Posts Tagged ‘Economics’

GE is looking to cut the cost of solar panel installations in half by engineering a system that would make it possible to roofers and contractors to perform the installation as opposed to higher costed specialized labor. They want to get the total cost down to roughly $21,600 (from roughly $35,000).

Here’s how our Federal government can quickly solve energy problems as well as stimulate the economy in a real manner. We all know that Obama and Congress love spending money. Heck, throw W into the spending mix too, and you have the largest deficits and national debt in the history of the world! Unlike most spending our Federal government does, this spending would actually bring about some real value to America.

Our Government Just Prints More Money Anyway

Spend another $700 billion dollars to install the $21,600 systems on homes in America. Now, the first argument might be that we need to evaluate whether there is enough sun coming in to make this worthwhile. Well, good news, someone has already done that! There is plenty of sun hitting the majority of the United States to make this worthwhile.

The $700 billion investment would put solar systems on approximately 32,407,407 houses. Now, that’s not taking into consideration economies of scale. Manufacturing that many solar panels and performing that many installations would considerably drop the costs associated with the installations. We could easily see a 20-30% drop in total cost, but I’ll stick with the 32.4 million installations for easy math. That’s roughly 24.93% of the estimated 130 million houses in America. With these solar panel systems producing an average of 85% of the house’s energy needs, that means a drop in existing energy consumption by 21.19%

What would happen if our need for energy from existing sources dropped by 1/5??? Well, simple economics would shift the price of energy down. For global warming worriers, it would mean production of 1/5 of our energy now comes from solar. Of course, it wouldn’t really mean a drop in household energy cost by 20 percent. Production from other sources would decline to keep prices from plummeting by 20 percent, but there would be a substantial decline in the cost of energy for the end consumer. Even if it was a 10% decline, I’ll show you at the end just how substantial this could be!

True Trickle Down Economics

Now, let’s get into the worker value! Solar panel production would skyrocket. Solar panel producers would need to hire more employees, put more people to work, order more materials from their suppliers… It’s true trickle down economics. But that’s just the production side of things! There’s the installation side as well. Thousands of workers would be put to work making good, hard-working money! These workers would be driving, eating, buying clothes for their families, etc. True trickle down economics. Local economies around the US would greatly benefit from this massive rise in employment and their subsequent spending!

Now, let’s talk about the true economic savings as energy costs in the United States drop by 20% I’ve mentioned in Energy Based Inflation that rising energy costs have an impact on EVERYTHING. There’s no escaping the cost of energy in our current economy. Every company and every job requires energy. For some companies and some families, energy is a massive expense! For someone like me with a house but no kids, my electric bills are very low. Still, my house could produce enough energy for me and half of what the family that lives across the street from me needs!

But wait! There’s more!!!

Electric cars will become viable global warming worrier alternative energy vehicles. Currently, electric cars don’t really save much (if at all) in greenhouse gas emissions because of the fact that America gets so much energy from coal… This solar panel plan would make electric cars much cleaner than gasoline cars, since American would not be getting 21.19% of our energy from solar. Greenies rejoices!

So, what would the ROI be for our Federal government to print another $700 billion dollars? Well, we can start with the amount that Americans spend on electricity (Retail Electricity): $350,438,000,000. Yes, that’s $350 billion Americans spent on energy in 2009. Now, earlier I reasoned that while there is a 20% energy savings, our costs would only drop by maybe 10% because production from other sources would adjust to compensate for the sudden massive increase in energy production by solar. Even at just 10% that means Americans will be saving $35 billion (yes, BILLION with a B) in energy costs/year.

Collectively, we can go spend that money on other things, save it, invest it in retirement funds/stock market/kitchen remodel, etc. The savings for $35 billion dollars would significantly stimulate the economy because we aren’t just going to sit on that $35 billion. We’ll spend/invest it! We, the people will stimulate the economy from a legitimate and long-term value add from our Federal government. Much better than a couple of $600 “stimulus” checks we got from W! Or the great W/Obama bank/auto bailout.

