Governmental Austerity Does NOT Work In Times Like These

Paul Krugman Calls it:  The Austerity Debacle  And he is right AGAIN! Unfortunately Politics and ideology trump basic economics and common sense.

Last week the National Institute of Economic and Social Research, a British think tank, released a startling chart comparing the current slump with past recessions and recoveries. It turns out that by one important measure — changes in real G.D.P. since the recession began — Britain is doing worse this time than it did during the Great Depression. Four years into the Depression, British G.D.P. had regained its previous peak; four years after the Great Recession began, Britain is nowhere close to regaining its lost ground.

Nor is Britain unique. Italy is also doing worse than it did in the 1930s — and with Spain clearly headed for a double-dip recession, that makes three of Europe’s big five economies members of the worse-than club. Yes, there are some caveats and complications. But this nonetheless represents a stunning failure of policy.

And it’s a failure, in particular, of the austerity doctrine that has dominated elite policy discussion both in Europe and, to a large extent, in the United States for the past two years.

O.K., about those caveats: On one side, British unemployment was much higher in the 1930s than it is now, because the British economy was depressed — mainly thanks to an ill-advised return to the gold standard — even before the Depression struck. On the other side, Britain had a notably mild Depression compared with the United States.

Even so, surpassing the track record of the 1930s shouldn’t be a tough challenge. Haven’t we learned a lot about economic management over the last 80 years? Yes, we have — but in Britain and elsewhere, the policy elite decided to throw that hard-won knowledge out the window, and rely on ideologically convenient wishful thinking instead.

Britain, in particular, was supposed to be a showcase for “expansionary austerity,” the notion that instead of increasing government spending to fight recessions, you should slash spending instead — and that this would lead to faster economic growth. “Those who argue that dealing with our deficit and promoting growth are somehow alternatives are wrong,” declared David Cameron, Britain’s prime minister. “You cannot put off the first in order to promote the second.”

How could the economy thrive when unemployment was already high, and government policies were directly reducing employment even further? Confidence! “I firmly believe,” declared Jean-Claude Trichet — at the time the president of the European Central Bank, and a strong advocate of the doctrine of expansionary austerity — “that in the current circumstances confidence-inspiring policies will foster and not hamper economic recovery, because confidence is the key factor today.”

Such invocations of the confidence fairy were never plausible; researchers at the International Monetary Fund and elsewhere quickly debunked the supposed evidence that spending cuts create jobs. Yet influential people on both sides of the Atlantic heaped praise on the prophets of austerity, Mr. Cameron in particular, because the doctrine of expansionary austerity dovetailed with their ideological agendas.

Thus in October 2010 David Broder, who virtually embodied conventional wisdom, praised Mr. Cameron for his boldness, and in particular for “brushing aside the warnings of economists that the sudden, severe medicine could cut short Britain’s economic recovery and throw the nation back into recession.” He then called on President Obama to “do a Cameron” and pursue “a radical rollback of the welfare state now.”

Strange to say, however, those warnings from economists proved all too accurate. And we’re quite fortunate that Mr. Obama did not, in fact, do a Cameron.

Which is not to say that all is well with U.S. policy. True, the federal government has avoided all-out austerity. But state and local governments, which must run more or less balanced budgets, have slashed spending and employment as federal aid runs out — and this has been a major drag on the overall economy. Without those spending cuts, we might already have been on the road to self-sustaining growth; as it is, recovery still hangs in the balance.

And we may get tipped in the wrong direction by Continental Europe, where austerity policies are having the same effect as in Britain, with many signs pointing to recession this year.

The infuriating thing about this tragedy is that it was completely unnecessary. Half a century ago, any economist — or for that matter any undergraduate who had read Paul Samuelson’s textbook “Economics” — could have told you that austerity in the face of depression was a very bad idea. But policy makers, pundits and, I’m sorry to say, many economists decided, largely for political reasons, to forget what they used to know. And millions of workers are paying the price for their willful amnesia.

….. PAUL KRUGMAN 1/29/12

As the South Carolina Voting Comes to a Close … Some Thoughts

 In the 11 days since Mitt Romney tried unsuccessfully to leave the rest of the GOP field behind in New Hampshire, the presidential race has served up a scattershot cast of angels and demons as the candidates try to strike a chord with different slices of the electorate.

Capitalism was in, then out, then in again. Insurance companies got a sideways sympathetic nod. Mike Huckabee and Betty Whiteproved to have some cachet. The press was an ever-popular whipping child.

Europe and entitlements, felons, food stamps and French: All were on the outs with one candidate or another.

Newt Gingrich even ran an ad faulting Romney for his language skills: “Just like John Kerry, he speaks French,” it warned ominously.

The GOP challengers went after Romney’s venture capitalist credentials with a vengeance — most memorably when Texas Gov. Rick Perry rebranded him a “vulture capitalist” — then eased up somewhat when they caught grief from the defenders of free enterprise.

For a little while, even insurance companies — typically a popular target for politicians of any stripe — got a little love after Romney said he liked the idea of being able to fire them for poor performance. The other candidates summoned a chorus of outrage at the notion that Romney would relish firing anyone.

Republican strategist Terry Holt said it all adds up to “a blizzard of buzz words” as candidates try to deliver a headline-grabbing quote that will get people’s attention.

But does it work?

“Ultimately, it all blends together into a general sense of the candidate,” says Holt. “The back-and-forth is lost on most people.”

And there’s been a lot of back-and-forthing.

Romney and Gingrich both ran ads trying to claim a little luster from popular conservative Huckabee by rolling out nice things he’d said about them. But it turned out Huckabee hadn’t endorsed either of them, and both got a scolding from the former Arkansas governor.

President Barack Obama, watching the GOP race from the sidelines, had to be hoping that a little of Betty White’s uncanny popularity would rub off when he taped a video piece for her 90th birthday in which he joked that the actress looks so good she should cough up her long-form birth certificate to prove she’s really that old.

The GOP candidates trotted out plenty of reliable enemies — “Obamacare,” federal regulations, big government, the Dodd-Frank financial regulations — but added some new ones to the mix as well.

Gingrich, catering to South Carolina sensibilities and its port communities, singled out the Army Corps of Engineers, complaining in Thursday’s debate that the corps “takes eight years to study — not to complete — to study doing the port. We won the entire Second World War in three years and eight months.”

Candidates’ messages zig-zagged all over in search of a winning line that would work with voters.

Earning money was good — except if your name was Mitt Romney.

A super PAC supporting Gingrich made a half-hour movie attacking Romney for reaping “massive rewards for himself and his investors,” complete with sinister music and a baritone-voice narrator.

Romney defended his capitalist credentials by lining himself up with the philosopher known as a father of capitalism, proudly announcing, “Adam Smith was right.”

Perry managed to turn the news that U.S. troops had apparently been captured on video urinating on corpses in Afghanistan into an indictment of the Obama administration. The Texas governor accused the Obama team of piling on against “kids” who sometimes make “stupid mistakes.”

It didn’t do him much good: He was out of the race within days.

Then came the issue of infidelity: Gingrich chose not to comment on the details of his marriage to his second wife after she claimed that he’d asked her for an “open marriage” in which he could have both a wife and a mistress.

Gingrich managed to steer that conversation to the one enemy that all the candidates love to beat up on: the media.

“I think the destructive, vicious, negative nature of much of the news media makes it harder to govern this country,” he declared.

But even rival Rick Santorum saw through the tactic, urging voters not to be swept away by Gingrich’s blast at the press.

Republicans should “get past the glib one-liners, the beating up of the media, which is always popular with conservatives,” Santorum said.

Democratic strategist Karen Finney said the Republicans’ random list of friends and foes has emerged as candidates “try to pick off pieces of the Republican electorate” with very targeted appeals that will add up to an overall win in each primary or caucus state.

“The narrative is shifting based on the audiences they’re speaking to,” she said.

“There’s always, ‘Who’s the good guy and who’s the bad guy,’” she said.

In this campaign, that lineup changes every day.

Are Women Holding Back Our Economic Growth?

Admittedly the title sounds ridiculous… but is it rally?? Tell me after you read the article.

The New York Times reported earlier this month that consumer spending, while slightly up for the holidays, wasn’t as strong as many were hoping and ended up looking pretty depressed in 2011.

 Consumers’ unwillingness to open up their pocketbooks and go on credit-fueled shopping sprees portends dismal economic growth in the near future.

They have already cut back so far that there is “little room for a big increase in spending in 2012,” as the article puts it. And it reports, “Consumer spending makes up 70 percent of the economy, so until it ignites, general growth is likely to be sluggish.”

It’s no mistake that both the people interviewed for the article were women. There’s Sarah M. Manley from Minnesota, who has frozen crab legs she bought on discount stowed away for Valentine’s Day and now buys milk in plastic bags from the gas station instead of in cartons. There’s also Lynette Paudel of Ohio, who plans to drive her 2003 minivan until it breaks but was lucky enough to avoid being let go from her high school English teaching job. When it comes to talk of consumer spending, we might as well be talking almost exclusively about women. They oversee 80 percent of consumer spending, totaling $3.7 trillion. As long as they continue to suffer in the recession, the rest of the economy will sputter along.

Paudel is very lucky to have kept her teaching job. Since the recovery officially began in 2009, women have actually been losing jobs. They saw 46,000 disappear, while at the same time men made some gains, getting back 1.26 million. Women’s unemployment rate has also inched up while men saw a decline. And a large part of that trend is that women were big losers in public sector layoffs, losing 374,000 jobs. A lot of those came from public education jobs — elementary and high school teachers like Paudel.

That’s not the whole story, however. Men have also been making gains in the public sector while women lost, driven by huge job losses for administrative and secretarial positions. Men are even gaining in the traditionally female-dominated retail industry.

Even those women who are still employed are likely struggling with other factors. Housing debt is a huge barrier holding consumers back. The Times article reports, “with more than one in every five borrowers still owing more than their homes are worth, many homeowners feel too pressed to spend on much more than the essentials.”

But as the Consumer Federation of America found, women were 32 percent more likely to receive subprime mortgages than men across all product lines, even though they have similar credit profiles. Those high-cost loans, often pawned off on those who could least afford them, have led to a massive wave of foreclosures and put many homeowners underwater. And overall, women’s representation in the mortgage market has grown in recent decades — the number of single women homeowners, for example, grew by 4 million between 1994 and 2002. They’re likely to be struggling under heavy mortgage debt loads.

They also, of course, make less than their male counterparts for similar work. So while American workers’ wages have stagnated over the past three decades, women have yet to even catch up to men.

It’s likely that some of the women overseeing that 80 percent of consumer spending aren’t going it alone. Many are making decisions for their families’ spending, and if they are unemployed hopefully they can rely on income from an employed spouse. (Although in a recent poll almost a quarter of respondents had a family member who had experienced job loss.) But if consumer spending is going to continue driving the economy, and the economic recovery, what’s happening to women in the recovery period can’t be ignored. Things have been bad and show no sign of looking up.

How to BUY an American Presidential Election

And then there were four, and as the field narrows so does the flow of money…. but NOT the amount… as much much more will be flowing in the comming months.

So HOW can a President of the United States and an entire political party be bought…. lets look  below and see shall we…..

Ahead of the South Carolina Republican primary set for Saturday, Texas Governor Rick Perry announced Thursday he is dropping out of the race and throwing his support behind Newt Gingrich. That leaves Gingrich, Mitt Romney, Ron Paul and Rick Santorum to duke it out in the last debate Thursday night before the vote over the weekend.

Before Perry called it quits, polls by both CNN and Politico showed Romney with a shrinking lead over Gingrich with Paul in third and Santorum in fourth (Perry had been dead last).

The other big news on the trail Thursday is Santorum’s official win over Romney in Iowa. A certified tally of the vote shows Santorum won by 34 votes.

Whoever wins the South Carolina primary on Saturday, a lot of attention will no doubt be focused on the Super PAC ads that have run non-stop in the state, just as they did in Iowa and New Hampshire and have started in Florida.

The pro-Romney “Restore Our Future” Super PAC is credited with dragging down Gingrich’s poll rating in Iowa, which resulted in Gingrich losing to Santorum, Romney and Paul. One of the recent ads claims “Newt has a ton of baggage,” criticizes him for his “30 years in Washington flip-flopping on the issues” and shows him siding with Nancy Pelosi and Al Gore on global warming.

