Economy » Visible Country Comments

QE? What is Quantitative Easing anyway?

American Life, banks, Consumers, Economy, government Comments Off

Jan 182013

There are lots of news reports and internet musings about Quantitative Easing. I’ve read many with the hope of discovering one comprehensible article that would fairly represent QE for the non-fiscal, non-monetary schooled citizen. Not to be. The explanations are either way over my head or focused on attacking or defending the policy. People seem to use many exotic terms to describe an already abstract subject.

So I’m going to take a swag at explaining what and why.

The Fed chairman, Ben Bernanke has been fearful of the country falling into another depression since the bubble burst in 2008. He’s made plain that the bogeyman we have to fear is deflation, not inflation. Simply put, inflation is too much money chasing scarce goods. Inflation causes prices to rise. Deflation on the other hand is an abundance of goods and not enough money, or at least not enough buyers. Deflation causes prices to fall.

A recession brings a lot economic distress: job losses, company failures, personal bankruptcies….its ugly. But a depression, that’s an event that changes lives, economies and even governments, sometimes permanently.

The clear similarity between 1929 and 2008/2009 is that in both cases, a massive amount of capital disappeared. Money invested in almost anything (except long term treasury bonds) just disappeared. When money in investments and the value of owned assets disappears people won’t or can’t go out and buy things. Then more jobs disappear because employers know people aren’t spending as much money so they reduce expenses by laying off workers. Fewer jobs equal fewer paychecks and there is even less available money around. As you can see this becomes a really ugly self-perpetuating down spiral.

The 1929 depression saw the collapse of the stock market erase the supply of capitol. In 2008/2009 the wealth disappeared from home equity first and then the stock and bond market followed. Again, as in 1929 and the 1930′s, wealth just melted away. Homes purchased in 2000 for $300,000 escalated to $500,000 in 2005 then fell to $200,000 by 2010. This happened millions of times. Almost all the homes had mortgages, many owners had refinanced and taken money out for home improvements and vacations. By 2010 the inflated value was gone. Owners owed more than the possible selling price of the house. A vast amount of capital was taken out of the American economy. Whatever the details, 80 years ago or today, a huge amount of wealth ceased to exist.

Bernanke is using QE to replace the private capital that had been lost in the recession. To do this the Fed is using new money to buy mortgage backed securities (MBS) from banks so that the banks, in turn, make more loans. In other words replacing money which had disappeared and getting it back into the economy.

You might say that this is nice for the banks that are getting premium prices for otherwise unwanted securities, but has this worked to help the little guy? The answer is no, not directly. However, good things have happened to reverse some of the losses from the recession, For example: (1) The stock market is within hailing distance of its 2007 high, thus replacing a fair measure of the capital that was lost in the recession. (2) Unemployment has improved slightly. Not that much, but its better than it was two years ago. (3) New housing is showing some signs of life. Again its not a great recovery, but there is improvement. Along with that will come housing prices which will rise and replace a lot of lost wealth.

The arguments against QE mostly have to do with it reducing interest rates for savers and opening the door to inflation. The inflation argument is pretty weak right now since its very unusual to see high unemployment and high inflation at the same time. Later, when employment improves we hope the Fed stays ahead of the curve. Low interest rates for savers also means low interest rates for home buyers, so that’s a mixed blessing. Savers must take on more risk since bank interest rates won’t even keep pace with low inflation numbers.

SRBAC

Visit Visible Country for products made in the USA

America making things

American Life, Economy, Made in USA, Working Comments Off

Apr 292012

About two years ago I decided to build a web site that featured 100 companies that make things in the USA. By “things” I mean consumer goods since that’s what American seem to complain about most (…everything for sale in big box stores is made in China, India, etc.). Since I had never built a web site before, I also had to teach myself HTML. Also, in the middle of all this I decided to start this blog. My attention span isn’t all that great and I wandered off to do other things from time to time, but the good news is I’m almost done. See Visible Country

That said, what I’ll start doing now is revising the website and do everything the way it should have been done if I’d known what I was doing in the first place.