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We can’t be surprised by Obama & Co (aka George W. Bush) for wanting spend our way out of a recession. After all, we’ve been beaten over the head with the notion (myth) that massive federal spending and WWII allowed America to escape the Great Depression. When you look back on your public education text books, you’ll find most of them making the claim that massive government spending by FDR is what pulled America out of the Depression; most importantly spending on war. There are even those who suggest that FDR knew about Pearl Harbor and did nothing so that the US had a reason to enter the war. However, that’s not really what I want to focus on in this blog.

When you compare the “Great Depression” to the “Great Recession”, you see an awful lot of similarities: double-digit unemployment, reduced manufacturing, bank failures, calls for protectionism, the rise of Napoleon Hill and personal development, denial, and deflation…

WAIT… There’s no deflation going on in the “Great Recession”! The Federal Reserve has done a tremendous job at ensuring that there is no deflation. By devaluing the dollar beyond recognition, The Fed has all but ensured the USD won’t rise in value. Still, this isn’t why I wanted to write this blog.

The myth that massive government spending is what pulled America out of the Great Depression is perhaps the most dangerous economic myth we have ever pushed on ourselves. If we look at the massive amounts of debt America is taking on each year regardless of a Democrat of Republican in the White House and in control of Congress, it’s quite clear that massive government spending does not lead to economic prosperity. In fact, it is quite clear that irresponsible government actions and spending lead to economic turmoil. But what can we expect from a government filled with people who were raised to believe that FDR’s massive government spending was for the best?

When we look at our text books and look at the options chosen by our government and central banks, there are no surprises. They took all the textbook actions: try to stimulate spending, try to stimulate investment in the stock market, save the banks, and avoid tariffs. Of course, the excuse for the continued down economy??? Things would have been much worse if we didn’t take these actions!

There are no surprises. Our political and economic “leaders” have all been taught from the same textbooks. The actions and results are easily predictable given the circumstances. And when we look at the massive amount of social programs that a capitalist country like the United States has taken on, it further clarifies exactly how we got here.

American capitalism is dead.

I’m sensationalizing a bit with the first sentence, but the reality is that American capitalism is on life support. We’re propping up a facade of capitalism and millions of people are blaming “deregulation” (to slander the ideals of capitalism) on this long drawn out “recession”. I’m using a lot of “quotes” here because “deregulation” is a misnomer and the “recession” is really a depression masked by bogus inflation numbers and massive government deficit spending and a decline in the value of the US Dollar. That last sentence was a mouthful, so let’s start with these myths…

Deregulation is defined as the act of freeing from regulation, particularly government regulation. The idea that the federal government deregulated the banks is much like the idea that The Constitution clearly uses the words “separation of church and state”. Deregulation, in the sense that is being used to slander capitalism, was merely a change in the regulations by the government that created holes that thousands of bankers and millions of consumers took advantage of.

Nobody can take a loan out for 125% of the value of their home and honest think there is nothing wrong with that. Just like nobody can offer a loan at 125% of the value of a home and not think there is nothing wrong with that. Just like nobody in the Federal government can pickup a newspaper from 10 years ago about 125% loans and not think there is something wrong. If you can, you’re exactly why we are in the banking mess we are today.

 

Recession is defined as a decline in GDP, employment, and trading lasting a period of six months to a year. Earlier, I referred to bogus inflation numbers and massive government deficit spending and a decline in the value of the USD. First, the inflation numbers don’t require a rocket scientist (because supposed economists clearly aren’t capable of the math)  to figure out that they are false.

Simply take a look at what goes into calculating the Consumer Price Index (CPI). You will find few line items where the government is not heavily subsidizing/regulating that industry. Given that the federal government is more than $14 trillion in debt, it’s pretty clear that inflation numbers are considerably underestimated. If you didn’t follow that last part, I’ll help explain: if is costs you $3.15 for a gallon of milk at the grocery store but the federal government is providing subsidizes to milk producers to the tune of $0.50/gallon, the true cost of a gallon of milk for you is actually $3.65. I’ll admit that I haven’t done the research to find out the exact $/gallon of milk the subsidizes equate to, but you can get the point. Now, count this over the hundreds of entitlement programs the Federal government spends money on, and you have a real problem with the calculation of the CPI (inflation).

