintain the positive momentum in the economy, or if we'll slip back to negative growth. I don't think anyone really has the answer. Personally, I think it could go either way. A lot will depend on something called "animal spirits." In other words, consumer and business confidence will be the driver.

If the mood turns sour and consumers hunker down once again, the recent wealth creation in the stock market would suffer a big reduction, growth would dip and unemployment would rise.

In some respects the economy is more vulnerable now that it was in 2008. At that time the Federal government was allowed much more freedom to step in than it would have today. Fed Chair Bernanke and Treasury Secretary Geitner have warned us numerous times of the danger of withdrawing stimulus to fast. But they've also warned us that we're on a collision course if we don't get our fiscal house in order. You might say we're dammed if we do and we're dammed if we don't cut government debt and deficits.

Surely, there is a balancing act going on. If we lean to much over to the fiscal conservatism side we will pull the rug out from under the recovery; on the other hand, if we don't rein in out-of-control government deficit spending we'll face a crisis in the debt markets.

Unfortunately, there is no magic formula that we can use to get the mix of of cuts and stimulus just right. We'll know whether or not if we got it right when the markets and the data tell us. But if the leadership does get it wrong, the big question will be, "What can they do to fix it?"

Obama's 2011-12 budget kicks off a debate that will ultimately prove to be a test if the economy can withstand Stimulus in Reverse.

Related articles:
Goldman Sees Danger in US Budget Cuts
GDP: Economy slows on cuts from state and local government

Regret < Acceptance > Fear

One of the most amazing qualities of my wife Mary is how she is coping with her cancer. She's never complained, but she could. She's never expressed fear, but she could. She's felt lousy, but she just lays down. The road ahead is hard and scary, but she's never brought it up. How would I describe her state of mind?

Many of us focus on two things - things we wish were different and/or things we worry about happening. It could be people that have let us down in the past or we are afraid will in the future, or a situation that didn't go the way we wanted it to or we're afraid won't in the future. Stuff from the past - call that regret. Stuff in the future - call that fear.

Regret and fear have been called thieves. They rob our spirit and steal possibilities.

Mary has the wonderful ability to stay centered in a state-of-mind that I'll call acceptance. Mary accepts a lot of things that she knows she can not change. She accepts me. Thank you Mary!! She accepts our children. And they love her for it. She accepts her past, and her future. How wonderful and amazing that is!!

A Giant Flush - It's About Time!

The worst recession since the 1930s has caused the steepest decline in state tax receipts on record. As States start to work on their 2012 budget this July, they face cumulative budget shortfalls from the economic crisis and recession from 2009 to 2012 that are projected to total $556 Billion! (Again, this is the States' shortfall, NOT the Federal deficit! And, it doesn't include the States' unfunded pension obligations)

Businesses responded early in the recession, cutting labor and other expenses, preserving their cash, and taking other steps to gird themselves for hard times. States failed to respond when they should have to the recession. Conversely, with the Federal government on a spending spree that bailed out States with money for medicaid, unemployment benefits, and money to retain workers, States borrowed more and drew down reserves and failed to make hard budget decisions and to confront unions.

The public sector recovery lags behind the private sector, so while the economy is on the rebound, public sector fiscal woes are reaching the breaking point. It was written in a Feb. 2011 article from the Center on Budget and Policy Priorities, "Unemployment remains above 9 percent, and many economists expect it to remain at high levels throughout 2011 and beyond. Continued sluggish job growth will keep state income tax receipts at low levels and increase demand for Medicaid and other essential services that states provide. High unemployment and economic uncertainty, combined with households’ diminished wealth due to fallen property values, will continue to depress consumption; thus, sales tax receipts also will remain low. These factors suggest that state budget gaps will continue to be significantly larger than in the last recession, and last longer."

Projected shortfalls for 2012 alone represent nearly a 20% gap. And this estimate was prepared BEFORE the GOP recently announced proposed cuts of nearly 20% in non-defense Federal spending which will no-doubt impact State's funding!! The States have blown through their reserves already and their costs for services and safety net programs have gone up due to the recession and high unemployment! So the trillion dollar question is HOW ARE STATES GOING TO MAKE UP THE DIFFERENCE?!

While I don't have data, it is a logical assumption that fiscal problems at the Federal and State level are effecting County, City, Town, and Village operations AS WELL AS schools across the Country as well. As the States make their cuts we can certainly expect it to effect local services and education funding. And with record snow falls this year you know the clean-up costs are way above what was originally budgeted when 2011 budgets were done. HOW IS YOUR STATE, COUNTY, CITY, TOWN, VILLAGE, AND SCHOOL DISTRICT GOING TO MAKE UP THE DIFFERENCE?!

It's not quite budget season for States and municipalities. July is when most of State budgets take effect for the next fiscal year. So States are only beginning to gather their data in order to work up their budgets. But you can be sure there will be some desperate moves when those planning meetings come round.

Ordinarily government and school districts, with their tax powers, just raise revenue (taxes) to keep on spending. While they will be forced to look for additional revenue, there's no way Government can or will close the gap with taxes. Neither the economy or the politics will tolerate that approach. Government has to focus on the spending side! So it's a given that nearly every State program, every operating line item, and every government funded job will be under scrutiny. IT'S ABOUT TIME!

Government has no choice - it has to scrutinize and cut anything and everything! And this has to include the obligations they've got to pensions and prior labor contracts, even if it takes changes to the laws to allow States to file bankruptcy. Excesses in municipal and government related retirement compensation and benefits need to be adjusted to fairly share the pain of the past excesses in spending! IT'S ABOUT TIME!

The cuts in spending that need to be enacted at every level of government will be like a giant flush sending waste down the drain. If America plays this recession right we may just get find ourselves with a far more efficient Government that will serve us better for years to come.

As we enter the next wave of prosperity and the tax revenues pick up again Government can start to do something that households and businesses have been doing for the last 12-24 months - using savings to start paying down our debt! Wow, imagine that. IT'S ABOUT TIME!

Ripping Off America

There's too much talk about China's currency manipulation. What should really have American's up in arms is the theft of our Intellectual Property!

I think it is fair to say that every country tries to manage it's currency's relative value. China appears to have found way to do it better than others. Can't say I blame them. By pegging their renminbi (a.k.a. yuan) to the USA dollar for years they helped their exports by holding down the cost of their goods & services. As the USA devalues its currency the Chinese trail right along. Yet, charges of all out "manipulation" have been dispelled as recently as this month in a report released by the U.S Treasury Department which said, ”Based on the resumption of exchange rate flexibility last June and the acceleration of the pace of real bilateral appreciation over the past few months,” China’s behavior did not qualify under the official definition of manipulation, according to the Treasury's semiannual report to the Congress on International Economic and Exchange Rate Policies.