A great benefit of the time spent is that I now understand and have opinions on several things that I didn’t know about two years ago.

What I have learned about companies making consumer goods in the USA.

1. Some of these companies are hard to find.

You just can’t Google “made in USA” and expect to come up with a respectable list of manufacturers. First you’ll get pages and pages of directories of websites with lists of things made in the USA. Not what I wanted. I wanted to discover companies that might not be on the usual “buy American” lists. So you have to do some harder work, like searching the internet by state and manufacturing groups, and then back checking and verifying.

2. We make more things than you think.

Those people who say “we don’t make things anymore” are wrong. For example, home audio and watches. I thought we stopped making that stuff years ago. Turns our I was wrong. We make lots of high end audio components. We just about did stop making watches, but that’s begun to change. Stylish clothing, expertly made home furnishings, sports and outdoors equipment, we make it all.

3. We don’t make some things that we should make.

Computer electronics for example. You can’t buy any wireless routers made in the USA…I know, I tried. It’s also very hard to find any computers even assembled in the USA. It seems to me we may be losing the ability to build factories to make electronic components. This is something we need to work on.

Another thing is sailplanes (gliders). OK, not something everyone wants in their garage, but I have a category on the site called “flying”, and I planned to add a company making sailplanes. Imagine my surprise, you would think at least one company would build sailplanes here.

4. Some things will be made elsewhere.

China and India have 2.5 billion people between them. The US has about 310 million. It seems reasonable that other countries in the world are going to get good at making certain things. Factories are becoming more automated. This started a long time ago and is more responsible for the fall off in manufacturing jobs in the US, than all the off-shoring combined. Other countries have become way more capable at making textiles that we are here. Making towels and carpets and t-shirts is no longer in our wheelhouse. That’s just going to happen. Americans need to concentrate on their strengths.

5. Even if we don’t make it here we often own the company.

American companies are often criticized for making products elsewhere. Goods that American companies make for sale in other places frequently cannot be manufactured competitively in the United States. American global companies both make and sell their products internationally. If they didn’t make the products overseas, they would not even be in the marketplace. As a result, the company prospers, its shareholders (often Americans) prosper and eventually when earned profits are repatriated to the states, the international American corporations pay their taxes on it.

6. We need to re-think the “made in USA” trope.

When Americans (especially politicians) talk about the manufacturing jobs that have been lost, they are frequently referred to as: “good high paying manufacturing jobs”. The media asks the politicians about how they would create “good high paying manufacturing jobs” and the politicians respond with various schemes, as if they could wave a magic wand and make it happen. The reality is that many of those “good high paying manufacturing jobs” were hard, dirty, tedious and sometimes dangerous jobs that have been replaced by foreign manufacturers and by automation. Many of those jobs aren’t coming back.

When you go through the 100 companies at Visible Country most of what you’ll see is how Americans are creating jobs by starting their own companies to make things. This together with taking advantage of the educational opportunities that are available to all American is how “made in the USA” will make a comeback.

SRBAC

Visit Visible Country for products made in the USA

If it’s too complicated, don’t buy it.

American Life, banks, Consumers, Economy Comments Off

Mar 262012

Goldman Sachs, Bernard Madoff, MF Global, etc. There seems to be a lot of opportunity today for people to lose money on bad investments. In spite of investing for years, I still don’t understand what these people are (or were) selling. Did the investors? Why would you invest money in something you don’t understand? No question that banks and hedge funds and mutual funds all need to be clear about how they are using your money. But what about the people who bought what they were selling? Shouldn’t they take some of the responsibility?

If some of these sellers were cheating investors by lying to them, that’s one thing. We don’t need new laws to deal with that. We already have laws against fraud. But fraud is hard to prove (it’s all right there in the fine print). We don’t though, have any laws against being stupid. The sellers say “trust me” and the buyers say “OK, here’s my money”. What! What happened to common sense? PT Barnum said “There’s one born every minute” (he was referring to suckers, not bankers).

Maybe the people who lost money weren’t stupid, maybe they were just lazy. Still not a good excuse. It’s pretty hard to cheat people who are willing to do their homework. Instead people buy because their relatives or friends have recommended the investment (bad idea). Or because the salesman has shown them a color glossy with the investment history of continuous profitable returns (worse idea).