To further exacerbate the national debt issue, people don’t really consider the buildup of interest on the national debt as part of the total problem. This isn’t that unusual. A lot of people in business often forget about how borrowing money from a bank or investors requires payments that impact the actual bottom line of the company. Here’s a simple way to think about it: when the Federal government was over budget by $455 billion in 2008, the total increase in national debt was actually more than $1 trillion.

This all compounds!

When you include the devaluation of the USD abroad and the fact that we purchase so much product from overseas and that it takes 6+ months for that devaluation to ripple its way into our prices, you get rest assured that there are much higher prices coming to a store near you very soon…

 

Now, let’s get back to capitalism. At the beginning of this article, I needed to dismiss the myth of low inflation over the last decade so that we could really see that this “recession” is indeed a depression (I’m betting that decades from now, we will finally admit in our history textbooks that the numbers were wrong and that this is a depression).

Capitalism has been slandered by the myth of deregulation. Deregulation was a change in regulation that anyone sane and honorable would have realized had massive holes that were being taken advantage of. Nobody wanted to halt the good times, so our governments (which could have done something about it) did nothing for years! That’s NOT deregulation. It wasn’t an act of capitalism. Plenty of people warned for years about pending doom, and they were dismissed as pessimistic and bearish.

However, these aren’t the true measure of capitalism’s comatose state. The true measure is that we look to our politicians to “create jobs” and provide “bailouts”. What is capitalistic about bailouts? NOTHING! What is capitalistic about too big to fail? NOTHING! The funniest part about “too big to fail” is that the giant banks that were too big to fail were merged with existing banks, making those new banks too bigger to fail! Why weren’t the banks broken up into smaller pieces with the non-profitable sections written off and offset by “bailout” money? But I digress, and that’s for another sub-1000 word blog.

The Capitalist mindset in this economy would be this: What can I improve, change, or invent that would make a profit, provide jobs, and improve our economy. Instead, we are waiting for Obama to create more Federal jobs, and the “Republicans” are spewing forth their usual taxes rhetoric. Even Sarah Palin is talking about how can the federal government create jobs and stimulate the economy. What would best stimulate the economy would be a strong USD position, 10% reduction in all federal government spending and an increase in taxes. Of course, anyone will say I’m crazy and it wouldn’t work. Because it obviously didn’t work in the 90s when Clinton did it, right?

Obama is talking a talk that sounds great on the surface but can ultimately lead to a massive loss of jobs in America rather than creating jobs. Bernanke is helping to speed along this economically devastating Administrative policy with equally rash monetary policy. I understand where Obama is coming from. He wants to create jobs in America. The thinking by the Fed is that by the Fed devaluing the USD (US Dollar), American goods will become more affordable to China and other nations. Sounds great! On paper…

However, it is a clear indication that Obama and Bernanke don’t understand the United States’ position in the world economy. An import economy does create jobs, contrary to what the Obama Administration makes it sound like. Yes, manufacturing jobs have been lost in America. However, importing still creates jobs. A lot of jobs for that matter, and higher paying jobs! The major key to being a strong importing nation is having a strong currency. The stronger the USD, the greater the ability to import products from other countries.

The Federal Reserve, under Bernanke, has weakened the USD significantly over the least several years. The Obama administration is trying to create more manufacturing jobs in America on the backs of the import industry. Yes, import jobs will be lost as the USD continues to decline, but the result isn’t going to be layoffs, it’s going to be import businesses going bankrupt.

Now, this isn’t a too big to fail claim about the import industry. This is a claim that America doesn’t have the ability to produce all the same products that China does. What has taken decades to build in China is not going to happen overnight in America. Additionally, the typical Chinese worker makes a fraction of what an American worker would make for the same product. So, either American’s are going to have to take lower paying jobs or the cost of products are going to skyrocket!

