Friday, May 23, 2014

Debt A Mirage Always Moving Into The Distance

A great deal of our economic system is about debt. It is important to remember not all debt is created equal. A mirage is a naturally occurring optical phenomenon in which light rays are bent to produce a displaced image of distant objects. Joining the idea of a mirage and contagion with the reality of collapsing debt forms an interesting subject. It is important to remember all debts and obligations do not come due at the same time. Also, it must be noted when a bill is not paid or defaults it often starts a long and drawn out legal battle, this collection process that may extend years without harsh consequences. This my friends is the reality of modern life in America and much of the world.
Money Owed Can Be Like A Mirage Always In The Distance

For an individual the rules are different than the rules that govern a company or business but even after stretching out payments and outright default options exist. Bankruptcy can give those reaching the end of their rope a new lease on life. I feel sorry for those of us who have found themselves in the position of having to decide whether to most throw good money after bad by taking legal action against a debtor in the hope of recovering even part of what we are owed.

Companies and business in general play by a set of rules that can boggle the mind. Other than not meeting their payroll a situation that is immediately noticed, they can bob and weave in a series of moves to hide their true situation. Bringing in a new investor, shafting a current supplier after a big order and replacing them are just a few ways to extend the life of a dying business.  By stalling on paying bills a business can claim it is still solvent and reorganizing will set everything straight. If done correctly the top management can collect paychecks the entire time this unfolds. Debts unpaid are more than a transfer of wealth it is theft.

Government's can also play this game. They sell bonds, print money, make promises, and can even borrow from groups like the IMF. The Bottom-line remains that after all is said and done debts that are not paid still require someone has to write down their wealth and take a loss. The tool of reinventing what a debt is and how it will be paid is very useful. A key issue in deciding and controlling how debt is handled revolves around the issue of contagion. When the debt holder realizes that they will not be made whole, how they adjust paying their debts because of their newly gained knowledge can upset the whole economy. A big collapse without much notice that surprises the world can make a big wave that is unacceptable.

Those in power tend to constantly move the goal post wrapping the changes they make under a banner of reform. It sometimes appears that the laws covering bankruptcy were devised to drag on and on so as to lessen the blow or take sharp edges off reality. Often after years of chasing a bad debt, the person or group owed a sum of money has in reality moved on and adjusted to the fact they are likely to recover very little of what they are owed.  Modern society has become very good at kicking the can down the road and delaying the day of reckoning. Yes, the part where you collect a debt that you are owed can be similar to a mirage that keeps moving away each time you approach it. This means that at some point the return on loaning money is simply not worth the risk!

  Footnote; This post dovetails with many of my recent writings. Other related articles may be found in my blog archive, thanks for reading, your comments are encouraged. A more recent article delves into why people might simply stop lending,

Wednesday, May 21, 2014

War, And What Is It Good For?

As the world matured, communications improved, and people traveled more many of us hoped the catalyst for war would diminish. Instead, with new technology, we have only expanded our abilities to spread death and destruction. National pride, political agendas, religious and ethnic hatreds are some of the biggest roadblocks to world peace. Sadly over the history of mankind peace has been the exception rather than the rule. The true reality is that across the world few mothers want to see their children killed and most farmers want to be left alone to raise their crops and earn a living. While those who benefit from the production of weapons busy themselves with promoting war as a solution to our woes as an answer warfare often fails to be either easy, swift, or true.

War Is Not A Game And Yields Many Unintended Consequences! 
Unfortunately, with progress in technology comes new and more efficient ways to kill. The invention of the Gatling gun in the 1860s added a new dimension to killing, it was the first true weapon of controlled mass destruction. The weapon rotated 10 barrels and could expel bullets at the rate of 1,000 rounds a minute. How war is waged has changed with each advancement in technology, it would be folly to line up your army as in the days of old. Technology has spurred the ongoing and clumsy debate about inhumanity and the price of war. As is man's way he has adjusted, but today nuclear weapons may have taken the price too high.

Governments are not always dependable and instead of protecting the rights of those they govern and serving the people they tend to stray into other less mundane ventures.  Governments are often attuned and highly geared to serve the agendas of special interest.  This is one of the main reasons they often lead us into wars. It is not that the average person has a burning lust for bloodshed and destruction that takes us down this path. The argument that human nature leads us to war is pure folly, if that were true people would rush spontaneously towards such carnage and joyfully kill their neighbors.  Governments go to enormous lengths to persuade people to go to war using the tools of patriotic seduction, propaganda, and coercion. Governments convince and mobilize the people by painting a picture of an evil enemy that must be stopped.

It seems the first casualty of war is the truth. In the song "The Patriots Dream" by Gordon Lightfoot, the songwriter talks about old men blinding young men by their past glories and sending them off to their deaths. Societies that claim each and every life as equal and valuable often experience a disconnect when it comes to war, especially when it comes to the dead of their enemy. Time and time again peaceful men have shown the amazing ability to be transformed into killing machines.  War can be very corrupting to the physiology of the soldiers participating and asked to kill civilians and noncombatants.  Desensitized to death, these soldiers often find adjusting and returning to normal society impossible.  War poisons all the participants.
War Is Ugly
Warfare has proven to be a pathetic option to bring about positive change, it may change things, but to what degree and for how long. The loss of life of an individual is often insignificant except to their loved ones.  One of the harsh realities of modern war is that it  has become a less personal way to die.  Years ago it was hand to hand combat, looking into the eyes of your adversary, now you die by the hand of technology and often without any warning. Modern warfare is more abstract with many soldiers more emotionally detached from the carnage. If the military had its way soldiers would be trained on video games and placed on autopilot.