China's questionable currency practices hurt their own standard of living while making their goods & services more affordable for Americans. Walmart is just one, but one huge example of how low cost products save American households money every day! I know the argument against China's currency practices is that they are steeling manufacturing jobs from the USA, but who really wants a job paying $150.00 a month. To stay competitive an American worker would have to take a cut in pay they just can't afford to take. I say let them have that job! America is better off "trading" it for the savings we've enjoyed in the cost of products! And, that worker who lost that job has to find a new way in a new economy. (That's a whole other subject that I can't squeeze into this post!)

Don't fool ourselves America -- we've realized major benefits by letting China become the world's low priced manufacturer! China, and other countries offering low cost manufacturing, have helped hold down world inflation while letting Americans, Europeans, and others enjoy a higher standard of living. But it's not just US households that benefit! USA businesses benefit too. The savings that USA business enjoy from low cost production in China mean greater profits. Profits that those US businesses can invest in higher paying USA jobs, R&D, marketing, customer service, acquisitions, capital investment, or just pass through to their shareholders through dividends and higher stock values.

China has begun to see how keeping their currency low has both helped them AND hurt them. And they are realizing that they have relied too much on foreign consumption. They have been letting their currency climb and we can expect to by many people's predictions there will be a massive increase in consumption from the Chinese people who have one of the largest and fastest growing middle classes on the planet! USA exports to China are growing rapidly and have much more to go!! It's widely reported that China represents one of the biggest growth opportunities to USA businesses. Frankly, this is also the big threat to the USA cost of living as their consumption and rising currency pack a one-two inflation punch!

But I've called this article "Ripping Off America" and thus far it should be apparent that I do NOT believe that they're currency practices are how they're doing it. It is their Intellectual theft that should have our attention and anger every American, including Union Card holders and the unemployed!

America is getting ripped off! The Chinese government virtually ignores, and may even participate in the theft of our copyrights, R&D, ideas, processes, formulas, and anything they can get away with. USA scientists, engineers, inventors, writers, artists and designers create great value that is copied, reverse engineered and outright stolen by China. In doing so they not only rob America of its investment, they also steal the future spoils that would have come from that investment. China deprives the rightful owners of their rewards! I believe that theft of intellectual property by China has cost, and continues to cost, the USA more wealth and jobs than their so called currency manipulation and manufacturing competitiveness!

Fortunately, many of the greatest assets that America has are hard to steal! Inspired American entrepreneurs, marketers, and businesses have created brand names & products like KFC, Pepsi/Coke, Ford, Kellogg, Tide, Levi, Walmart, Harley & Davidson, Ben & Jerry's, Bowing, FaceBook, YouTube, Windows, GE, IBM, HP, Cisco, Bayer, Glad, McDonalds, Dunkin Donuts, Star Wars, Bloomberg, GoldMan Sachs, JP Morgan, Apple, Colt, Nike, Black & Decker, Orek, and hundreds of others that are successful in part because they are "As American as Apple Pie." The Chinese people may be able to produce an individual who is willing or must work for $1.50 an hour, but they can't produce American culture! And it's the American culture that continues to innovate and create "the next big thing."

In conclusion, America would benefit much more as a Nation if we put greater emphasis on protecting our intellectual property than worrying about China's currency practices!!

The Financial Disaster That Never Happened ... Dream On!

In 2008 a crisis a financial crisis began that lasted through 2009 and arguably into 2010. The President, Congress, the Treasury, and especially the Federal Reserve all worked together to stem the crisis. Together they took historic actions including TARP 1 and 2, TARF, passed various tax incentives, extended unemployment benefits numerous times, bailed out Chrysler, GM, the Freddie Mac and Fannie Mae, and major financial institutions, while pumping trillions into the economy by increasing the Federal Reserve's balance sheet through Treasury Bill purchases, lowered borrowing costs, and more. Most agree these actions stopped what would have been a collapse of the financial system and an all-out depression. In effect the crisis never became a disaster. The economy didn't go over the cliff.

Things look good now. Unemployment appears to be coming down. Corporations are reporting record profits and talking about hiring again. Consumer and business confidence is way up. Manufacturing is starting to grow. GDP growth is back and accelerating. The stock market is recovering and helping regain wealth. So while the real estate market is still in a depression, the broad economy seems like it's out of the woods. You think?

I believe we're on the cusp of a huge economic expansion, right after we solve one problem! The opportunities for economic growth around the world and in the USA are enormous. And, while a lot of people doubt America's ability to "make things" and create jobs, I believe there are tremendous reasons to believe in the good ole USA!! But there's just one problem, and I'm afraid it's a real big problem. A problem so gi-enormousness that it can derail the economic train before it gets up enough steam (momentum and mass) to take us to 5.5% unemployment.

As I said, the financial crisis was diverted before it became a disaster. But the problem is that the crisis was diverted from the "private sector" to the "public sector." While the private sector can feel pretty good about how things are going, the public sector is about to collapse. The problems from the private sector were swept under the rug of the public sector and now they are resurfacing. Only this time there is not another rug to sweep them under again!! Let's see what you think we'll do about it. Take a stab at my little multiple choice question:

Who's going to bail out the Federal Government and the States and Medicaid and Social Security and all the Pension Funds and all the agencies and entities that would not survive if not for their public funding?

a) Tax Payers - with MUCH higher taxes

b) Treasury - China keeps buying our added debt

c) Federal Reserve - with their printing presses

d) Drastic Cuts - massive reduction in government, programs, school budgets, safety & security, regulators, services, health care, defense, etc.

e) All the above

f) Other - dream on

The answer has to be "e) All the above." Problem solved, right? Wrong! The correct answer is "f) Other - dream on." Why do I say the right answer is wrong? Here's why in the same order:

a) Tax Payers - won't stand for MUCH higher taxes

b) Treasury - the world's sovereign debt markets and rating agencies would rein in our ability to borrow that much

c) Federal Reserve - markets and inflation would go nuts if the Federal Reserve (a.k.a. "Helicopter Ben") tried to print the amount needed to bail out everything that needs to be bailed out

d) Drastic Cuts - really? Do you really believe congress has the will to do what they've proven they can't do

e) All of the above - it ain't going to happen

f) Other - dream on!!!

So we continue to live in a dream world; the dream that things can keep going the way they are and that the big problems will somehow go away on their own. We're also dreaming if we think the economy can stay on its present positive course while the public sector comes apart at the seams.

Feb. 2011

The Reckoning is Coming

(Read earlier post on "The Crisis Isn't Over" for initial context.)

