Nothing Makes Me More Angry

No other economic or geo-political issue gets me more angry than this topic!!  Every year China and Russia steal invaluable intellectual assets  (patents, formulas, processes, designs, trademarks, etc.) and private information from USA industry and government.

The result is the illegal transfer of vast wealth and jobs from our society to theirs.  Estimates range as high as $1 trillion dollars every year!!  And, this is not even counting the vast wealth that is lost in equity values to shareholders that would come from the increases sales and profits American firms would realize if China was properly compensating them for their intellectual property, or directly purchasing the goods & services they offer.  Imagine further the inroads into the vast Chinese marketplace that would be gained and the resulting benefits that would ensue as well.  Are you angry yet! 

There are great costs to USA taxpayers in other ways.  When China rips off defense technology which compromises our country's defense or that of our allies, we as taxpayers must fund advances to recover our readiness.  Each technological achievement can come at a hirer cost and brings greater complexity.  So we're hit to create the original technology, that China steals and applies for pennies on the dollar, and then the USA has to pay again to improve or substitute the technology because we've lost our advantage.  Are you angry now?!

For all the talk about China's currency manipulation you would thing that intellectual theft is not as big of an issue.  Not so says an article in the NY Times.  Plus, if we addressed the theft we would go a long way in addressing the under valued Yuan Renminbi because it would be in China's interests to have a stronger currency with which to purchase our intellectual property. 

Intellectual theft  is the single greatest threat to our our economy and our national security.  A recent counter intelligence report sheds light on this topic. It is relatively short and easy to understand analysis - click here for a link to this report.   It's time America got tough on foreign governments and industry that make it standard practice to steal from us and our allies.

We owe no diplomatic favors and allowing these countries to steal from us as a "cost of doing business" or to "maintain positive relations" is no longer acceptable.   Every USA business should be able to file a challenge to the intellectual integrity of ANY importer into the USA and if there is a valid suspicion that importer or firm should be required to prove legal chain of custody of the intellectual property that was used to create that product before it is allowed into the USA.  And if they fail to be able to establish genuine custody we should have enforceable reciprocal treaties with foreign allies that require them to reject those imports as well.

If you're as angry about this as I am then what do you think about this idea?   If you ask me, I would deduct every dollar the Chinese have stolen from USA companies from the foreign debt we owe them. If we did that we would probably eliminate our national trade and budget deficit.  And I believe it would be morally correct to do so!   It's time to square away with China and Russia - if they want our citizens ideas, technology, designs, and inventions they have to pay for them!  Stealing is an unacceptable economic development strategy and Chinese and Russian governments blatant endorsement for its practice must be intolerable!

To underscore how desperate China is for our innovations.  It is interesting that not one Nobel Prize for science has been granted to a Chinese citizen!  Considering the fact Chinese comprise 20% (one in five people) of the world's population this is starteling! Contrast this to an equally amazing set of statistics* below about Jewish contributors.

Jews currently make up approximately .002 (that is one fifth of one percent) of the world's population and only 2% of the US population.  Yet, 22% of all individual Nobel Prize recipients worldwide between 1901 and 2011, and constituting 36% of all US recipients during the same period, were of Jewish descent.

In the research fields of Chemistry, Economics, Physics, and Physiology/Medicine, the corresponding world and US percentages are 27% and 39%, respectively.  Among women laureates in the four research fields, the Jewish percentages (world and US) are 38% and 50%, respectively.  Of organizations awarded the Nobel Peace Prize, 25% were founded principally by Jews or by people of half-Jewish descent.

Breakdown by field: Chemistry (32 prize winners, 20% of world total, 29% of US total) Economics (28 prize winners, 41% of world total, 53% of US total) Literature (13 prize winners, 12% of world total, 27% of US total) Peace (9 prize winners, 9% of world total, 10% of US total) Physics (49 prize winners, 26% of world total, 37% of US total) Physiology or Medicine (54 prize winners, 27% of world total, 40% of US total)

See also data on "other Nobels": Jewish Recipients of the Kyoto Prize (25% of recipients) Jewish Recipients of the Wolf Foundation Prize (33% of recipients) Jewish Recipients of the US National Medal of Science (38% of recipients)

*Source for the statistics on Nobel Prizes is Copyright © 2002-2011 JINFO.ORG. 