Lack of Knowledge does not bode well for society when it comes to our ability to foster intelligent government. The term "need to know" should be revisited and changed to "we all need to know as much as possible". Time and time again we have seen that social and political evolution is preferred over revolution which is often unstable. Bubbling up through the forces that bring us to war is the stupid and shameful myth that it is good for the economy. While war does line the pockets of a few industrialists and businessmen the cost is great and outweigh the benefits. War brings about the wrong kind of economic growth.
War tends to be a Pandora's box rather than the easy answer we often seek. Conflicts will always exist in our world, we must work towards developing a consensus of what is in man's best interest. Yes, we must defend ourselves, but as stated earlier in this article, mothers value their children, the peasant in a rice patty field values his ox, neither want them killed in a war.  If we look at every war ever fought we will find that most of the people affected by the violence only wanted to be left alone.  Though we live in an imperfect world mankind should not bring more misery upon himself by self-inflicting injury.  We must remember and mourn for all of the heroes that keep dying for God and Country at the request of the latter.

 Footnote; This post dovetails with many of my recent writings. Other related articles may be found in my blog archive, thanks for reading, your comments are encouraged.

Footnote #2;  An issue that has become more relevant today is that of sovereign borders. Below is an article that explores some of the reasons on why we can't just get along.

Sunday, May 18, 2014

Consumption Of Autos, Healthcare, and Student Loans

A big shift is occurring in what consumers are buying. Recently we are witnessing a shift from general consumer goods to more purchases of autos and healthcare. The first quarter GDP came out showing a huge drop yet these two sectors have been outperforming the economy.  If indeed online and auto sales are roaring up double digits at the same time healthcare spending has increased 4.2% it is only fair to assume small business and someone else is getting their ass kicked. Interestingly, this is all occurring as the government continues to pour out billions of dollars each month in student loans, many of these loans will never be repaid.

Many of the new cars hitting the road are really leases which show up as a sale, and many of them may be motivated because an automobile owner faced with a costly repair doesn't have money to put into their current vehicle. This allows someone in a weak financial position, such as those living on disability or student loans, to put themselves into an ego boosting vehicle that they cannot in reality afford, or need. I contend that super low artificial interest rates are making much of this possible. If I'm correct, much of the idea of "so called pent up demand" is secondary. It should be noted even with surging sales US auto companies are "hyper boosting" the economy by producing more cars than are being sold causing inventories to build.

Spending on healthcare took off in fourth quarter of 2013 as consumers rushed to beat projected increases in co-pays and premiums. According to Commerce Department data household outlays for medical services increased 4.1 percent from October through February, the biggest five-month gain since July 1992. Consumer spending climbed by $20.4 billion at an annualized rate adjusted for inflation in February with $13 billion of the increase coming from outlays on health services spurred on by Obamacare.

 About 5.4 million people have gained insurance since January according to estimates by the Urban Institute in Washington. This has unleashed pent-up demand for medical procedures that have been delayed sometimes for years and boosting out-of-pocket household spending on co-payments and prescriptions. Many people have seen large increases in their health insurance payments as a result of  Obamacare requirements. This represents a shift in spending and because wages and incomes are not rising as fast as spending in healthcare it is leaving many consumers strapped.
Incomes Are Flat, This Is a Shift In Spending

This means sales could slow at stores such as Wal-Mart and Target as middle-income households spend more on co-pays and deductibles. The spending of low income earners may be less affected as they benefit from Medicaid expansion and tax credits. Still it is important to recognize this shift for what it is and realize a  big question looms concerning how many of the people signing up for government subsidized healthcare will stick with the program, it is expected that many people may stop paying the premiums due on their policy within a few months.

Last but not least the "helicopter money" known as student loans continues to be dumped into the economy. A student loan is designed to help students pay for university tuition, books, and living expenses, but many students are borrowing against their future at an almost unimaginable pace and using the money for things other then education. Too many young people and others taking student loans "living expenses" go on to include cars, trips, vacations and more. All this has a very dark side that will effect the lives of these borrowers going forward. With this easy money society is encouraging young people to take on this debt and to hock their futures.

All of the above facts point to an economy mired in growth that is unhealthy and akin to the, "I will gladly pay you Tuesday for a hamburger today" way of thinking. A story on the PBS Newshour just last week told of how many of those newly enrolled in the ACA were people being released from prison. The story told how this will be a big help for the ex-cons who often can't afford and go without healthcare. This means we are now paying for their healthcare and also much of the cost to employ thousands of people to encourage and sign them up for program. While this appears as economic growth in the GDP it is not the stuff of a vibrant economy.