Super PACs are a relatively new phenomenon and definitely new to Presidential elections. As with anything new, there are a lot of questions surrounding what exactly Super PACs are and why they are now part of the country’s democratic election process.

John Dunbar, managing editor for The Center for Public Integrity’s online web publication, joined The Daily Ticker’s Aaron Task in the accompanying interview to help us answer these questions and to discuss the impact Super PACs are having on the race.

What Are Super PACs?

The PAC in “Super PAC” stands for political action committee. PAC have been around for a long time but Dunbar explains what makes these new groups “super” is they “can accept unlimited contributions from individuals, corporations and labor unions, and take those funds and spend them to elect or defeat a federal candidate.”

“These are called independent expenditures,” he continues. “The bulk is spent on advertising, though they can include direct mail and other costs. These committees cannot coordinate with the candidate they are supporting. They affect the election the same way any political ad can affect an election — by convincing voters to support or oppose a candidate.”

It is the unlimited nature of these organizations’ fund-raising that separates them from PACs of the past.

What’s the Financial Impact?

Total expenditures by presidential Super PACs in the early primary states is $26.5 million as of January 18, according to The Center for Public Integrity.

Romney has benefited the most. To date, $9.5 million has been spent on his behalf, much of it coming from Restore Our Future. Gingrich is the second-biggest benefactor with roughly $4.5 million thrown to his cause, mainly through Winning Our Future, which has run ads depicting Romney as a corporate raider and job killer.

Who Is Behind The Super PACs?

Many of these organizations are founded and run by former employees of the candidates they support, which makes it easy for them to coordinate a message without direct communication from a candidate.

As for the money flows, only the contributions made through first six month of 2011 are currently public. The next disclosure report comes at the end of the month after many of the primaries will have ended and the GOP candidate is likely already named.

But what we know so far indicates the mega rich are the prime contributors to these Super PACs. Here a list compiled by The Center of Public Integrity:

• Restore Our Future: The pro-Romney Super PAC received $1 million from hedge fund manager John Paulson and $1 million from Bain Capital managing director Edward Conard, which was originally reported via a shell corporation.
• Winning Our Future: The pro-Gingrich Super PAC received a $5 million check from billionaire Sheldon Adelson.
• Red White and Blue Fund: Wyoming billionaire Foster Friess gave half a million to the pro-Santorum Super PAC.
• Priorities USA Action: This Super PAC favors President Obama. Dreamworks chairman Jeffrey Katzenberg contributed $2 million and Fred Eychaner of Newsweb Corp. gave $500,000.

Where Did Super PACs Come From?

“The Citizens United Supreme Court decision and a lower-court ruling in 2010 allowed corporations, individuals and labor unions to make unlimited contributions to independent organizations that use the money to support or defeat a candidate. The ruling led to the creation of super PACs,” writes Dunbar.

A handful of states are trying to fight back by introducing legislation that would amend the constitution. Five states in 2011 introduced bills to amend the constitution, and 7 states did so in 2010, according to FreeSpeechforPeople.org. This week the “Occupy” movement takes this message to courts and corporations around the country. (Stay tuned for additional Daily Ticker coverage Friday)

Why Should You Care?

Proponents of Super PACs will tell you these committees are good for America as they promote free speech by allowing people and corporations to spend as much money as they want to support whatever candidate they want.

Dunbar disagrees. “That’s a terrific argument [only] if you’re a billionaire,” says Dunbar.

Do YOU Understand the Reason For Debt

Nobody Understands Debt

In 2011, as in 2010, America was in a technical recovery but continued to suffer from disastrously high unemployment. And through most of 2011, as in 2010, almost all the conversation in Washington was about something else: the allegedly urgent issue of reducing the budget deficit.

This misplaced focus said a lot about our political culture, in particular about how disconnected Congress is from the suffering of ordinary Americans. But it also revealed something else: when people in D.C. talk about deficits and debt, by and large they have no idea what they’re talking about — and the people who talk the most understand the least.

Perhaps most obviously, the economic “experts” on whom much of Congress relies have been repeatedly, utterly wrong about the short-run effects of budget deficits. People who get their economic analysis from the likes of the Heritage Foundation have been waiting ever since President Obama took office for budget deficits to send interest rates soaring. Any day now!

And while they’ve been waiting, those rates have dropped to historical lows. You might think that this would make politicians question their choice of experts — that is, you might think that if you didn’t know anything about our postmodern, fact-free politics.

But Washington isn’t just confused about the short run; it’s also confused about the long run. For while debt can be a problem, the way our politicians and pundits think about debt is all wrong, and exaggerates the problem’s size.

Deficit-worriers portray a future in which we’re impoverished by the need to pay back money we’ve been borrowing. They see America as being like a family that took out too large a mortgage, and will have a hard time making the monthly payments.

This is, however, a really bad analogy in at least two ways.

First, families have to pay back their debt. Governments don’t — all they need to do is ensure that debt grows more slowly than their tax base. The debt from World War II was never repaid; it just became increasingly irrelevant as the U.S. economy grew, and with it the income subject to taxation.

Second — and this is the point almost nobody seems to get — an over-borrowed family owes money to someone else; U.S. debt is, to a large extent, money we owe to ourselves.

This was clearly true of the debt incurred to win World War II. Taxpayers were on the hook for a debt that was significantly bigger, as a percentage of G.D.P., than debt today; but that debt was also owned by taxpayers, such as all the people who bought savings bonds. So the debt didn’t make postwar America poorer. In particular, the debt didn’t prevent the postwar generation from experiencing the biggest rise in incomes and living standards in our nation’s history.

But isn’t this time different? Not as much as you think.

It’s true that foreigners now hold large claims on the United States, including a fair amount of government debt. But every dollar’s worth of foreign claims on America is matched by 89 cents’ worth of U.S. claims on foreigners. And because foreigners tend to put their U.S. investments into safe, low-yield assets, America actually earns more from its assets abroad than it pays to foreign investors. If your image is of a nation that’s already deep in hock to the Chinese, you’ve been misinformed. Nor are we heading rapidly in that direction.

Now, the fact that federal debt isn’t at all like a mortgage on America’s future doesn’t mean that the debt is harmless. Taxes must be levied to pay the interest, and you don’t have to be a right-wing ideologue to concede that taxes impose some cost on the economy, if nothing else by causing a diversion of resources away from productive activities into tax avoidance and evasion. But these costs are a lot less dramatic than the analogy with an overindebted family might suggest.

And that’s why nations with stable, responsible governments — that is, governments that are willing to impose modestly higher taxes when the situation warrants it — have historically been able to live with much higher levels of debt than today’s conventional wisdom would lead you to believe. Britain, in particular, has had debt exceeding 100 percent of G.D.P. for 81 of the last 170 years. When Keynes was writing about the need to spend your way out of a depression, Britain was deeper in debt than any advanced nation today, with the exception of Japan.

Of course, America, with its rabidly antitax conservative movement, may not have a government that is responsible in this sense. But in that case the fault lies not in our debt, but in ourselves.

So yes, debt matters. But right now, other things matter more. We need more, not less, government spending to get us out of our unemployment trap. And the wrongheaded, ill-informed obsession with debt is standing in the way.

Keynesian Economics Vindicated

Keynes Was Right

“The boom, not the slump, is the right time for austerity at the Treasury.” So declared John Maynard Keynes in 1937, even as F.D.R. was about to prove him right by trying to balance the budget too soon, sending the United States economy — which had been steadily recovering up to that point — into a severe recession. Slashing government spending in a depressed economy depresses the economy further; austerity should wait until a strong recovery is well under way.

Unfortunately, in late 2010 and early 2011, politicians and policy makers in much of the Western world believed that they knew better, that we should focus on deficits, not jobs, even though our economies had barely begun to recover from the slump that followed the financial crisis. And by acting on that anti-Keynesian belief, they ended up proving Keynes right all over again.

In declaring Keynesian economics vindicated I am, of course, at odds with conventional wisdom. In Washington, in particular, the failure of the Obama stimulus package to produce an employment boom is generally seen as having proved that government spending can’t create jobs. But those of us who did the math realized, right from the beginning, that the Recovery and Reinvestment Act of 2009 (more than a third of which, by the way, took the relatively ineffective form of tax cuts) was much too small given the depth of the slump. And we also predicted the resulting political backlash.

So the real test of Keynesian economics hasn’t come from the half-hearted efforts of the U.S. federal government to boost the economy, which were largely offset by cuts at the state and local levels. It has, instead, come from European nations like Greece and Ireland that had to impose savage fiscal austerity as a condition for receiving emergency loans — and have suffered Depression-level economic slumps, with real G.D.P. in both countries down by double digits.

This wasn’t supposed to happen, according to the ideology that dominates much of our political discourse. In March 2011, the Republican staff of Congress’s Joint Economic Committee released a report titled “Spend Less, Owe Less, Grow the Economy.” It ridiculed concerns that cutting spending in a slump would worsen that slump, arguing that spending cuts would improve consumer and business confidence, and that this might well lead to faster, not slower, growth.

They should have known better even at the time: the alleged historical examples of “expansionary austerity” they used to make their case had already been thoroughly debunked. And there was also the embarrassing fact that many on the right had prematurely declared Ireland a success story, demonstrating the virtues of spending cuts, in mid-2010, only to see the Irish slump deepen and whatever confidence investors might have felt evaporate.

Amazingly, by the way, it happened all over again this year. There were widespread proclamations that Ireland had turned the corner, proving that austerity works — and then the numbers came in, and they were as dismal as before.

Yet the insistence on immediate spending cuts continued to dominate the political landscape, with malign effects on the U.S. economy. True, there weren’t major new austerity measures at the federal level, but there was a lot of “passive” austerity as the Obama stimulus faded out and cash-strapped state and local governments continued to cut.

Now, you could argue that Greece and Ireland had no choice about imposing austerity, or, at any rate, no choices other than defaulting on their debts and leaving the euro. But another lesson of 2011 was that America did and does have a choice; Washington may be obsessed with the deficit, but financial markets are, if anything, signaling that we should borrow more.

Again, this wasn’t supposed to happen. We entered 2011 amid dire warnings about a Greek-style debt crisis that would happen as soon as the Federal Reserve stopped buying bonds, or the rating agencies ended our triple-A status, or the superdupercommittee failed to reach a deal, or something. But the Fed ended its bond-purchase program in June; Standard & Poor’s downgraded America in August; the supercommittee deadlocked in November; and U.S. borrowing costs just kept falling. In fact, at this point, inflation-protected U.S. bonds pay negative interest: investors are willing to pay America to hold their money.

The bottom line is that 2011 was a year in which our political elite obsessed over short-term deficits that aren’t actually a problem and, in the process, made the real problem — a depressed economy and mass unemployment — worse.

The good news, such as it is, is that President Obama has finally gone back to fighting against premature austerity — and he seems to be winning the political battle. And one of these years we might actually end up taking Keynes’s advice, which is every bit as valid now as it was 75 years ago.

America, Land of the UnEqual

America’s Unlevel Field

Last month President Obama gave a speech invoking the spirit of Teddy Roosevelt on behalf of progressive ideals — and Republicans were not happy. Mitt Romney, in particular, insisted that where Roosevelt believed that “government should level the playing field to create equal opportunities,” Mr. Obama believes that “government should create equal outcomes,” that we should have a society where “everyone receives the same or similar rewards, regardless of education, effort and willingness to take risk.”As many people were quick to point out, this portrait of the president as radical redistributionist was pure fiction. What hasn’t been as widely noted, however, is that Mr. Romney’s picture of himself as a believer in a level playing field is just as fictional. Where is the evidence that he or his party cares at all about equality of opportunity?

Let’s talk for a minute about the actual state of the playing field.

Americans are much more likely than citizens of other nations to believe that they live in a meritocracy. But this self-image is a fantasy: as a report in The Times last week pointed out, America actually stands out as the advanced country in which it matters most who your parents were, the country in which those born on one of society’s lower rungs have the least chance of climbing to the top or even to the middle.

And if you ask why America is more class-bound in practice than the rest of the Western world, a large part of the reason is that our government falls down on the job of creating equal opportunity.

