Tuesday, October 15, 2013

US Government Shutdown 2013

government shut down
US Government Shutdown
The biggest question I have regarding the 2013 US Government shutdown is, who cares? Now I know there is a small segment of the population that is directly affected but I don't know anyone who is. It seems to me the news is spending an inordinate amount of time on this subject. In the end we will have a deal, one that does little of anything I would bet. We also will have an increase of the debt limit. The extent that the media sees to be going to look for people and places that the effects are felt is quite staggering. It almost reminds me of the blind allegiance they have to push patriotism whenever talk of war. There can be little doubt that government and media are in bed very deep. Or else why would stations be spending so much time petitioning for the horrors of the shutdown to be told. Every where I go, there is an article or social media post asking me to tell them of how the federal government shutdown has affected me. 

I completely understand why government wants us to believe they are the center of the universe, though I am skeptical enough Americans understand this as. The extend they have been closing or blocking off places and services that have no business being shutdown screams of a person desperate for attention. They do understand that having people go out and police places where there are usually no government employees costs more money don't they? As I mentioned to a friend the other day, the US government is the only institution I know of that costs more when it's closed than when it's open. Though I would say they cause more damage when open. My true hope in all this is that enough citizens of our great country learn that even when many services and not available, the country still goes on. Maybe we will come to the realization that some of these programs really aren't needed. If we cut the budget, really cut it not just cut the rate of growth, the US economy will not be that bad off. Actually in the longer run we will most certainly be better off, as we decrease the debt burden. 

Just as in the 1996 US government shut down things will get resolved and government will go back to normal. I actually fear the normal more than I do these fights. The US is not better off when politician agree to pass a litany of new law. We are not better off when together they find more ways to waste taxpayer money. Our economy is hurt when they come together to find bogey men in business that give reason to pass more regulations. If in 1996 they could go 26 days, I say in 2013 we should strive for longer. The federal government shutdown may just teach us the basic truth, that most of the economy and greatness of our dear republic have nothing to do with Washington, DC.

Sunday, August 25, 2013

Is This The End Of Japan?

Prime Minister Shinzo Abe
Prime Minister Shinzo Abe
This week we got further news that despite the hype of successes of the Japanese newly embarked policy of inflation infinity plus, things are getting worse. The Japanese have decided to out do every other central bank in the world in the race to create inflation to eliminate government debt. Headlines read that Japanese exports have risen once again, which is expected as they continue to devalue the currency. This is not a difficult task, there is no secret or special knowledge needed to devalue your currency and achieve competitive advantage in the world market because of a lower relative price. So to claim this as being some sort of success, is rather foolish. The key is to at the same time produce wealth, that is where the difficult part lies. If you read any of the articles stashed toward the end is the admission that imports also rose, and rose faster than exports. They actually rose 50% faster than exports, which is further exacerbating their trade deficit. What is even worse in that the amount of goods didn't really change at all, which is an admission that inflation is taking hold and hurting the average Japanese citizen. What is happening is that Japanese citizens are having to pay way more for the same goods as they did previously because the Yen can't buy what it did before. This is continued bad news for the Japanese people and government.  

I have been saying that Japan will be the canary in the coal mine for another worldwide recession. They are insolvent by any measure, and cannot pay for their current debt burden. Interest on the debt is the second largest government expenditure, with only social security being larger. They are paying debt with more debt, but even worse since they are still spending more, they are ensuring that interest payments with consume even more of the budget in the future. Add in that the interest rates there are even lower than the US, and one can quickly see that rising interest rates there will end up destroying the government finaces and take the country back to a depression. Other countries around the world are not in as bad a shape but also heading down the same path. As the US has accumulated almost a third of our total debt in just the last 5 years. What will be the result to the world economy when the Japanese collapse worsens? As the 3rd largest economy becomes more poor the buying of goods from other countries will drop and drop significantly. I am sad to say that Japans decades long problem is far from over because they continue the same ridiculous policies without ever addressing the real problem which is their indebtedness. The is not and never really was an easy way out, and just as the US is doing, they are simply making the inevitable pain even worse than it should be. The Japanese citizens are being kept in the dark about the inevitable end to all of this, since the dealer never wants to tell you the longer you stay at the table the more you'll end up losing.

Friday, July 26, 2013

Reports Blur The Employment Picture In US Economy

blurring the economic picture
Economic Pictured Blurred
Another jobs report and yet another bit of data in which to put a positive spin on. Whether the number is higher or lower than estimates reporters by the droves like to point out how positive the data. At least they make sure to add a positive spin in the title of their articles. But even they are forced in the body or end of the articles to point out the obvious, the data isn't as good as it seems.

Regardless of how many times predictions have been made that the sustained 200K per month job creation is right around the corner, five years in we still do not have it. While the criticisms of the supposed "doomsayers" are dismissed by saying that even a broken clock is right once a day, they can't see themselves in the same light. Even the latest report was only greater than expectations because the expectation had been revised down from 220,000. So when the data comes out at 195,000 and that exceeds the lowered 156,00 data did it really beat the forecast? I would say not, but very few pointed out that the original expectation was the 220,000. The revisions down from previous months are rarely reported but the revisions up are used to support their notion that things are getting better. 

Deep in the data is where the real gloom of the reports lie. There are two reoccurring points in the data that are usually glossed over that symbolize this recovery. They also underpin the argument that this recovery if far from over and the longer this goes on, the worse we fall behind. The first is that 1.6 million of the 3 million of the jobs created since the recession ended (2009) have been in part time workers. We are also creating temporary workers at a rate that exceeds more permanent jobs at many multiples. Not exactly the sign of a jobs resurgence. The vast majority of all these jobs are being created in the service sector, which as many know doesn't even meet the medium household income of the US.

