Wednesday, December 31, 2008

2009 Survival


"The Crash Of 2008" may not be the phrase used in history books, but 79 years after the "big one" hit this might be seen as a significant aftershock. We won't dwell on it now; enough has been said and written on that subject.

We are at New Year's Eve and, traditionally, that is the time to celebrate a new beginning. So, where do we begin?
I talked with Bill the other day about just that. Bill lives down South and has a curiosity about politics and the economy ... and just enough connections to get interesting perspectives. His big question was whether or not the rest of the country was going to become like Michigan? I told him that Michigan and several other states in the northeast were suffering through years-long economic malaise because they depended so much on actually producing things and the U.S. has turned its back on being a maker of things.
Whereas many countries assist their producers in research, employee benefits, taxes, and regulations; the U.S. treats its manufacturers like booty to be looted.
Yes, Bill, there is a possibility that given all that has hit the fan already, the U.S. could become... or is becoming... Greater Michigan: declining economy, fewer jobs, loss of property values, greater dependency on government, and continued antagonism toward business in tax policy.

Bill wanted to know what the way out was. I told him that I have opinions just as millions of others have opinions, but that and $5 gets you an over-priced cup of coffee at Starbucks. Rather than directly answer, I asked a question in return: did he know which country already figured out the road to prosperity [hint: not China]? Try a perennial back-water of Europe. Yes, Ireland.

Bill understood. We can choose to have a 10-year correction like Japan in the 1990s. That's where we wait to hit bottom so we can begin the long climb up while basically changing nothing. Or we can face what really stands in our way: us.
In the past, we looked to the consumer or manufacturing to trigger recovery. Don't look there. Maybe a big run-up in Wall Street... do you really think so? How about Obama's WPA? Somehow fixing roads may fall short. Let's print more money so we can import more stuff from China. Eh, who is going to do the buying?
We have to face the truth: our prosperity has been a series of Ponzi schemes over the past decade... a lot more Madoffs than we choose to recognize. Dot-coms... housing... energy... all "creating value" from vapor... and all crashing down leaving personal and public finances in shambles.

So, I offered this to Bill: we have to revise our business taxes and our trade policies to reflect how the world really works... not how some politician-philosopher wants it to work.
  • Eliminate most business taxes and focus on achieving the economic prosperity that results from ultra-competitive business and high employment. Here in Michigan, businesses get charged the full amount of property taxes for idle facilities while the businesses that own them are losing money or going bankrupt... how does that help the state's economy?
  • Make all trade policies... and practices... reciprocal. If a country charges 15% value added tax for our products... do the same for theirs. If a country manipulates their currency to benefit their industries, address that in terms that discourage such behavior. Trade should be mutually beneficial, not skewed to strengthen the businesses in one country while undermining those in another.
That simple? Well, I also mentioned that the U.S. parochial-provincial regulation system costs billions of dollars a year and hurts everyone. For example, the European Union and the U.S. have different product safety and environmental standards. Fix that now!

Bill and I concluded that 2008 was leaving us with a very murky picture for 2009 and that more government programs and regulations and taxes didn't seem to be a great survival strategy.

What do you think?
Here's hoping your New Year is a good year.

Can"t Find It?

Use the SEARCH BLOG feature at the upper left. For example, try "Global Warming".

You can also use the "LABELS" below or at the end of each post to find related posts.

Blog Archive

Cost of Gasoline - Enter Your Zipcode or Click on Map

CO2 Cap and Trade

There is always an easy solution to every human problem—neat, plausible, and wrong.
Henry Louis Mencken (1880–1956)
“The Divine Afflatus,” A Mencken Chrestomathy, chapter 25, p. 443 (1949)
... and one could add "not all human problems really are."
It was beautiful and simple, as truly great swindles are.
- O. Henry
... The Government is on course for an embarrassing showdown with the European Union, business groups and environmental charities after refusing to guarantee that billions of pounds of revenue it stands to earn from carbon-permit trading will be spent on combating climate change.
The Independent (UK)

Tracking Interest Rates

Tracking Interest Rates


SEARCH BLOG: FEDERAL RESERVE for full versions... or use the Blog Archive pulldown menu.