The failure starts early: in America, the holes in the social safety net mean that both low-income mothers and their children are all too likely to suffer from poor nutrition and receive inadequate health care. It continues once children reach school age, where they encounter a system in which the affluent send their kids to good, well-financed public schools or, if they choose, to private schools, while less-advantaged children get a far worse education.

Once they reach college age, those who come from disadvantaged backgrounds are far less likely to go to college — and vastly less likely to go to a top-tier school — than those luckier in their parentage. At the most selective, “Tier 1” schools, 74 percent of the entering class comes from the quarter of households that have the highest “socioeconomic status”; only 3 percent comes from the bottom quarter.

And if children from our society’s lower rungs do manage to make it into a good college, the lack of financial support makes them far more likely to drop out than the children of the affluent, even if they have as much or more native ability. One long-term study by the Department of Education found that students with high test scores but low-income parents were less likely to complete college than students with low scores but affluent parents — loosely speaking, that smart poor kids are less likely than dumb rich kids to get a degree.

It’s no wonder, then, that Horatio Alger stories, tales of poor kids who make good, are much less common in reality than they are in legend — and much less common in America than they are in Canada or Europe. Which brings me back to those, like Mr. Romney, who claim to believe in equality of opportunity. Where is the evidence for that claim?

Think about it: someone who really wanted equal opportunity would be very concerned about the inequality of our current system. He would support more nutritional aid for low-income mothers-to-be and young children. He would try to improve the quality of public schools. He would support aid to low-income college students. And he would support what every other advanced country has, a universal health care system, so that nobody need worry about untreated illness or crushing medical bills.

If Mr. Romney has come out for any of these things, I’ve missed it. And the Congressional wing of his party seems determined to make upward mobility even harder. For example, Republicans have tried to slash funds for the Women, Infants and Children program, which helps provide adequate nutrition to low-income mothers and their children; they have demanded cuts in Pell grants, which are designed to help lower-income students afford college.

And they have, of course, pledged to repeal a health reform that, for all its imperfections, would finally give Americans the guaranteed care that everyone else in the advanced world takes for granted.

So where is the evidence that Mr. Romney or his party actually believes in equal opportunity? Judging by their actions, they seem to prefer a society in which your station in life is largely determined by that of your parents — and in which the children of the very rich get to inherit their estates tax-free. Teddy Roosevelt would not have approved.

THE GREAT AMERICAN RIFT

THE GREAT AMERICAN RIFT

3 years ago I said that as far as our economy was concerned it did not matter who won the presidential race because we were in for very difficult times… I just never realized myself HOW difficult those times would become.

Across the country Americans are still in shock that they are so much worse off than they were in 2006… and most do not see it getting better although the all hope it will… but in reality I see nothing to indicate it will get better… OHH yes I see SOME economic reports that show this thing or that thing  is getting better…  only to find out  later that  it as not as great as reported originally… This makes most of us think that we cannot trust the economic data being provided anymore.

Let’s take the rate of inflation… for most of us that means the CPI or the Consumer Price index… most of us see greater inflation in our household budgets than what the government reports… this is not new… in fact the government over the past 30 years or so has CHANGED how this inflation figure is calculated 19 times.. . Yes, you read that correctly, that is not a typo…..  NINETEEN times, each and every time decreasing the actual inflation that a normal household really experiences. Don’t believe me… look at your utility bills that last few years… or see how much your food Costs are… and the size of the package your food is in… it may not appear smaller… but if you look at the actual weight on the package it is… you are paying the same or MORE for less.

Gasoline, food, utilities insurances (Health and auto and homeowners) and much more that are most of the actual budget of a home are sky high and wages are not up… and taxes have risen in some areas like the so called penny tax School taxes in many places are HIGHER than property taxes… and we are not getting the bag for our buck there… but I will save education issues for a later post. Even my cable bill with Comcast or the new name X-finity is outrageously high… and like most Americans I am fed up, frustrated and feel helpless when my elected officials are getting good paychecks and NOT helping the people who they were elected to serve… Politics which was always a dirty word has become so bad that I fear some people will cause physical harm to me if I bring it up in a conversation….

OK so I hope most of us can agree with the into here… now for what I see as the GREAT AMERIAN RIFT.

No surprise that Politics is to blame for where we are… the only difference we may have is WHO or Which Party you feel is responsible… and to tell you the truth I don’t care which side you’re on… it is bad. Politics used to be negotiating from an ideological viewpoint the ways in which to make this country great and keep it great… NOW however I see it as just an argument on Ideology… and the polarization of this country has never been so great since the Civil War that tore this country apart and took decades to recover economically and more than a entry to mostly heal the social divide (which unfortunately still exists in areas of racism, homophobia, religion, women’s rights,  and the Right to Life movement, etc) we are a nation divided to the point that if we could  see one state on one side of the issue I would not be surprised if a succession movement evolved again. But geographical divides will never be tolerated… and so, because of politicians, we find ourselves involved and on the brink of another civil war in this country… the GREAT RIFT will cause a great divide that may never heal under our current form of government.

The squeaky wheel gets the grease… or so they say… but Politics has become a situation of such Ultra extremists in both parties controlling the entire party and hence setting an agenda that is not in keeping with the actual real beliefs of those in that party…. And WORSE… not being honest loyal Americans FIRST.  IF they were good Americans I believe they would want and FIGHT for is best for the PEOPLE of America….  It is PEOPLE who make America great… and sadly we are losing that greatness because of cowardly politicians. They bow to those motivated to vote… so I say with a loud voice the GREATEST THREAT TO THE AMERICAN WAY IS VOTER APPATHY

Children of parents who constantly fight and call each other names and LIE never fare well in life Citizens of a country whose politicians are so intransient in their positions suffer from that as well…  Unless your party gets 80% of a vote where at least 80 percent of the registered voters voted… THEN YOU DO NOT HAVE A MANDATE FROM THE AMERICAN PUBLIC…you simply won an election… so get over your self-grandioseing and get on with helping America… you incessant BS is aggravating to most Americans to say the least.

Someone needs to come out and speak for the SILENT MAJORITY and the loud mouths and liars are in control lately… I believe 80 percent of Americans are not happy with either party the way they are behaving… and this polarization of America MUST STOP. Am I angry?? DAMN right I am.

I am a lifelong Republican… and quite frankly I am pissed off at my party… and the Tea Party in particular … for what they are doing to America today. BACHMAN… oh for crying out loud… Spineless politicians who will not say the truth about her obvious ignorance in the things she says… WHY… “OH well… She is a Republican and we can’t call her out on false statements!”… Most of America knows what you our LEADERS are afraid to say and would welcome honesty and straight talk for a change… at least I know I would… you lose my respect every day when you allow this type of behavior in OUR party…

I voted for Obama… why?? Because I tough he was better then what you put up for President… I like John McCain… but Sarah Palin… come on guys did you intentionally want to lose??

Taxes.. Can any republican say with all honesty that it is right for a Hedge Fund manager to make millions… sometimes hundreds of millions and only pay 15% taxes when his staff pays 30-40 percent in taxes.  And don’t give me the BS that he creates jobs with lower taxes… he creates NOTHING but profits a leach on society…. Shaving pennies from hundreds of trades a day in rapid computer generated trades… the Stock market is no longer a free and fair market with these types of shenanigans going on.

I would LOVE less regulation from Government… but greed and corruption exists and Corporations cannot be trusted to do what is right… they incentivized by one thing and one thing only profits… and who can blame them when you have corrupted the system so much as to let them fail the people of this country and demonize anyone who dares speaks up for the human condition in this country… instead encourage them to do what is right with financial incentives if need be… and then and only then will I support a reduction on regulations.. I said it above and I will repeat it again now: PEOPLE make America Great.. NOT businesses or corporations… we have the most creative and innovative collection of minds in this world… yet it appears they get sucked into how to maximize profit and to disregard the human condition.  I cannot begin to say how ashamed I am sometimes for being Republican… but yet I will not become a Democrat… for they are besieged with equally distasteful ideas… and will drive their party into the ground unless they learn to compromise and negotiate for the benefit of the American public … even if it is at the expense of some of their pet projects.  Simply put.. BOTH of your parties are more damaging to AMERICA then IRAN… because you have lost your souls for your ideology to the detriment of this country

China: China is NOT our friend,, and dependence on them for the benefit of business has NOT helped America.. Ohh yes it may have reduced some costs to the American Public… but in reality we lost more in jobs and wages and disposable income and reduced our GDP by doing so. And WHAT DID WE GAIN.. Corporate profits at the expense of our country… the same for NAFTA and other free trade agreements.. And now in our current situation we have no ability to create jobs for our unemployed as there are fewer factories to employ the people we need to give jobs to. WTO is basically a fare to the Hourly wage earner in the industrialized world.

Government is NOT the same as Households or business… and it not the same at FEDERAL level as it is on the state level… IN Economic down times like these GOVERNMENT NEEDS TO SPEND MORE TO HELP CREAT JOBS AND BRING BACK A TAX BASE OF EMPLOYED PEOPLE (Do I have to remind you of Roosevelt’s initiatives that helped bring us out of the Great depression) … Cutting Corporate taxes does NOT create jobs as you have told people or by extending the tax cuts last time around you have not seen a real increase in hiring… and why is that.. Well Mr. Politician… our economy is more than 70% consumer driven: no jobs, no spending… no spending then no company wants to invest in plant, equipment or hiring… so where do the jobs come from…ONE word… INFRASTRUCTURE  as these projects are critical in America today when our infrastructure is crumbling and jobs are just not available anywhere else… and they have to be paid for by our government through HIGHER taxes on those that can afford and on corporations…

Why is it so hard for you to understand BASIC economics and tell the truth instead of pandering to a minority base of zealots who will destroy this country?

SO… what is the RIFT we are facing in America today? It is Class Warfare… based in steep and entrenched Ideology that is not often based in reality or honesty. It is the division in America not just between political parties but in the haves and have-nots… It is politically driven and fueled by greed and fear and is clouded by lies and distortions of truths… it is the worst of all types of warfare.. it is the kind that fuels revolutions in other countries… and destroys nations… it is  the warning bell to the fall of America as   great nation and we will not even know until we have fallen so low as  to not be able to pull ourselves up.  And it seems to be savored not only by our enemies and countries jealous of our success…. But also by the Media who likes conflict and sound bites and lacks the same courage to set things straight and to further polarize this country based on ideology.

So as this election season now seems to be starting and we have 15more months of this slander and false statement season and cowardly politicians on both side.. Remember this… WE are ultimately responsible for what is about to happen.. WE the SILENT MAJORITY… who has failed to speak up… who accepts  the media on face value… who blindly believes their parties rhetoric… and then the PEOPLE who FAIL to VOTE… as I said above the GREATEST threat to America today is Apathy.. a failure to vote and to make your voice head at the voting booths.. WE are responsible for the future of this Country….

Who among you will raise to the occasion and do the simplest thing to help it by voting… and who among you will just lay down and accept whatever happens… From the Primaries where you will select your candidate (*where I fear the most for my party in getting a BAD candidate again because the radicals get their supports to the polls and the majority of republicans just sit back and watch and then find out they have a  fool for a candidate)… to the General election where you should vote for the BEST person for President as opposed to your Party’s CANDIDATE FOR PRESIDENT…. WILL YOU STAND UP FOR AMERICA??

A final note to my Republican Party.. If you give me someone like Bachman as  our candidate I will NOT vote for her… but I will vote. Republican or not I am an American first… and that woman has no business even being in Congress let alone holding the office of President of the United States. Until you  my fellow republicans find your backbone and speak truth and care for the AMERICAN people I will not be able to vote Republican .

Greetings Ms Shelly, Whoever and wherever you are.

Ravings of a Radical Republican

<em>This post is so important to me I am putting on at least 2 of my blogs. it is a work in-progress and NOT complete... my emotions and passions are so great on this that I  want to jump into the computer and bad some gigabytes into bits and bytes...  I can not reasonably finish my diatribe   at this time.. but this should give a good indication as to  what I am going to say</em>

<em>This post is so important to me I am putting on at least 2 of my blogs. it is a work in-progress and NOT complete… my emotions and passions are so great on this that I want to jump into the computer and bad some gigabytes into bits and bytes… I can not reasonably finish my diatribe at this time.. but this should give a good indication as to what I am going to say</em>

I have been a Republican my entire life. I have disagreed with my party on things like NAFTA and other trade related issues because I believed it was not good for the COUNTRY and would hurt employment.. which I think I an safely say it has. AS part of the global economy we have catered only to big business and said what we are doing was good for the consumer… OK we had lower prices because other countries could produce cheaper then we could.. but that has left this country vulnerable to things like a housing bubble and financial shenanigans that have brought this country to its knees.