Some argue that China is manipulating the RMB (Renminbi/Yuan) so that it’s export business continues to thrive at the detriment of America. There may be some validity to the claim the claim of currency manipulation, but it isn’t much unlike Bernanke’s QE and QE2, which are just fancy terms for devaluing the dollar. That is what Bernanke has done. He was devalued the USD. You can call it Quantitative Easing all you want, but a rose by any other name…

There is a large trade deficit between America and China, but it’s not across the board. For instance, where are Chinese airliners getting their planes? Where are they getting their MRI equipment? The advanced technology comes from America. A weaker dollar will lead to lower real profits by Boeing, GE, and other leading American businesses. Here’s the reality of a weaker dollar. So what if your widget sells for $500 when that $500 is only the equivalent to $300 from just 10 years ago!

A weak currency policy is a terrible monetary policy for America. An Administrative policy supporting exports is a good one when the focus is on exports that those other countries can’t make. Is the US really going to compete with the Chinese with making knock off MP3 players and cell phones that get thrown away every 2 years? Those will only be high paying jobs because the value of the USD will have declined to much to make America competitive with China that we’ll have gotten to the status of a 3rd world economy.

I’m being dramatic for a reason. The world economy has been centered on a strong America and strong USD for decades. The result of a devalued USD and trade restrictions with countries we’ve been importing from for decades is not what anyone in America is going to want. Enormous amounts of wealth has made its way to other nations like China, Mexico, and others. Those countries are seeing improvements in their quality of life. The US should continue to lead the world economy with a strong USD position and strong import position. The whole idea behind imports and exports is that countries export what they do/make best and import what other countries do/make best. The US still does and makes many products, services, and technology better than any other country.

The Solution: The Obama Administration should focus on leading technology industries (instead of rehashing dying industries in America) and creating greater tax incentives to grow those industries (just like Clinton did with the Internet)! Congress should act as well to impeach Bernanke. It is fully within the power of Congress to do so. Further, the Obama Administration can take action in the Treasury Department by not selling bonds to The Federal Reserve. These actions would send a sound message to the world economy that the United States is standing for a strong USD, strong US consumption, and leading the world economy out of this depression with swift action. These actions would take about 9 months to catapult the US economy and world economy out of this depression. The message to the rest of the world is that America wants to continue to *lead* the global economy rather than play a reactive role in the global economy.

My friend, Jim, argues some interesting points in his rebuttal to my last post about progressive taxation.

Jim asserts that wealthy people have no more to lose than poor people or the middle class because a Ferrari may have as much (sentimental) value as a tin cup. While this may hold true in “The Gods Must Be Crazy”, it can hardly be argued in a developed civilization. It also creates a problem for Jim’s recommendation of going to a property tax only system. I say my property is only $1, so I should have to only pay the property taxes on $1. Who is to say what my property value is? What if the Federal government disagrees with the State, which disagrees with the County government about the value of my property? Do the roll one of those D&D dice with only three sides?

Material wealth is the primary foundation of economics. It isn’t about measuring if we are jumping on rainbows. The measure of economic success is purely material. Couple that with the fact that decades of research and intellectual property went into building a Ferrari, billions of marketing dollars, engineering, schooling, etc… Not to take away the incredible economic value of the invention of the concept of a tin cup, but one tin cup hardly holds the economic value of a Ferrari in any stretch of the imagination. Even in an undeveloped society where a Ferrari would have no transportation value for lack of available gasoline, it still provides a greater level of shelter than a tin cup.

Now, getting to his point about stealing. Certainly, stealing is criminal regardless of the value of what is being stolen. Of course, the immediate question then becomes that of ownership. Jim questions “What gives the politically powerful the right to decide for us what we should pay?” The answer to that question in America is simple: We elect them.

