Monday, February 25, 2013

Solyndra, a report posted a little late

Solyndra should be placed in the dictionary and defined as "what happens when politicians and bureaucrats play with businessman with taxpayer money". After wasting taxpayer money invested in Solyndra we followed up by spending money having the FBI investigate what happened, bottom line is that the money is gone. The solar panel company  got a $535 million government-backed loan with the help of the Obama White House over the objections of federal budget analysts. The FBI will find that Obama and Vice President Joe Biden got a nice photo op. They got to make speeches about being "green." But then Solyndra went bankrupt, Americans lost jobs, and taxpayers got stuck with the bill.

So forget optics. What role did political fundraising play in the guarantee of the questionable loan even after the bureaucrats warned the deal was lousy. The whole deal really smells bad. I hope voters did not really believe it when the White House mouthpieces promised they were bringing a new kind of politics to Washington. This is not a new kind of politics. It's the old kind. The Chicago kind, the Tribune Washington Bureau has reported that the U.S. Department of Energy employee who helped monitor the Solyndra loan guarantee was one of Obama's top fundraisers. Fundraising? Contracts? Imagine that.

Steve Spinner was the Obama administration official in charge of handing out billions and billions of tax dollars to "green" energy deals. According to the Tribune story, Spinner invited Obama's national political finance committee to a meeting in Chicago. The name of the Obama fundraising initiative? "Technology for Obama." The idea of the Obama fundraisers was, getting together, talking "green," and perhaps offering taxpayer loan guarantees to insider businesses in the interest of helping the environment. It seems that when all was said and done, they helped themselves to our money.

This was another lose-lose deal, compliments of more bad government. In many ways, this whole "Solyndra" debacle is a metaphor for how our government is run. A perfect example in many ways as to why only, a private sector free of crony capitalism, can move us forward. This post was published "a little late" because I'm running low on outrage. It seems one can only stomach so much. As we think about the fast approaching and dreaded sequester, do you really think government is spot on in how it spends our money?

For fun please read;

Saturday, February 23, 2013

Jessie Jackson Jr. A Cautionary Tale

Chicago, a place I love to visit, but would never choose to live, could be called the "New Orleans of the North" when it comes to corruption. It is only fitting that Jessie Jackson Jr. represented this area in Washington. A quite Jackson arrived in court Wednesday wearing a leather bracelet, not the gold-plated Rolex watch he bought with $43,350 in federal campaign cash. The former congressman's head was bare, unadorned by the Michael Jackson fedora, purchased with $4,600 from the campaign kitty. His wife, at his side, eschewed the reversible mink parka, procured with $1,200 in campaign money from Edwards-Lowell furrier of Beverly Hills.

It was the kind of runaway spending usually reserved for someone with new found riches, a holistic retreat, a cruise, pricey restaurant tabs, flat-screen televisions and even a pair of stuffed elk heads. The former Congressman Jesse Jackson Jr. admitted Wednesday that he conspired with his then Chicago alderman wife to pay for it all with campaign money and cover it up. These purchases were part of $750,000 that Jackson and his wife, Sandi, took from his campaign coffers for personal use. This led the couple to enter "his and her" guilty pleas in the U.S. District Court in Washington.

The Illinois Democrat is looking at four to five years in prison, assuming Judge Robert Wilkins follows guidelines in his June 28 sentencing. Jackson already has served the sentence of public disgrace and has resigned from congress. In the hallway after the proceedings, a red-eyed Jackson spied Lynn Sweet from the Chicago Sun-Times. "Tell everybody back home I'm sorry I let them down, OK?" he asked her. The spectacle has generated a lot of interest because of Jackson's famous name. His once-promising career is now in shambles, some saw Jackson as a possible future mayor of  Chicago, that now seems doubtful.

FOOTNOTE;  If you believe that where there is smoke fire most likely also exist, and that this revelation only came to light because of the extreme nature of the offense, then you might agree that this dovetails with another post I wrote. My prior post has merit, please note, this situation only proves that being a politician has its perks, please read

Friday, February 22, 2013

Sequestration is upon us

It is fast approaching, the dreaded sequester, the sequester that was never to happen. The solution that we would never have to face because no group of politicians could ever be so dysfunctional. All the while the stock market is rising due to the Federal Reserve's economic stimulus programs known as quantitative easing, near zero interest rates and a lack of investing alternatives. The markets are not rising because of U.S. or global economic growth, but driven by money being printed by the Fed that is finding its way into the market rather than building factories or hiring workers

The President is scurrying to prevent the coming budget cuts, all while putting the blame on Republicans. "Emergency responders like the ones who are here today ‒ their ability to help communities respond to and recover from disasters will be degraded. Border Patrol agents will see their hours reduced. FBI agents will be furloughed. Air traffic controllers and airport security will see cutbacks, which means more delays at airports across the country. Thousands of teachers and educators will be laid off,” Obama said Tuesday.