I could be labeled a liberal Republican.. but more like a ultra conservative Democrat…. I guess because I believe in fairness and the human condition too much for my fellow republicans.. and that this country is not a conglomeration of BUSINESS.. but in fact a nation of PEOPLE. This COuntry is being driven into a civil war of the classes and the only thing we talk about is political positioningI am shoked that many of my fellow Republicans an be so bllind to the social problems faing this country. and I am surprised that many of the politiccians and republican pundents have not had their toungs turn black and fall out of their mouths for the lies they insist on telling to American people
to wit: 2 trillion dollars held by corportions ar not being spent because of concern over taxes.. that is utter BS… Theyy say cutting taxes will incentivize people to invest and hire more people.. THAT IS BS

over 70 percent of the US Economy is CONSUMER spending.. but if the unemployed/underemployed now at 16 PLUS perent ar not spending there is no demand for goods and services hence no company will hire even if you cut the tax rate to zero for everybody.

What this country needs more than anything right now is JOBS.. and historically in economic times like these those jobs are created by the FEDERAL government (not state Governments as they have a different role) Federal government is NOT like a household or a business… it does not operate under the same principals..

but with the federal debt soo high how an the federal government generate jobs if it is already broke.. the answer is heresy to Republicans .. well SOME (the most vocal) Republicans. we NEED MORE revenues!!

THE ONE PLACE THE vast MAJORITY OF Americans AGREE ON IS THAT A HEDGE FUND MANAGER WHO DOES nothing TO CREATE JOBS OR BUILD COMPANIES BUT MAKES MONEY solely ON TRADING IS not ENTITLED TO BE TAXED AT 15% WHILE MAKING HUNDREDS OF MILLIONS OF DOLLARS. while the staff employees are paying 30-40 percent in taxes.

We need to differentiate between types of Capital Gains .. ONE year investment gets lower taxes.. and short term investments pay the most taxes.. Short term investment for MOST things produces nothing (one notable exception being housing flippers who refurbish the houses to resell.)

The stock market is soo volatile BECAUSE of these hedge fund managers flipping stocks all day long and on trading platform not available to the average individual investor. UNLESS you are buying an IPO you are not helping the company whose stock you buy and sell.. you are helping yourself or the person you are buying from.. you are contributing NOTHING to the greater society. Hene you should have no tax breaks or special rewards for doing that.

Had the recent Washington Fiscal Fiasco and BS over what should have been a straight up clean bill on the debt ceiling (we are only one of 2 countries in the WORLD hat have a debt ceiling ) but had these “supposed negotiations” included REVENUES and the JOB creation by investing in the Infrastructure projects we so desperately need in this country I have no doubt that S&P would NEVER HAVE DOWNGRADED THE CREDIT Worthiness if the United States. I BLAME the TEA Party for our problems today.. and fault the Republicans for allowing a minority to shove BS down our throats and for not having the courage to do what was RIGHT.. instead my fellow Republicans catered to these radicals and did what was politically convient for them. I have no respect for my Republican Politicians who subjugated themselves to such antics and who failed the UNITED STATES and the Amerian People they are sworn to represent and defend.. and for what benefit … for political advantage? …and at what cost the least of which is your soul . .

Sorry Fellow Republicans but it is the United States GOVERNMENT and ONLY the United States Government that can start to truly bring this economic boondoggle to and end and start a real and true path to prosperity.. although I caution each and every reader.. we cannot go back to the 4-5 6 or 7 years or even longer.. those days are over UNLESS we do ONE more thing… and that will have to be a separate post… but that other thing will both help us, the housing market (BUT NOT NECESSARILY NEW HOME CONSTRUCTION) AND WILL FIX OUR DEBT PROBLEM FOR A TIME BEING WHILE WE GET REVENUES TO SUPPORT OUR OBLIGATIONS. One thing is for sure however.. what I propose is nothing less than heresy and against most Republican ideal solution

I have been a Republican my entire life. I have disagreed with my party on things like NAFTA and other trade related issues because I believed it was not good for the COUNTRY and would hurt employment.. which I think I an safely say it has. AS part of the global economy we have catered only to big business and said what we are doing was good for the consumer... OK we had lower prices because other countries could produce cheaper then we could.. but that has left this country vulnerable to things like a housing bubble and  financial shenanigans that have brought this country to its knees.

I could be labeled a liberal Republican.. but more like a ultra conservative Democrat.... I guess because I believe in fairness and the human condition too much for my fellow republicans.. and that this country is not a conglomeration of BUSINESS.. but in fact a nation of PEOPLE.  This COuntry is being driven into a civil war of the classes and  the only thing we talk about is political positioning

I am shoked that many of my fellow Republicans an be so bllind to the social problems faing this country. and  I am surprised that many of the politiccians  and republican pundents  have not had their toungs turn black and fall out of their mouths for the lies they insist on telling to American people

to wit: 2 trillion dollars held by corportions  ar not being spent because of concern over taxes.. that is utter BS... Theyy say cutting taxes will incentivize  people to invest and hire more people.. THAT IS BS

over 70 percent of the US Economy is CONSUMER spending.. but if the unemployed/underemployed  now at 16 PLUS perent ar not spending there is no demand for goods and services hence no company will hire even if you cut the tax rate to zero for everybody. 

What this country needs more than anything right now is JOBS.. and historically in economic times like these those jobs are created by the FEDERAL government (not state Governments as they have a different role) Federal government is NOT like a household or a business... it does not operate under the same principals.. 

but with the federal debt soo high how an the federal government  generate  jobs if it is already broke.. the answer is heresy to Republicans .. well SOME  (the most vocal) Republicans. we NEED MORE revenues!!

THE ONE PLACE THE vast MAJORITY OF Americans AGREE ON IS THAT A HEDGE FUND MANAGER WHO DOES nothing TO CREATE JOBS OR BUILD COMPANIES BUT MAKES MONEY solely ON TRADING IS not ENTITLED TO BE TAXED AT 15% WHILE MAKING HUNDREDS OF MILLIONS OF DOLLARS. while the staff employees are paying 30-40 percent in taxes.

We need to differentiate between  types of Capital Gains .. ONE year investment gets lower taxes.. and short term investments pay the most taxes.. Short term investment for MOST things produces nothing (one notable exception being housing flippers who refurbish the houses to resell.) 

The stock market is soo volatile BECAUSE of these hedge fund managers flipping stocks all day long and on trading platform not available to the average individual investor. UNLESS you are buying an IPO you are not helping the company whose stock you buy and sell.. you are helping yourself or the person you are buying from.. you are contributing NOTHING to the greater society. Hene you should have no tax breaks or special rewards for doing that. 

Had the recent Washington Fiscal Fiasco  and BS over what should have been a straight up clean bill on the debt ceiling (we are only one of 2 countries in the WORLD hat have a debt ceiling ) but had these "supposed negotiations" included REVENUES and the JOB creation  by investing in the Infrastructure projects we so desperately need in this country I have no doubt that S&P would NEVER HAVE DOWNGRADED THE CREDIT Worthiness if the United States.  I BLAME the TEA Party for our problems today.. and fault the Republicans for allowing a minority to shove BS down our throats and for not having the courage to do what  was RIGHT.. instead my fellow Republicans catered to these radicals and did what was politically convient  for them. I have no respect for my Republican   Politicians who subjugated themselves to such antics and who failed the UNITED STATES and the Amerian People they are sworn to represent and defend.. and for what benefit ... for political advantage? ...and at what cost the least of which is your soul  . . 

Sorry Fellow Republicans but it is the United States GOVERNMENT and ONLY the United States Government that can  start to truly bring this economic boondoggle  to and end and start a real and true path to prosperity.. although I caution each and every reader.. we cannot go back to the  4-5 6 or 7 years or even longer..  those days are over UNLESS we do ONE more thing... and that will have to be a separate post... but  that other thing will both help us, the housing market (BUT NOT NECESSARILY NEW HOME  CONSTRUCTION) AND WILL FIX OUR DEBT PROBLEM FOR A TIME BEING WHILE WE GET REVENUES TO SUPPORT OUR OBLIGATIONS.  One thing is for sure however.. what I propose is nothing less than heresy and against most Republican ideal solution

Special report: The “shorts” who popped a China bubble – Yahoo! News

Special report: The “shorts” who popped a China bubble – Yahoo! News.

China has engaged in economic warfare for many years now. Fraud in these companies should not be a surprise. Africa has been a prize for China in its economic policies and now Brazil is seeing such huge activity by China it is overwhelmed by them and will take years to see how China has hurt them more then helped them in growth.

This Article only touches the tip of the iceberg that is China.

Although I have been silent on economics and China the last 2 years I believe NOW is an appropriate time for me to bring more posts on where we are and what the USA in particular should do… and why it may never get done thus prolonging this economic boondoggle we are in.

Stay tuned for more in the near future.

2009 Economic Predictions by Craig Eisele

2009 Economic projections by Craig Eisele

Note: the following is MY opinion and how I see the economy… it should not be considered investment advice or factual as to the actual performance of the US and Global Economies in 2009.

If you do not want to hear bad news I strongly suggest you stop reading at this point and read a good fiction book….or watch Kudlow on CNBC who is more of a cheerleader then as realist…. Although a caution as to the rest of the CNBC team as they seem to realize more the current economic realities.

One of the greatest threats we face is Deflation during this recession… WHY?? Because the economic definition of a DEPRESSION is Recession accompanied by Deflation… BUT do not expect the government to say we are in a Depression until it is either over or is so evident that denying it would be fruitless. The government is afraid to start any panic as to the true severity of this crisis we are in and as such will try to protect the citizens as long as possible from the hard realities.

Before this economic crises is over I believe that we will see history actually show that we have or will have had entered into a Depression…. The only question is: for how long.

In the United States approximately 70 percent of our economy is based upon Consumer spending…  as such Particular attention will be paid to that segment of the economy.

Estimates so far are that at least 70,000 retail locations are expected to close in 2009. Personally I see that number even higher and expect over 100,000. Thus higher unemployment will occur.

Personal savings rate will continue to be negative throughout the year with rare occurrence of it turning positive.

Over all the consumer is being hit with rising prices from the Summer 08 Oil Prices and those prices have not come down in tandem with Oil. Corporations are struggling to meet cash flow needs and turn profits for their shareholders and as such are reluctant to lower prices.

Credit will not loosen very much in 2009… Credit card companies will continue to reduce credit limits (2 Trillion dollars so far) and will raise interest rates on balances even for the slightest blemish or down grading of your credit. Keeping your credit cards in the back of a drawer and NOT canceling them is advisable.

Expect Congress to address these issues in Credit Card operations and policies in 2009 in an attempt to protect consumers a bit better… but high expectations for relief should be discouraged because of the powerful lobbying teams of Banks and other financial institutions. Result Consumers will and should pay down more of their debt and spend less thus creating Consumer slow down in spending in 2009.

Oil Prices will NOT stay low for long. Oil Producing Countries need the revenue for their own countries economies…. Demand may be down globally but the minimum necessary price is 45 dollars a barrel while countries like Venezuela, Iran, Russia etc require upwards of 70 dollars a barrel to keep their domestic programs going and to maintain their economies. Expect Oil close to or above 100 dollars a barrel by the end of 2009 based upon the needs of the Oil Producing Countries.

Job Loss and fear of Job Loss with hamper Consumer Spending even farther. This includes areas like housing and Auto sales as well.

Credit availability for Housing will be tight for many years to come. Impeccable credit and a hefty down payment  of 20 percent or more,will be required as it was over a decade ago. The result will be a continuing deflation in Housing prices and no bottom expected until mid 2010. These expectations of losing money on a new home purchase will also keep many buyers on the sidelines.

Credit will also suffer because of continued required write-downs by Mortgage holders and those holding the Mortgage backed securities. Expect the Foreclosure rate to keep high thus flooding the market with additional homes. This credit problem will be further exacerbated by rises in Commercial Mortgage defaults. Particularly in Retail Commercial properties.