Now, Jim will argue that branches of the government and agencies the government have abdicated its authority (The Federal Reserve) to are not elected and are thus stealing from the American public. I can see his argument. However, nowhere in The Constitution does the word “police” occur. Therefore, would that make all police agencies unconstitutional? Hardly. Our Constitution is a broad document that has required clarification through numerous lawsuits and amendments. It is a living document, and as such is subject to the interpretation of those assigned to interpret it: The United States Supreme Court. The IRS, FED, EPA, FDA are all legitimate government agencies that were formed by our government. While there may be X-File style conspiracy theories as to the roots of each agency, each of them can be traced back to an act of our Congress or Executive Branch and all of the agencies do answer (contrary to Jim’s assertion) to the American government. Do these acts make them constitutional? Certainly not. But we can save that for another blogbate…

Jim goes on to argue that a consultant in the Bahamas is not participating in the United States economic system, despite offering services to Americans. How could he not be participating in the United States economic system? While all of his action may indeed take place in the Bahamas, the results of his actions have a very real impact on the United States economic system. Jim’s suggestion would basically allow for the pirating of the US economy. All one would have to do is have their base of operation outside US soil, and you would no longer be “part of the US political system”.

I can see where Jim might be going with all of this. Certainly, the abundance of manufacturing jobs made available by an abolition of government regulations, income tax, and environmental laws would make the US extremely attractive to business. In fact, Detroit automakers could just move their headquarters to Canada (it’s not that far away anyway) and they would no longer be subject to any American law. They could then lease all property in the United States and be completely tax free. Perhaps Jim might be on to something because that might be better than giving them $700 billion dollars…

This brings us back to Jim’s idea of real property being taxed instead of income tax. The great thing about Jim’s plan is that I could make as much money as I wanted and influence lawmakers and the entire political process by simply never owning a piece of property in America. I could setup businesses through out the country that always lease our property instead of own it. Of course, I’d live in the Bahamas like Jim’s fictional character, and none of my companies would ever have to pay any taxes at all. We’d be 100% tax free.

Of course, we’re still paying our leases, so we are indirectly paying taxes because the lenders who own the real property would be paying all the taxes. However, because I can make so much more money on everything my businesses do, I can afford to buyoff the property tax assessors so that the property taxes are very low. Come to think about it, I could setup shell organizations that would be the lenders. So, I would really just be paying myself the lease and then using that extra money to further buyoff lower property taxes.

Sounds absurd, grotesque, illegal… Remember, in Jim’s system, there are no regulatory agencies, so no one would ever find out. It’s a lot like the early years of the United States…

Getting back to progressive income tax being the best example of capitalism, I leave you the reader with this: It’s government leading by example. Join any country club, credit card reward program, any incentive program in America (I’ll argue the world!), and you will find that you must pay a greater price for a greater privilege. Jim can argue that there are all sorts of social programs that redistribute wealth, etc. That’s the other side of the taxation coin. What the government spends has nothing to do with what government intakes (let’s just face it, the national debt makes that very clear).

Greater privilege = greater price. This is precisely why those who may a higher income should pay a higher tax. I know plenty of people who think I am nuts for justifying paying more as my income increases. In fact, as my income bracket moved up over the years, I often questioned this idea until I met a billionaire a few years ago who shared a story that will stick with me forever.

This billionaire came upon his fortune very rapidly with the growth of the technology industry in the mid-90s. He put his kids into the finest schools, purchased fine cars, homes, took expensive trips, etc. One day, he arrived home from one of his trips to find a note that said one thing: If you ever want to see your daughter alive, pay $10,000,000. Instructions will follow.

The moral of this story is that there are always those who are willing to steal what you have worked hard to produce. I have had accountants, consultants, and employees steal hundreds of thousands of dollars of what I have worked hard to build. They have no regard for the amount of work I have put into building a business, the impact it may have on the families of the employees I employ that they just stole money from. These are not good, kind, well intentioned people who believe in a just system.

