Posts Tagged ‘economy’

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).

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Here’s an idea for the government bailout program that the vast majority of Americans don’t support. Give us an opt out clause on our taxes for the next 10 years.

Now, I’m not talking about opting out of our taxes. Those of us who don’t support the bailout will still have to pay our taxes as usual. However, we can opt out of our tax dollars being used to fund this ridiculous scam.

If you limit the government’s availability of funds, they can’t be as spendthrift as they have been. If they want to come up with $700 billion to spend on some useless bailout, they will need to get it from some other source than the American taxpayer.

Years ago, this would not have been possible. However, with technology today, this is entirely possible. In fact, we could give taxpayers the ability to opt out of any irresponsible government spending. It would really make it simple for the government to determine how much they can waste on pointless bailouts like the automobile industry bailout. If 60% of Americans don’t support the automobile bailout then they will only have access to 40% of the taxpayer funds.

This would make budgeting for the government much easier! Taxpayers don’t support something, Congress can’t just go spend the money whenever and wherever they want. I suspect that we could balance the budget within 4-5 years and keep it balanced indefinitely with a bailout opt out clause. In fact, I suspect the government would end up with considerable surpluses as government waste would now have a true checks and balance system in place. The total tax dollars collected would be the same, but the ability for Congress to spend would drop considerably.

Now, some might argue that this would create serious problems with because the funding for the bailout is something that is “necessary” to avoid a greater economic downturn or because it is something the public doesn’t understand the importance of. I have two words December 2007.

There are plenty of things to be passionate about. Firing people is usually not something that I am passionate about. However, when there is someone whose ideas are so detrimental to the stability of the American economy, we need to get rid of him. If you’ve been buried under a rock, Henry Paulson is the communist Treasury Secretary who was calling for the bank “bailout” months ago. Unfortunately, he got what he wanted. After having fumbled the ball on US economic policy so far, our Congress somehow believed him that we needed this.

Now, his team has come up with the most absurd idea in the history of idiotic economic ideas: purchase stock in banks to help their balance sheets. Where does he come up with such idiotic ideas!?! While buying up bad debt from failed loans would certainly create a mess, this communistic thinking is the most absurd idea I’ve ever heard! What will happen *when* (not if) the stock goes down? Who really reaps the reward of the US government going in a buying stock? The investors. The banks are not going to benefit at all because investors are going to watch their stocks go up and then jump ship because Paulson was stupid enough to buy their stock. The stock will come back down, and the US loses money.

For conspiracy theorists, this is just the beginning of the evil plan by the smoking gunman to turn America into a communist state. While I can’t agree with the over all conspiracy, the thoughts of Federal government ownership to the tune of $700 billion is VERY disturbing.

Just last week, I has started publishing information about energy-based inflation. I had the idea and predicted it in a paper I wrote for an economics class almost 5 years ago. It was the first, and only, B graded paper I had ever written in an economics class. The professor gave it this low grade because he ultimately disagreed with me that energy could cause a ripple of inflation in the American economy.

This morning, I check my email to find further support for my theory of energy-based inflation. The Washington Post published an article about how Coal Can’t Fill the World’s Burning Appetite. To sum up their article, circumstances have shot the price of coal up by 50% or more over the last five month. While this short-term spurt in price may be able to be absorbed by businesses, don’t count on it. The price of coal is not going to be coming down any time soon. Same with oil.

What does this mean for America? Well, if you read the report from our government, guess where we get 49% of our energy from? If there is a sustained increase in the price of the resource that generates 49% of all of our energy, you can bet your house that prices are going to go up everywhere!

The bottom line is that energy is driving inflation in our economy, not interest rates. Watch what happens to all the rate cuts by the Federal Reserve this year. They will go to offset the energy costs. It will temporarily stabilize energy inflation, but it is not a permanent solution. Energy costs will rise, and the Fed will be powerless. Changes in the energy market are the only thing that will curb energy-based inflation. I’ll post my solution on Wordscause this evening.

I don’t have all the economic sources nor the historical data that the FED has, but I do have data that is very telling of the economic conditions: data from the company that I work for. One of the systems we use is the National Change Of Address (NCOA). It allows us to keep our addresses fresh in our customer database so that we aren’t wasting our mailing resources. It is offered by the US Postal Service at a nominal cost given the potential savings in direct mail cost.

We ran the NCOA right before the holiday season last year and there was considerable relocation taking place with our consumers. We just recently ran the NCOA again, and there is a significant slowdown in the volume of movers. Interestingly enough, the slowdown started right about the same time that the FED dropped interest rates.