The measure of companies with retail locations in terms of profitability will be changed. MOST leases no Commercial Property like retail are triple net… meaning that the tenants are responsible to paying a pro rated share based upon occupancy of leased space for Utilities, Taxes and maintenance. The additional burden placed upon them buy the loss of other retailers coupled by decreasing sales will cause more stores to close. Currently the VACANCY rate in retail locations is at 8.2%. That will continue to rise throughout 2009.

Commercial Mortgages are often done with long amortization rates meaning 10 to 30 years mortgage payment rates, with a balloon payment (the full balance of the Loan) due after 5 years. As properties increased in value and occupancy rates were high and credit was readily available this was not a concern. Today, however, those criteria for refinancing can no longer be met by most mall operators or owners of other retail properties. Even the Commercial office space Market will be effected.

Loss of retail also usually has a negative effect in Commercial Office space… and even the A class properties are now feeing the potential problems growing. Expect an increase in “services” oriented companies across the USA and several hundred thousand jobs lost as a result, many of which do not and will not qualify for unemployment compensation to help them.

The stock markets will continue to act in a volatile and irrational way. Over reaction to perceived good news and bad news will move the market in triple digits and randomly. If you are brave and can wait 10 years or more for profits then now is the time to buy select companies that may recover faster as the economy bottoms and flattens in 2010.

Federal funds rate will not be increased for the first half of 2009, but may have a slight increase of 0.25 to0.50 in the second half of 2009 and into 2010 as the dollar weakens and the need to strengthen the dollar increases.

The need to have safety for cash will continue to hold the Treasury Bonds yield down to hover at or near zero as banks are not considered safe enough and consumers are fearful.

Bank Write offs will continue and the biggest shocks to the market will be in Commercial backed mortgages as well as increased Credit Card default rate as climbing interest rates and lack of credit availability will force consumers into decisions that will not factor most creditors.

Housing prices will continue to decline throughout 2009. Lack of demand and increased inventories by those underwater on their mortgages and those foreclosed upon homes, and the lack of credit and the return to the requirements of old with 20 percent or more down and verifiable rations of income to mortgage payments as well as HIGH credit scores… all combined will be a continued drag in the housing market and will even affect places like New York City on 2009 through at least the first half of 1020.

Retirees will delay their retirement and the “equity” they thought they had in their homes and the devastation to their retirement funds will be so bad as to force more people to work longer and will contribute to the lack of available jobs for younger people.

Unemployment will rise to double digits…. Most likely to around 11 percent official and 17 percent unofficial Unemployed people will number more than 18 million people.  Currently the Unemployment are has gone over 7.2%. I expect that before we flatten out that number will grow to close to 11 percent. Currently the number of those unemployed is over 6 million…. but those numbers a skewed to those who qualified for unemployment and or are seeking employment actively.  The REAL number of unemployed is substantially higher if the number of those underemployed, working only part time, or who have given up looking for work are included. The number of long-term unemployed (those jobless for 27 weeks or more) rose to 2.6 million in December and was up by 1.3 million in 2008.

Bankruptcies will hit all time highs both for individuals and Businesses.

The Auto Industry: This is the hardest to predict in some ways. BUT… Knowing that credit is hard to get to purchase an automobile, and that demand is down because individual consumers are feeling the economic pinch and are concerned about their declining home and retirement values, and compounded by job uncertainty will make any recover of the Auto Industry in general almost impossible in 2009. While most of us abhor the idea that the “Big Three” in Detroit may declare bankruptcy. I see no choice especially given the legacy costs of pensions and health care that hurts their price competitiveness. Premium prices for things like the Chevy VOLT or other fuel-efficient cars will not me tolerated by a price sensitive consumer market in these economic times. Therefore the demand that Auto Makes produce these cars, while admirable, is not productive to the automotive industry recovery at this time.

The result of the above will be continued declines and flattening of the Auto sales, which of course, contributes considerably to the GDP of the United States. A downward spiral that cannot be stopped without bankruptcy to protect those companies and jobs till the economy flattens out and hopefully and gradually raises enough to spur more automobile sales.  Bottom line…. expect one or more of the Detroit 3 to declare bankruptcy in 2009.

GDP Contraction 5 % or more: I hope this is self evident given what I have already written…. the ONLY way this will not happen in 2009 is if we devalue our dollar by printing more money…. but that results in hyper inflation and higher prices which would artificially make our GDP that much higher.

Federal budget deficit of 1 trillion and growing to possibly 2 TRILLION as the need for spending like the years of Roosevelt in the New Deal Era increases and as the concession to business for tax rates being the same or even lower taxes are made and the revenue for the US Government continues to decline from Lower profit, less payroll tax income and growing social programs to assist the impoverished. The NATIONAL DEBT will run higher than 12 trillion dollars UNLESS the government prints more money…. but that will further weaken the value of the US dollar. A delicate trade off that has to be dealt with in 2009.

LOWER corporate taxes and/or Capital Gains in a declining economy will NOT spur employment or Investment in Pant or equipment. The only people who will possibly benefit are those who own stocks in those companies. And even then the benefits will be minimal. Worse the Down side is lower revenue for the government in a time when spending must be increased to spur economic recovery.

Globally expect more instability in under-developed countries. Poverty, starvation and generally declining conditions in these countries will give rise to radical idealists who will create chaos and instability in those countries. Antagonistic behavior towards those industrialized countries that are seen as culprits in this economic crisis will be the most villianized. Terrorism abroad will increase in response to the frustration and need to blame someone increases.

Currency fluctuations will be as common as weather changes during 2009. 30-day moves can exceed 15 percent and daily moves may be as much as 5 percent. Thus this will make international business more volatile and difficult to conduct.

Parity with Euro and British Pound is possible given the currency fluctuation at this time only a 10 percent difference exists between the 2 currencies. Briton will continue to decline as the full effects of their new economy that was built on the financial sector and debt continues to play out.  France and Germany have yet to feel the real impact of what is happening globally and as such have been the prop to the Euro over the last year. The EU’s efforts to prop up Eastern European Counties with bailouts will have little effect on the full impact of the global recession. Ultimately the Euro will have to decline in value.

Weaken of the dollar … then strengthen and weakening. The Japanese Yen, the Euro, and the British Pound with fluctuate so much that any stability for the dollar will have to come from the USA itself. However that appears unlikely until the USA takes drastic steps to stem the bleeding and ultimately devalues the dollar.

EU predictions Italy and possibly Spain: I expect al least Italy to go back to the Lira and to try an peg the Lira to the Euro to allow it to re-enter the EU Euro denomination Currency in a few years. This will be necessary as the Italian economy and the EU regulations are in conflict and Italy cannot meet the EU demands for economic reform to satisfy the EU regulations. Spain faces the same situation.

France and German Social programs will be the downfall of these economies. With a global recession and decline in local economies the demand for these generous programs will go to an all time high and will send them into a deeper recession as they struggle to balance budgets and stem spending.

China will see continued decline in growth based upon the global economy. It is unclear if their domestic consumption can make up for the downturn. It may now feel the effect of the lack of a substantial Middle class and sustainable consumer base

India is just now feeling the effects, and as global outsourcing to India shrinks, and the allegations that the financial accounting is being doctored by some to keep showing profits surface. The “middle class” is mostly dependent on the global outsourcing in areas of IT and calling centers, which are declining rapidly. India will experience a recession that is severe and has potentially serious consequences on its economic stability.

It seems inevitable that the United States Government will be forced in 2009 or early 2010 to print more Dollars, to buy its own debt and to pay for spending programs as debt is not being bought by most companies or countries or even individuals. Hence a devaluation of the dollar… expect Euro and Pound to follow and a period of hyper inflation accompanied by higher interest rates when that happens.

I was reluctant to write this piece as I hoed to see more indications that things would improve…. However, that has not happened and the result is a significant delay in my predictions.

I hope I am just a pessimist.. however at this time I think I am more of a realist in how things are at this point in time. Things CAN change.. and my predictions can be totally wrong. But for that to happen requires political will and individual determination….And I see no signs of that at this time.

Regardless of whether you agree or disagree with my assessments made her.. YOU must decide for your self what you need to do if this scenario does take place… or if it does not. These are things the way I see them and should NOT be taken as factual or advice to anyone.

Craig Eisele

2009 Economic projections by Craig Eisele

Note: the following is MY opinion and how I see the economy… it should not be considered investment advice or factual as to the actual performance of the US and Global Economies in 2009.

If you do not want to hear bad news I strongly suggest you stop reading at this point and read a good fiction book….or watch Kudlow on CNBC who is more of a cheerleader then as realist…. Although a caution as to the rest of the CNBC team as they seem to realize more the current economic realities.

One of the greatest threats we face is Deflation during this recession… WHY?? Because the economic definition of a DEPRESSION is Recession accompanied by Deflation… BUT do not expect the government to say we are in a Depression until it is either over or is so evident that denying it would be fruitless. The government is afraid to start any panic as to the true severity of this crisis we are in and as such will try to protect the citizens as long as possible from the hard realities.

Before this economic crises is over I believe that we will see history actually show that we have or will have had entered into a Depression…. The only question is: for how long.

In the United States approximately 70 percent of our economy is based upon Consumer spending…  as such Particular attention will be paid to that segment of the economy.

Estimates so far are that at least 70,000 retail locations are expected to close in 2009. Personally I see that number even higher and expect over 100,000. Thus higher unemployment will occur.

Personal savings rate will continue to be negative throughout the year with rare occurrence of it turning positive.

Over all the consumer is being hit with rising prices from the Summer 08 Oil Prices and those prices have not come down in tandem with Oil. Corporations are struggling to meet cash flow needs and turn profits for their shareholders and as such are reluctant to lower prices.

Credit will not loosen very much in 2009… Credit card companies will continue to reduce credit limits (2 Trillion dollars so far) and will raise interest rates on balances even for the slightest blemish or down grading of your credit. Keeping your credit cards in the back of a drawer and NOT canceling them is advisable.

Expect Congress to address these issues in Credit Card operations and policies in 2009 in an attempt to protect consumers a bit better… but high expectations for relief should be discouraged because of the powerful lobbying teams of Banks and other financial institutions. Result Consumers will and should pay down more of their debt and spend less thus creating Consumer slow down in spending in 2009.

Oil Prices will NOT stay low for long. Oil Producing Countries need the revenue for their own countries economies…. Demand may be down globally but the minimum necessary price is 45 dollars a barrel while countries like Venezuela, Iran, Russia etc require upwards of 70 dollars a barrel to keep their domestic programs going and to maintain their economies. Expect Oil close to or above 100 dollars a barrel by the end of 2009 based upon the needs of the Oil Producing Countries.

Job Loss and fear of Job Loss with hamper Consumer Spending even farther. This includes areas like housing and Auto sales as well

Credit availability for Housing will be tight for many years to come. Impeccable credit and a hefty down payment opf 20% or more, will be required as it was over a decade ago. The result will be a continuing deflation in Housing prices and no bottom expected until mid 2010. These expectations of losing money on a new home purchase will also keep many buyers on the sidelines.

Credit will also suffer because of continued required write-downs by Mortgage holders and those holding the Mortgage backed securities. Expect the Foreclosure rate to keep high thus flooding the market with additional homes. This credit problem will be further exacerbated by rises in Commercial Mortgage defaults. Particularly in Retail Commercial properties.

The measure of companies with retail locations in terms of profitability will be changed. MOST leases no Commercial Property like retail are triple net… meaning that the tenants are responsible to paying a pro rated share based upon occupancy of leased space for Utilities, Taxes and maintenance. The additional burden placed upon them buy the loss of other retailers coupled by decreasing sales will cause more stores to close. Currently the VACANCY rate in retail locations is at 8.2%. That will continue to rise throughout 2009.

Commercial Mortgages are often done with long amortization rates meaning 10 to 30 years mortgage payment rates, with a balloon payment (the full balance of the Loan) due after 5 years. As properties increased in value and occupancy rates were high and credit was readily available this was not a concern. Today, however, those criteria for refinancing can no longer be met by most mall operators or owners of other retail properties. Even the Commercial office space Market will be effected.