The question Obama should address is why he proposed these cuts, and now goes on TV to argue against them? He signed the bill that created sequestration, and White House Press Secretary Jay Carney even admitted last week that “the sequester was one of the ideas put forward, yes by the president’s team.” When the Budget Control Act of 2011 called for the creation of a Super Committee to identify $1.2 trillion in cuts, Obama knew this new committee wouldn’t come to a comprise, given its even political split.

Fact is that the economy is dead in the water and massive fear exist as to what will happen if any government spending is cut.  Knowing this the fear mongers are out banging the drums hard, a article in the Washington Post starts out; Congress and the administration are down to their final week to strike a deal to avoid or delay the automatic budget cuts known as “sequestration,” and with both parties already pointing fingers rather than working on a compromise, the cutbacks appear inevitable.Should neither side budge, the federal government on March 1 must start making cuts that will slash spending over the next decade by $1.2 trillion.

Articles abound about how the one-day-a-week furloughs for civilian employees of the Pentagon will hurt people who work for Washington Headquarter Services. "This is a hard game to play for those of us who are concerned about our bills and our families,” said one employee. Furloughs from the sequestration would impact more than 750,000 workers in every state - from office staffers to teachers to aircraft maintenance workers. Virginia would get hit the hardest, with more than an estimated $661 million in lost pay. California would follow, and then Maryland.

Often these articles key in on which states will be hurt the most while quoting the amount of the cut back in "full decade" numbers to maximize the effect. The "tone" being all this money will be ripped out quickly leaving the government a hollow shell. Other then the pointing of fingers, and casting blame, in reality the sequester should be thought of as no big thing, 85 billion dollars of a 3.5 trillion dollar budget cannot be called a serious cut, and should over all have less impact then the recent payroll tax increase. The claim that it is across the board and not well focused is an exaggeration, some control over what is cut still exist.

While I have heard the coming cut described as "draconian" on more then one occasion, and it has caused anguish and the gashing of teeth, this minor cut in spending does not seem earth shattering. Many of those being hurt by this have made the mistake of putting themselves in that position by feeding at the government tit long after they were warned of their over-dependence and the risk they were taking. I say bring it on, this is only the first step down a long path to reality and spending reform.

Footnote; My January 1 post deals with what happens when the momentum ends.

Thursday, February 21, 2013

China A Bubble? Yes It Is!

All booms start out legitimately but that does not prevent them from developing into bubbles that pop disastrously in the end. The bubble forming in China is no exception to this pattern. Fast growth can and does mask many ills. What started out as a boom and was driven by successful economic reforms and modernization has helped to lift hundreds of millions out of poverty, but it has now devolving into an orgy of wild real estate speculation, and reckless construction of newly built ghost cities that are now sitting empty. These were constructed  to create economic growth and push forward the materialism mania, even if China’s long-term growth thesis remains intact, when its bubble pops China could conceivably experience a Great Depression similar to the one that swept over America in 1929.

Decades ago a vast army of highly industrious workers and low wages helped China when investment in capital and knowledge flowed in from America. It quickly became the world’s preeminent manufacturing powerhouse by pursuing an export-led growth strategy similar to its Asian neighbors. China rapidly urbanized as several hundred million people moved from impoverished farm villages to scores of newly-built cities in pursuit of factory and construction work that raised the country's standard of better living. The strategy of economic liberalization, modernization and infrastructure development has paid off handsomely with an unprecedented yearly GDP growth rate of 9.5% decade after decade.

Growth fueled by fixed asset investment, such as infrastructure, has exploded since the launch of the 2008 stimulus program, it accounted for more than ninety percent of growth in 2009. Over one hundred ambitious infrastructure mega-projects are currently being built. Chinese cement consumption and construction spending has soared, scores of extravagant and massive government buildings are being built, roads are removed and replaced just to generate economic activity, and cities have borrowed big to build jaw-dropping infrastructure projects. This mad rush to build fast and large has led to cutting  corners and shoddy workmanship. The world’s longest sea bridge that had to be closed just one week after opening due to safety problems, the much-publicized high-speed train experienced a disastrous crash,  and a new highway collapsed when opened for a test run.