Now consider this profound thought ... Do the Chinese have to steal because they are less intelligent and creative problem solvers and inventors, OR, they less creative problem solvers and inventors because they steal?  Maybe if the Chinese government fostered a society that encouraged and rewarded innovation by protecting intellectual property that would go a long way to stimulating more inventions by Chinese citizens.  Would the world be better off if 1/5th of the population stole the ideas from the others or if 1/5th contributed to the world of ideas?   Come on China ... get with the program!!!! 

Don't Lose Your Nerve Now Bernanke!

Fed Chairment Bernanke spoke yesterday at that Economic Club of Minneapolis.   In his speech he recapped the financial crisis that has gripped the economy going back to 2008.  While he did reinforce his belief that the recovery and end to the recession began back in June of 2009, he also disappointingly stated that "it is clear that the recovery from the crisis has been much less robust than we had hoped."  Most notably is his remark that "The pattern of sluggish economic growth was particularly evident in the first half of this year, with real gross domestic product (GDP) estimated to have increased at an annual rate of less than 1 percent, on average, in the first and second quarters."

Bernanke then proceeds in his speech to list various reasons for why the economy is so sluggish and explains the major headwinds that are apt to lead to even further slowness including fiscal drag and general uncertainty over Federal policy and taxes.  Then he goes on to dismiss inflation as any threat in the near term, and by the time he is 4/5ths through his speech he has completely cleared the way for the Federal Reserve to take greater actions in order to focus on the other of its two mandates, "full employment."  This is clear in the closing sentence of his speech, "The Federal Reserve will certainly do all that it can to help restore high rates of growth and employment in a context of price stability."

You know what I got from his speech?  A whole lot of nothing!  (Or, maybe something much worse!)  I didn't need a history or an economics lesson.  Or, are we supposed to feel more confident because Bernanke can outline the series of events and issues so succinctly?  If so, it didn't work for me at least and I don't think the market felt any sense of relief either.  Frankly, knowing how we got here is a lot different than knowing where we are heading or what to do next!!  Besides, the situation today is long past needing "Fed Speak" as way to address the many severe depressionary challenges the world faces!

Bernanke ... take a page from Christine Lagarde, the new Managing Director of the International Monetary Fund, who warned today that the global economy is entering a "dangerous new phase" and that "as time goes by, there's a danger of (the economy) getting worse rather than better." Lagarde is pretty straight about the fact that "The world is collectively suffering from a crisis of confidence, in the face of a deteriorating economic outlook and rising concerns about the health of sovereigns and banks."  It sure seems that Lagarde sees the need for "strong action and even refers to more action to support the recovery, including through unconventional measures."

I am beginning to sense fear in Bernanke of late.  There appears to be a reluctance to take real action and to lean impotently on the power of speech.  What's more, it is troubling to think that Bernanke's expressed surprise over the consumers' behavior are indicative of a Fed Chairmen who is confused and has lost self-confidence.  For heavens sake Ben, do NOT lose your nerve now!!!  This is NO TIME for you to be timid, let alone fearful of how your outspoken critics will respond to your decisions.  With Obama and all of congress locked in all out political battle, and practically unable to tie their shoes, we need the one person on the planet who can take meaningful, albeit controversial, actions to move the economy forward to do so. Be bold Ben Bernanke.  To quote a famous phrase used by the last man to face the challenge of a depression and a world war, "We have nothing to fear but fear itself!"

There is way too much inaction or negative action going on around the world when it comes to getting the USA and European economies on an upward trajectory!  We need bold moves by the monetary powers around the world while we still have an economy that can be stimulated!  And we need those actions put forth in a strong, confident, and collective voice!  NOW!!!

Tough To Say!