People don’t buy individual stocks or bonds because its hard to accumulate a portfolio to accomplish a certain objective without a lot of work. A good mutual fund company will do a better job, and charge you a reasonable amount for their work. But how many people research the fund before they buy? What are the underlying securities that compose the fund?

There’s really no excuse anymore for not doing your homework. Just about any information you need about companies or mutual funds is available on the web. Corporate history, financial information, profit projections, annual reports, whatever.

SRBAC

See Made in the USA products at Visible Country.

The Big American Political Lies

American Life, Economy, government Comments Off

Feb 292012

Do the math. It’s a fairy tale to believe that just increasing taxes on rich people will solve our deficit problems. It’s also a fairy tale to believe that reducing taxes will solve our deficit problems.

Incredible as it sounds though, these are the two big lies American politicians want citizens to believe. One side says that all we have to do is tax the rich, which is anyone making more than $200,000 annually, and we’ll be OK. We don’t have to cut any programs, well maybe defense, but no social programs. Basic arithmetic aside, that’s what the party with the donkeys want us to believe. The other side, the party with the elephant, want us to believe that if we reduce taxes, huge amounts of dollars will flow into government coffers because, in some mysterious way the economy will soar and there will be more tax dollars without increasing tax rates. That’s magical. The elephant guys also want us to slash government spending, but most of then are really vague about which programs should get slashed. They wouldn’t want to piss-off any voters.

There’s a theory that government spending can’t be cut while an economy is in recovery. The theory says that reducing government spending will worsen the situation by increasing unemployment and further reducing tax revenues. Economists argue about this constantly. There is really no proof that adjusting government spending will affect the economy. What there is proof of is that government spending of funds we don’t have will increase the public debt.

There’s also a theory that says taxes can’t be increased during recovery from recession, because that will reduce growth and subsequently further reduce tax receipts. In fact, taxes have been both raised and lowered during economically tough times. There’s no proof that one works better than the other. There is plenty of evidence however that if we don’t raise enough money to meet our debts, it will have a very negative effect on the country’s future.

It’s pretty evident that people in favor of less government control are not going to vote for higher taxes and people in favor of more government subsidies and wealth transfer are not going to vote for reducing spending. Both groups can point to historical situations where implementing their program (or not implementing the opposing program) achieved desirable results. Both sides will put their own spin on not implementing their programs: citizens starving in the dark for example , or conversely, total economic collapse and Armageddon.

Both sides seem to believe that if you talk long enough and loud enough the fairy tales will come true.

SRBAC

See Made in the USA products at Visible Country

Measuring the wealth of the American 1% – not just income.

Consumers, Economy, Working Comments Off

Nov 022011

There’s no question that we have lots of wealthy people in the USA. But all this talk about how much of the country’s wealth the top 1% and the top 15% are worth is pretty shaky, because no one actually knows. Remember there are about 312 million people in this country, so to get an accurate total of the wealth of the top 3, 120,000 people (that’s 1 %) or the top 46,000,000 people (15%) you would have to know each persons wealth figure and then add them up. Then to figure out what percent this is you would have to divide that number by the total wealth of the whole country…do you know what that is? No? Well welcome to the club, because no one else knows either. The only other way to find out is to estimate (more on that below).

Doesn’t sound so easy now does it?

Don’t confuse wealth with income. Not the same thing at all. Income is the money we have coming in each year from a variety of sources. That’s pretty easy to track because we have to file income tax forms every year. Income is not wealth. If you make $50,000 in a year, but also spend $50,000, you have no wealth unless you have acquired assets. So if you spent part of the $50,000 to buy a car, now your wealth is the value of the car. If you spent part of the $50,000 to go on vacation, all you have is pleasant memories. Vacations don’t accumulate wealth.