 Footnote; This post dovetails with many of my recent writings. Other related articles may be found in my blog archive, thanks for reading, your comments are encouraged.

Saturday, May 17, 2014

How Empires Collapse

I recently found myself thinking about the decline or collapse of great empires and realized that it is often hard to predict when or how their demise will occur. Many analogies can be taken from this idea, the empire need not be great and timing is always hard to correctly gauge. The signs of decline may be everywhere but that does not guarantee the end is near. As the foundation crumbles away it is not uncommon for those in power to extend their rule by many tricks and changing the rules in order to gain a new lease on life.
Empires Often Die From Corruption And Weakness Within

Decline and collapse can be sudden or slow. In our modern world with communication so important, I suspect that the process is generally accelerated. Sometimes a system morphs or evolves towards its end and in other cases, a single event can act as the catalyst to bring a system to its knees. Looking back to the economic crisis that gripped the world in 2008 is an excellent example. Central Banks across the world joined with politicians to pull rabbits out of their hats and used unprecedented actions to halt the collapse of the system.

Now for the more interesting question, did those in power only delay the last scene of a bad play, is this all an extend and pretend scenario? That may depend on whether actions were taken over the last few years to repair and set right many of the problems and issues that plagued us. We were given time to change our evil ways such as spending money we didn't have as well as dealing with growing debt loads and unfunded promises, but in truth, we have failed to address the many structural problems before us. We printed money to build a new future but unfortunately looking back we have little to show for how it was spent.

Today a big topic is the huge growth in inequality. Those who look closely understand that it is not the 1% at the top stealing the icing off the cake, but the much smaller .1% or .01% that are skewing the numbers and overreaching. I contend this goes hand in hand with the massive growth in crony capitalism and corruption. Much of this can be attributed to the ability of those in control "changing the rules" and positioning themselves to benefit at every corner. In our busy and complex world, we have found it impossible to watch all the moving parts.

What might be called the "Deep State" definitely exists and it often works in plain sight and not how it is depicted in the movies. It is not a complex conspiracy but the gut of a system laced with ever-growing corruption and relaxed morals. In reality, human beings are generally too incompetent, lazy and inept to carry out schemes on a grand scale. People are bad at keeping secrets and insider knowledge is almost always passed around, even in secretive organizations, often recklessly so. Doling out secrets and insider information confers status, tactical advantage, and sometimes even financial gain.

Corruption and crony capitalism are cancers on society that grow if not constantly treated. Empires and successful endeavors are built on strength and a sound financial foundation. This can erode very quickly in our fast-changing world. Debt is an often no more than a glorified  IOU  and we must try to remember that bills can go unpaid and promises left unfulfilled. Faith is the glue that holds this all together. Most likely the economy won't fall apart or collapse today and when it does a new economy will rise from the ashes.

What happens when the momentum ends?  The whole concept of economic growth is based on an ever-growing trend of year over year increased production. We must remember the influx of monetary stimulus from QE and massive government deficit spending has created the illusion of more pent-up demand then exist or can be substantiated. This discounts the quality of economic growth and results in an elevated baseline for comparing year on year growth, in short, we have to move forward faster next year just to keep growing.

When looking through the eyes of modern monetary theory things get fuzzy. The denial of inflation and worries of deflation still exist even as ever larger amounts of money are being printed. These "interesting times" play havoc with the value of things and what they are worth. Like some of the cruel games children play you don't want to find yourself without a chair or holding the "hot potato" when the game ends. The bottom-line is the game will end and start anew, but questions remain as to when and what the new rules will be.

 Footnote; This post dovetails with many of my recent writings. Other related articles may be found in my blog archive, thanks for reading, your comments are encouraged.

Friday, May 9, 2014

Yellen's Job Critique

This Is How The Media  Presents Yellen
Janet Yellen has been head of the Federal Reserve bank long enough that we no longer need to speculate as to her job performance. As we begin to critique her ability to perform we must remember perception is often just as important as reality. Another issue that comes into play is how you stack up or compare to the person who held the position previously, this often extends to style as much as it does to substance. When it comes to style Janet enters the game wanting. It is not an understatement to say she makes an underwhelming presence. In our shallow modern world a subtle but subconscious biases exist that tends to or can stereotype a person.

It is human nature to link certain traits when we take measure of a person. Sometimes this is based on age, height, weight, how a person wears their hair and many other factors concerning both appearance and things like speaking style. This is an area that Yellen has a problem or falls short. For example while a slow talker can drive many of us up a wall such a person often gives the perception of being more thoughtful and less rash, even the tone a person speaks in can be a problem. This is why so many successful people have worked with media coaches in an effort to remove annoying habits, take off the rough edges, and help them polish their public persona.

In short, Bernanke, whether you liked his policies or not came across as the all knowing uncle who had your best interest at heart and projected himself as understanding the forces playing out. This led people to believe he had a handle on things and would guide us through what lay ahead. When a picture appears in the media Bernanke tended to appear in a thoughtful state, reassured and even a bit arrogant but in the end competent. An air of confidence helps to keep people following a leader and as Winston Churchill said "If you're going through hell, keep going."  A recent article I read capsulized Yellen's message as "Don't worry be happy!"