If you think the "reckoning" that I wrote about before can't happen, look at Egypt. What's happening goes to show of how fast the "unthinkable" can take place. Underlying fiscal problems can take center-stage rapidly and markets can react dramatically and extremely fast ca...tapulting the issue to crisis proportions practically overnight.

All that's needed is a catalyst. Surely these records snow storms are putting extraordinary pressure on government's budgets. I'm sure many municipalities are blowing through their annual budgets for snow removal. Spring cleanup from storm damage and equipment repairs is only going to add to their problems. And there's still a over a month to go.

Fiscal problems deepen and while hope springs eternal, this springs snow-melt will reveal more problems than flowers. April's tax day will reveal what governments can expect in revenue from 2010 filings. If I had to guess it's going to deliver some shocking news. While the economy is certainly picking up and revenues and income for 2011 look promising for stocks markets, that won't help governments when it comes to tax revenues from 2010 filings. To the contrary - the things that governments did to stimulate the economy the last couple years are going to cost them when it comes to 2010 tax revenues that fund 2011 budgets. Tax breaks, credits, loss carry forwards, borrowing, and other things that take are going to take a big bite out of 2010 tax revenue filings and governments operating budgets are going to hit hard right at a time when government finances can least afford it.

Where will governments turn? The big catch-22: The need for giant tax increases and massive budget cuts versus the impact on a young recovery. Tea party activists are keeping a watchful eye, and so are municipal bond market analysts. Union leaders and retirees on government pensions that are underfunded have a lot to protect. Lot's of interests at stake! I'm betting on the average citizen - "they're fed up and not going to take it anymore," so I don't think governments are going to be able pass the burden over in the form of higher taxes without causing a massive revolt from the electorate just as the politics starts to heat up for the 2012 elections.

Somethings gotta give. It's a case of the proverbial "camel's back." Hmmm, maybe there is something to this "Mayan calendar" thing??

Feb. 2011


Related articles:
Federal Shutdown Looming
Debt Ceiling: Postponing hike comes at a cost
Bulls & Bears Agree: Muni default risk greater than ever

The Crisis Is NOT Over - There Is a Reckoning to Come!

Earlier this month I posted a note called "Market Nerves." This is more on the same topic ...

I'm convinced. It's not "if" but "when and how" we face the next leg of the economic crisis that kicked off in 2007-8. While we've turned the corner we're not out of the woods yet. Certainly, it's been positive that corporate profits have pushed the stock market higher and given back some of the wealth that was lost. And, since that story has dominated the news it's also had a positive effect on consumer confidence leading to more consumption and the kind of self-sustaining dynamic that economists like to see.

But while some situations have undoubtedly improved, another important situation has gotten much worse and is about to become acute. Throughout the state budgets, country pension, and labor contract obligations are unsustainable. The tricks and means for covering up the problems have run out. The following link explains how severe state budget shortfalls are - http://www.cbpp.org/cms/index.cfm?fa=view&id=711

On the one side is the tax payer, tapped out and fed up. On the other side is the recipient with a binding contractual promise that they will not willingly surrender. The stage is set for spectacular confrontation. A confrontation that will begin when the first one falls and then a series more do. It will play out like a giant dominoes drop as one-by-one and then branching out to numerous parallel events the collapse spreads across the country and ultimately the world.

My guess for what sets it off the wave is the vote to raise the Federal debt ceiling in March 2011. If that vote gets caught up in a lengthy debate or filibusterer and the Federal Government is forced to shut down because it can't spend the impact on some states in awful shape will force them or municipalities below them on the receiving end of funds that depend on the Federal government into bankruptcy. The same could happen just due to draconian cuts by the Federal Government to funding that States and Municipalities depend on as a result of Federal budget negotiations in order to satisfy demands of those, such as Rand Paul, who would otherwise hold up a passage of an increase in the Federal debt ceiling.

Like all contract disputes that the parties can not mutually resolve, this one will end up in the courts. In this case it would be bankruptcy court because the dispute is not over the obligation but the ability to pay it. But, it's just as likely to end up in the legislature to make new law. I can't imagine the President or both political parties will want to rely on bankruptcy courts across the country to restructure the country's pensions and labor contracts without some "prepackaging."

While villages, towns, and cities can file bankruptcy, states have no constitutional right to do so. That may change. An article in the NY Times, http://www.nytimes.com/2011/01/21/business/economy/21bankruptcy.html speaks to this. As dramatic cuts in the Federal Budget ripple out to states pressures on state budgets will worsen dramatically. Compounding the problem to the states is the end of combination of the end of TARP/TARF assistance to states, the end of funding from "Build America Bonds," and a lost tax revenues, and tax credits and deductions that were granted as part of incentives to stimulate the economy and which will effect revenues from filings in 2010 and 2011.

In the end, since taxpayers are tapped out and fed up there is no more on the revenue side so the pain will mostly have to be absorbed on the side of the recipients which would be the bond holders, labor unions and their membership, and pensioners. If GE's restructuring is any model that gives us an idea of what's to come, the biggest losers will be the bond holders. But, it really get's interesting and complicated since the bond holders are often the pension funds.

While this has to get ugly and cause a rather large stock market reaction, it's not all bad actually. Frankly, I'm disappointed it didn't happen already. It's about time there was a reckoning. Unions have been robbing this country for years, stealing wealth from all of us with their ridiculous compensation and benefit packages. They've perpetuated the wealth grab in the form of pensions that grant outrageous retirement compensation to privileged few Americans while the rest of us struggle to pay the taxes that support them. Labor's hypocrisy has no bounds as they drive jobs overseas with their demands and then complain about corporations moving those jobs offshore.

And so what it USA companies make more money doing so - you and I benefit with lower cost products that raise our standard of living and create wealth in developing countries who in turn represent one of the most promising aspects for growth in the USA economy! You know what happens when you get a leg up on labor? A healthy GM and Ford who are making better products than ever!! That's what happens when you cut the strangle hold that labor has on all of us in America!

One thing is for sure, the economic crisis ain't over yet. I say bring on the reckoning. Let's do what we have to do to get our fiscal house in order! Next stop - the Pentagon and tort reform!!

I just hope we don't get too hammered in the stock market. There's no reason to spoil that party!! Personally I think the stock market should celebrate when this happens, but I think the opposite reaction is more likely.

My Next Vehicle

I've been driving a Volvo S60-T5 going on 11 years and I love it, mostly. It has >150,000 miles and still runs great. Sure, there's some problems, all of which are related to electrical items, and some surfaces have worn a bit, but I still really enjoy the way it rides and looks. I pride myself of making my vehicle last and being satisfied with what I have instead of being unhappy because of what I don't have. But the time is coming for when I will finally put my ole baby out to pasture and get a new vehicle that will transport me for the next decade.