On so many levels it's tough to say where things are heading!  There is so much uncertainty:  Recession, 50/50; Super Committee's plan for deficit reduction and how will it be received, who knows; The presidential election, anyone's guess; What type of governments emerge in Egypt, Libya and will they be stabilizing?  What's next for Syria?  Is Iran after that?  Where does it all leave Israel and will they be forced to mitigate the nuclear threat from Iran?  How will we cope with climate change?  There's a thousand really tough questions and very few solid answers.  I can't remember a time in my life when there seemed to be so much uncertainty over so many substantial issues worldwide.  If you're a pessimist it is an awful time!  Even if you're an optimist is still an unnerving. A pragmatist could throw up their hands trying to come up with a calculated answer. It's really to tough to say where things are heading.

People hate uncertainty.  Stock markets hate uncertainty.  I think the only people who love uncertainty are anarchistic and doomsayers.  This is a great time for someone who would like to lead a rebellion.  And, as the political season heats up around the USA I'm betting some of the political stumping sounds as close to a call for overthrowing the government as you can get without seriously meaning it.  No doubt that some of them will mean it. (Get your pitchfork ready.)

It's getting ugly and austerity hasn't even really kicked in yet.  If Euro countries, the UK, and the USA take the austerity steps they seem to be that are needed to rein in deficit spending from a gallop to a cantor, let alone a fast trot, there will be much more pain and protest to deal with.  Scenes like the ones we saw in Greece earlier this year will be much more common across Europe.  In the USA, expect to see Tea Party rallies so large that they fill stadiums. No security could safely escort Harry Reid through those tailgating parties.     

We are about half way through the Hurricane season, and already FEMA is broke. Let Katia or whatever storms or other kinds of natural disasters cause another few billion dollars of damage and leave a few more millions without power or homeless and then even the weather is a big factor in turning an already tumultuous time for society into a downright out of control situation.

Is it a coincidence that next year is 2012?  Movies about Armageddon went into production years ago.  Their producers may be starting to get worried about the box office receipts if we are actually having it.  Wouldn't that be the ultimate irony!

OK, let me try to rise above all this. The world is not coming to an end!  But if it is, consider yourself lucky to have lived to see it.  There's no denying the parallels with the Mayan calendar, and that recent geopolitical events appear to play into the "end-of-days" prophets.  If it's enough to scare you then go ahead and get your house in order - worship and repent, tell people you love them, cherish every day, and take the vacation you've always dreamed of ... it's all good even if the world goes on for another ten thousand years.

Generation after generation have had to face tough times and frightening thoughts about the future.  I don't have to list history to prove that.  The key thing to keep in mind is that we always got through it!  Mankind finds a way.  Humans are amazing and resourceful creatures.  Overall, we tend to get our way.  And while Americans may have grown soft we are bred from the stock of the people who founded this nation, got through the civil war, the Great Depression, and won two world wars.  We got "enough tuff" in us to handle just about anything Obama or Bernanke can throw at us!  

What we need is a little perspective in order to see where the situation with the economy is heading.  I will take a stab at it.

Various governments around the world are broke and the only way they can get through this mess we are in is through more aggressive monetary policy.  Forget about fiscal stimulus or new taxes raising enough money to deal with the debt. Call the solution whatever you like, but I like to call it what it is, printing money.  That sounds bad but first let's get this fact straight. ALL the money in circulation is fake!!  None of it is backed by material assets. We've been off the Gold Standard for decades.  Money js just printed pieces of paper or digital numbers with lots of zeros. It only has value because we believe it has value!  And, money only has value for two reasons:  1) People accept it in exchange for what really does have value (goods and services). 2) There is NOT so much money floating around that there is more it chasing the supply of goods and services than there is a supply of those goods and services.  With those two facts firmly in mind, ask yourself the following three questions:  1) Do you really expect people to refuse any legitimate currency in circulation?  2) Are you worried about having too much money?  3)  Do you expect the Exon/Mobile to say they are out of gas?  If you answered "NO freak'n way" to those three questions then I believe we all need to stop worrying about QE anything causing too much inflation!  There is way too much fear of inflation.  I like the way Bernanke put it ... I believe he called recent inflation concerns "transitory!"   What a perfect way to put it!!

