Ford had a good year. They are one of the biggest and best managed company’s in the world. They build several of the best selling cars and trucks and sell them globally. The profit sharing checks for their union workers are the highest in history. They are number ten on the fortune 500 list.

Ford earned about eight billion dollars in all of 2013.

The federal government spends more than ten billion dollars every day.

 

 

 

 

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

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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

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Happy New Year.

For the first post of the new year we’ll celebrate The Sunday New York Times for an unconscious headline on their editorial page. The editorial is “As Good As it Gets?” and the subheading is “Americans deserve better than an economy that merely muddles along”.

My question is: why do we deserve a better economy? What exactly have we done to deserve a better economy? The article of course blames Republican intransigence for blocking more government spending. And by doing so have prevented “more government aid to help create jobs”. Setting aside the fact that governments don’t create jobs (except more government jobs), the NYT is stuck on Americans deserving something (from the government).

I was brought up with the idea that I was deserving of anything I earned. Where is the part that says “American deserve everything they earn”. And if we go on electing the same bad actors that tell Americans they “deserve” things, then we’ll get what we deserve.

Have a healthy and happy.

SRBAC

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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

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Apr 042011

The GOP was always at a disadvantage throughout the health care discussions. Every time a Democrat looked shaky during an Obamacare  debate they would always fall back on the two big emotional points that were winners. Health care has to pass because: (a) people are not able to get insurance due to pre-existing conditions and (b) people are being dropped from coverage because they get sick. The Democrats defined the problem around the country’s obligation to cure those problems.

It was a smart strategy because it was right  (although, curiously, so far few people have signed up for high risk pools). The Republicans knew health care was a big issue more than eight years ago. Nevertheless they did nothing. They had eight years of opportunity to get out in front and define the problem and possible solutions. They wasted them. So now we have a 2000 page law that was passed, effectively, to meet those two obligations.

Now, as Yogi would say, we have deja vu all over again.

The Republicans want big spending cuts. They want cuts to programs near and dear to progressive hearts. They even want (the unthinkable) cuts to entitlement programs. Why? “Well because the deficit is eating us up. We’re taking in much less than we’re paying out.”

“Then why” say the Democrats, “did you extend the Bush tax cuts for the wealthy”?

No really valid response from the Republicans. Why? Because they know it was a stupid thing to do. They trapped themselves and now the Democrats have the same kind of advantage they had in the health care debates. Seriously rich guys like Warren Buffet and Bill Gross have said very publicly that taxes should be raised for the rich. The CEO’s of big companies (particularly banks) are flaunting their multi-million dollar incomes (don’t get me started on them). The media is constantly flogging a perceived growing divide between the rich and the poor.

So what does the GOP do? They get them a tax break. Arrrg!

The debates for the next two years are going to be framed around those issues, and Obama had a hand in it. Why do you suppose he agreed to extend the tax cuts?

SRBAC

VISIT VISIBLE COUNTRY FOR AMERICAN MADE PRODUCTS

A collective bargaining agreement is a contract between employees and employers. The former referred to as labor and the latter as management. Some of the first of these accords were hammered out between employees and employers in the 1920′s and 1930′s. These are important and hard won agreements, giving labor equality in negotiating with for-profit companies about wages, benefits and working conditions. Collective bargaining was an important step that led to American industrial leadership and prosperity for the rest of the twentieth century.

In private industry there is a clear cut distinction between labor and management. In public employment situations…not so much. For example:

Question: who is the employer?

Answer: Elected government officials – (federal, state and local), and indirectly, the people who voted for the elected government officials and of course the bureaucracy (composed of public union members) that manages the vast government landscape.

Question: Who is the employee?

FDR

Answer: Elected government officials – (federal, state or local),  and the bureaucracy (composed of public union members) that administers the the various governments agencies.

Question: Who negotiates terms of the collective bargaining agreement?

Answer:  The public union members who also vote to elect the government officials negotiate with the elected government officials or administrative representatives of the government officials.

So what we have here is public sector employees bargaining for wages, benefits and working conditions with…wait, wait for it…other public sector employees! Yes! What a deal!

Okay, last question: who said the following (don’t worry it’s a multiple choice question):

“All Government employees should realize that the process of collective bargaining, as usually understood, cannot be transplanted into the public service. It has its distinct and insurmountable limitations when applied to public personnel management. The very nature and purposes of Government make it impossible for administrative officials to represent fully or to bind the employer in mutual discussions with Government employee organizations. The employer is the whole people, who speak by means of laws enacted by their representatives in Congress.”

a. Donald Duck

b. Genghis Khan

c. Scott Walker

d. Franklin Delano Roosevelt

Okay times up. Pencils down. If you don’t know who said that, look it up.

 

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