It is beginning to appear the media has not extended such a generous public image to Ms. Yellen. Her general appearance falls short of what we have come to desire in a leader and her general demeanor is not awe inspiring. While this may seem unfair to her supporters little jabs at Yellen from many sources are creating the image of a less than inspirational force. I predict her lack of "fans" and strong supporters will undermine and erode Yellen's ability to carry out her role and garner cooperation in the future. Unlike, the pictures of a solid Ben Bernanke pictures in the media give the impression of Yellen being confrontational, clueless, or downright dowdy.

All of what I have written above sidesteps the issue of her policies but impacts her ability to verbalize and defend them. As expected it appears Janet Yellen has chosen to take us down the same the rabbit hole as Bernanke on a journey to prove that if we just continue doing what is not working, all will turn out fine. Caution, this path leads down, and down, and down, farther and deeper then most can ever imagine. If asked to critique "Old Yellar" now playing in theaters everywhere I would by way of the reasoning above have to give her the maximum two solid thumbs down.

  Footnote; This post dovetails with many of my recent writings, as always other related articles may be found in my blog archive. Thanks for reading, your comments are encouraged. I hope this critique of Yellen is not viewed as being to harsh or personal, but this is how I call it. Remember Yellen is playing with our money in a unforgiving arena.


Tuesday, May 6, 2014

Reconciling Recent Job Reports With Economic Reality

How do we reconcile with economic reality the recent job report numbers showing hundreds of thousands of jobs being created while even far larger numbers of people drop from the work force? After watching a 45 minute U-tube speech by Kyle Bass from Hayman global Outlook I was swayed by his argument that we may
Unemployment, The Devil Is In the Details!
see the unemployment rate in America go lower in coming months. Sadly, it was based on more people dropping from the labor force and more part time very low paying jobs. My take on the recent jobs report is that as spring comes upon us ever optimistic and more desperate Americans are being pushed into making a decision as to whether to leave the work force or take a lower paying job that is often part time. Yes, people are busy scurrying around, but it should be clarified not at a fast pace.

The question then arises as to how this will spill over to economic policy. If the Fed begins to allow interest rates to rise it may effect the economy like a brick hitting a window and shatter it into a broken mess. Mr. Bass and I are in agreement that interest rates are destined to rise. The push higher in the stock market from this report might be considered as more proof that insane behavior has few limits. Even a dismal GDP coming in at .1% and disappointing factory order numbers can't turn back the enthusiasm created in this distorted and manipulated market. It appears given yields around the world and the fundamentals we face investors have excessively optimistic expectations about their future returns.

Breaking down the jobs report is an interesting exercise. Many people who do construction are shifted to snow removal and construction repairs during bad weather. While this adds to the economy it adds in a different way or a new dimension. Spending of this nature is more defensive then offensive, often the money is used to defend or to prevent losing assets and value rather than to move forward and create new and useful goods. As proof  most business and property owners will tell you harsh weather is not their friend, a great deal of money is shifted into unexpected repairs and towards utilities that would have been put in the profit column or put to better use such as upgrading equipment or doing improvements. 

The area we should pay more attention to is how the different sectors of the economy dependent on discretionary spending fared. I contend a shift is occurring within the ranks of shoppers and consumers that is causing the little economic growth occurring to be the "wrong kind of growth" and not healthy over the long term. These job numbers create a false illusion that mask over what is really happening as incomes grind to a halt and inflation nibbles at the buying power of the average American. In my opinion the wrong people are buying the wrong things. Auto sales, student loans, and healthcare spending have become key drivers in this economy, below are the reasons each concerns me.

*  Many of the new cars hitting the road are really leases which show up as a sale, and many of them are taking place because an automobile owner faced with a costly repair is oping for this alternative verses putting money they do not have into their current ride. This means those living on disability or student loans are buying an ego boosting vehicle that they cannot in reality afford, or need. Super low artificial interest rates are making this possible. Nearly 85% of new-car buyers in the second quarter signed up for a loan or lease to fund their purchase says credit bureau Experian. That’s the highest level since it began tracking this sector in 2006. That means that these consumers may be over-leveraged and not have money to purchase other goods.

*  Many people taking student loans have been using the money for their "living expenses" this includes cars, trips, vacations and more. The amount of these loans has expanded in an alarming way. All this has a very dark side that will effect the lives of these borrowers going forward. In many ways society is encouraging young people to take on this debt and to hock their futures. The picture going forward is somewhat bleak for those that have taken student loans, with the borrowers about twice as likely to be behind on student debt as for credit cards, car loans, and mortgages.

*  Because of the ACA or what is commonly called Obamacare, Americans are now spending more on healthcare and this shift leaves less money for other things. While it could be argued this creates jobs in healthcare it should also be pointed out that our healthcare system is inefficient and overall does a poor job. This means much of the money is wasted or when all is said and done creates little in the way of new wealth. In some ways it could be looked at as a tax and merely shifts spending.