Even if oil did go to $120 a barrel again it's only going to accelerate the rate at which America becomes non-dependent on foreign oil.  Watch how many more businesses and households take real steps to reduce their demand for oil and gasoline as oil prices go back up again.  People will be going solar, pulling up to the pump in hybrids that get 2x mileage, recycling every ounce of metal or plastic, and replacing their windows, doors, furnace, and every inefficient appliance they have before they pay $140 a barrel again.  Oil and gas supply towns like Williston North Dakota will be booming across the USA and oil will be coming out of every pour before we become dependent on a Libya, let alone Iran, for their oil.  I think just about every American wants to tell OPEC to pound sea salt and it's about time we did!!!  I'm not worried about higher oil prices.  In fact I say, bring it on!!

I'm not worried about food inflation either.  America has the greatest agricultural supply industry in the world.  And in the process we've learned to manufacturer the most amazing farming machinery and equipment the world has every seen. We have corn combine tractors that need their own zip code. That bodes well for many American firms who are positioned fantastically to profit from the demand coming from developing and emerging continents like Africa and Asia, as well as South America.  Food inflation will be tackled with the tools and other farming technology. that America leads the world in.  (And by the way, our cheap dollar isn't hurting the firms that make and supply this equipment.)  A tangential benefit that I see coming from food inflation is how it will cause Americans to rediscover something wonderful that we gave up to the giant industrial farms - family farms.  One way American's can address food inflation, let alone the effects of all the additives in processed foods, is to get back to "home grown" or at least locally grown produce, meats, and dairy.  This isn't just good for our health, it's good for jobs in our communities as we source more of our table from local farmers and markets.

No matter what we do to turn our economy around it isn't going to happen until we fix the housing industry!  Given the fact that the housing industry is at depression levels it's a wonder that unemployment isn't as well above where it is today.  Personally, I see that as evidence of how strong and diverse our economy really is. But the housing industry is still vital to the health of our economy and just like the automotive industry, the housing industry needs to make a comeback.  I believe it will and with it will come the jobs. And, with both we will be pulling ourselves out of the economic malaise and seeing brighter days

I know I can't get off that easily with just saying "I believe housing will make a comeback" without giving some reasonable logic for why it will.  So here is the reason and it's much simpler than you than you think. The solution for the housing industry plays a lot like a game of musical chairs. Only instead of players getting out of their chairs there are lots of distressed homeowners who need to get up out of the homes and slide over to another home a lot like it.  Now I will explain.

The game begins with Bernanke's "operation twist" in order to drive down long term interest rates.  As if they aren't low enough already, the 30 year mortgage is apt to go a level we haven't seen in our lifetime and our children will never see in their lifetime.  Couple historically low interests rates with a remarkably attractive pricing index and fantastic supply and people have an opportunity to buy a home is that is possibly the deal of the century!!

The great housing values and affordability is all well and good but if people can't qualify for a mortgage it's not going to do a lot of good for home buying or the housing industry.  I believe that is about to change.  It makes no sense for someone to be disqualified for a home that they truly can afford because they failed to make the payments on an overly priced house with the mortgage that they never should have been given.  The situation in the housing industry is just insane and government regulators and the private sector have got to come to terms with the fact that someone who was just foreclosed on or who simply handed back the title and keys and walked away can be highly qualified to buy another home right away regardless if they have a 200 credit score.  When we stop the insanity and let those people get a mortgage with some reasonable down payment, or even to refinance their current mortgage with no equity, that will be the day when we start to turn back the housing industry crisis, for that is the day when the musical starts and a lot of desperate homeowners will get out of their "chairs" and move to a home they can afford and start to make payments they can easily live with.  And when the banks and other holders of mortgages start eliminating their non-performing loans and liquidating their properties we will all start to see brighter days!!