I've convinced that I could get another 100K or more from my trusty Volvo! It will be a great car for someone looking to spend about $3K. (A fantastic safe, sporty, and beautiful car for a brand new driver!) But, I've been waiting for several years for the 2012's come out to finally breakdown and buy a new car again. I figured that would be the year when new technology, safety, design, and manufacturers would finally produce the vehicles I've been waiting for a price I'm willing to pay. The 2011 are fantastic but I believe the 2012's are going to see it all come together - and that's when I'll get the car I will be happy to drive for the next ten years.

So I'm starting a list of what I want my car for when I go shopping in about 10 months. There's a ton of minimum requirements, that I expect nearly every vehicle will meet, which is why I am only going to list the more difficult specifications that will be the differentiators. I haven't decided which style/type of vehicle to buy yet, so some items vary based on that decision. Here's my requirements in no special order:

1. Minimum MPG - Luxury - 35, Sport - 32, Green - 50. But I may go all electric if range is 150+ and features/value is right.

2. Blue-tooth integrated phone with sync to my computer address book contacts

3. Navigation system AND computer with min. 50 gig hard drive for music, books, photos, voice memos

4. Ability to upload music, trip itinerary, and more from personal computer to my car and to check my car's service needs and history from my home computer including the ability to set a service appointment up on the computer without calling

5. Voice to text and text to voice for phone operation, email/text messaging,and voice mail

6. Superb voice recognition control of vehicle systems including climate control, cruise control, sound system, etc.

7. Great display features for all vehicle functions as well as a back-up camera

8. Safety and convenience features including key-less entry and push-button start, automatic Led high-low beam dipping, lane drift detection, blind spot and back-up sensors, traction control, etc.

9. Leather, trim, and good looks including awesome interior led lighting and better storage systems with more trunk and door compartments. Chilled drink holder would be nice.

10. Large sun/moon roof or maybe convertible.

11. All wheel drive with many extra ordinary road handling features

12. An area dealer with incredible reputation for giving superb service

13. Reasonably priced 100K bumper to bumper warranty on everything

14. 0-60 in under 6 sec with just as good breaking and a 5 star crash rating

15. Dual climate zones with heated and cooled or ventilated seats

16. Prefer to stay under $35K but won't go over $40K

17. ?

Jan. 2011

Just Be Honest FaceBook

As you know, Facebook is rolling out its new format for our personal profiles. Like it or not, it's happening. While the apparent intent is to make your profile more appealing and easy to use, make no mistake about it, the real intent is to increase the value of Facebook to its shareholders!

The redesign is all about encouraging users to add more specifics about themselves - interests, likes, even which tagged contacts in photos share your interests. That is so we will give Facebook information (data) that it can use to sell advertising. I'm not saying that's bad! In fact, I suppose if I had to say, I'd say that's good. After all, since we have to see ads on our Facebook pages anyway, they may as well be ads for things we're more likely to find of interest, right? Plus, Facebook's success is America's success! It's a USA company creating jobs and helping businesses that successfully advertise with them to grow and create jobs too. (Yes, I AM a proud capitalist.)

I think the only thing that bothers me about this change, is the disingenuous way that Facebook is hyping up all the benefits of the new profile yet intentionally stopping short of explaining how advertisers will be using the information WE post to target us with their ads, as well as how Facebook will be able to sell a ton (billions) in more advertising ads thanks to our willingness to personally hand over more personal information about ourselves than any other firm on the planet knows!

True, such a disclosure would have been more than other marketers make. But I think Facebook is an exceptional case to begin with. They could have easily added a short statement/disclaimer about advertising usage in the "tour" they posted on how the new profile works. And, if they offered this point openly to their users I believe they would have earned more trust and respect from their users.

Jan. 2011

Market Nerves

For about two years now I've been rather bullish about stocks, but I'm starting to get a bit nervous. While I still believe the long trade is where it's at, I am beginning to think we're about to get derailed by a train wreck in the bond market that could come from two places, Europe or USA State Budgets & Pensions.

Europe, and more specifically the Euro is a can that keeps getting kicked down the road, but eventually the Euro is going to run out of road. The PIIGS (Portugal, Ireland, Italy, Greece, and Spain), let's add the UK, have serious debt problems and so far the ECB and IMF have done more to postpone or mask dealing with the insolvency that exists. The structure and future of the Euro is called into question and so far there's no good answers. If the Euro currency unravels, and it could, it would be catastrophic for the world economy. But I'm growing more skeptical that neither the mechanisms or the political will exists to address the situation.

Back home in the good ole USA, many States are in awful fiscal shape. Rather than bailing out the States as they have done the last couple years, the Fed is likely to contribute to their problems. State financial woes will of course trickle down to counties, cities & towns, and schools. On the positive side, this could be the impetus for more spending cuts at all levels of government which is a good thing. Unfortunately, since so many obligations are structural, even contractual, the crisis is also likely to result in some nasty tax increases. The risk is that the situation could become disorganized (read panic) and dramatic (read crisis) rapidly.

So far markets seem willing to give the parties time to work these issues out. But I'm growing more concerned that one day this year, maybe sooner than later, that markets will turn on the problem in a big way. If this happens it's easy to see how the situation could get very big & ugly very fast!

Debt in Europe and the States is a tinder box waiting for a spark that could send bond markets and investors into a panic, which in term calls into question the solvency of governments, their currencies, and inter-related pensions and retirement obligations. And if there is a reckoning of this magnitude all bets are off for the stock market.

With so much fiat currency floating around gold, which has lost a bit of its glitter the last couple weeks, will be the asset Du Jour for sure. The question that matters for me is whether to move to cash and risk missing a rally, or stay invested and risk a large correction. Hmmm, greed or fear, which will it be? I took 5% off the table yesterday, only to miss gains on those stocks by the day's end. Greed or fear, greed or fear????

Check out the following CBS Video on the pension/debt problems that states have:

http://www.californiapensionreform.com/2010/12/cbs-60-minutes-shines-spotlight-on-the-states-budget-crisis/

Jan. 2011

The Human Network

I bought stock in CISCO not long ago for a few reasons. To begin with, they are too good at what they do and amazingly healthy financially for the stock to be so cheap. I also like their sector and the growth trends they play into. But this post is not about investing. It's about something much more significant than that.

CISCO's slogan is "We are the human network." Think about that concept -- and what am amazing time this is! Never before in the world have human beings been so connected. Through our connectedness "human capital," (ideas, opinions, hearts, minds, prayers, song, inspiration, and every other form of human energy) can move to virtually any settled place on the planet in literally seconds. What are the implications, positive as well as negative?!