Recently much of our economic growth was based on refinancing and Wall Street investing in housing across America on the misconception the economy was ready to roar. Now both these areas of growth have greatly slowed. My final two takeaways on this report, looking at one month of job figures can be very misleading and the other is that an increase in "job quantity" does not make up for the poor quality of the jobs people are being forced to accept.

 Footnote; This post dovetails with many of my recent writings, for more I might suggest reading the article below. Other related articles may be found in my blog archive, thanks for reading, your comments are encouraged.

Sunday, May 4, 2014

Benghazi Revisited And The Serious Implications!

What is considered a smoking gun and proof that the White House and Obama knew the truth about what happened in Benghazi right after the attack has recently emerged. If this internal E-mail supports these allegations and leads to more links or stronger evidence it could make what happened in the second Presidential debate very important. As a reminder during the debate Obama deliberately lied to the American people about what he said in the Rose Garden and Candy Crowley inappropriately backed him up. A gloating Obama then chimed in, “Can you say that a little louder, Candy!” Obama later scolded Romney about how “offensive” it was for him to question the administration’s selfless intention.

I say the president deliberately lied because it looked like Romney was "set up" and Obama never recanted or clarified his statements. Even the hyper-partisan press could not sanction this lie for long. After the event, Ms. Crowley quickly backtracked, admitting that Romney was “right in the main.” This is like an umpire deliberately getting in a runner’s way and calling him out during a decisive World Series moment, then admitting the call was blown at a post-game press conference. This could be considered  a watershed moment and may have been the turning point in the election. At the time Mitt Romney was on a roll and Obama on his heels, this took away all the momentum Romney had and left him flat.

This may bring back into focus the issue of "what and when" the White House knew concerning the events that took place in Benghazi. Below is an article I wrote on October 23,2012 just before the election as Hurricane Sandy hit and this subject was being pretty much ignored. I pulled this article from the blog archives. Things swung hard Obama's way in the final days, I was wrong about Romney getting a majority of the vote.

                     The Second Debate Was Important

The CNN debate moderator Candy Crowley clearly was in the Obama campaign's corner giving him the close on 8 of 11 questions and only interrupting him 9 times while interrupting Romney 28 times. The lowest and most dishonest part of Crowley's disgraceful "moderation" was when she actually jumped into the debate to take Obama's side regarding the death of  four Americans in Benghazi. To cover for his administration and his lying for almost two weeks about the attack coming as the result of a spontaneous protest over a You Tube video. Obama attempted to use as cover the claim that he had called the attack a "terrorist attack" on that very first day during his Rose Garden statement. Romney correctly disputed that. Crowley, quite incorrectly, took Obama's side and the crowd exploded.

Yes, the most shocking thing in the debate was when Obama lied deliberately to us about what he said in the Rose Garden and Candy Crowley inappropriately backed him up. A gloating Obama chimed in, “Can you say that a little louder, Candy!” He later scolded Romney about how “offensive” it was for him to question the administration’s selfless intention. But even the hyper-partisan press could not sanction this lie for long. After the event, Ms. Crowley quickly backtracked, admitting that Romney was “right in the main.” This is like in an umpire deliberately getting in a runner’s way, calling him out during a decisive World Series moment, then admitting the call was blown at a post-game press conference. Benghazi, the White House cover-up and an enabling media offer a microcosm for the whole Obama presidency. His economic policies have been wasteful and counterproductive; doing more to buttress cronyism than bring recovery. His social policies radically depart from traditional American values. Obama’s foreign policy is in shambles.

Obama came out on the anniversary of 9-11 speaking about the fact that we would not run run from terrorists and  making no reference to Benghazi. the White House then sent Susan Rice out on 5 occasions to tell the news media the attack was due to a video, Hilary Clinton said the same, Obama said the same to the families and then he went before the UN and said 8 times, the problem was the video. At the debate Romney asked Obama if he had come out immediately and called the attack what it was seen to be by the White House Security, a terrorist attack in real time. Obama looked right at Romney and lied and said he did say it was a terrorist attack. 60 million people saw this man just sit there and not tell the truth. Romney looked stunned.

Why did Candy have a copy of the”transcript” of that one Obama Speech? And how did Obama know she had a copy of the transcript of that particular speech, he asked her to refer to it. Sounds like somebody (Obama) knew what the question was going to be, and sandbagged Romney by ensuring that Candy was going to have the “transcript” on her table and believed the answer Obama was going to give. Then the drama, Obama: “Please proceed Governor,” and Obama: “get the transcript.” How did Obama know what the question was going to be and how Candy would reply? Candy was the only one who picked the questions. What other documents did she have? Us with inquiring minds would like to know, and why is no one asking?

From the transcript on the Wall Street Journal site: "No acts of terror will ever shake the resolve of this great nation, alter that character, or eclipse the light of the values that we stand for. Today we mourn four more Americans who represent the very best of the United States of America. We will not waver in our commitment to see that justice is done for this terrible act. And make no mistake, justice will be done." To clarify, in this transcript of his speech Obama did not call the 9-11 attack in Benghazi a terrorist attack. When you watch a replay of the debate it is clear the American people are being set up and mislead. This was a cover up by the Obama administration because it was too close to the election and it has blown up in their face.

