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.

What Will We Call It? Maybe the The Great Default.

If you ask me, there's a growing sense that this time around it's different.  There is an odd expectation that we've come to the end of our economic road.  It's as though between Europe, Japan, and the USA that we've kicked the debt can as far as we can get away with. 

Like the story of the Emperor's Cloths there's no denying that the obligations of so many nations are too large to think they can be met.  There's no believable logical plan that squares away the liabilities using realistic revenue and growth projections.  I think the experts know it and most ordinary people, without any economic or accounting knowledge and just plain common sense, know it too.

Recently Moody's stated publicly that schemes being considered to "modify" Greece's debt would constitute a "default."  It reminded me of the expression, "putting lipstick on a pig."  There's just no denying the pig. 

The debt problems around the world are like a tinder box ready to be ignited by a spark - an event that causes the world to declare one debtor nation in default.  The flames of default will be fanned from the PIIGS to Japan, burning a giant path of financial destruction.  It would be an event for the record books. What shall we call this historic economic catastrophe?  Surely the Great Recession is to weak, and besides, that was declared over.  While it may technically be a "Double Dip" that hardly seems a sufficient or worthy monicker. There was WWI and WWII so maybe labeling it The Great Depression II is appropriate.  I kinda like the idea of calling it what it will be, The Great Default.

The part that's confusing is that while everyone's insolvent, we have different mechanisms for forestalling the seemingly inevitable. In the USA, congress can spend money that it doesn't have by telling the Treasury, which is like America's banker, to just lend it the money (as long as congress let's them) and the Federal Reserve can print (I'd like to say "out of thin air") all the money it needs to buy the Treasury's debt and thus fund the government.  Whereas, in the case of Greece and other insolvent Euro countries they have to borrow from responsible bankers who follow rigid guidelines and formulas to calculate and limit how much a country can afford to borrow.  And, after they've effectively lent the country that amount the bankers then proceed to make up ways to let the countries borrow many fold more than the country can ever hope to repay.  The mechanisms are different but in the end it is the same story of ridiculous unsustainable debt. 

There is lies the $64 trillion dollar question.  When does sustainable debt become unsustainable?  We've gotten away with unsustainable debt for so long that the phrase is becoming an oxymoron.  (Pause to think about that one.)

Maybe not.  Maybe the reckoning I've blogged about (and emailed about before I discovered blogging) and that real economists and writers have written about is finally and inexorably at our doorstep. Gosh I hope not!  Just because I write about it doesn't mean I want it to happen.  Frankly it scares the heck out of me! 

But back to the purpose of this post.  I'm looking for a name.  What will we all call this historic collapse of world debt?  Again, I say call it what it is.  After all, if our failure to face financial realities is largely what got us all in this mess, then it seems proper to begin to solve our problems by admitting to ourselves and everyone the insolvent entities we've become.  As such, the most suitable name for the event that marks our coming awareness of this historic moment is The Great Default. 

The thing about a default is that the debts go away, but the debtors and creditors do not. Portugal, Ireland, Italy, and Greece are not going away.  Neither is Belgium, Sweden, Denmark, Spain, Japan, or the USA.  Assets can be shifted around, but countries can't be.  So what are Germany and France going to do when Greece defaults?  Recently economist Andrew Lilico wrote an article that appeared in The Telegraph, and which I've linked to, entitled "What will happen when Greece Defaults."  Andrew's article is a succinct blow-by-blow rundown of the way you'd think the dominoes should fall and while I agree with him we all know that things seldom go exactly according to plan. 

I wonder if any self-respecting and reputable economist has conjectured in a readable white paper the way it might play out if what I've dubbed The Great Default where to happen, say next week or so?  If one of my few but highly worldly and intelligent readers (brown nosing blog style) has come across such a document please direct me to it in a comment to this post..

It seems to me that the Great Default may play out a bit like a game of Monopoly that the players don't want to end.  When I was a kid we used to play that game quite a bit at my friend Seth's house.  In our little make believe world of high finance "The Banker" would just dole out more money.  This would happen until the Bank was out of money because the one of us with all the money never wanted to give their money back to the bank.  I'd have to agree that he analogy between a played out game of Monopoly and the world's debt crisis is an over simplification.   By the same token, there is a natural yearning to find a simple way out of the mess we've gotten ourselves in.