Fortunately, the billionaire in my example was able to recover his child unharmed. Those with greater wealth surely have far more attention than those without wealth. Not to say that low income and middle-class children aren’t abducted as well, but greater levels of success attracts those who want to steal from you.

What do communism and a flat tax have in common? I’m not joking when I say that they are of the same yoke. A flat tax is an even tax levied upon all people, no matter their income (or lack thereof), at the same rate. It is often tossed around as an 15-18% Federal tax. While existing prior to Steve Forbes, it was widely popularized by Forbes and other politicians in the 90s.

The goal of communism is to create a classless society, common ownership of property and business, and elimination of labor wages. Classes are quite literally defined by a graduated tax system. People in the lowest income bracket pay the lowest taxes, while those in the highest income bracket pay the highest taxes. The flat tax will even things out, right? Well, so would flat income, right? It’s pretty much the same concept, but I doubt any flat tax supporters are going to support flat income.

The argument that people claim is that a graduated tax system robs from those who make higher income to pay for the social services provided to the lower incomes. Ostensibly, this is a valid argument as it is largely true. The top 52% pay more than 80% of the taxes each year. And lower-income people are the greater recipients of social programs. However, this blog is not about whether the role of government is to protect the wealth of those with the most money (albeit an easy argument for me to win). This blog is about how a flat tax is as communist as a flat income rate.

Now, those arguing for the flat tax don’t see it that way, and I certainly don’t expect to change their minds with this blog. However, they are inadvertently supporting communism ideals and might not understand the ramifications of such support. They will continue to argue to the teeth the same argument that they have been arguing all along. However, flat tax is communism and has very serious social, political, and economic consequences (the least of which is a nearly instant abolition of thousands of jobs in America). It is a classless taxation system, and therefore, by definition, communism.

A couple days ago I posted a blog about a twittersation with my buddy Jim about the Gold Standard. One of the great things about blog debates is that it gives you time to really think about your response and fully absorb the feedback from the other person. Had Jim and I tweetbated (I’m just making up twitterisms here…) about this, we probably would have not realized that we are pretty much on the same page. Well, I don’t know if Jim realizes it, but I realize it…

Jim can correct me if I’m wrong, but he is NOT arguing *for* a gold standard (or any commodity standard for that matter). Rather he is arguing for a standard other the debt security. The argument for a debt backed currency is pretty simple. If you can borrow more money, you should have a stronger currency (because people have more faith in your ability to pay that money back), right? Not quite, and this is where Jim and I agree.

It can be argued that economic cycles have been smoothed out by the current system we have in place. However, one can also just as easily argue that a higher level of public education and access to information at a faster pace are the real causes of smoother economic cycles. I digress.

What could be a better system? Certainly a commodity system is antiquated and a debt system has its fair share of issues. With the technology that is available today, a hybrid system is certainly feasible. A large database could be created to compile the commodity quantities for the most relevant commodities (gold should be on the list amongst many other raw goods). The value of those materials is set on a mostly free market, making the valuation of this portion of the economy pretty simple. The import/export ration would certainly play a role in determining the value of an exchange rate and the over all value of a currency. Then you have your money circulation. How much money your national and local banks are circulating must play a pivotal role in determining the over all value of a currency along with the exchange rate with another nation. This would cover the debt model we have now and then some.

With the technology available today, this type of system would make it much easier to spot potential banking and other economic issues that may surface in the future across multiple countries. I’ll even argue that this database should be a semi-open system, allowing virtually anyone to have access to the data to build models against it. This open system would provide considerable leaps forward in the development of economic and business systems, particularly for third world countries. It could also provide governments with the ability to spot opportunities in their economies and with their trading partners so that they can provide incentives in budding industries.

I’m just brainstorming at this point, and these ideas are very raw inside my head… But now they are down on paper, err, cyber paper?

This blog is for my buddy Jim.

