Search This Blog

Sunday, July 31, 2011

Down, Down, Down to the Bottom of the Debt Pool

     Over the last week the market has steadily slid down hill due to the uncertainty in the debt crisis.  The real question is it too little, to late if the Congress comes up with a deal.  Tonight when the Asian markets open it will slowly unfold if the damage is already done.  While I hate to keep ranting on it the debt crisis is real. To put it in perspective a little.  In 1929 when the crash started the stock market was worth $89, 668,276,854 and by July 1st 1932 the market had shrunk to $15.633,479,577.  The market was only worth about 16% of its original value.  In this day and age the government borrows 40% of every dollar it spends. In other words $40 of every $100 dollars is carrying and interest charge.  Having been through a bankruptcy myself.  I understand you can juggle and switch from the left hand to the right for so long.  Sooner or later a day of reckoning comes.  The banks figure out what you are doing and they cut you off.  If America loses its triple A credit rating countries might decide we are no longer such a safe haven. There are sixteen major countries with AAA ratings and some pay more interest than the United States.  Many investors invest in America because of the feeling of security.  If we default that security is no longer gauranteed.  If the money starts  going to where the interest rates are higher America's economy will collapse.  If America can not borrow it can not survive.  At least not at the level we do now.   Cuts will have to be made and they will be hard cuts.
Our biggest creditor is China.  However if the dollar starts to fall they may decide the cost is more than they are willing to pay.  America is treading on very thin ice.  They believe they have till the 2nd of August, but if the markets open low around the world tonight it may create a load that breaks that thin ice.  Countries do not want to wait till the last minute and be the one left holding and empty bag.  Either way the damage is already done.  The political incompetence and unwillingness to do what needs to be done has insured the present economic hardship will go on for a long time to come. The dollar is already sliding on world markets.  A falling dollar makes everything we buy cost more.  Coffee, sugar, oil, and everything else.  It also makes our products cost more and  less competitive in world markets.  This is not rocket science.  I hate to keep harping on it, but regardless what happens, times will get harder for the average working American and it is because of greed and incompetence.  We will survive in the long run, the good days may be behind us.

Monday, July 25, 2011

Debt Ceiling....Republi-can'ts Don't Get It.

   With the market in a slow slide it is anybody's guess at what point the thin ice will break and take down the whole system.  They say it can't and won't happen.  If the whole  economic collapse in 2008 was triggered by the Lehman Brothers collapse.  What does it take for the Republi-can'ts to open their eyes.  They certainly are not looking at Republican history.  If they are they are not getting it. Ronald Reagan raised the debt ceiling 18 times while in office. He also raised taxes 11 times.  His successor did not get re-elected because he raised taxes.  He did not get re-elected because he lied to the American people. "Read my Lips" will probably be on his headstone. Quoting Mr. Reagan, " Congress consistently brings the government to the edge of default before facing its resposibility.  This brinkmanship threatens the holders of government bonds and those who rely on Social Security and veterans benefits.  Interest rates would skyrocket, instability would occur in financial markets, and the federal deficit would soar. The United States has a special responsibility to itself and the world to meet its obligations."  That quote I got form the Vincennes Sun-Commercial editorial page and was used by Dana Milbank of the Washington Post.  Reagan was the Republicans, Republican and he understood the dangers involved.  The Tea Party advocates better do some more research and figure out a better way to balance the budget than default.  In 1932 at the bottom of the depression in Chicago unemployment was over 40% for white males, minorities, the elderly and youth was at even higher rates.  Think about this while pondering this big problem.  Back then it was banks and business that were failing.  The government was solvent.   This time it is the government that is insolvent and there will be no one to bail it out.  If the economy is pushed over the edge, the fall will be farther, longer and deeper than the Great Depression.  Saying government can not fail is comparabable to the Titanic, which is about where the bottom will be if the Republi-can'ts let this happen.  They doubled the national debt in eight years and passed no bills to pay for it.  They need to man up and pay for the stupidity they created.  If they do not the Republi-can'ts may be no more by the time of the 2012 election.  I do not know a lot but I bet President Obama will beat the horse they are riding right into the ground.

Monday, July 18, 2011

The Real Double Dip Versus Debt Ceiling Dilemma

      If the market collapsed over Lehman Brothers can anyone believe it would not totally collapse if the United States Government failed to meet its obligations.  The answer is of course it will.  The Republi-can'ts and other idiots who say it will not are not the sharpest knives in the drawer. The real question is when will it happen.  My guess is that the speculators who lost their butts in 2008 will not wait for the market to fall.  Rather than get caught with their pants down my bet is they will bail out early.  With Gold over $1600 and stocks down, timing will be everything.  The rush may start early, if it hasn't already. If the government fails to make its payments August 3rd, a run on the banks is almost inevitable.  People will try to get what is theirs before they loose it.   The Baby Boomers and retirees who have the money are first generation Great Depression offspring.  What is the significance of that?  They were told by their parents to hold onto what they have.  They were taught to save and be prepared for the worst of times.  That is part of what is holding the economy back. That mindset and the uncertainty in the economy is what guides them.  All the time they were growing up they heard the Great Depression horror stories and now their goal is to avoid living that experience.  However their unwillingness to spend their money may be what is turning it into a self-fulfilling prophecy.  Once the collapse starts efforts to stop it will be like trying to fight a forest fire with a water pistol.  Nothing will not stop it till it has run its course.  Most market crashes require a trigger.  A bursting housing bubble, a major market adjustment, the collapse of a European economy or maybe just an oil shortage or instability.  As nervous as the markets are it is safe to bet someone or something may try to beat the August 2nd deadline.  Only time will tell, but saying nothing will happen as the Republi-can'ts are doing is living in denial.  They better wake up and realize they live in a real world.  The World Trade Center could never be destroyed by a couple of nuts.  No one could ever attack Pearl Harbor.  Oh! Yes!! The Titanic could never sink.  The stock market collapsed in 1929 and many were still denying its significance in 1932.  Of course hindsight is 20/20, while foresight is almost non existent, except to historians who love to say I told you so.