Why the yearning?  To answer this question I return the point I made above about why I hope I am wrong about the need to call this The Great Default or any other thing.  The yearning for a simple solution is because the thought of it really happening it terribly frightening!  If we look past the mechanics of the economics and consider the likely social and individual consequences, the realities that matter the most on a human scale are very hard to think about.

Ultimately, if you're an optimist like me, you have to believe that we'll work our way out of this and come out the other end stronger for it.  So I am sure we'll find a way to kick the can over the wall and find ourselves on whole new open stretch of road to go down! 

The Suspense Is Killing Us

The economists were looking for 180K new jobs in May and even that was revised lower from a much higher number.  We got 54K!!  Now the debate and fear is whether the economy just reversed from growth on our way to a "double dip" recession.  It could be reversing in a very big way and if it does we have congress and President to thank for spoiling a good thing we've all been calling a recovery. Politicians in Washington are playing political chicken over the debt ceiling and deficit and the suspense is going to kill us before the crash does.

Some blame rising commodity prices for the economic slow down.  Oil prices and commodity prices are no doubt putting a strain on both businesses and consumers.  Rising commodities have more to do with speculation that supply & demand.  Does anyone really believe that oil went from $70.00 a barrel to $115.00 because in the last 6 months we used so much more of it?  Seriously!  While inflation is a concern, I share Bernanke's opinion that it's transitory.  If you look back a few posts in this blog I've already addressed my view on inflation and why I don't believe it's all bad.  The reason the jobs and other economic data have just recently indicated that the economy is on the skids is because everyone put on the brakes for fear that we're going broke. What's new?  The USA is broke. Not only is the USA broke, so is most of Europe and the civilized world. Being broke is nothing new and fortunately even that issue is not the problem TODAY!  The problem today, the problem that produced the horrendous jobs report in May is all the fear that congress is stirring up because they can't do their dam jobs!

The problem is that delays in taking serious action on the deficit/debt and raising the debt ceiling have frozen the leaders of capitalism.  CEO's, CFO's, and entrepreneurs across the USA are sending a loud message to congress - fix the f'n problem!!  With literally what could be weeks before financial Armageddon what company wants to hire new workers or add inventory?!     

Fortunately there is a solution.  Unfortunately, the solution runs contrary to what you and I were taught when we grew up.  You and I have been taught that money does NOT grow on trees.  We been taught that money doesn't come out of thin air either.  Well, we've been taught wrong!  Last time I looked dollars and euros were made with material that comes from trees.  And, the really large amounts of money are transferred on computers which is about as close as you can come to thin air.  But seriously,  the reason our economy hasn't already reverted to a time when we traded animal skins for meat carcasses is the because of the greatest invention since the wheel - currency.  Currency in common denominations that flows easily across hands and across seas enables economies around the world! 

For a period of time the conventional wisdom was that currency, being worthless paper, had to be "backed" by something with more intrinsic value - Gold & Silver.  Those days are long gone and all that really backs currency today is "faith" and credibility.  So for the sake of brevity can we simply say that a worthless country has worthless currency. 

Hopefully you're with me on my next point.  America and Europe are not worthless.  Granted there are some serious questions about credibility, but I wouldn't call any of us worthless.

We're not worthless and the real reason the economy did a 180 degree reversal in May is because of the growing concern in the world of business & finance that the folks with the printing presses in the USA and Europe have all decided that there's too much currency floating around and they're afraid to print more of it.  The inflation hawks aren't willing to move a few more trillion dollars into the economy for fear that it will devalue the currency and thus create inflation. HELLO!  Have you considered the alternative??!!  If you really want to "control inflation" and see some major devaluing don't raise the debt ceiling!  You ain't seen devaluing till the market digests that idea!  If that happens we really will be back to bartering because we'll all be out of work. 

The economy needs more money circulating, not less!  Negative inflation is still a bigger threat to our economy than inflation.  Try to sell your house!  Or maybe we should ask the 18% unemployed and under-employed if they think the economy is too robust and needs more tightening.  The inflation hawk cries look at hirer oil prices.  To that person I say buy a new car with a 1.9% rate car loan and replace your 10 year old car that get's 19 miles to the gallon with a new safer and better quality car that gets 30+ miles to the gallon and then come show me your gas bill compared to last month.  In addition to reducing your net cost of transportation you'll also be helping the economy!  To the hawk who points to the huge increase in the cost of cotton I say have you shopped at Kohl's lately?!  You can practically buy a whole wardrobe for $500.00.  To the person who complains about food prices I say split a dinner at a your favorite Italian restaurant where the portions are large enough for two anyway.  Inflation is not the problem we are afraid it is.