The second and equally important part that is overlooked is that the biggest attributable portion in the drop of the unemployment rate. Millions of people have left the workforce completely, either through retirement or disability causing other financial stresses on the system. Leaving the total workforce participation rate at its lowest levels since the 1970's. The consequences of this should not be overlooked, we have many less people working and paying taxes to pay for the ever growing number of people receiving benefits. The burden that falls to the remaining people to make up the deficit is astounding. Which is why we should expect large budget deficits into the 2020's if not as far as the eye can see.

The endless parade of people willing to overlook these very important pieces will go one for a while. My guess will be at least till a republican becomes president. Then we will be treated to a negative spin on all the data like when the younger George Bush was in the white house and the early 2000's recovery was called a jobless recovery. Wouldn't we like to get those jobless results today, where total employment went up and full time workers made up the greatest part of the work found.

Thursday, July 25, 2013

China Bashing Continues, Mirrors Missing In the West

Chinese threat
Is China A Threat?

I have been listening to podcast almost everyday for six to seven years, much of it on Bloomberg since they put out a huge volume. Like others who are interested in world affairs i follow blogs and read news articles on major site. Over the years this trumpet keeps sounding "China is a threat in...." There have been many different fill in the blank topics to be sure and just about all are hypocritical  from a geopolitical stand point. Now I will agree that if you want to create fear, anger, and embed a stereotype of the Chinese government than it serves this purpose very well. Though I believe it is a horrible message to send to the average American let alone the Chinese whom we work with on many levels and need to cooperate with to bring stability in the world.

When talking about the military I understand the angst but we still spend more than double the percentage of our GDP than they do 4.4% to 2%. In all these years of talk of the threat of China they haven't waged war on anyone, but yet we have. What leads us to believe they will? Is the mere fact that they are spending more mean they will? Than we too are guilty of that in spades, and have more of a history of entering into wars with little justification other than it's in our national interest to do so. The better answer, and one we espouse ourselves is self defense. Not just from invaders coming in but also from a self reliance standpoint. Each country would like to maintain a certain level of their military needs being provided by domestic suppliers. To use a crazy example, if we relied on the North Korean's for one of most used missiles what would happen when we entered a war they didn't agree with? They could simply cut us off, that is the primary driving factor of the Chinese build up of their defense infrastructure. As a developing economy they have relied on the technology and manufacturing of others to provide for their defense. Many countries operate in this way and we are the exact same.

In the economic sphere China has become a frequent topic of discussion. Almost never does a day go by that at least one guest is brought on to discuss the threat of china in A,B, or C. realm. I have been hearing this for years. It seems to me that if a country does to well we want to bash them, as if we are the royalty of old deemed by god to be the leader of everything. A funny criticism I heard today on Bloomberg to a guest was that the government was in everything and it doesn't seem like there is a level playing field. Are you kidding me? What government in the world interferes more than the US? Answer is none. The sheer size and position we have dictates that we can more than anyone, and by god we do. The industries the government and the federal reserve subsidize is too numerous to mention. It is done directly and indirectly. They use influence and law to shape a large percentage of the economy as well. How can that be a negative against China but not ourselves? A large portion of our economic recovery is based simply on the federal reserve money printing, but if Chinese central bank does the same it somehow interferes with world commerce?

I remember a number of years ago during the Clinton era for a period of time a much used term to describe how we could maintain our influence was to be "An Honest Broker". To have our actions align with our talk. That in order to have some standing in negotiations you should be speaking on principles you actually follow to be credible. It seems to me we have abandoned that principle and taken the stance do as I say not as I do. The funny thing is in some cases I agree with the talking points. The Chinese should be doing some of the things we urge them to do, they would be better off for it. But then again so should we. We may have shipped off the production of mirrors to China but no one in the government seems to see the flaws that would be glaring back at them if they did.

Friday, June 21, 2013

Will we go into Recession in 2013?

Federal Reserve Chairman
After the last couple of weeks watching the stock market, bond market, and the fed I have a prediction. Bernanke will create a recession in advance of his term ending. Probably better said would be that the Federal Reserve will allow the US to go into recession, to prevent an even worse result in the future. A currency crisis that we seemed to be hell bent on causing. As surprising as this is to me that they have the guts to do this, it is actually the right thing to do. 

Despite what most idiots on TV have been saying, this economy is almost 100% dependent on Fed stimulus. How do I know this? Aside from common sense which would tell you that printing more than 500 billion in 2013 to by assets is enormous. The math says so. If the economy grew at 2% for the first six month than that equals about 180 billion dollars. Far less than the money printing. Further more once they said they would reduce the stimulus, the bond and stock market acted negatively. So no matter what the talking head wish were true, this economy cannot survive without unprecedented stimulus. Let me say that again to be clear, the government and federal reserve have never provided as much support to the economy as they have during this ongoing crisis. 

Now the way of it. Ben Bernanke knows that this cannot go on forever and he is stepping down at the end of the year. In order to somewhat preserve the stature of the fed, he doesn't want the next chairman to walk right into a recession, which they would if the game kept being played. He, and the rest of the fed believe that he has built up enough credibility that when it does happen and he is blamed. People will forgive him and run to support his "Great leadership during the crisis". This will provide cover to the new chairman who would have their term compromised if it would be thought that they didn't do enough, as the great Ben did to prevent the recession. The last thing the federal reserve needs right now is a crisis of confidence, and this will provide a way of doing so. Hang onto your hats, it's going to be a rough ride for the rest of 2013.

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All Views Are My Own