Personally, I believe we are experiencing another "Age of Man" an extraordinary period for human culture no less significant than the Golden Age. But what is culture? For that explanation I am going to borrow the following two paragraphs from Wikipedia, one of the recent examples of the cultural explosion I speak of:

When the concept first emerged in eighteenth- and nineteenth-century Europe, it connoted a process of cultivation or improvement, as in agriculture or horticulture. In the nineteenth century, it came to refer first to the betterment or refinement of the individual, especially through education, and then to the fulfillment of national aspirations or ideals. In the mid-nineteenth century, some scientists used the term "culture" to refer to a universal human capacity. For the German nonpositivist sociologist, Georg Simmel, culture referred to "the cultivation of individuals through the agency of external forms which have been objectified in the course of history".[3]

In the twentieth century, "culture" emerged as a concept central to anthropology, encompassing all human phenomena that are not purely results of human genetics. Specifically, the term "culture" in American anthropology had two meanings: (1) the evolved human capacity to classify and represent experiences with symbols, and to act imaginatively and creatively; and (2) the distinct ways that people living in different parts of the world classified and represented their experiences, and acted creatively.

I believe civilization is experiencing a new dawn of sorts, as significant to mankind as science, medicine, democracy, and the industrial revolution. The human network, powered in part by CISCO, and also Intel, Facebook, and Google, Microsoft, Verizon, iPad, and others, is changing everything by connecting us and raising the performance of our communications, and access to one another and information. What does it mean?

It means innovations that will solve some of the worlds greatest problems such as energy, and cures to diseases. It means justice for some who would not have it. It means a handicapped person who would otherwise be trapped and lonely having a network of friends around the world. It means poor children in poor schools being able to take learning into their own hands so they can rise up and over the walls of poverty. It also means that my wife's experience with breast cancer can inspire others while providing her with the cathartic outlet the returns invaluable support. And it means that a nation, even a world of people can send their prayers to a young congress woman fighting for her life from gunshots in a Tuscon hospital bed.

Jan. 2011

Fixing Problems is Easy ... it's the Expectations that's the Hard Part!

(Tired of failed New Year's Resolutions? I offer the following thoughts. It’s real to me and I hope it helps other.)

Big problems often have easy solutions. For example, need to lose 30 lbs, just eat less and exercise more. Big credit card problems, just shop less, earn and save more. Simple cause & effect. So why is that we don’t fix our big problems?

The answer is because we don’t really understand the root of the problem and as a result we try to fix the cause before we see the connection to our expectations. Therefore, our efforts just lead to frustration and failure. For a more permanent result first examine your expectations.

From personal experience, I think the root of many of our biggest problems is our expectations. I’m not saying that a person who is constantly fighting with their spouse doesn’t have problems with their marriage nor am I saying that someone who is 30 lbs overweight doesn’t have a problem with what they eat and a lack of physical activity. Clearly our behaviors are the cause of problems. What I’m saying is that those problems can’t be permanently fixed by just changing behaviors without adjusting the expectations that lead to the causes of the problem in the first place.

One can take direct steps to solve the problem, for example starting a diet to lose weight, but if one doesn’t fix the underlying expectations that lead to the behavior, the problem will only resurface. So someone with a marital problem or a weight problem, or some other chronic problem in their life might find that the problem is more effectively resolved by altering their expectations. Here is why.

An expectation is somewhat like a goal, with its own mental gravitational pull. Goals are deemed powerful because of how they can be inserted into our subconscious, which works like our own personal agent on a mission to help us achieve our goal. If you’ve learned about goal setting then you know it requires strong and repetitive affirmations to imprint goals in our mind in order for goal setting to work. While I believe in the power of goal setting, I think expectations are possibly even more powerful. When you have an “expectation” it’s kind of like you have a mental hole in your life that has to be filled. A goal is a hope, whereas as an expectation is a belief. Beliefs make us who we are and control how we act.

The nice thing about goals is that we make (decide on) them. We choose whether or not to set a presumably positive goal. A classic example is a “New Year’s Resolution.” On the other hand, our expectations are more insidious – they are formed over time often without a conscious awareness of their harmful impact. So, while a goal can easily be changed, once an expectation is set it cannot be easily changed. Our goals can be ignored or we can just give up on them, and make new ones. Not so with expectations! It takes a lot to form an expectation and it takes nearly as much to remove them. Therefore, if an expectation leads to negative and undesirable problems it is extremely difficult to change.

Because expectations are generally formed over very many years, they are not ordinarily changed overnight. So while we can make a New Year’s Day resolution to change some behavior overnight, it just doesn’t work that way with expectations. It takes concentrated effort over a greater period of time to reshape our expectations. But it can be done!! And, there are people and tools to help us do so in less time! And, like a New Year’s resolution, one can certainly decide overnight to take the first steps towards doing so!!

Also, it’s difficult sometimes to make the connection between the problem expectation and the problem itself. The association isn’t always apparent since an expectation can surface in a wide range of possible problems.

In conclusion, if we have a big problem we may be able to fix it more easily if we start by examining our expectations and filling the holes in our lives! What are the holes in your life? Find those, fill those, and then you can fix your big problems. I’m getting my shovel!!

Meaning in a Paradox

Recently I posted to my FB status the following remark, "Daily paradox - Savoring every day and wishing I could fast forward a year. I am managing to reconcile the dissonance in my mind." My post drew a friend's curiosity. He wrote to me with the question, "OK, I'll bite, what are you looking forward to in a year." I replied, "One word - remission." The answer was a reference to my wife's cancer and the journey we're on in order for her to be in remission; the first step to a cure.

I find that there are many paradoxical aspects to the situation Mary and I find ourselves in. Here are some examples of what I mean:

• Mary is one of the healthiest people I knew - and now she is also one of the sickest
• Mary had very low risk factors for her disease, and did regular screenings - and yet her cancer was so fast growing that it managed to grow large in between her regular annual screening
• Mary has so much energy and life in her and she'll need to apply that to save herself
• The treatment for cancer is also deadly. It's a balancing act between trying to kill the cancer cells without also killing the patient.

I'm sure one can find themselves torn apart by these paradoxes and the conflicts that this dreadful disease presents. But that is a useless mental outcome. In order to reconcile the dissonance that opposing thoughts causes in the mind, I find I need to center myself on a positive balance. Here's what I mean.

Go back to my initial paradox posted on my Facebook Status today, 12/12. Daily paradox - Savoring every day and wishing I could fast forward a year. I said this because on the one hand, when you're life is threatened you appreciate it even more. And yet, I wish we could fast forward in time past the months of chemotherapy and surgery to the day when Mary is in remission and life is more normal. The desire to live in the moment while simultaneously looking to the future is a paradox - a statement that is seemingly contradictory and yet is true. Trying to live with this paradox is stressful. And I wanted to reconcile it in my mind. My conclusion on how to do so is three fold.