Loss of retail also usually has a negative effect in Commercial Office space… and even the A class properties are now feeing the potential problems growing. Expect an increase in “services” oriented companies across the USA and several hundred thousand jobs lost as a result, many of which do not and will not qualify for unemployment compensation to help them.

The stock markets will continue to act in a volatile and irrational way. Over reaction to perceived good news and bad news will move the market in triple digits and randomly. If you are brave and can wait 10 years or more for profits then now is the time to buy select companies that may recover faster as the economy bottoms and flattens in 2010.

Federal funds rate will not be increased for the first half of 2009, but may have a slight increase of 0.25 to 0.50 in the second half of 2009 and into 2010 as the dollar weakens and the need to strengthen the dollar increases.

The need to have safety for cash will continue to hold the Treasury Bonds yield down to hover at or near zero as banks are not considered safe enough and consumers are fearful.

Bank Write offs will continue and the biggest shocks to the market will be in Commercial backed mortgages as well as increased Credit Card default rate as climbing interest rates and lack of credit availability will force consumers into decisions that will not factor most creditors.

Housing prices will continue to decline throughout 2009. Lack of demand and increased inventories by those underwater on their mortgages and those foreclosed upon homes, and the lack of credit and the return to the requirements of old with 20 percent or more down and verifiable rations of income to mortgage payments as well as HIGH credit scores… all combined will be a continued drag in the housing market and will even affect places like New York City on 2009 through at least the first half of 1020.

Retirees will delay their retirement and the “equity” they thought they had in their homes and the devastation to their retirement funds will be so bad as to force more people to work longer and will contribute to the lack of available jobs for younger people.

Unemployment will rise to double digits…. Most likely to around 11 percent official and 17 percent unofficial Unemployed people will number more than 18 million people.  Currently the Unemployment are has gone over 7.2%. I expect that before we flatten out that number will grow to close to 11 percent. Currently the number of those unemployed is over 6 million…. but those numbers a skewed to those who qualified for unemployment and or are seeking employment actively.  The REAL number of unemployed is substantially higher if the number of those underemployed, working only part time, or who have given up looking for work are included. The number of long-term unemployed (those jobless for 27 weeks or more) rose to 2.6 million in December and was up by 1.3 million in 2008.

Bankruptcies will hit all time highs both for individuals and Businesses.

The Auto Industry: This is the hardest to predict in some ways. BUT… Knowing that credit is hard to get to purchase an automobile, and that demand is down because individual consumers are feeling the economic pinch and are concerned about their declining home and retirement values, and compounded by job uncertainty will make any recover of the Auto Industry in general almost impossible in 2009. While most of us abhor the idea that the “Big Three” in Detroit may declare bankruptcy. I see no choice especially given the legacy costs of pensions and health care that hurts their price competitiveness. Premium prices for things like the Chevy VOLT or other fuel-efficient cars will not me tolerated by a price sensitive consumer market in these economic times. Therefore the demand that Auto Makes produce these cars, while admirable, is not productive to the automotive industry recovery at this time.

The result of the above will be continued declines and flattening of the Auto sales, which of course, contributes considerably to the GDP of the United States. A downward spiral that cannot be stopped without bankruptcy to protect those companies and jobs till the economy flattens out and hopefully and gradually raises enough to spur more automobile sales.  Bottom line…. expect one or more of the Detroit 3 to declare bankruptcy in 2009.

GDP Contraction 5 % or more: I hope this is self evident given what I have already written…. the ONLY way this will not happen in 2009 is if we devalue our dollar by printing more money…. but that results in hyper inflation and higher prices which would artificially make our GDP that much higher.

Federal budget deficit of 1 trillion and growing to possibly 2 TRILLION as the need for spending like the years of Roosevelt in the New Deal Era increases and as the concession to business for tax rates being the same or even lower taxes are made and the revenue for the US Government continues to decline from Lower profit, less payroll tax income and growing social programs to assist the impoverished. The NATIONAL DEBT will run higher than 12 trillion dollars UNLESS the government prints more money…. but that will further weaken the value of the US dollar. A delicate trade off that has to be dealt with in 2009.

LOWER corporate taxes and/or Capital Gains in a declining economy will NOT spur employment or Investment in Pant or equipment. The only people who will possibly benefit are those who own stocks in those companies. And even then the benefits will be minimal. Worse the Down side is lower revenue for the government in a time when spending must be increased to spur economic recovery.

Globally expect more instability in under-developed countries. Poverty, starvation and generally declining conditions in these countries will give rise to radical idealists who will create chaos and instability in those countries. Antagonistic behavior towards those industrialized countries that are seen as culprits in this economic crisis will be the most villianized. Terrorism abroad will increase in response to the frustration and need to blame someone increases.

Currency fluctuations will be as common as weather changes during 2009. 30-day moves can exceed 15 percent and daily moves may be as much as 5 percent. Thus this will make international business more volatile and difficult to conduct.

Parity with Euro and British Pound is possible given the currency fluctuation at this time only a 10 percent difference exists between the 2 currencies. Briton will continue to decline as the full effects of their new economy that was built on the financial sector and debt continues to play out.  France and Germany have yet to feel the real impact of what is happening globally and as such have been the prop to the Euro over the last year. The EU’s efforts to prop up Eastern European Counties with bailouts will have little effect on the full impact of the global recession. Ultimately the Euro will have to decline in value.

Weaken of the dollar … then strengthen and weakening. The Japanese Yen, the Euro, and the British Pound with fluctuate so much that any stability for the dollar will have to come from the USA itself. However that appears unlikely until the USA takes drastic steps to stem the bleeding and ultimately devalues the dollar.

EU predictions Italy and possibly Spain: I expect al least Italy to go back to the Lira and to try an peg the Lira to the Euro to allow it to re-enter the EU Euro denomination Currency in a few years. This will be necessary as the Italian economy and the EU regulations are in conflict and Italy cannot meet the EU demands for economic reform to satisfy the EU regulations. Spain faces the same situation.

France and German Social programs will be the downfall of these economies. With a global recession and decline in local economies the demand for these generous programs will go to an all time high and will send them into a deeper recession as they struggle to balance budgets and stem spending.

China will see continued decline in growth based upon the global economy. It is unclear if their domestic consumption can make up for the downturn. It may now feel the effect of the lack of a substantial Middle class and sustainable consumer base

India is just now feeling the effects, and as global outsourcing to India shrinks, and the allegations that the financial accounting is being doctored by some to keep showing profits surface. The “middle class” is mostly dependent on the global outsourcing in areas of IT and calling centers, which are declining rapidly. India will experience a recession that is severe and has potentially serious consequences on its economic stability.

It seems inevitable that the United States Government will be forced in 2009 or early 2010 to print more Dollars, to buy its own debt and to pay for spending programs as debt is not being bought by most companies or countries or even individuals. Hence a devaluation of the dollar… expect Euro and Pound to follow and a period of hyper inflation accompanied by higher interest rates when that happens.

I was reluctant to write this piece as I hoed to see more indications that things would improve…. However, that has not happened and the result is a significant delay in my predictions.

I hope I am just a pessimist.. however at this time I think I am more of a realist in how things are at this point in time. Things CAN change.. and my predictions can be totally wrong. But for that to happen requires political will and individual determination….And I see no signs of that at this time.

Regardless of whether you agree or disagree with my assessments made her.. YOU must decide for your self what you need to do if this scenario does take place… or if it does not. These are things the way I see them and should NOT be taken as factual or advice to anyone.

Craig Eisele

7500 DOW Possible??

The simple answer is YES!!!

I know I wrote in December 2007 that I expected a 9,000 DOW and believed that an 8,000 Dow is where I said it should be… but 7,500 is panic and that is what I am seeing around the world… people are afraid… plain and simple.

DO NOT sell you 401K or other funds now… it is far too late for you to do that… your best bet is to hold on and try to read and watch something other than economic news… at least until AFTER the election.

I am working on my economic predictions for the rest of 2008 and 2009… and in some cases even into 2010. I should release that November 5 or 6, AFTER the Elections… there is nothing good in store… except that we will know more about where our Government is taking us… and at least THAT will restore some stability to the financial markets in the USA and give a good indication of the future of the economic health of the Country.

You will see great swings in the market… mostly down for now… but you will get high upswings as well… do not take any of these seriously at this point… we really are at about the right pricing given the full economic data….

Additionally you will see a more bad economic news and then a few good pieces… but overall it is glum out there… so stop reading things like this and others and concentrate on what is important to you.. your life and your family… the rest will settle out soon… just not as soon as you would like.

Craig

NOTE:  This is MY OPINION. I make no assurances of this actually being the way the market will go. You should do your own research and make your own informed decisions!!!

Craig’s Diatribe on the USA and Global Economy (# 2)

June 6, 2008

This blog entry (number 2 in a series) is to try and express my viewpoints on the current state of the USA Economy, my predictions for the future and how we are no longer a localized economy but now are part of a GLOBAL economy.

Where are we NOW? Commodity Prices:

Before I go into the Global Economy for Commodities and Fuel/power Prices I need to say that a LOT (maybe as much as one third in some cases) of the increase of Costs is from the weak dollar … as such, most of this post is dedicated to the supply and demand issues of the global econony.

The has been great interest in Oil prices… as well as there should be… I talked about Oil being in our everyday life before… as a commodity…. But I need to address some misconceptions about what the general public believes about the Price of Oil today.

First: OIL IS A COMMODITY… that means the prices are subject to supply and demand…. There is NO QUESTION that China and India play a significant role in the new use of oil… as a fuel and as a commodity for other applications…. This is a result of the rest of the world using those countries for lower prices thus bring in more Currency (Money) into those countries and lifting them out of the poverty (and to satisfy our own greed for more at lower prices and greater profits) that we saw them suffering from… now that we have awoken the sleeping giant, so to speak, there is no putting them back to sleep. They will continue to demand oil and other commodities at an ever increasing rate of consumption.

We have been duped into believing that “Speculators” are to blame for higher prices… if South West Airlines is a speculator then you are right… but the reality is that it is GLOBAL DEMAND that pays these exorbitant prices we are seeing… and as I said before… there is NO GOING BACK.

IF we produce more oil it will only keep up with the demand worldwide. While it may make us less dependent on oil for our own needs the prices we will pay in the USA will be based upon WORLD PRICES… not our domestic (USA) production. To believe otherwise is just foolish. Additionally, currently we are importing only about 30 percent of our domestic needs.

We are not entitled to lower fuel prices… it is what it is and we will not sell for less than the world price unless we become a socialist society and subsidize our oil… and that will never happen… or at least I hope we will never become a socialist country. Our sense of entitlement is what is causing a great many problems for us in this country today… and it needs to be put into proper perspective.

Many Americans want to know why China or India Consumption of oil is hurting us here… it is simply business…. I business you do not want to hear about but at least need to understand….The companies that drill for oil are not federal Government Oil Companies… they are in the business to make money… the basic model of Business is that thing called supply and demand… Because I drill and pump crude oil in the USA does not mean that I am obligated by any law to sell it in the USA… as a businessman when I get something out of the ground I can sell it to the highest bidder…. If the USA does not want my product but someone in another country wants it… then I am entitles to sell it to any country (with few exception) I want to … THAT IS BUSINESS. To expect that I should sell it to you at any cheaper price is unreasonable… and bad business… and since these companies that do pump crude oil have other people who own stock (real ownership) of their companies… then they have a legal (fiduciary) obligation to maximize profits for their owners… remember again… we are NOT a socialist Country. Additionally to punish me for selling at the market price with a windfall profits tax is unreasonable… you may not like my profits… but they are legitimate and are mine… additionally I will increase prices to compensate for the “surcharge” tax on my profits.

If we really want Oil Companies to become energy companies then we need to develop incentives to foster the Oil Companies to become “Energy Companies” release in the Fall of 2008….

As I said you did not want to hear that… but those are the basic facts of life today, as we know them! Painful is it not?? Yet this has been the standard model of capitalism for hundreds of years and is not going to change anytime soon.

The same is true of cheap food and household energy use and even in other commodities like gold and Steel and copper (used in your wiring I might add) (I will address health care in another post… and you will NOT like what I have to tell you there either).