What about the government and size of entitlements you may ask.  OK, I saved the best (or the worst) for last.  If you ask me that could well be the biggest prize for having to live through this painful recession.  For the first time in over a generation we may actually begin to shrink government!  That includes Federal, State, and every level and agency.  Hallelujah!!  Less government means less spending and less spending means less government borrowing.  That means businesses are in less competition with the government for capital borrowing or workers.  No apologies to many greedy Union leaders who had it coming and have been destroying rather than helping our country!!  (When the Unions recognize how they can be part of the solution I will applaud you, but thus far it has been far the opposite.) The problem with our deficit and debt is simply that there are just too many living off of too few.  Let's stop calling this overhead "entitlements" because it starts off with the premiss that people are entitled!!  Too many people have been given pensions and benefits that they should not be entitled to! That is the tough truth!  I don't say that rolling back entitlements won't be painful for some, but it can be done and it has to be done!  If I agree with the Tea Party on anything that is it.  And, I'm including the military in this. Enough already!  No, too much already!  While there are some tax loopholes that have to be closed, we can not tax our way out of this deficit.  In fact, if we want American company profits made overseas to be repatriated and invested in the USA we actually have to cut corporate taxes! Every dollar that goes into government has to be looked at as a dollar that could have been better spent by you!  Every dollar a business has to hand over to government is a dollar that the business could have been spent on labor or invested in research, development, plant & equipment or even distributed as dividends to help fund someone's retirement income.

As government shrinks the economy can grow, but only if there is sufficient monetary stimulus to ride us through a truly soft patch.  And, only if regulators encourage more energy self-sufficiency by letting more towns like Williston to raise domestic supply.  And, if we get reasonable about who qualifies for a mortgage today regardless of what happened with their last home mortgage.  Entitlements are the past, America needs to invest in the future.  The biggest crisis we have in America is finding the leadership that sees our problems for what they are and has the courage and ability to articulate the problems and solutions and inspire us to tackle them. That is what I really mean by the title for this post "tough to say!" 

Laugh at the Recession

US  RECESSION
The recession has hit everybody really hard...

• My neighbor got a pre-declined credit card in the  mail.
• Wives are having sex with their husbands  because they can't afford batteries.
• CEO's are now playing miniature golf.
• Exxon-Mobil laid off 25 Congressmen.
• I saw a Mormon with  only one wife.
• If the bank returns your check  marked "Insufficient Funds," you call them
• and ask if they meant you or them.
• McDonald's is selling the 1/4 ouncer.
• Angelina Jolie adopted a child from America .
• Parents in Beverly Hills fired their nannies and learned their children's names.
• My cousin had an exorcism but couldn't afford to pay for it, and they re-possessed  her!
• A truckload of Americans was caught  sneaking into Mexico .
• A picture is now only worth 200 words.
• When Bill and Hillary travel together, they now have to share a room.
• The  Treasure Island casino in Las Vegas is now managed by  Somali pirates.

And, finally....

I was so depressed last night thinking about the economy, wars, jobs, my savings, Social Security, retirement  funds, etc., I called the Suicide Hot-line. I got a call centre in Pakistan, and when I told them I was suicidal, they got all excited, and asked if I could drive a truck.

Lead, Follow, or get out of the way

Using the phrase "lead, follow, or get out of the way" I evoke the spirit of Thomas Paine, with this commonly, albeit incorrectly, attributed quote to open this blog post.

Thomas Paine was a Father of the Revolution so influential that John Adams reportedly said, "Without the pen of the author of 'Common Sense,' the sword of Washington would have been raised in vain.” It's been said that 'Common Sense', which Paine originally called the 'Plain Truth,' was "oriented to the future in a way that compels the reader to make an immediate choice. It offers a solution for Americans disgusted and alarmed at the threat of tyranny."

The debate over our deficit and debt ceiling pails in comparison to the debate that raged in Paine's time over the revolution. Nonetheless, we can draw inspiration and resolve from these words Paine used in his inspirational 'Crisis Papers' at the time of the American Revolution:

"These are the times that try men's souls: ... What we obtain too cheap, we esteem too lightly: it is dearness only that gives every thing its value. Heaven knows how to put a proper price upon its goods; and it would be strange indeed if so celestial an article as freedom should not be highly rated."

I contend that today American is trying to free itself from another yoke on our freedom and a great threat to our Republic and the way of life that we wish our children to enjoy. This would be our national debt.