February 3, 2006
Go back to 1999-2000 and see what the Fed did. They are following the same pattern for 2005-06. If it ain't broke, the Fed will fix it... and good!
August 29, 2006 The Federal Reserve always acts on old information... and is the only cause of U.S. recessions.
December 5, 2006 Last spring I wrote about what I saw to be a sharp downturn in the economy in the "rustbelt" states, particularly Michigan.
March 28, 2007
The Federal Reserve sees no need to cut interest rates in the light of adverse recent economic data, Ben Bernanke said on Wednesday.
The Fed chairman said ”to date, the incoming data have supported the view that the current stance of policy is likely to foster sustainable economic growth and a gradual ebbing in core inflation”.

July 21, 2007 My guess is that if there is an interest rate change, a cut is more likely than an increase. The key variables to be watching at this point are real estate prices and the inventory of unsold homes.
August 11, 2007 I suspect that within 6 months the Federal Reserve will be forced to lower interest rates before housing becomes a black hole.
September 11, 2007 It only means that the overall process has flaws guaranteeing it will be slow in responding to changes in the economy... and tend to over-react as a result.
September 18, 2007 I think a 4% rate is really what is needed to turn the economy back on the right course. The rate may not get there, but more cuts will be needed with employment rates down and foreclosure rates up.
October 25, 2007 How long will it be before I will be able to write: "The Federal Reserve lowered its lending rate to 4% in response to the collapse of the U.S. housing market and massive numbers of foreclosures that threaten the banking and mortgage sectors."
"Should the elevated turbulence persist, it would increase the possibility of further tightening in financial conditions for households and businesses," he said.

"Uncertainties about the economic outlook are unusually high right now," he said. "These uncertainties require flexible and pragmatic policymaking -- nimble is the adjective I used a few weeks ago."

December 11, 2007 Somehow the Fed misses the obvious.
[Image from:]
December 13, 2007 [from The Christian Science Monitor]
"The odds of a recession are now above 50 percent," says Mark Zandi, chief economist at Moody's "We are right on the edge of a recession in part because of the Fed's reluctance to reduce interest rates more aggressively." [see my comments of September 11]
January 7, 2008 The real problem now is that consumers can't rescue the economy and manufacturing, which is already weakening, will continue to weaken. We've gutted the forces that could avoid a downturn. The question is not whether there will be a recession, but can it be dampened sufficiently so that it is very short.
January 11, 2008 This is death by a thousand cuts.
January 13, 2008 [N.Y. Times]
“The question is not whether we will have a recession, but how deep and prolonged it will be,” said David Rosenberg, the chief North American economist at Merrill Lynch. “Even if the Fed’s moves are going to work, it will not show up until the later part of 2008 or 2009.
January 17, 2008 A few days ago, Anna Schwartz, nonagenarian economist, implicated the Federal Reserve as the cause of the present lending crisis [from the Telegraph - UK]:
The high priestess of US monetarism - a revered figure at the Fed - says the central bank is itself the chief cause of the credit bubble, and now seems stunned as the consequences of its own actions engulf the financial system. "The new group at the Fed is not equal to the problem that faces it," she says, daring to utter a thought that fellow critics mostly utter sotto voce.
January 22, 2008 The cut has become infected and a limb is in danger. Ben Bernanke is panicking and the Fed has its emergency triage team cutting rates... this time by 3/4%. ...

What should the Federal Reserve do now? Step back... and don't be so anxious to raise rates at the first sign of economic improvement.
Individuals and businesses need stability in their financial cost structures so that they can plan effectively and keep their ships afloat. Wildly fluctuating rates... regardless of what the absolute levels are... create problems. Either too much spending or too much fear. It's just not that difficult to comprehend. Why has it been so difficult for the Fed?

About Me

My photo
Michigan, United States
Air Force (SAC) captain 1968-72. Retired after 35 years of business and logistical planning, including running a small business. Two sons with advanced degrees; one with a business and pre-law degree. Beautiful wife who has put up with me for 4 decades. Education: B.A. (Sociology major; minors in philosopy, English literature, and German) M.S. Operations Management (like a mixture of an MBA with logistical planning)