You figure out your wealth by adding up the value all your assets (house, car, investments, jewelry, pots and pans, etc.) and than subtracting the value of all your debts (mortgage, other loans, taxes, etc.). What you are left with is your wealth. Over time, saving, investing, starting a business, buying property, etc., are things that can help you accumulate wealth. Generally wealth doesn’t happen fast unless your a rock star or a professional athlete. Families who are very wealthy have, in many cases, accumulated their wealth over several generations.

The President often talks about higher taxes on the “wealthy”, but that’s not what he means. He means higher taxes for people who have income tax returns over a certain figure ($200,000 or $250,000). He might want to tax “millionaires and billionaires”, but he’s really going to tax a bunch of people who don’t have anything like that kind of money. Also, some people might make the cut ($200,000) one year, but miss it by a large number the next year. Are they still rich?

Estimating

Every three years the Board of Governors of the Federal Reserve System does a survey of the financial demographics of American families. Currently this survey called “Survey of Consumer Finances” can choose from a little over 100 million families in the US. Almost everything we read which quotes wealth numbers about the top 1%, 19% 15% and the bottom 50% and 90% originates from these surveys. What’s frightening about this is that only 4,449 families (of all wealth levels) were interviewed for this survey. The SCF statistics, by all accounts, are well regarded…still how comfortable do you feel about a .004449 sampling?

VISIT VISIBLE COUNTRY FOR AMERICAN MADE PRODUCTS

China building American bridges

Economy, Made in USA, Working 1 Response »

Jun 272011

A report in the New York Times today, said that a Chinese company is building much of the new San Francisco – Oakland Bay Bridge. This is probably old news to many since the project has been several years in process already, but it was the first I heard about it.

It always seemed to me there is something distinctly American about building big things. Highways, railroads, skyscrapers, dams, shopping malls and most of all, bridges. Bridges have names and purposes. Bridges identify cities and excite travelers (“We crossed the GW at night and we could see all the city lights”). Bridges are our gateways and part of our heritage and pride.

Pittsburgh bridge

Between 1849 and 1964 twelve new bridges in the United States extended the world record lengths for suspension bridges from 1,010 ft to 4,259 ft. Americans built all of them. Starting with the Wheeling, WV bridge finished in 1849 and measuring 1,010 ft. and ending with the Verrazano-Narrows bridge, which was the longest suspension bridge until 1981. It measured 4,259 ft. Some of these iconic twelve bridges include the Brooklyn Bridge over Manhattan’s East River, the Ben Franklin connecting Philadelphia and New Jersey over the Delaware River. the Golden Gate Bridge in San Francisco and the George Washington Bridge spanning the Hudson.

Imagine that! For 132 years, without interruption, we built the longest most beautiful bridges in the world. But since then…not so much. The Bay Bridge is not kid stuff. The costs are over 7 billion dollars, its really two bridges a viaduct and a tunnel. It’s big, it’s complicated and it’s here. Why aren’t Americans building all of it?

Well from what I’ve read of the history of the Bay Bridge project there’s a host of reasons. The estimated costs were always too low and a constant moving target. The design spec got input from everyone and everywhere and became a beauty contest, and the politics, as you might expect were the usual snake pit. The one thing that did not seem to be on anyone’s mind was employing American workers to build it. The two American companies who were the prime contractor dismissed the capacity of domestic steel industry to fabricate the bridge. This even though the Chinese company had yet to build a bridge or use the technology that was contemplated by the design.

Cost seemed to be the over riding issue for California. The NYT states that California decided not to apply for federal funds since they would then have had to purchase from US manufacturers. This is a muddy area since other accounts indicate that they could forego that requirement if the foreign bid were more than 25% cheaper than the domestic costs. The NYT also quoted a Chinese steel polisher working on a section of the bridge as saying he is paid $12 per day.

If we could build new bridges for 150 years, why did we stop? Did we forget how? The Chesapeake Bay Bridge-Tunnel was built in less than four years with no federal, state or local governmant money. It’s almost 20 miles long and includes bridges, tunnels and four man made islands. The first two lanes cost less than $200 million and were completed in 1964. Two additional lanes were open in 1999. They cost less than $250 million. No tax dollars were used.