First, is the acceptance of paradoxes. That both opposites can be true! Or in this case, that I can both savor the moment and look forward to the future at the same time. It's possible to do both! And one feeling doesn't have to diminish the other.

Second, is the notion that one can find a positive middle. Here is what I mean, staying with the example above. In between savoring the moment and looking forward to a future that is different than the present is the concept of "being hopeful." It is positive to be here and now with a hopeful attitude about the future! I suppose you could say that finding a positive middle is like, to use a familiar expression, finding the silver lining.

This approach helps me to cope with the other paradoxes of Mary's cancer. It's helps me to find the meaning in the paradox, and in the process to take away something positive from an otherwise very stressful and negative situation.

And lastly is the third conclusion. That most of the time it is best to not think about it at all. Most of the time it's better just to find a distraction. Like hanging out with friends, or going horseback riding, or playing guitar, or watching football on a lazy Sunday afternoon. It's time to get back to that last one!!

World's Larget English Speaking Country is NOT the USA

What country has the largest English speaking in the world? INDIA!!

With all the talk about China in the media I believe there is a lack of appreciation for India's economy, democratic values, common concern over Muslim terrorism, and many of its cultural characteristics.

India has also never wavered in their commitment to democracy. And while suffering with vast poverty, it remains determined to be a knowledge-based society emphasizing learning, science, and technological advancement.

In an area of the world where the USA needs strong geo-political allies, India is an important counter balance and an ally against Islamic terrorism. Like Israel, India achieved independence from British colonial rule in the late 1940s. India recognized Israel in 1950, and since the fall of Russia, has been building strong ties with Israel. Both Israel and India are potential targets for first-use nuclear strikes by their adversaries”— in each case, an Islamic nuclear bomb. A nexus between India, Israel, and the USA creates a powerful economic and defense force. India’s President K. R. Narayanan proclaimed: “We in India hold in admiration the immense progress that the people of Israel have made in various fields….There exists enormous potential for enhancing the depth and content of our interaction…as well as in the sphere of defense cooperation.”

India is a great trading partner of the USA, nearly equal with China in imports from the USA, with unfathomable potential to lift the US economy. As a country with a population just a bit less than China, India's GDP per-capital is ridiculously low and has no where to go but up and with India's GDP growing approx. 9% a year it its compounding impact on world trade and world GDP is sizable to say the least.

Many multinational companies have high expectations for India. As example, Caterpillar made clear statements about their expectations for significant sales growth coming from developing nations and India in particular. Results are coming in with Ford's October 2010 sales in India increasing 161% from October 2009. IBM worldwide expects $35 billion of its $120 billion sales 2010 to come from India. According to IBM releases, IBM in India is not just a global delivery organization with vastly skilled & low cost manpower availability, it is also a big player in the domestic IT market. IBM India's domestic revenues are one of the highest growth areas in the entire IBM portfolio of geographies & businesses. Research and business giant GE's largest research location is in Bangalore India. GE President Immelt has set a 30 per cent growth target for GE India over the next five years - in effect, grow the India business to over $10 billion by 2015. Cisco's CEO John Chambers has predicted it would not surprise him to see India actually challenge China. What's more, Cisco sees a wave of Indian entrepreneurship that, together with tougher laws on intellectual property rights, will make the nation an attractive place to set up R&D and venture operations. Procter & Gamble CEO Bob McDonald has recently stated that a key part of P&G's growth strategy is to expand in parts of the world such as India. Kraft foods is clearly impressed by the India growth story which is part of the reason it recently snapped up Cadbury which has an entrenched brand position and a large distribution in network in emerging markets. Cadbury got 38% of its growth from emerging markets and is a strategically important acquisition for Kraft's plans to expand in India.

Infrastructure is key to growth in India where 70% of its population is rural areas that are difficult to access that lack even basic services. Burger giant McDonalds has less of a problem with sacred cows than it does with roads and bridges. Better infrastructure could more than double McDonald's growth rate in India according Vikram Bakshi, managing director of McDonald's operations in the north and east of India. Scott Price, president and CEO of Wal-Mart Asia said in April, "The government should take care of issues related to FDI, GST and providing infrastructure support. Wal-Mart will keep persisting because its efforts in India is critical to its global growth strategy."

But roads, utilities, and development are spreading in India. And businesses from the USA, and around the world will be there. India, like other emerging and developing nations, are staking a claim in the global economy and as they help themselves they are lifting world GDP.

Here's some interesting facts:

1. Current Population of India in 2010 is around 1,150,000,000 (1.15 billion) people. Currently, India is second largest country in the world after China in terms of population. By 2030, the population of India will be largest in the world estimated to be around 1.53 billion. There has been rapid increase in Indian population in the last 60 years. Population of India at the time of Independence was only 350 million. So Indian Population has increased more than three times.

2. India's workforce is approximately 470 million and the 2nd largest in the world.

3. India's GDP per capital is only about $3200, ranking it about 115th in the world. It has no where's to go but up!!

4. McKinsey & Company call India the 'bird of gold' and wrote this about the rise of India's consumer market. If India continues on its current high growth path, incomes will almost triple over the next two decades, and the country will climb from its position as the twelfth-largest consumer market today to become the world's fifth-largest consumer market by 2025.

5. The Indian economy has emerged from the credit and recession as one of the strongest growth-based economies in the world and is expected to bypass the United States by 2025. Fueling this anticipated 14% annual growth rate is rising public spending, an increased demand for automobiles and infrastructure and overall developing industrial production.

6. In contrast to China, the U.S. exports to India is growing rapidly and the balance of trade with India's fast-growing economy is roughly equal at $17 billion.

India is just one of the reasons the world economic bathtub is rising and India will produce a giant lift to the USA economy in the future!!

Nov. 2010

The Bottom Line is IOR

For shareholders the bottom line is their ROI, return on investment. But the bottom line on what's going to bring back jobs in this economy is IOR: Innovation + Obsolescence + Replacement. As innovation progresses the status quo becomes obsolete. Once that happens the desire for replacement kicks in, and that's when the economy is going to be "off to the races" and jobs (hiring) will be back!

The cycle is this simple: Innovation leads to new & better. New & better can be exploited by entrepreneurs and businesses to gain a competitive advantage against the old and obsolete. Investment in innovation leads to investment in business which leads to new jobs! IOR = Change. Change is to entrepreneurs like oxygen is to a flame And, entrepreneurship is the heart of capitalism!