In all 3 debates so far, the democrat has had several minutes more to speak than the republican. Obviously  mainstream media is backing Obama, but the public is favoring Romney anyway, we could be looking at an election where Romney gets a majority of the vote yet Obama stays in office because of the electoral college. The media and the public seem to be viewing the debates as the MLB World Series. This is not a best of 7 game were playing here. Who wins the debate or blasts his opponent with a knuckle sandwich has no bearing on the outcome. The content of the candidates has become boring, predictive and a lathering of fixed message points hurling "you are bad" epitaphs at each other with little substantive content. It's not only America that is playing this distraught game. Governments all over the world are plunging into theatrics with hands waving, waiting for the audience applause. It's the wrong game at the wrong time and it's a very sad comment on our culture.

Footnote: As an update August 1,2013 A fair amount of time has pasted since this post and many new developments have taken place. For a bit of an update as to where we have moved see the posts below or please search the archive.

Saving Money One Coin At A Time

Dollar Coins are the way of the future
Currency should be designed by the government as a simple and efficient medium for exchanging goods and services. The U.S. Mint has produced $1.4 billion in surplus dollar coins that are sitting in vaults. They make hundreds of millions of these coins every year with 40% of them being returned to the Federal Reserve because nobody wants them. Using the coin in Post office vending machines created a relatively small demand, but the USPS eliminated all those machines by 2010. Dollar coins have found little popular acceptance in circulation in the United States despite several attempts since 1971 to increase their usage. To store all the unused coins, the Federal Reserve told Congress they will need to spend money to build a new vault in Dallas to hold them. Shipping the coins to the new secure facility will cost an additional $3 million. Sadly the government is still messing around with these stupid programs. 

The Sacagawea dollar was authorized by Congress in 1997 because the supply of Anthony dollars, in inventory since their last mintage in 1981, was soon expected to be depleted. Dollar coins are used infrequently in general commerce. There are approximately 1 billion Sacagawea coins currently in circulation (about 3 for each person living in America) and a large number in reserve. In December 2005 Congress decided to create a new series of $1 coins to honor former U.S. Presidents. At least one-third of all dollar coins produced are still Sacagawea coins, with the remaining coins being the four presidential coins annually. The presidential dollar coin is the same size and composition as the Sacagawea dollar. In 2007 four different designs of Presidential coins were produced, another four designs will be produced each year honoring the Presidents in order of service. This is intended to create renewed interest in the dollar coin like that seen from the "50 State Quarters" program. To emphasize what a joke Washington has become and how far this farce has gone after all the spending and wheel spinning the program scheduled to run until 2016 but was canceled to save money.

This move is controversial because phasing out paper bills and replacing them with a new $1 coin will save billions over time. If the presidential coin is such a clear case of wasteful government spending it is surprising to see the reaction from government watchdog groups. "We're honestly outraged about this," said Tom Schatz, president of Citizens Against Government Waste, "If they wanted to stop producing something that loses money in terms of minting coins, they should get rid of the penny and nickel." The dollar coin, he said, actually saves taxpayers money. That's because it costs 18 cents to produce, with the rest going to the government as profit. Because coins last longer than bills, shifting to a dollar coin could save $5.6 billion over 30 years says the Government Accountability Office. Last year the super-committee charged with cutting trillions of dollars from the US debt endorsed the idea to cut spending by replacing the dollar bill with the dollar coin. Getting this done in dysfunctional Washington is another issue.

The Obama administration's decision to suspend production of the dollar coins is too many just the latest blunder on dollar coin policy that has been mismanaged since the introduction of the Susan B. Anthony dollar decades ago, the coin was often confused for a quarter. Other countries have saved money by moving their low denomination bills to coins. It now appears to shift to a dollar coin the treasury would have to take dollar bills out of circulation. "I don't think that's something Americans want to see us do," said Rep. Kevin Yoder, R-Kan., the author of one of the several bills to suspend production of dollar coins. Current policy has been to promote both the dollar bill and the dollar coin with Americans consistently choosing the dollar bill. In other countries, these coins have largely succeeded because of a removal of their corresponding paper issues.  Groups on both sides of the issue are voicing their opinions, with "Americans for George" claiming that the public prefers the paper bill, while the Dollar Coin Alliance points to the cost savings. 

It is time to wrap this up. If the stupid politics and expensive time wasting of those in Washington do not make you cringe remember many of these crazy policies and decisions are helped along by lobbyists and industries with ties to the money-making industry. Enough of these "cute" coins and constant design changes and get back to basics.  For many years there have been discussions about discontinuing the penny which has become obsolete because of its minuscule purchasing value. The debate against continuing the penny is overwhelming, the penny is a perfect example of our government's inefficiency and waste, "the penny doesn't make sense". If the government cannot deal with the penny that carries negatives for the economy and society such as the energy used to make, transport, and distribute the worthless coin we are left with little hope that will get this right.

Footnote; This post dovetails with many of my recent writings, for more I might suggest reading the article below. Other related articles may be found in my blog archive, thanks for reading, your comments are encouraged.