The ONLY way of getting a better price is to strengthen the dollar… but our past practices in our country have caught up with us and now we have financial troubles with Credit availability (after years of easy credit) and even with interest rates low we are not able to get the benefits of those cheap rates. Yet is we raise interest rates to fight the higher costs (also known as inflation) we will cause greater harm to the overall economy… the government and the Federal Reserve are in quite a conundrum and there is no quick fix to this problem of a stringer dollar… so do NOT anticipate things getting better quickly.

As bad as things are now they will get better based upon what has already happened… and I fear for many Americans with the Winter Heating Season just ahead (yes we are actually almost there and it is only the beginning of summer) as any American who drives to work and makes less than 40,000 per year per household will find themselves financially in the red (to me this is the new Poverty level in the USA). Elderly Americans on fixed incomes will suffer the most and the Cost of Living adjustments are not accurately reflection the actual increase of cost on the average family… and how can they when the supposed US Index for the Average hourly wage is over 17 dollars an hour…. That shows how skewed the Inflation indexes are by the number of “high wage” earners there are in this country… it is, simply, out of control.

In a future post I will give the bad news … I NOW expect oil to reach 250 dollars a barrel by sometime in 2010… unless the dollar gets better fast…. However with the choices for president and the policies I see coming down the road… that may not be able to be done (remember the discussion on Fiscal and Monetary policy and the effects). Hence 5 dollar a gallon gas will be cheap by comparison…

Corn Prices :

When we find other uses for Commodities outside the normal and regular use we create a demand for additional supply of that commodity. Corn, however, has had a double whammy effect. Yes I am talking first about Global Demand… Most of us think of corn as a food product for our table in many different forms…. Many of us forget that beef and chicken and even pork is raised for slaughter through the use of “feed corn” for them to consume to get these products…. Now also remember that farmers have limited amount of land to use… they also want to get the most out of every acre of land they farm… and currently feed corn is a great provider of revenue.

AS we increased the standard of living for impoverished countries like India and China… they consumption patters changed…. Meaning they now eat more of the Meats I described above…. Those meats also require the feed corn to produce. …Hence demand for feed corn went up and farmers produced more feed corn as a result.

The second whammy was the production (and subsidy by our government) of Ethanol. This non-food use for Corn drove the demand beyond the normal supply and demand curve and as we have seen dramatically increased prices… while the effectiveness of using Ethanol is being debated and alternatives are being developed this demand will not come down and prices will remain high.

What has surprised me about this is, that it was not expected by so many people…. Using a food in a way that is not a food product would naturally increase the demand for that product. As a note…. using Sugar Cane for ethanol will also raise food prices… yet the government may be more willing to do this because of the health consequences of sugar (yes gaining weight).

Corn prices are a direct result of GLOBAL DEMAND and the traditional supply and demand pricing but in a global context.

Energy Costs:

Generally we think of energy as the gasoline we put into our cars. This is true but we consume electricity in ever greater quantities then ever before. Heating, Air-conditioning, lighting TV’s Computers… ALL requiring Energy…. Energy is derived from many sources… Nuclear is being touted as a future provider of energy to wean us off of fossil fuels… but the COST to produce which is said to be low… will NOT reflect in lower prices to the Consumer…. The pricing index will show that they will sell this energy at lose to the same price as Coal or Diesel or natural gas plants… this seems to be the case with Hydro electric now. OLD power plants, are increasing prices, because of consumption, they are not lowering them. Yes the prices of oil and Coal have a lot to do with the international (Global) demand… and the prices have been going up dramatically…. So while we like to think we are better off with “alternative Fuels” and Alternative generation facilities” we are kidding ourselves if we think that will reduce our costs by very much at all… Making electricity… the production of power is a business and as such they obligation is to get the highest price for the product as possible. WE are not entitled to lower power costs!

Electricity is a produced commodity from a natural resource commodity…. At least for now.

Post #3 will be about credit, housing prices and maybe the stock market and Global Currencies

If you have been reading these posts… I will eventually get to the part where I make recommendations for the future… but I still need to explain more about where are are and how we got here.

Craig Eisele

Craig’s Diatribe on the USA and Global Economy (# 1)

June 6, 2008

This blog entry is to try and express my viewpoints on the current state of the USA Economy, my predictions for the future and how we are no longer a localized economy but now are part of a GLOBAL economy. It is part one of a series.

Economic models are nothing more than a theory of how things work… while those theories have been fairly accurate on the last 2 or 3, or even 4 decades our understanding of the way in which the USA economy (as well as the global economy), works is in need of revision.

The USA used to be the master of its own destiny… no more!!!

Where to begin?? This could be a complicated entry and I do not want you the reader (especially if you are a novice) to get lost…. So here I go….

Americans, for the most part, have lost their direction over the last 15 or 20 years…. I cannot and will not blame the politicians… although they should share some of the blame… but we as individuals, need to accept responsibility for where we are today (at least mostly). What do I mean by this?? Well we became a society that never foresaw that our spending (consumption) patters were too great. We felt wealthy and even entitled to an ever increasing and higher standard of living. We disregarded the warnings of our grandparents and great parents who lived through the “Great Depression” years.

We did not save! We used our equity on our homes for newer cars, the latest technologies, and what we determined to me our “God Given right” to a vacation and other rewards for working so hard. We failed to save and invest wisely and gambled on stocks and the future value of our homes to be our savior in the years ahead. We thought about the future in lose terms but never really took the risk too seriously. We always believed that our life style would never be reduced but would continue to rise. WELL … If you still believe that you are in for a great shock… as our quality of life and our life style is never going to be the same. We are no longer masters of our own destiny and must now participate in a global society…. And these facts, my friends (and foes) are the mere facts of life today, which we have not yet accepted.

HOW DID WE GET TOM THIS POINT???

That answer is very complicated…. But lets examine some basics:

1 Commodities: There are two types of Commodities. One that we basically get from the earth in raw form and then convert to materials we use in our daily life…. Oil, Coal, Water, Natural Gas, Metals etc…. then there are those the we grow and raise… food stuffs primarily… the most basic being things like corn, wheat and rice…. Basics in almost every countries diet.

Commodities cost money and energy to produce… when we start importing and exporting those commodities then we have a currency exchange…. One country’s money in exchange for another’s for the buying and selling of those commodities. These “prices get higher the more “value” we add to each commodity…. For instance…. Refining oil into lubricants or heating oil and even more personal into plastics and Synthetic fabrics like Polyester and rayon etc.

We add even more value when we change those plastics into use for appliances, electronics, automobiles and so on… combining commodities to make products that end up in homes and offices, and to a lesser extent in factories where they are used to make “end user” products

Simply we as the consumer are at the end of the “value added” chain of events and must pay the final price ….. This does not include the “disposal Price” when we have to get rid of our “old things”.

REMEMBER: Supply and Demand economics is real… but NOT as important in the United States Economy alone… meaning that the Supply and Demand pricing models are now based on World Wide Demand and not just what is demanded in the USA… we ARE a global society now.

The “global economy” comes into play when we realized that much greater profits could be had by using another countries labor to add the value. Clothing was one of the first things that was “outsourced” and the Amalgamated Clothing Workers of America: fought hard to keep their jobs from going overseas… but obviously they were no supported very well in their protests.

We then subjected ourselves to the mandates of the WTO (World trade Organization) and had to negotiate trade agreements with various countries to keep the balance of trade in some order. However by doing this we lost more control over our destiny then anyone would imagine even to this day. Simply we cannot protect our own companies or workers that function in the USA because it is now against international law that WE agreed to (OK… this blame goes to the Politicians).

One needs to look only at the stocks that did well the last 6 to 9 months and see that MOST of their profits came from overseas…. More on how this is possible later….

Our thirst for MORE PROFITS, and the false belief that what was good for Wall Street was good for America is seriously being challenged… but it is to late to unwind the situation we now find ourselves… George Sorros calls for a new paradigm… maybe that is where we are already and have now acknowledged it… or at least told the average American.

Now the pressure has been on the Federal Reserve and the US Government to make things better… but they really cannot, and we need to stop thinking they can. These institutions CAN however reduce the amount of FUTURE pain that the average American is feeling.

There is a concern that the pain is now gone from “Wall Street” to “Main Street” with the focus on BUSINESS… but most Americans are now feeing it on “MY STREET” something that is being ignored. Business seems to be what we are most interested in, and for that the average person will continue to bear the brunt of this economic condition we are in… because … if you read above… the CONSUMER is the one who is basically the END USER… WE pay the final price for this.

OK… enough of the basic economics lesson for toady…. Later I will write about where we are and the CURRENT economic Condition that ALL of us need to be aware of… not the HYPE that the TV and other media wants us to see and hear… but realities

After that I will write on what we can do for the FUTURE… how we can survive… not thrive… in the downturn that is here and will continue for some time…. Practice advice that IF I AM WRONG… will never hurt you but only make you better off in the future.

Oil Prices. The Dollar value in the world, an Energy and commodity prices will be discussed. I know people are looking at the stock market after what happened on Friday June 6…. And especially they are looking at OIL PRICES… and there is a lot of attempts to LAY BLAME…. And to say it is speculation… our congress has tried to find a “culprit” to blame… and I firmly believe it is not the “Speculators” it is really because we are in a “GLOBAL ECONOMY” that these prices are raising…. That is why I have decided to write this post… so the average person will understand What has happened, what is going on and Where we are going ….. it is very important to knowing what to do in the future and to see how we are not in control of our destiny as we have been in the past and how we are really a global society now … whether we like it or not… and there is no turning back!!!

Post note: I know that this blog has been used for my promotion of Africa Development…. I am still working on these as well… I have been silent for some time for a variety of reasons… but I have not stopped working on these projects

I have also decide that now that BOTH parties have selected their nomine for President of the United Staes… NEITHER of which can make our lives like they were…. that the time was right to discuss our economy .

Additionally I was going to discuss the Housing Crisis in America and the weakening dollar and what the Federal reserves actions have been….but I do what to do that later… but please remember that the Federal Reserve is in charge of MONETARY POLICY… meaning the banking and Interest rates and to control the growth of our economy . There is considerable discussion taking place as to the Bear Sterns intervention by the FED and if is was a way to intervene in the Financial markets…. which was NOT disctated by their mandate from Congress… they are to be independent politically… but they a have limited authority… CONGRESS and the Executive Branch of Government has the responsibility for FISCAL Policy.. that means raising or lowering taxes and the borrowing of money to finance the government operations.. they can help or hurt the economy of the USA in general by the amount of money and the number of :jobs” they create within government. Sometimes those policies may appear to have a socialistic view point… but that is a discussion for another time…. just remember to keep the FED (Federal Reserve) and the FEDERAL GOVERNMENT as two distinct entities that try to work together and yet should never be able to influence each other in keeping the economy stable… also more on interest rates and why Mortgages are so hard to get today in a later post.

For the accuracy of my predictions I invite you to read my other posts on the US Economy at

http://craigeisele.wordpress.com/2007/12/10/my-predictions-for-2008-for-the-us-economy/

and

http://craigeisele.wordpress.com/2007/12/25/more-2008-predictions-from-craig-eisele/

Clothing Prices Poised to Rise Dramatically

Most of the people who read this will not remember the oil embargo of the Early 70′s when lines at the gas stations stretched for blocks on end.

What many who do remember will have forgotten is the increase in clothing prices. Why? Well at the time “polyester” was the “miracle” fabric of the day. In fact most synthetic fibers used in clothing are made from OIL. And as we all know Oil prices have increased dramatically.

According to today’s farm planting reports being released, farmers are going to plant less cotton this year. Cotton is the other significant component of clothing. Hence when the next harvest of cotton is made there will be higher prices. Higher because of the amount of cotton available… but also higher because of the demands moving from high priced “synthetics” to “lower priced” Cotton. But as I have already indicated Cotton will also cost more.

The lower value of the dollar around the world will also begin to have this effect on Clothing manufacturing and prices. While the price of labor is cheaper abroad generally, the exchange rate of the dollar for the foreign countries currency is declining against them and they will be forced to raise their prices to pay their people and to sustain profits.

That means it will cost more to buy clothing not just for yourself but for your children. That means a tighter budget and that dreaded word “Inflation”.

It is not just your clothing that will cost more. The cost of plastics has yet to be passed on completely to the consumer goods market. And all you have to do is look at that commercial showing everything disappearing because of no oil… now you just have to increase the price because the oil will be available but will cost more.