Let me give you a couple examples:

- Your TV is fine...until there's a new "Google TV" that lets you watch Internet TV with interactive information and shopping features.

- Your phone is fine until you need a 4G Droid Smart-phone

- Your car is fine until you want new on-board technology and better fuel efficiency

- Your guitar is fine until there's a new feature that keeps it in tune better

- An 747 aircraft is fine until there's a revolutionary new 787

Americans are great innovators and IOR will switch into high gear here! But we don't have an exclusive on IOR in a global economy. But you know who really stinks at innovation and IOR? Unions and government! They are the "status quo" and we need them to replace the way they think and do business!! And if they don't - Americans need to replace them!!

Nov. 2010

Houston, We Need Ignition

Houston, we need ignition! I'm speaking to the Houston branch of the Dallas Federal Reserve, and the NY Fed and Mr. Ben Bernanke, Chair of the USA Federal Reserve.

Maybe you've heard that the amount of money "on reserve" at Federal Reserve Banks is at record levels. The increase in reserves is beyond dramatic - Just look at this chart from the Fed that illustrates the meteoric growth rate - http://research.stlouisfed.org/fred2/series/EXCRESNS

The system is awash with over a trillion dollars in reserve funds, compared to about $60 billion before the financial crisis. This is money that banks could, and should be loaning out!! But they haven't for various reasons (low loan demand, lending fear, etc.) But one of the reasons they aren't lending is that they are being paid NOT to lend it!

That's right, at a time when we need that money circulating and helping this economy grow and putting people back to work, the Federal Reserve is actually paying the banks interest to discourage them from lending it. How could that be?

Here's 1) How, 2) Why, and 3) What's about to change in my opinion.

1) How:

I bet very few people know that for the first time in history starting back in Oct. 2008 The Federal Reserve was given the authority to pay banks interest on their reserves. In other words the Fed was given the ability to do something it never did before - actually pays interest to banks on their reserves to discourage them from lending. I pasted the wording from the Federal Reserve circular issued October 6, 2008 explaining this. (BORING ... just skip past)

Board Announces Payment of Interest on Reserve Balances, Changes to TAF and Regulation W

October 6, 2008

Circular No. 11998

Interest on Reserves The Financial Services Regulatory Relief Act of 2006 originally authorized the Federal Reserve to begin paying interest on balances held by or on behalf of depository institutions beginning October 1, 2011. The recently enacted Emergency Economic Stabilization Act of 2008 accelerated the effective date to October 1, 2008.

Employing the accelerated authority, the Board has approved a rule to amend its Regulation D (Reserve Requirements of Depository Institutions) to direct the Federal Reserve Banks to pay interest on required reserve balances (that is, balances held to satisfy depository institutions’ reserve requirements) and on excess balances (balances held in excess of required reserve balances and clearing balances).

The interest rate paid on required reserve balances will be the average targeted federal funds rate established by the Federal Open Market Committee over each reserve maintenance period less 10 basis points. Paying interest on required reserve balances should essentially eliminate the opportunity cost of holding required reserves, promoting efficiency in the banking sector. 

2) Why:

It makes sense for the Federal Reserve to have the authority to pay interest on reserves. And, it's not a bad thing. Simply put it gives the Fed another tool to fight inflation. The Fed was concerned that with TARP (bailout #1) and TALF (bailout #2), and lower interest rates, inflation would heat up when the recovery took off. By paying banks interest on their reserves the Fed can draw money out of the economy. This provided the Fed with a way to discourage banks from lending their reserves by giving them an incentive, ala interest for just parking their money at the Fed at no risk and with little to no effort. (Making loans takes lots of effort and expense.) If the Fed feels inflation is heating up they can more rapidly draw down the money supply by combining this new tool with existing tools (e.g. Fed funds rates, reducing the Fed Balance sheet, etc). So it's actually a good thing that the Fed has this new option for inflation fighting. But now is not the time to be paying the banks interest on their reserves and that's what they've been doing since Oct. 2008!

3) What's about to change in my opinion:

Here's the most important point. It's an observation I made and shared in "Letters to the Editor" back in 2009. (None of which got published.) For quite a while, and until recently, the primary fear has been "inflation." Even though the economy is sluggish at best, and unemployment is stubbornly high, the leading opinion was that with the Federal Government spending money like drunk sailors (an unintended insult to sailors) and the Federal Reserve printing money

at record pace, the logic would suggest a high risk of inflation. And so the Fed has been paying banks a small, but meaningful interest on their reserves. But the attitude about inflation has shifted, and now the Fed's greater concern is deflation and high unemployment. We need higher growth rates of about 5-7% to bring down unemployment. So the Fed has really got to step on the gas to more than double the rate of growth from the current 2% rate. I liken it to trying to get a space ship into orbit -- you need much more fuel to reach escape velocity.

Houston, we have ignition ...

Here it comes!! QE2 AND if I'm right, a halt to the Fed paying interest on Reserves. I don't expect the Reserve Interest rate change to get much press. It didn't get much press when they passed the law to pay it in the first place either. I think the media believes it's too complicated to explain to "John Q. public." But I think you get it! And here's what you get ...

Can you say 15 year mortgage at 3.25%? Or 0-1% on auto loans (with the help of the manufacturers)? If you haven't refinanced or purchased the home you want - it's about to be the time! It's also going to be the time to buy a new car, renovate, do a new energy efficient furnace and A/C. It's going to be time to expand your business, and the banks will be calling us with attractive lines of credit.

Hopefully the US Economy "space ship" has enough fuel to escape from the funky gravitational grasp of the financial crisis that's been pulling us down for nearly three years. If not, and we crash back to earth it ain't going to be pretty!

Nov. 2010

About Birthday Wishes

Time has just handed me another birthday. Time is such paradox. Getting older is the hardest thing we must do and what we "wish" for. It's gives and takes at the same time. It heals and breaks down. We all measure time exactly the same way and yet our sense of it is relative. Time is perceived by what we use it for. The faster someone, or something, is going the more the smallest unit of measuring it matters. When it's (times) sweet we try to hold on to it, and when it's not we want to put it behind us. We look forward to then and try to remember when, yet the only real experiences happen now.

Birthdays are reminders. They remind me that life is a gift. They remind me of my loved ones and friends. They remind me to take stock and clean house. They remind me that I'm doing the hardest thing I must do, and to take time to do the things I "wish" for and appreciate the ones that I already have.

The Next Big Thing

People are wondering what's "the next big thing." The next big thing isn't "one thing" - it's going to be many things and it will be an economic boom that will be well underway by mid-year 2011. The Fed's QE2, and the quantitative easing by the ECB and UK are the final catalyst for a huge economic upswing.