Saturday, May 3, 2014

Value And Worth Constantly Change

Near the end of 2012 I penned the following article. Because of the uncertainty in today's market and the direction events might take the subject of "value and worth" continues to garner a fair amount of interest and remains relevant. History is chucked full of  distorted markets, debts unpaid, promises unfilled, and bubbles. These "interesting times" play havoc with the value of things and what they are worth. Like some of the cruel games children play you don't want to find yourself without a chair or holding the "hot potato" when the game ends. Below is the full article sporting a minor facelift and update.     

                              What Is Something Worth?

The value of "something" is not an issue to take lightly. Value can be derived from several factors such as supply and demand or utility value, things can spoil or become obsolete making where you invest very important. Value is not as constant as many people think or always destined to rise. The whole concept of value is also deeply rooted in "relevance" meaning drinking water is very valuable to a man dying of thirst. I have over the years discovered many opportunities to buy things at ten cents on the dollar and will confirm your money goes a long way in such a situation. It must be noted that values can really change if you are forced to sell into an illiquid market at a time when others are doing the same.

Too buy things at deep discount it helps to have money or the equivalent, it also helps to be able to move quickly. The importance of developing good negotiation skills should not be underestimated. Years ago a business venture took me into an area where I had the opportunity to attend many auto auctions and placed my own bids. I soon learned getting the best price is an art. It is a combination of things, like timing, you soon learned when to step in or how to slow the bidding down thus cooling the animal spirits. Often simply not bidding against yourself was a good start.

When it comes to value the market place is the final judge and shows little favor or mercy. One of the favorite stories garnered from this experience came from when a seller complained to the auctioneer  about the low bids he was receiving on a car he was selling. When the high bid came in at one thousand dollars the surprised seller said, "but I paid four thousand for that car just last week". The auctioneer's response said it all , "well sir, it is a thousand dollar car today"!

This "theory of value" is something that also extends to stocks. These are promises that were at one time no more then a piece of paper known as a certificate that signified part ownership in a company, now it is just a line on a financial statement. How many investors have seen that line vanish? "Value" can change in a heart beat, and we live in a time that information travels at the speed of light. May I mention just two of the great teachers of what I call financial reality, Bernie Madoff and Enron.

When it comes to real estate low interest rates and liquidity have a huge impact on value effecting both the value by making it easier to purchase thus driving up prices, and at the same time allowing more building to take place and increasing the supply. When we exceed demand rents fall and people stop buying as an "investment". Prices must rise more then the natural depreciation from the wear and tear of age or the main driver for owning real estate vanishes. Oversupply is the bane of real estate and crushes the value of this hard and expensive to maintain commodity.

For years I have struggled with the inflation/deflation conundrum and like many people studying the subject been surprised at the lack of inflation. Never before has mankind diverted such a large percentage of wealth into intangible products or goods.  I now argue this is the primary reason that inflation has not become a major economic issue. Our modern economy is loaded with interwoven contracts reeking of contagion. If faith drops in these intangible "promises" and  money suddenly flows into tangible goods seeking a safe haven inflation could soar even as debts go unpaid and promises are left unfilled.

Call me a skeptic but I contend that the illusion of value should not be held to close. The value of a building can be altered when a tenant goes bankrupt. The value of a currency drops when everyone starts to sell it. Even the value of something as sought over as gold can drastically change if a government confiscates it and makes it illegal to buy, sell or even own can. What something is worth can be difficult to determine. And most of all tell me the value of a promise on paper or implied, remember if you own gold that is represented by a certificate, you own a piece of paper.

Footnote;  Your comments are welcome and encouraged. If you have time check out the archives for other post that may be of interest to you. The articles below delve deeper into how the value of money can quickly change,


Thursday, May 1, 2014

Japan Sliding Towards The Abyss

Japan continues to slide towards an economic abyss with each passing day. The writing is on the wall. Japan is facing a wall of debt that can only be addressed by printing more money and debasing their currency. This means paying off their debt with worthless yen where possible and in many cases defaulting on promises made. Japan's public debt, which stands at around 230% of its gross domestic product (GDP), is the highest in the industrialized world. Often because of its size people forget that little Japan is the worlds third largest economy making it a huge economic power with a big shadow.

It should be noted that Japan would be sitting in far worse shape if it were not for the wealth currently shifted from America to the small island nation each year. America spends billions each year defending Japan and puts much of this money directly into the economy. Another way America supports Japan is by purchasing so many of the goods the country produces. The massive trade deficit America has with Japan feeds large amounts of money into Japan, without this money the massively indebted nation would be in even more trouble.

When you introduce demographics into the picture we see that Japan is stuck with an aging and shrinking population that is evermore expensive for the government to provide for. Adding to its woes the Fukushima nuclear disaster has shuttered its nuclear power plants and forced the country to import more expensive energy alternatives. Neither monetary nor fiscal policy will adequately solve Japan's problems. Continuing to run fiscal deficits only means that government debt is pushed onward and upwards leading to a variety of possible scenarios as to the what the end game will be. Simply put, the fundamentals for Japan are lousy.