By now we’re use to the fact that manufacturing costs are lower in most of the world. We’re use to buying t-shirts, electronics, kitchen items, shoes, tires, just about any consumer goods from anywhere in the world. But bridges?

I’m not a protectionist. I’ve always been for free trade and against tariffs. They just don’t make sense. But bridges…OUR BRIDGES. And one of the guys building it makes 12 dollars a DAY!

I might have to re-think some of this.

SRBAC

VISIT VISIBLE COUNTRY FOR AMERICAN MADE PRODUCTS

The government doesn’t create jobs…even when the politicians take credit for them.

Economy, Made in USA, Working Comments Off

Jun 142011

The June 14th headline on the business page on the USA Today said “Obama presses to create 1M jobs.” Sometime ago the President was taking credit for his administration creating or saving 4 million jobs. I still don’t know how you measure “saved jobs”, but that’s another topic. A lot of politicians of both parties like to take credit for creating jobs. Of course they do no such thing. Except for providing GM, AIG and Chrysler with bail out money the Unites States is not in the business of running corporations. The government doesn’t hire and fire in the private sector.

That’s why the President and the Congress need to get out of the habit of promising to address the unemployment problem by creating jobs. They can’t do it, it’s simply not the business of government to create jobs in the private sector. Why not? Because government doesn’t make things, sell things, fix things, grow things, service things….or in any way engage in commerce.

Likewise American voters also need to understand that no matter what politicians say, they can’t create jobs unless they are public sector jobs, of which we already have enough. State and local governments may encourage busineses to locate within their borders, but they do not create private sector jobs because they are governments and are not engaged in private commerce

When I first read of the Presidents Job and Competitive Council, I thought the purpose was to bring business people together to focus on what business could do to to create jobs. From the White House website:

“The President’s Council on Jobs and Competitiveness (Jobs Council) was created to provide non-partisan advice to the President on continuing to strengthen the Nation’s economy and ensure the competitiveness of the United States and on ways to create jobs, opportunity, and prosperity for the American people.”

The response President Obama got back from his Job Council (Jeffrey Immelt, et al.) was pretty funny. All five recommendations by the council involve either the government spending more money or changing the way government does things. Hey guys…I don’t think that’s what he meant. What they offered is:

1. Training workers for new job skills. How many political speeches has that been part of? (maybe divert money from other government programs…good luck to that).
2. Eliminate bureaucracy that bogs down infrastructure projects. Not sure how that can happen since the environmental groups will just take it to court.
3. Streamline visa process so we get more tourists. Doesn’t it seem like The State Department has long resisted all attempts to drag it out of the 19th century?
4. Make the SBA work faster (huh?)
5. Use federal funding to employ laid off construction workers to do “green” projects on commercial buildings.

There’s nothing wrong with any of this stuff, there’s just nothing new. To paraphrase an old Red Smith baseball analogy, telling the government that it should eliminate bureaucracy, streamline processes and work faster is like telling an 8 year old about sex. No matter what you say, the response is “But why?”

SRBAC

VISIT VISIBLE COUNTRY FOR AMERICAN MADE PRODUCTS

USA Today Confuses GDP and US Revenue

Economy, Unconscious headlines Comments Off

May 252011

GDP and federal government debt are often mentioned together (Federal debt as a percentage of GDP for example). Apparently this leads some people to believe that GDP is US government income. It’s not. GDP (Gross Domestic Product) refers to the market value of all final goods and services produced within a country in a given period. It has no relationship at all to the federal government debt. Taxes of one kind or another are the US government’s source of income.

Someone named Sally Kohn, a community organizer (uh-oh), makes this rather large mistake in the Forum section of the USA Today. Ms. Kohn says that the 14.5 trillion dollars in GDP and the 14.3 trillion dollars in US debt represent about a 1-to-1 debt to income ratio. Well it would if GDP was US government income. Unfortunately GDP actually includes government expenditures . (GDP = total value of all consumer, investment and government spending)

Kohn likens US GDP to the income of some large American corporations. She says for example that IBM has a 2-1 debt to income ratio and so the Federal Government having a 1-1 ratio is no big deal. I Have no idea what a debt to income ratio calculation looks like. I know it’s not a common financial ratio. It’s not any liquidity or debt ratio that I know about.