Monetizing debt (printing money) is just one factor and alone it would not be sufficient to produce the boom. Despite concerns over inflation and that currency wars leading to protectionist behavior I believe the table is set for surprising growth. Rising demand will meet rising supply unlike any time in recent memory.

There are a combination of consumer and business factors and trends that will change the equation for our economy. You'll find forces on both the supply side and demand side at work in my list below of reasons for the boom:

• Extremely low short and long term interest rates will hold for the near term
• Enormous liquidity in bank reserves and corporations will be put to use
• Banks have to start lending and borrowing demand will return
• Corporate debt is being restructured at lower rates and the savings are going to EPS
• Low interest rates, greater access to capital markets, and business growth will lead to a surge in mergers & acquisitions and new public offerings
• Corporations have lowered expenses and are managed more efficiently than ever before so they are ready to handle the growth
• Corporations are taken advantage of technology to be more productive and will do more so in the future
• Inventories are not high so there isn't a lot of slack and demand will rising lead to a rapid increase in production
• The economic "agents of capitalism" (land, labor, and capital) are in rich supply:
  • Financiers and businesses will team to create highly attractive financing options for business and consumer purchases
  • Available productive capacity will allow manufacturers to ramp up quickly to meet new demand
  • Readily available labor is anxious to go to work
  • High vacancy in commercial real estate will meet the demand for physical expansion
• New materials technology, new production methods, new energy resources, and other innovations in distribution and supply chains all provide manufacturers with benefits that support production and allow manufacturers to offer new and highly attractive consumer products
• Greater transportation capacity and methods can move raw materials, parts, and products around the world and around town better than ever
• Communications technology is facilitating business processes and consumerism in significant ways
• Technology and other forces are going to finally shift the cost curve for health care. While the health industry will continue to grow the cost per person will decline. This will yield both social and economic benefits.
• Consumer balance sheets have been under repair for some time. Consumers have saved and brought down their debt. Their stocks have recovered somewhat and offer future optimism as stocks trend higher. It's true that real estate prices have not recovered but refinancing opportunities have lowered household carrying costs. For many others, with negative equity, the choice is to default on their mortgage but they have found they could live in their home for an extended period and just stop making their payments freeing up their income to pay off other debt. While they may be foreclosed on, eventually, they will own an equally nice home at a lower cost of ownership with a real chance to build equity!
• Rust and Obsolescence - The things we own are starting to wear out. We need home improvements, a new car, new clothes, a new fridge, and more. I call that the rust. It's combined with obsolescence. All the innovations in technology, great new designs, and new ideas for products and services have created great new choices for consumers. There are lots of reasons we all want to go shopping (e.g. iPads, 3D, Droids, faster wireless, greater mileage, new plastic surgery methods, solar panels, new medical treatments, Office 2010, and much much more).
• Social media and the power of the Internet have created a new marketing and cultural phenomenon - ideas and consumer interests can now "go viral" and around the world in no time. This exponentially increases the pace at which products & services can reach markets and stimulate demand, while lowering marketing costs to businesses.
• "Mobility" is contributing to the spread of information, ideas, access to markets, shopping, and other positive factors that contribute to consumer demand and benefit business
• A USA sub-culture of illegal immigrants will start to be mainstreamed into our economy. As they do they will start to earn higher wages, begin to pay taxes, and increase the positive contribution they make to our economy - this is no small force!
• Soldiers are going to be coming home and consuming
• Export driven economies, like China and India, will shift their export driven economic model to a greater emphasis on domestic consumption. A huge trade imbalance will start to shift back and favor the USA.
• Emerging countries in Latin America, Africa, the Middle East, and elsewhere are heating up and will start to be more than fringe contributors to world GDP. Countries such a Argentina and Cuba which were once practically blacklisted because of debt or political reasons will be welcomed back into the world economy and make meaningful contributions
• Capital is an ideology just like communism. Ideologies have been called a "virus of the mind." Communism is being replaced by capitalism as the predominant or popular way of thinking in countries that were once solidly communist. (Hopefully the mentally of Unions which have been a damper on growth can be beaten down as well. It is interesting see how market forces are challenging Union expectations in Europe and the UK. I'm guessing that Unions have a lot to lose and should be punished for their anti-business behavior that ultimately hurts their regions competitiveness, its economy, and their constituents standard of living in the process.)
• America has great stuff that the world wants!! From Google to FedEx to Cisco to Johnson & Johnson to WalMart and McDonalds and Coke/Pepsi and KFC and Nike and Levi Strauss and Xbox, from Ford to Boeing to Lockheed, from Nano-tech to Bio-tech to high-tech and materials-tech - America has got more than any other country to offer and markets around the world want it!! Our media and entertainment industries spread our culture around the world. And we're still the best innovators and marketers! Try to name 3 Chinese or India brands you purchased in the last year!
• Everything I described above provides a great environment for entrepreneurs to thrive.
• Everything I described above will contribute to new jobs, hiring and a reduction in unemployment
• When everything I described above starts to become apparent there will be a massive mood swing. If the economy could be said to have a mood that swings like a pendulum, it swung very low in 2009. Today, I place the pendulum swinging back over center through the first quarter of 2011 on it's way to very high again by 2012.
• Worldwide growth will create a surprising increase in tax revenues and start to shrink government deficits & debt in the USA and abroad

As all these consumer and business factors and trends gain momentum they feed on one another. This is an important dynamic! What we have is a snowball rolling down hill that will grow into the boom! New highs in the equity markets can't be far off!

Bob Ritter
Oct. 2010

The first.

This is my first post. Nothing particular to say. Just testing the keys and familiarizing myself with the format of Blog Spot. I figure this is the post where I should address the reason for blogging in the first place.

Why do a blog? Why not. It's something to do at night when I can't sleep. It's a place to vent. It's kind like talking to yourself - some might think you're crazy. Aren't we all a bit. I have no illusions: No expectations of a long list of followers and growing fan base. No ideas that this will lead to a new career.

I write to think. Writing is a great way to work out ideas. It helps me organize thoughts and come to conclusions. You might say that writing makes you a clearer thinker and helps with decisions. I could write just for myself, but what I like about 'blogging' is the pressure it puts on me to be more articulate. Knowing that someone else may be reading what you write provides a greater perspective and as an 'author' it seems to raise the bar if someone else is going to read it.

Keeping a blog also provides a means to look back and re-examine one's self. As time goes by and I distance myself from the moment when those thoughts were on my mind, I can evaluate my accuracy.

In the final analysis, I suppose I blog to become a better person. Therein is the irony. Whereas blogging is an outward expression that would seem to be a way to change others, it's really more about digging inward in order to change myself.