Japan raised its sales tax, also known as consumption tax, to 8% from 5% recently this is the first hike in seventeen years. The hike comes as Japan has been looking to rein in public debt, while facing rising social welfare costs linked to an aging population. The rise in sales tax is also seen by many as helping Japan achieve its 2% target for inflation. Unlike many other leading economies, Japan has been battling deflation or falling prices for the best part of the past two decades expect this to change as reality takes hold.

As Japan has undertaken a policy to weaken its currency and to strengthen its exports other countries have remained mute in sympathy of the problems Japan is facing. Thus far the current BOJ policy has quietly and systematically distorted financial markets across the planet. As this unfolds investors and the megabanks are drastically reducing their Japan Government Bond (JGB) holdings. The risk of who gets hurt in the case of a default is shifting from the private sector to the public as the BOJ splurges on JGBs. As they continue down this path it is only a matter of time before the credibility of the BOJ is lost and the yen will plunge.

As investors in Japan's government bonds begin to believe that Abenomics will be successful in bringing back inflation it would be logical for owners of  JGBs to move out of low yielding securities and buy foreign bonds or equities. The moment the Japaneses stock market fails to rise enough to offset inflation this will turn into a tsunami of  money fleeing Japan and constitute the end of the line for those left holding both JGBs and the yen. This has been a long time coming and I contend the cross-border flow of money leaving Japan is why some stock markets have remained so resilient . When Japan crumbles it will be felt across the world.

 Footnote; This post dovetails with many of my recent writings. Other related articles may be found in my blog archive, thanks for reading, your comments are encouraged.

Facing Our Economic Armageddon

We may soon be forced to face our economic Armageddon. The forces that have driven stock markets ever-higher and upward may be beginning to wane. Many markets became distorted years ago when QE and super low interest rates hit the economy in an effort to lessen many of the missteps of recent years.  This has been more helpful in holding up the underlying value of assets and derivatives it now appears than helping to repair a wounded economy. QE has up to now stopped an implosion of derivatives including the resulting contagion and shock that would have spread throughout the financial system. Unfortunately the economy has not fared as well as these asset prices and in many ways these policies have harmed Main Street.

Today the economic recovery that the media and talking heads have been bantering around remains elusive to many people across America and the world. The ever higher market prices morphed into a self feeding loop the trend  strongly supported by manipulation. Untold damage has been done by stripping savers of their interest and forcing them into risky investments. Over the years we have witnessed the type of market reversals that only those supported by the Fed can generate with a concerted effort to buy S&P 500 index futures at crucial support points late in the day. On many occasions this has proved more than enough to turn the markets from red to green in the blink of an eye.  This manipulated stock market distorted by recent economic policy masks the real truth of how fragile our economy really is.

The stock market has become ground zero and the poster child in a war those in power have waged to convince the world all is well. Fact is if QE or the massive government deficit spending that props up our economy is removed it will fold like a cheap umbrella. What has transpired since the 2008 crisis is far from business as usual. Central banks, especially the Federal Reserve, stepped in with monetary injections to prevent the worst from happening as they should have done in such a situation, but power went to the head of an arrogant Ben Bernanke. Over the last several years a pattern of random statements from the Fed and several other sources have caused crazy and illogical rallies. The unholy alliance formed between the Federal Reserve, the government, and the too big to fail has left those of us who question the validity of an economic recovery in a precarious position.

For the big boys it became a game of  insider information and computer trading, this includes computing patterns that exploit where stops are placed improving their ability to wash the timid and weak bears out of their positions. With the support of those in power it was no contest. Bottom-line once Bernanke and the Fed switched on the printing press to prevent the financial markets from collapse instead of showing responsibility and restraint they let them run. It is one thing to get a market to rise and make new highs but a far more difficult task to hold them at these lofty levels. As of late market supporters point to what many see as a baffling lack of inflation and the talk of downright deflation to muddy the economic waters and justify more easy money.

It may be time to throw out the window many of the traditional measurements used in past years about what constitutes an economic recovery. It is becoming increasingly clear that not all economic growth is created equal. If you spend money but afterwards have little to show for it, you have wasted it. This brings into question the quality of growth based on recent policies and raises questions if the current economic momentum is sustainable. When the money driving this demand  is borrowed it has long-term ramifications, sadly much of the money the American government spends falls into this category. Modern economics is complex with cross border money flows, carry trade, and issues concerning how fast money moves throughout the economy. The modern economy that has evolved over the last several decades is loaded with interwoven contracts reeking of contagion. 

I contend that faith will drop in these intangible "promises" and money suddenly flows into tangible goods seeking a safe haven. This will cause inflation to soar. In a recent article I wrote "never before has mankind diverted such a large percentage of wealth into intangible products or goods" this is the primary reason that inflation has not raised its ugly head or become a major economic issue in recent years." Like many of those who study the economy I worry about the massive debt being accumulated by governments and the rate that central banks have expanded the money supply.  It will soon become apparent the economic efficiency of credit is beginning to collapse and the additional money poured into the system coupled with lower rates is no longer effective in driving the economy forward at that time many economic policy options will evaporate.

Footnote; Your comments are welcome and encouraged. If you have time check out the archives for other post that may be of interest.