We have yet to see the real cost of this inflation from Oil Prices to Aluminum to Steel and Copper. These are commodities that have built our “modern” society and are critical to our society as we know it.

I am not trying to scare you about the future. I AM trying to warn those of you who care about the future and urge you to take appropriate steps to be prepared for these inevitable events as I do not see an easing of this anytime in the near future.

More 2008 Predictions from Craig Eisele

2009 Predictions can be found at:

http://craigeisele.wordpress.com/2009/01/11/2009-economic-predictions-by-craig-eisele/

The below was written on December 25, 2007 for 2008:

More 2008 Predictions from Craig Eisele:

RETAIL: As I write this the bulls are still either saying it is a good season or hoping that last minute shoppers will make it one. Lets look at this in another way. I have been shopping EVERY weekend from Thanksgiving on… and what I have seen is dismal. This year, I have NEVER had to look for a parking space or needed to walk from the far end of the parking lot… I have seen LESS people in the Mall this year and many many more sales. Sometimes so bad I thought that it was March weekend shopping (meaning low numbers of people). I was extremely unhappy with FoxBusiness TV today when the announcer in a shopping mall was saying that the people were starting to flood in and I barely saw 10 people shopping in a wide-angle shot. Only later did ONE gust on the show tell it like it is… MANY of the retail Companies are having LOWER sales… and those sales that are moving are either in Electronics (lower profit margins) or in SALE merchandise… hence LOWER Profit margins… so even if you see higher sales… which is unlikely… the PROFITS WILL BE LOWER!

Credit Card Evaluation by Moody’s is showing a huge number of defaults in the 90 day ranges… and as those of you with Credit Cards you will know that ONE missed payment can mean a jump to 29 percent annual interest rates or higher. Capital One and Bank of America are shown as being at worse rates and possible doubling since their October numbers in their November reports. This does not bode well for Retail and some say as much as two thirds of our economy is consumer spending driven.

Remember that Saving Rates in the USA are AGAIN Negative (meaning we are spending more than we are making), Homeowners no longer have access to their home equity that they had in the past because of declining values and Credit card companies have been increasing interest rates based on your total credit report meaning that if you take out another credit card or even cancel some credit cards or are late on payment to ANY other creditor you can be hit with high interest rates on your credit card balance.

Because of the new bankruptcy laws these credit cards may still have to be paid off entirely but your interest payment may be stopped…. I predict a change in the Laws by a Democratic Congress to make it easier to have these and Mortgage related debts forgiven to better protect the consumer and to allow for MORE consumer spending fostering a recover in the economy. This does not favor the Financial Companies.

Talking about Financial’s… there is great excitement about foreign funds coming to the rescue of the various Financial Businesses… but what you generally do not hear is the COST of those investment… many are for PREFERRED STOCK…. With GUARANTEED rates of 8 to 12 percent… remember that Preferred Stock Holders are often given their payments before there is dividends to the Common Stock holders… and there are still more write offs to come for many companies.

Personally as I said earlier the “credit” market especially for the consumers will be tight and unless you have stellar credit there is most likely no way you will get a loan or if you do your rates will be high. Even Fanny Mae and Freddie Mac have indicated continued price and value declines through 2008 and MAYBE a slow recovery starting in 2009. When Housing prices do go up (and some analysts and pundits say the opposite of me here) the price increase will be slow because of the Credit requirements that will have to be slowly reduced as well as many people who will be wary of a repeat of the last 2 years and finding out that it is actually CHEAPER to Rent a home than to own it and risk their equity on another potential downturn. And for Zero Down Mortgages.. forget it… those days better be over!!

Simply ALL of those rosy predictions of a good 2008 are for the benefit of companies who want to keep your money in stocks without regard to the real possibility that this economy is in for a rocky 2008.

Recession: Do not expect to be told that this economy is in a recession until it is either extremely sever or until there is a reversal of the current trend, at which time you will be told that we WERE in a Recession. The “powers” behind the Financial information as well as the Government does not believe you are rational human beings capable of knowing the truth until after the fact. They are afraid you will panic and that is not good for business. Right or wrong that seems to be the way the general population of the United States is treated.

I stand by my predictions in the previous post, for the Euro vs. Dollar exchange and the price of Oil for 2008.

Craig Eisele

My Predictions for 2008 for the US Economy

2009 economic  predictions can be found at:

http://craigeisele.wordpress.com/2009/01/11/2009-economic-predictions-by-craig-eisele/

The predictions below are from December 10,2007 for 2008:

The Dollar will continue to fall in value.

Why? The US has NOT seen the full fall out of excessive run up of Home Prices. The rise was not only way out of kilter from historical rises, it was fueled by investor speculation as well as an excessively aggressive Realtor sales tactic as well as mortgages that were designed to capitalize on this wild run up in prices.

AS you may have seen even PRIME mortgages are now defaulting in addition to Sub-Prime Mortgages.

It does NOT matter if the Fed Reduces Interest Rates, or pumps more money into the economy… or for that matter “bails out” certain classes of borrowers… there are more serious issues that are being ignored by the media (for which I speculate is to try and stem panic).The Banks do not seem willing to take “risk” no matter how much they have available from the Fed or how low the interest rates go. Then there are the falling FICO Scores (see below).

Banks have been burnt, and the full effect of how much they have been burnt is still not known. The effect is that CREDIT has become the issue. While many people borrowed against their home equity for Credit Cards and for Vacations and for enjoying life… that equity has not only disappeared in many cases but is not even solid for the future as housing prices continue to fall around most of the country.

One only needs to walk around the shopping malls on a Saturday or Sunday this past weekend and see that the crowds are way down… so consumers are feeling poorer as well.

The national savings rate has been negative.. personal wealth for the AVERAGE American has declined.. but increased according to the Federal Government (I do NOT trust those numbers anymore) and the cost of energy as well as food has increased substantially.

Now the next serious Credit Crunch is coming from the Credit Card Market… and defaults and delinquency rates are rising almost daily…. but this is also being ignored by the media…. You do not need to be an economist (and I am not) to see that there is more bad news to come over the next 1 to 3 years in our economy. And what is not being reported is that FICO scores for millions of Americans are falling every month and FICO will not tell you or anyone else how they calculate your FICO score because it is a trade secret!!!

The US economic woes will eventually turn global. I expect actual trade wars to erupt across the globe by the end of 2008 and more WTO grievance filings.

Unemployment will rise as the war winds down unless all the illegal immigrants leave the country.. but even then only lower paid jobs will be available. Congress may even start steps in withdrawing from NAFTA (personally I think that would be best for most Americans for jobs and personal income.).

China will reduce its holdings of the Dollar as the dollar continues to fall. More countries will go to the Euro. While a temporary problem for the US… it will work in the dollars favor as the US will be the first to rise out of the global recession that I see coming.

Oil will go all over the place in prices … from a potential low of 75 dollars to as much as 125 dollars or more in 2008.

Economists never tell us we are in a recession until it is over… so do not expect the US Government to admit there is a problem. Personally I do not feel they trust us to know the truth about what is really going on.

The Stock Market will raise and fall on the latest news… but the real VALUE of the Dow is about 9,000 in my opinion… but that will not be seen… instead we may see 12000 as the ultimate floor… with an upper level of 15000.

DO NOT Watch Fox Business from 12 to 2 PM Eastern… not only is the male host hubris but he is also pushing his own agenda and feeding people with false hope for the future of this economy and refuses to give time or credence to any guest who disagrees with him… even Dennis on CNBC seems delusional during the same time slot….

I am not a bear.. or a bull… I am a pragmatic realist who is looking to hear the truth and when I do get to hear some of it those legitimate economists are often silenced by the hosts or those who depend on a HIGH Stock Market…. but the reality I see in the USA is a dismal future for millions and millions of Americans looking to just have a stable life.

The Housing Market can only continue to weaken based upon a credit crunch… this means that there is a cycle that will not slow down until the Median Price of an AVERAGE Home is in proper ratio to the Median Household income in each market… only then will we see the end of this as there is no future in buying a home for appreciation until there are enough people and enough income to settle this market… that may take years and not the months that the pundits on TV are telling you… besides they are so limited by the need to run a commercial that you cannot get a full explanation of the facts behind their predictions… and then if you dare to say what I have said… then you are branded by some to be un-American… talk about suppression of free speech to promote an agenda!!

Of course this is compounded by a knee jerk Washington D.C, reaction, A do-nothing Congress, Partisan Politics, and too much intervention that will only prolong this financial crises in the USA. But what do I know….lol

TWO WEEKS AFTER I MADE THESE PREDICTIONS I MADE THE FOLLOWING IN THIS BLOG AS WELL!!

More 2008 Predictions from Craig Eisele:

RETAIL: As I write this the bulls are still either saying it is a good season or hoping that last minute shoppers will make it one. Lets look at this in another way. I have been shopping EVERY weekend from Thanksgiving on… and what I have seen is dismal. This year, I have NEVER had to look for a parking space or needed to walk from the far end of the parking lot… I have seen LESS people in the Mall this year and many many more sales. Sometimes so bad I thought that it was March weekend shopping (meaning low numbers of people). I was extremely unhappy with FoxBusiness TV today when the announcer in a shopping mall was saying that the people were starting to flood in and I barely saw 10 people shopping in a wide-angle shot. Only later did ONE gust on the show tell it like it is… MANY of the retail Companies are having LOWER sales… and those sales that are moving are either in Electronics (lower profit margins) or in SALE merchandise… hence LOWER Profit margins… so even if you see higher sales… which is unlikely… the PROFITS WILL BE LOWER!

Credit Card Evaluation by Moody’s is showing a huge number of defaults in the 90 day ranges… and as those of you with Credit Cards you will know that ONE missed payment can mean a jump to 29 percent annual interest rates or higher. Capital One and Bank of America are shown as being at worse rates and possible doubling since their October numbers in their November reports. This does not bode well for Retail and some say as much as two thirds of our economy is consumer spending driven.

Remember that Saving Rates in the USA are AGAIN Negative (meaning we are spending more than we are making), Homeowners no longer have access to their home equity that they had in the past because of declining values and Credit card companies have been increasing interest rates based on your total credit report meaning that if you take out another credit card or even cancel some credit cards or are late on payment to ANY other creditor you can be hit with high interest rates on your credit card balance.

Because of the new bankruptcy laws these credit cards may still have to be paid off entirely but your interest payment may be stopped…. I predict a change in the Laws by a Democratic Congress to make it easier to have these and Mortgage related debts forgiven to better protect the consumer and to allow for MORE consumer spending fostering a recover in the economy. This does not favor the Financial Companies.

Talking about Financial’s… there is great excitement about foreign funds coming to the rescue of the various Financial Businesses… but what you generally do not hear is the COST of those investment… many are for PREFERRED STOCK…. With GUARANTEED rates of 8 to 12 percent… remember that Preferred Stock Holders are often given their payments before there is dividends to the Common Stock holders… and there are still more write offs to come for many companies.

Personally, as I said earlier, the “credit” market, especially for the consumers, will be tight and unless you have stellar credit there is most likely no way you will get a loan or if you do your rates will be high. Even Fanny Mae and Freddie Mac have indicated continued price and value declines through 2008 and MAYBE a slow recovery starting in 2009. When Housing prices do go up (and some analysts and pundits say the opposite of me here) the price increase will be slow because of the Credit requirements that will have to be slowly reduced as well as many people who will be wary of a repeat of the last 2 years and finding out that it is actually CHEAPER to Rent a home than to own it and risk their equity on another potential downturn. And for Zero Down Mortgages.. forget it… those days better be over!!

Simply ALL of those rosy predictions of a good 2008 are for the benefit of companies who want to keep your money in stocks without regard to the real possibility that this economy is in for a rocky 2008.

Recession: Do not expect to be told that this economy is in a recession until it is either extremely sever or until there is a reversal of the current trend, at which time you will be told that we WERE in a Recession. The “powers” behind the Financial information as well as the Government does not believe you are rational human beings capable of knowing the truth until after the fact. They are afraid you will panic and that is not good for business. Right or wrong that seems to be the way the general population of the United States is treated.

I stand by my predictions in the previous post, for the Euro vs. Dollar exchange and the price of Oil for 2008.

Craig Eisele

http://craigeisele.wordpress.com/2007/12/25/more-2008-predictions-from-craig-eisele/