What we need is for Washington please stop playing political chicken over taxes and spending cuts because you're about to crash into one another and kill us all.  Republicans and democrats are playing political chicken in order to get the positions they want going into the 2012 election.  Most games of chicken end without a crash because there is at least one chicken. And all the chickens in Washington better shift their focus from their own party's political survival to the survival of the world's financial system.  We are getting to the point where none of the chickens or all us barnyard animals will live to see the next election if they don't do so very very soon!! 

It's time for both republicans and democrats to veer off and announce a plan that combines fiscal austerity with more reckless borrowing and spending.  How's that for an oxymoron.  It is moronic because ultimately only a moron can think that the government can afford to cut the deficit to zero by August.  Nor can we survive without more monetary stimulus to offset the fiscal austerity that really is needed.  It is not a question of whether we will continue to print money we don't have.  Forget what you've been taught growing up - money does grow on trees and come out of thin air.  But so long as we use our money fabricating superpowers responsibly it can be OK.  History is proof of that.  And the last time we forgot it we pushed the economy into the Great Depression!  Nobody knows that lesson better than Bernanke, thank goodness!!  

The big unknown if you ask me is whether we (Washington and Europe too) can print money responsibly.  And that is a question for, dare I say it, Wall Street.  Yup, the same Wall Street wolves that some folks believe created the last financial crisis and the Great Recession will be the same ones to decide whether the world will be saved by the plans that the chickens in Washington come up.  So here we are waiting for the chickens to be thrown to the wolves.  Talk about the proverbial wolf guarding the chicken coup.

I just wish they'd get it done and announce whatever backroom deal they're coming up with because in the game of chicken it's typically the suspense that kills you.  And, in the case of the political chicken in Washington suspense is killing the world economy. 

Make A List of Reasons - Why this economy has a lot of reasons to grow

One minute demand inflation is heating up.  The next the economy is slowing down and commodities are falling.  One quarter the economy is picking up and the next it's starting to lose steam.  It's hard to find a trend line that popular opinion is willing to stick with.  The animal spirits are all over the place.  Fiscal tightening in the USA coupled with European austerity and bank tightening in China all would suggest the economy is going to slow.  I have a list of reasons I think not and I bet you have a list too.  Follow me here.

Start a list of the stuff you need.  On my short list I need a new roof, a new wall oven, a new car, new carpeting, a new lawn tractor, and a new suit and a sport jacket.  How about you?  I bet you've got a bunch of big purchases you've put off.  Add on a few things you really want to do like a nice vacation, maybe a Broadway show, a faster smartphone, an iPad2, and that big landscaping project.  I believe people's lists of needs & wants has never been longer because as a country we've never put off so much for so long.

Age and obsolescence make an increasingly compelling case to add to our list.  As all our stuff gets older much of it simply wearing out. But a lot more of it is becoming obsolete. What I mean by obsolete is that thanks to innovation in technology, design, and materials a lot of stuff we once enjoyed is becoming less attractive to us.  Take your phone or computer for example.  I don't need new phone, my Droid2 works fine. But the new one available is 4G and I want it!  I don't need a new laptop, but the new ones are so much lighter and better. In some situations the improvements that come from innovation nearly pay for themselves.  We are seeing this when it comes to more energy efficient solutions when eventually the savings from energy efficiency virtually pay for the capital cost of replacing the old item, for example with an old hot water heater or with incandescent light bulbs. 

If you think you've got a long list, just imagine what some families in developing countries need. A young Chinese or Indian couple that is upwardly mobile and joining their country's version of the middle class has a list that would make you count your blessings if you compared.  This is a reality that isn't being lost on General Motors, let alone KFC!

Can you guess what else is wearing out!  You body!!  OK, maybe not your body, but I can assure you there's a half million other bodies that need new knees, hearing aides, eye glasses, and dental work.  The Great Recession has forced a lot of people to put off taking care of themselves.  Time marches on and as it does it takes its toll on our health and appearance.  Fortunately, when we find the money we'll also find that improvements in technology, design, and materials have provided for some pretty attractive options in this area as well. 

My list, your list, and the lists of things people around the world want and need keeps growing.  The recovery will see to it that we have the means to cross-off some of the items on our lists.  Or is it the other way around?  It's the list that will see to it that we have a recovery!