When I switched my major from business to economics, I had no idea the change it would bring to my life. Perhaps I was naive. I thought economists were a bit more progressive. I thought that economists were legitimate “thinking outside the box” folks. So, when I received a B on a paper about how a sustained rise in energy prices would lead to unchecked inflation because this idea was “completely ridiculous”, I was a bit disheartened. I wrote this paper circa 2003, long before the effects of rising energy prices were felt a couple years ago. But I digress.

Getting back to the gold standard… This caveman style of money fits right up there with having king rule. It is practically the same principle. He with the most gold rules. The gold standard comes from the innate human desire for shiny objects. A piece of shiny yellow metal that has relatively little utility compared with other natural resources, should not dictate the value of a country’s currency.

Now, back in the day (when the world was obsessed with shiny yellow metals), a gold standard would make sense. During those times, it was important. Today, gold has limited economic use. The high price of gold today is merely because of speculation about the USD and belief that the antiquated gold standard has merit.

The reality is that a country with little gold but an abundant supply of other natural resources and production and consumption of goods and services or advancements in science is far more valuable than a country that has tons of gold and little to no production.

Back in the day, kings didn’t have vast computer systems and economic tracking abilities. So, they did things the easy way. I’ve got gold. I’ve procured more gold. I am a better king. Today, we could smart bomb the king and take all his gold. The gold wouldn’t make our currency more valuable, but the smart bomb would.

Economic, political, social, medical, banking, and other infrastructure systems should (and arguably MUST) evolve with technology. Currency values can and should be defined by the value of a country’s output and consumption. Awaiting Jim’s Austrian theory of economics response 😀

I’m sure some will say I’m an alarmist. A grand conspiracy theorist. However, bailouts are all the rage for large companies these days. If we look at the reasoning given to us about bailing out the failed, antiquated, and obsolete GM and Chrysler, a Walmart bailout doesn’t seem that far fetched. GM and Chrysler were too large to let fail. That’s what we were told. Yet, they failed anyway, after taking billions of dollars. Let the economic meltdown begin!

Walmart is posting solid earnings you say? Walmart certainly has many things going for it. However, international economics are not working in favor of Walmart. The vast majority of Walmart products come from China. There is incredible pressure on the US dollar against the RMB. In fact, the USD buys a whole lot less in China today than it did a year ago, let alone a couple of years ago.

China has also changed their employment law. While many view it as good for Chinese workers, it has put additional pressure on the ability to get Chinese made goods. The long term effects of this policy are yet to be determined. However, it is highly unlikely that the new Chinese employment law is going to make Chinese made products more affordable.

China isn’t the only place where Walmart gets products. However, Walmart can’t just start sourcing products in another country where the dollar may be stronger and employment laws aren’t changing. First, international patents will likely prevent most of that from happening. That’s a topic for an entirely separate blog (that I’ll probably never get around to writing). As the USD falls, so will Walmart’s profits.

If Walmart executives choose to cash in on the scare tactics used by GM and Chrysler, they could easily squeeze billions of dollars in a bailout. After all, the total number of employees for GM was estimated at a quarter million. Walmart employs more than two million. That’s eight times as many people losing their jobs if Walmart fails. We can’t let that happen, right? Just think of the children!

If you’ve made it this far and think this has anything to do with Walmart, I’ll spell it out right now. I think GM and Chrysler sucker punched America! I think there is a special place in hell right next to people who talk during movies for the executives and politicians who sucked money out of our pockets for that ridiculous automobile bailout.

It’s going to be 6-9 months before things start moving into recovery, and they are going to get much worse over the next 3 months. And that is a best case scenario. Why is this recession going to be so long and so severe? Simple, we denied it was happening for almost an entire year!

Remember, according to our government our economy was fundamentally strong just 3 months ago. That wasn’t the case then. That wasn’t even the case a year ago.

Recessions are fairly simple to recover from if they are dealt with responsibly. Ignoring it for 12 months just dug us a deeper hole. It would be like ignoring a broken leg for 12 months. Your leg would take longer to heal and would probably heal incorrectly (i.e. via $700 billion government bailout = $15 billion automobile industry bailout).