In 2010 IBM had revenue of almost 100 billion dollars and total liabilities (including long term debt) of about 91 billion.

In 2010 The federal government had revenue (taxes) of about 2.3 trillion and total debt of about 14.5 trillion.

Unlike IBM, and most other competent American companies, we’re paying out a lot more than we’re taking in. Doesn’t look like a 1:1 ratio of anything to me.

SRBAC

VISIT VISIBLE COUNTRY FOR AMERICAN MADE PRODUCTS

Unconsious Headlines #3 – Unwarranted Joy About Jobs

Consumers, Economy, Unconscious headlines, Working Comments Off

May 092011

On Saturday, the Wall Street Journal has the headline “Job Engine Shifts to Higher Gear”. “Wow” I think. “Did I just fall asleep for a year and miss something big”. Nope, its just those pesky journalists trying to trick us again. What they do is make up a headline that has nothing to do with the story below it and little to do with reality overall. I don’t know why they do it or how they get away with it but the evidence is there every week.

In fact last week was not a particularly good one for jobs. First the ADP report came out showing that new jobs for April was way below expectations and also way below the March employment report. Then the Institute for Supply Management comes out and says the service sector results took a big drop in April. That’s bad because the service sector is the largest part of out economy and by far the biggest employer. Then on Friday, the labor department says that total unemplyment has jumped up to 9% from 8.8%.

So all of this looks pretty bad for the WSJ headline of Saturday. But wait, here comes the cavalry. The Labor department also says that the private sector added 244,000 jobs in April. That’s a tiny bit better than March (235,0000 revised), but should that be cause for a WSJ headline that touts that the job picture is in overdrive?

Well the numbers look less than great, but anecdotaly, later in the day I went to our local Lowe’s hardware and I could barely find a space to park. Obviously everyone who is not part of the unemployment statistics was there with me.

SRBAC

VISIT VISIBLE COUNTRY FOR AMERICAN MADE PRODUCTS

Unconscious headlines #2 – Why compare GDP to annual revenue?

Economy, Unconscious headlines Comments Off

May 022011

The Money section of the USA Today had the headline “High U.S. debt looks good compared to some companies”. This article is trying to show that US debt isn’t too bad when compared with the debt of some companies. The problem with this argument is that the writer is is using the wrong figure as the basis of comparison. The writer says the total US debt (they use 9.7 trillion dollars) is only equal to 63% of our GDP. That’s true, since our GDP is about 14 trillion dollars. But what about income (taxes)? That’s the revenue to pay back the debt, not GDP.

GDP (Gross Domestic Product) is the total of all consumer, government and investment spending. There is nothing in the corporate world to compare to GDP. Companies have income and expenses, they don’t have anything like GDP.

Probably the writer wanted to equate the tax revenue (about 2 trillion dollars) of the US to the total national debt (which is closer to 14 trillion dollars, not 9.7 trillion). This means there is 7:1 ratio of debt to revenue. So if If I make $100,000 a year its okay for me to carry $700,000 in debt. Sounds like the housing bubble all over again.

Few healthy companies have debt that is 7 times their annual revenue. Ford Motor for example has huge debt (because they hocked the store to stay out of bankruptcy). But their annual revenue is about 129 billion, as opposed to 165 billion in total liabilities. In 2009 Charter Communications had 21.9 billion in debt and 7 billion in revenue (3:1 ratio). They filed for chapter 11 bankruptcy.

SRBAC

VISIT VISIBLE COUNTRY FOR AMERICAN MADE PRODUCTS

Older Entries

Visible Country Comments

QE? What is Quantitative Easing anyway?

America making things

If it’s too complicated, don’t buy it.

The Big American Political Lies

Measuring the wealth of the American 1% – not just income.

China building American bridges

The government doesn’t create jobs…even when the politicians take credit for them.

USA Today Confuses GDP and US Revenue

Unconsious Headlines #3 – Unwarranted Joy About Jobs

Unconscious headlines #2 – Why compare GDP to annual revenue?

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