Central planning always sounds good, logically, it would seem reasonable and efficient, but it has an Achilles heal. Often companies intertwined with government run on razor thin margins, with creating jobs almost a priority over making a profit. This is an incubator for corruption. A strange and somewhat eery phenomenon has arose as a result of China’s building purely for the sake of creating economic growth, completely uninhabited “ghost cities,” such as Ordos in Inner Mongolia. This and several other "empty full-size" cities filled with apartment buildings and skyscrapers can be viewed in great detail by satellite. Even the world’s largest mall, the New South China Mall, has been 99% empty since it opened in 2005, this represents the misappropriation of capital at its finest. There are now 70 billion sq. feet worth of buildings of all types under construction in China or about 54 square feet for every man, woman, and child in China. 

To those of us who lived through all the hype about Japan taking over the world in the late 1980s this is reminiscent of the Japanese bubble. At the time  Japanese interests purchased Pebble Beach, Rockefeller Center and Columbia Pictures. Most worrisome is the fact that five of the world’s ten largest buildings are now under construction in China, skyscraper construction is a historically reliable indicator of economic bubbles, it marked the tops of the Roaring Twenties bubble in 1929 and the Asian Tigers bubble in 1997. A fair number of articles were written on this subject in the middle of 2011, but concerns abated as central banks across the world unleashed massive quantitative easing. I suspect that the problems have not been corrected and the bursting merely delayed.

Footnote; Many Americans cringe when they think about the billions of dollars of consumer goods we import from China, what makes it even more bizarre is that China is an American make product. Decades ago America started down a perilous path to build China into a world power, read on and remember..

Footnote #2; This more recent post delves into the massive amount of overcapacity and debt incurred post 2008 when China dumped money into the economy to stimulate growth.

Wednesday, February 20, 2013

The Zombie Economy

A growing number of  so-called zombie companies are being created as a consequence of the current record low interest rates. America is filled with many small struggling companies that can sometimes afford only the interest payments on their loans, and not much more. There are zombie households, too - those on interest-only mortgages but unable to pay off the loan or move forward. Mark Thomas Author of The Zombie Economy says, "A zombie company is one which is generating just about enough cash to service its debt, so the bank is not obliged to pull the plug on the loan”.

A a company can limp along and survive, but still not generate enough money to invest. Many of these are doomed to failure if interest rates go up. There are concerns that banks are keeping these no-hope companies alive in order to avoid taking further, potentially significant losses - and this, in turn, could be holding them back from new lending, which is needed to boost the economy. The owner of one of these companies may be stuck with a huge amount of debt ran run up before the financial crisis. Since the credit crunch, banks often refuse to lend any more money leaving the owner in limbo and trapped in a demoralizing situation. The plunge in commercial property values has played its part in the zombie phenomenon.

Many economist acknowledge the difficult challenges, with property values plunging often more than a third since the top of the market many lenders are reluctant to pull the plug because they know they will struggle to sell the assets. We need to have bad businesses fail, otherwise the economy will stack up with progressively weaker business models and growth will go into reverse, Thomas goes on to say. Banks giving breathing space to borrowers - has been a matter of concern for regulators. Critics of the banks have urged banks to build up their capital reserves, so that they can more easily bear the losses when they pull the plug on zombie businesses.

Footnote; The problem remains that after all the money and low interest rates little has changed in the "real" economy

Sunday, February 17, 2013

More on the Obamaphone, an update

An article in the New York Post on 2-17-13 added the following information about this program. I have rephrased much of the information taking away the pro Obama rhetoric that gives him credit for cutting back the program. The writer makes it clear others started the program and got out of hand through no fault of Obama; It said hordes of critics attacked the president in 2012 for giving away free cellphones to the poor, with the tab covered by fees on every cell and land-line user in the country. The federal program is a perfect example of a government program run a muck, and a $2.2 billion lesson in what happens when Washington’s good intentions go bad. The feds created the Lifeline program in 1984 to provide landlines (and thus a connection of last resort to emergency services, job prospects and family members) in even the poorest homes.