What does all this mean? Well, for us, the NCOA indicates the housing market. More than 90% of our customers own their own home, so a lot of change of addresses means volatility in the housing market. A slowdown in the NCOA means things are starting to stabilize in the housing market. A more stable housing market is good for business.

I’m predicting a slight dip over the next couple of months because of the sensationalistic nature of the media when it comes to reporting economic data. Also, most economic indicators are not real-time, meaning that seeing a bad economic indicator today typically means that it took place 3-6-9 months ago. Look for a mild 3rd quarter and a strong 4th quarter in 2008 provided there is not major political upheaval.

When I was a kid, my grandparents would always send me and the rest of my family members checks for Christmas (as well as some presents like underwear and socks). There are eight kids total in my family, making a $20 check/child a considerable investment on their part. They were grandparents… retired. Their monthly income consisted of a pension plan and social security. But a $160/year investment into their grandchildren’s futures was well worth it. Also, $160 was about equal to $500 in today’s money.

Interestingly enough that is about the same amount of money that the Federal government is going to be sending 130,000,000 people in less than two months. Each check from my grandparents was enclosed in a card that said something along the lines of “Don’t spend it all in one place.” Just a thought for those Federal checks.

What would happen if everyone in America watches The Big Idea with Donny Deutsch on CNBC? First, there would be a run on the cable companies because you can only get CNBC on cable. Second, fellow blogger Tony Iovino would take his $600 check he’ll receive from the Federal government in May and actually cash it to invest it into a new invention (and he would start using the vastly superior WordPress blogging system). Third, the US economy would flourish.

Today, Bush signed his stimulus package, creating checks for millions of people in our economy. Lots of people love to complain about the symantics of the deal. Call it welfare. Call it a rebate. Call it what you want, it is our Federal government giving money to people that live in America.

Using some of the people I’ve seen on The Big Idea as an example, what those $600 checks have the potential to do is generate billions (yes, you read that correctly, BILLIONS) of dollars in revenue/income for Americans. How? Well, you should watch The Big Idea. The show has featured scores of people who have started their business for little more (sometimes even less) than $600. These people has created jobs, used resources that support other businesses, and made people a lot of money.

Sure, if everyone who receives a check goes a spends it on a toy at Walmart, it won’t do much for boosting the economy. However, let’s have a little fun with the math here. 130,000,000 Americans are going to receive a check. If even 0.1% of the people who receive checks become Donny Deutsch success stories, we are talking about generating $130,000,000,000 of revenue for the US economy over the next year! That’s correct, just one-tenth of one percent of the people who receive the checks need to become Donny Deutsch success stories for the checks to pay for themselves in just two year. One-tenth of one percent. That is about the same as a run-of-network banner advertisement on ValueClick!

Anyone who says the Bush stimulus package of a $600 tax rebate is not going to stimulate the US Economy hasn’t been watching The Big Idea with Donny Deutsch. I’ve seen more millionaires made from $600 or less on that show than I ever thought was possible. The moral of the story: Your wealth is what you make of it.

Every time I watch that show, I’m completely inspired. Regular people making it big because they had a dream that they pursued. My favorite episode was a few days ago. I can’t remember the guy’s name, but there was a venture capitalist on the show who said that the “side job” never becomes the next million dollar idea. Got me thinking about how many “side jobs” I’ve had over the years. None of them took off. Watching the show, I see nearly all of the stories have something in come: they quit their job went after the dream.

What dream is worth dreaming but not pursuing? Time to take the plunge. Grab that $600 tax rebate and do something with it!

Bernanke’s rookie year was a bit rough for the nation. His second year hasn’t had much success either. However, it appears that he is coming out of the textbook world of economics and into the real world. Yes, the world where living, breathing humans with names actually lose their jobs and houses rather than his previous world where there is a % increase in unemployment.

My favorite quote from Bernanke was the following:

To be useful, a fiscal stimulus package should be implemented quickly and structured so that its effects on aggregate spending are felt as much as possible within the next 12 months or so.

Clearly, this is in stark contrast to his molasses monetary policy, which consists of waiting. And waiting. And waiting some more. Essentially paralyzed by inflationary fears.

What is interesting about Bernanke’s leadership in the FED is that it puts much more control of the economy into the hands of the Federal government as opposed to our central bank. This is a scary notion. Political winds change, shift, dwindle in a relatively short period. The result is much more sporadic economic conditions and less economic stability. If not offset by consistent Federal Reserve Policy, the US Economy will be severely upset by fiscal policy.

Bernanke has recently indicated that the FED is looking to take aggressive action, indicating to many that a half point cut in interest rates should be expected at the end of this month. Provided that the FED does indeed shift from the monetary drip policy to at least a trickle as indicated, the US economy might be able to shed off some of the damage we can anticipate from the recent change in China’s labor law.