Surely the solution must include a simpler, flatter, and broader tax code. By the same token to put us on the road to a balanced budget some say "tax the rich" while others say to reduce loopholes. Either way these answers miss the point that we are paying nearly 40% of every dollar that comes in on taxes to pay our cost of carrying the debt which has mushroomed out of proportion because of too much spending. When government spends too much it creates waste and leads to corruption, as well as competing with the private sector for capital and labor.

Taxes should come from a prosperous nation, not a rich few! To achieve prosperity our nation needs to reward innovation and risk! Our tax structure should reward the people and firms that risk their possessions by investing their wealth. They lead America to prosperity and as a nation we all benefit from their success.

Another great Thomas, and great inventor, Thomas Edison, said of Paine, "I have always regarded Paine as one of the greatest of all Americans. Never have we had a sounder intelligence in this republic." Paine was one of the first to promote social programs, progressive taxation, and the abolition of slavery. If he were alive today I have to believe Thomas Paine would produce inspiring words which speak to America's ability to muster the will to defeat the debt burden.

Our great economy is the result of great developments, not great spending or great taxes. For example in the list below you see that America leads the world in patents. (China isn't even in the top ten. Even the Netherlands leads China! Why should China invent when is can easily get away with stealing!) America lead the world's agricultural revolution, the industrial revolution, and we lead the technological revolution. We can compete with any country in the world - if they compete fairly. And when China steals our intellectual property they steal the jobs that go with it!

As we face the plain truth about our spending and debt we will also recognize that the only sensible way to raise our national prosperity and tax revenues is the promotion of free enterprise and the entrepreneurial spirit! America will lead if Government will get out of the way while steadfastly protecting the rights of its citizens. (And and this includes our intellectual property rights!) The world will follow as it always has.



World Top Ten Patent Registering Countries
Country - Patents Registered
USA 157,496
Japan 125,880
Germany 41,585
France 36,404
South Korea 34,956
UK 33,756
Italy 19,652
Russia 17,592
Netherlands 17,052
Spain 15,809

Never Say Never

The USA would probably never default. But the odds of "probably" are looking less and less in our favor. A year ago they were slim to none, however as we are quickly approaching the alleged day when the debt ceiling is going to be reached according to Treasury Secretary Gietner, the odds of default are getting downright frightening. The problem is politics of course. The disaster can be easily averted. But ideologies, egos, and presidential politics are forming the perfect storm that could just make the road to a debt ceiling increase vote impassable!

Time is skewed to shorten the window available for reconciliation because the ratings agencies and the markets are not apt to give us till the 9th hour, and it's anybodies guess when that freak attack will come.

Furthermore, even if the parties who would more likely be able to settle their broad and angry differences in a boxing ring than a conference room do somehow manage to see eye to eye in the spirit of compromise for the good of the country over the good of party (wow, that sounds like a dream world we are most definitely not living in) then there would still be the not so minor matter of passage by the full houses of congress. Imagine we get down to the wire and a faction of the Tea Party caucus manages to string together a senate filibuster that takes us over the edge!

The stand-off between President Obama and Rep. Cantor is beginning to feel like the financial markets version of the Cuban Missile Crisis. I'm wondering when we should start planning to run to our financial mutual destruction bomb shelters. Where is that again??

HOT Summer

Things are going to really heat up this summer!  Greece is already boiling over.  A heatwave of unrest is moving into the UK where union protests and civil disobedience may be reminiscent of PM Thatcher's coal union busting days.  Europe will not be high on the list of travel destinations as entitlements get scaled back throughout insolvent Euro member countries and the shear size of the protests will put a strain on police forces and leave most governments with no choice but to bring in their military to function as police.  There is bound to be disruption in public services and transportation systems.  Business will certainly not be as usual.  All of it will take its toll on the social system and we're sure to see some tears in the fabric.  Some citizens are bound to crack and who knows what bizarre acts we may see.  Things could spiral out of control and those responsible for keeping the peace may ultimately end up fueling the flames.  What will rise from these frames?  A leader, a charismatic anarchist, a savior, or a phoenix?  I think we may soon find out.