Under Bill Clinton, the program was expanded, and in 2008 — at the behest of wireless carriers and on George W. Bush’s watch — the feds started offering free cellphones, too. The only requirement was that recipients be on Medicaid, food stamps or another state or federal welfare program. All those minutes added up: Last year, the government funneled $2.2 billion to the phone cartels to cover the cost of Lifeline. But the feds never required proof from cell carriers that their millions of Lifeline users were truly needy. No surprise, the program has nearly tripled in cost since 2008. Only last year did the FCC last force carriers to verify that Lifeline users needed aid after it found the program was riddled with "fraud and waste".

Some 41% of Lifeline cell subscribers failed to show that they were eligible, which means the FCC will be cutting the Lifeline rolls and the cost of the program. It’s easy to see why people want free cell phones. But it’s also clear why the big carriers were eager for their business. With so many Americans having cells carriers have a hard time finding new clients that actually pay their bills, this has been an easy way to drum up new business. By having the government cover the costs for millions of new customers the real face of corporate welfare is exposed. A lifeline that was supposed to help poor Americans now helps companies like Sprint and AT&T.

It should be added that this the government loves this because it garners votes for those in power at the same time that it makes the economy appear better and stronger then it really is. I have no information concerning the line, "Only last year did the FCC last force carriers to verify that Lifeline users needed aid after it found the program was riddled with fraud and waste." I do not know what this means. Did orders go out to tighten verification guideline early or very late in the year, and if they even did, what are the details? To view my previous post on what is known as the Obamaphone go to;

Friday, February 15, 2013

Millionaires and Billionaires

Over The Top Lifestyles Of Some Super Rich
Millionaires and Billionaires, a term often used by President Obama, screams "I have an agenda", the way he uses the term is both offensive and a simplification. Only a crazy person or someone with very little knowledge of money or wealth would think that linking, comparing, and putting the two into the same class has merit. Over the years the value of the American dollar has dropped. Across America and the world, there are millions of working-class millionaires. They do not have private planes or servants, they worry about their financial survival and many work far more hours than the average American worker.

To clarify, anyone with a million dollars, or even several million dollars is not in the same league or class as someone with a hundred or several thousand times as much wealth. It is logical to argue that Billionaires and those with hundreds of millions of dollars fall into a special class and that they can be considered citizens of the world, and not bound to the Earth like us mere mortals. For many of them, the rules often do not apply, these mega rich are in a class of their own. The recent summit in Davos was attended my many Billionaires, or their equivalent, meaning, someone with a mere five, ten or even twenty-five million dollars would not share the same lifestyle. 

I recently saw some pictures of Mitt Romney the recent Presidential candidate who had been painted as an elitist, he was in his kitchen at home eating off a paper plate. This in many ways defines his values and how he goes about life. One of his business partners went so far as calling Mitt "cheap", I would use the term thrifty,  not being wasteful is a good thing. During the campaign, I often recall news clips of Romney exiting a car or plane carrying his own bags. As we know in the election Romney was defeated by a commoner and man of the people, Barack Obama, a man who appears to see redistricting wealth more "fairly", a major goal.
Ironically, the lifestyle that Michelle and Barack Obama appeared to have chosen to pursue reeks of the nouveau riche and elitism. The private concerts in the White House, lavish vacations at taxpayer expense, and their use of Presidential perks have not gone unnoticed at a time that the country struggles. This puts a spotlight on the fact that values and wealth do not always go hand in hand. The following is an article that I posted on June 7th, 2012, it seems to describe not only Mitt Romney and his style, but many other hard-working Americans who are the people that make America famous;

The Millionaire Mind

What have you been reading?  I was moving around some books the other day and opened a book by the name of “The Millionaire Mind”. The author Thomas Stanley also wrote the book  “The Millionaire Next Door” which was a best-seller a few years back. The people he studies are financially secure. This book takes a deeper look into how these people think and make their money.

Far from what many of us might think his studies and research show that millionaires are a real down to earth group of people, the kind that made America famous. He looks at where they live, their favorite leisure activities, and the different factors that make them wealthy. Somewhat obscure and not just off the press this book is an excellent read and a manual for those of us wanting to get ahead.                                                                                 
Thomas Stanley reminds us you can’t judge a book by its cover, and that the fella you see mowing his yard or sitting next to you as you fly in coach may just be a millionaire. The book is about making and saving money the old fashion way, not through winning a lottery. This is a far more realistic look at the rich and wealthly in America than the hyped and unhealthy fixation of the media on billionaires.

Thursday, February 14, 2013

Raising the minimum wage a mistake!