Friday, July 15, 2011

Republi-can'ts Double The National Debt, But Will Pay Nothing To Lower It

It is amazing that the Republi-can'ts  were willing to double the National Debt during the Bush administration, but are unwilling to spend any money to reduce that debt.  They gave all kinds of tax breaks to the rich, but will not raise a penny to lower the debt.  Even if it destroys the American economy.  The fiasco George Bush created is not over and it may still destroy our nation.  Their philosophy of trillions for war, but not a penny for the poor is why America needs a Constitutionally based party to force a Balanced Budget Amendment.  The Dum-Ol-crats are willing to raise the taxes, but not to balance the budget.  They want money to create more new programs.  It is time to tear the system apart and start over.  America has screamed for the Chinese to lower the value of their currency.  If they would do so it would raise the value of the dollar and lower America's competitiveness.  This would be the death of the dollar and the end of the lifestyle Americans are used to.  If something is not done.  Unemployment in excess of levels during the Great Depression are not just possible they are insured.  Unemployment then hit over 25% and it would go higher than that.  The main difference between then and now is that back then the government was solvent.  That is not the case in this day and age.  The Great Depression lasted over eleven years from start to end.  It would have gone longer had it not been for World War II.  This Depression will last far longer unless somebody is willing to start a shooting war.  The Depression back then will look like a cake walk compared to what happens if the politicians let the government default on it's debt.  The long forgotten art of Tarring and Feathering may make a comeback.  When the government defaults on pension checks they will find out what all the unrest in the Middle East is all about.

Wednesday, July 6, 2011

Double Dip, Or Base Jump Without A Parachute

There is a lot of talk about the economy and if we are in a double dip recession.  If it is a dip or a freefall will depend on the actions of Congress.  People think it has to almost be over.  Well if we are measuring it against the Great Depession.  Please bear with me and take note of these few facts. The first dip lasted three years and nine months till it hit bottom. Just based on that alone we are still thirteen months from the bottom.  What Congress does will determine if we hit bottom gently or with a deadly thud.  In the Great Depression unemployment peaked at just over 25%, however for the young and elderly it hit almost 50%,  Just like now the housing bubble burst before the market collapsed.  The similarities of then and now are staggering.  Reading articles and papers from that period and a couple years into the Depression the President and Congress argued it was just a blip and it would all work itself out.  There were actually three dips and the whole thing lasted eleven years and four months and the only thing that pulled us out of the slump was the start of World War II.  It is argued that the reactions to World War I were the triggers for the collapse.  Prohibition did not help any as the government lost the tax revenue from alcohol. ( A drug war that is not even close to successful and the billions it sucks up might be todays Prohibition)  At the Depresssions peak tax revenue fell almost 40% while the national debt almost tripled.  Today it is the government that is bankrupt.  Back then it was banks and big business.  The government does not have the resources to bail out the economy without just printing paper which will cause runaway inflation.

     In the spring or 1929, about half a year before the crash,  a Presidential Commission by the National Bureau of Economic research found no major problems.  Even though nine months before their report statistics had shown that Construction and Heavy Industries had shown major declines.  Yet even as the economy collapsed around them politicians professed that there were no major problems.  This continued into the third year of the Depression.  Hoover tried to balance the budget while in denial there was a major problem.  When Roosevelt took over he tried to spend his way out of the Depression with government programs and deficit spending.  The fact Roosevelt did not take over till the third year of the Depression and it went on for another eight years or so.  The truth is evident.  Nothing the government did worked.  It was manufacturing war supplies that turned the tide.  It was not till November 1940 that the economy reached pre depression levels.  This was after Europe was over a year into World War II.

    If you have stayed with me this far let me add a few more details.  The United States went off the Gold Standard and let the dollar lose value to help America afford the imports that it needed to make war materials.  Right now America is screaming for China to devalue its money.  Think about this for a minute.  If China does lower the value of their money the dollar will go up.  Which means we will owe China more money.  At the same time the cost of American goods will go up in foreign markets and hurt our own exports.  We need to hold the line and take actions that will create jobs.  The national budget has to be balanced.  The Republi-can'ts do not want to raise taxes.  They want a balanced budget but do not want to pay for it.  The Dum-ol-crats on the other hand are more than willing to raise taxes.  However they do not want to do it to balance the budget.  They want to do it to have more to spend on new programs.  America desperately needs a third party that is Constitutionally based and fiscally responsible.  The last third party to win an election was the Republicans who elected Lincoln.  We can look back and see the outcome of that election.  The Republi-can'ts claim to be anti big government, but their spending habits do not reflect that.

      If the those in power do not come to an agreement to not only raise the debt ceiling, but to force the government to balance and cut spending, America as we know it will cease to exist.  We live in a service oriented economy, but when no one can afford services, unemployment will sky rocket and you have seen nothing yet.  If they are foolish enough to not deal with the economic problems that they have created.  They will deal with the system of anarachy they risk creating.  When they start cutting services and checks to the citizens they will find a different side of their constituents.  Tar and Feathers may make a comeback.