If people were willing to work for a little less money, a great number of jobs would be created, these jobs are needed at a time that many Americans claim they have been looking for employment and will do almost anything for work. Unemployment remains high, yet the President wants to raise the minimum wage. So what gives? How do we reconcile these strange reports? This is my take on this phenomena, it could be called a "tale of two cultures." It could be that the crux of the employment problem, is cultural and structural in nature. It may be based on unrealistic expectations created over the last decade by our growing government centered economy. Government employees are often paid better then in the private sector because government does not need to make money to exist.

Raising the minimum wage will make America less competitive and give employers less incentive to hire. As a employer I was surprised several months ago at the difficulty I had finding qualified workers during a small construction job that lasted several months.Yes, I could have hired a company to do various parts of the work, but I would of lost much of the control over the many decisions that had to be made as the project progressed and took form. Workers that had lost jobs paying far more often proved slow, sloppy, or allowed personal problems to keep them from showing up for work. I have several thoughts that formed during this experience.

I'm reminded of a story I heard years ago about a man who sat down in front of a empty fireplace and said "warm me and then I will put wood upon you", but life does not work that way, and neither does the job market. Many people forget it is not just the hourly wage we must look at,  but the hidden cost of hiring must be factored in, such as the cost of training and all the liabilities of being responsible for their actions. Now add to that wasted time, risk, insurance, and more taxes. After a worker takes a job, proven their skills, shown they are reliable, and that they are indeed an asset, only then are they be entitled to more rewards.

Big box stores, fast food franchises, and hotels often pay minimum wage, while other small businesses are asked to be more generous. The difference in wages is often because many small businesses need more from an employee. They must invest more in time, energy, and training, they are hurt when employees leave. The fact is when people work in an environment where they must show more then minimum responsibility, and make even minor decisions, the mistakes and errors they make can be very expensive, and can make the cost of the worker far more then he or she is worth.

Raising the minimum wage would be another strong negative to hiring. Remember in a small business the owner or manager has to deal with the employee directly, this ties up their valuable time. Large companies often have departments or discipline channels that serve in the role of  "babysitter." Most employees generally do not recognize the cost of their working with constant cell phone interruptions, logging in on Facebook, shopping online, repeatedly plugging up a toilet, stopping to buy cigarettes, or the habit of always rushing off to use the restroom while a truck full of paid workers wait to leave for a job.

In the end I suspect the employers will win out and lower wages will become the norm for the coming decade, the alternative is people will just continue not to work. Like many employers I have become skeptical, of the benefit of adding staff in the current environment. I have been told many times by job seekers of their outstanding skills to later be disappointed. It is easier to brag and talk a good game then actually produce results. Bottom line is that till this discrepancy is resolved do not be surprised if many businesses chooses to pass on more hiring. Yes many people will do anything for a job, but it seems, they won't do that! By "that" I mean, do enough productive work that their employer actually "makes money" and profits from their labor.

Footnote; For more on the effect of long term unemployment on society and our culture see the posts below, comments are welcome and encouraged,

Wednesday, February 13, 2013

Retail Sales Dead In The Water

Instead of the banner "retail sales climb for three consecutive months" it should of said "sales stall". For all the claims being made each month about consumers flooding back into stores, in reality sales are dead in the water. U.S. retail sales barely grew in January, they rose a seasonally adjusted 0.1% last month, or by 0.2% excluding the auto sector. Each month claims of huge growth are made, and when the numbers surface gains are minimal, and the market ignores it all.

Many economist see retail sales are a good proxy for how fast the U.S. is growing, but economists look at longer-term trends because the monthly data is volatile and subject to sharp revisions. The increase in sales for December was unrevised at 0.5%, while sales in November were revised up a notch to a 0.5% gain. In all of 2012 retail sales climbed 4.4%, but the rate of consumer inflation must be backed out of this number to reflect true growth, leaving not all that much to be excited about..

It is important we realize this was at a time that the government was stimulating the economy with well over a trillion dollars of unsustainable deficit spending, and at a time that the Federal Reserve and other central banks around the world pumped and printed money into the system at artificially low interest rates. Banks, big business and the stock market have been the biggest beneficiaries of these policies, small business is on its back and has suffered because of this preference. Sales gains at retail chains were said to have expanded over 4.5%, that would imply a drop at small independent stores.

Footnote; Below you will find more on why the consumer will continue not to spend and is in a protracted period of weakness.