Economy


Greece

I read an article in Barron’s last week that basically said that if our government continues to spend more than it brings in over the next few years, by 2030 we will be the next Greece – insolvent, unstable, and mostly hopeless.  Some argue that this could never happen because the US is too big to fail.  The counter to that argument is that we are also too big to bail. 

With just a few days until we face the sequester, I don’t think I’ve ever been more frustrated with the fiscal incompetence of our government.  Make no mistake – both parties are responsible here.  First we got ourselves into horrible debt, then we raised the debt ceiling, then we faced the fiscal cliff, then we made the cliff higher, and now we face across the board cuts whether they make sense or not because our “leaders” can’t do the jobs they were elected to do.

There is a lot of widespread panic about what the sequester may bring.  I’ll be honest and admit that I recently took measures to significantly reduce my stock market exposure in my 401(k)s and 529s.  Maybe I’m overreacting, but I don’t want to lose 50% of the value in those stocks like I did a few years ago.  Sure, I gained it back (five years later), but something tells me that this roller coaster is about to go downhill fast… and after it drops, I’ll hop back in and ride it up.  All of that was just my 2 cents, I’m not a financial advisor, but they don’t know what’s going to happen either.

Back to the government:  States are required by law to have a balanced budget.  Thousands of companies balance their budget or else they go out of business.  Why does the federal government get a bye when it comes to fiscal responsibility?  I think it’s time to clean the politicians out of Washington and bring in some business people who have figured out that if you spend more than you make over an extended period you will go bankrupt.  It’s these nonstop political games that may just severely jeopardize my children’s future.  So to our President, House Republicans, and Senate Democrats:  you have proven to be incompetent and ineffectual in regard to the economy.  Please stop playing games and start using common sense.

Oh yeah… I am also proud to be an American where I can say what I just said without worrying about a federal agent  knocking on my door… we have unmanned drones for that now.

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taxes

 

Tax day is almost upon us.  Most of you have probably already filed (and gotten a refund, based on the market’s performance last year).  I got my best refund ever this year (thanks largely to an 8 lb, 3 oz deduction), but I am not optimistic about the future.

 

With all the bailouts, stimulus plans, and funding of pork barrel projects, you and I will be picking up the tab for many years to come.  Whether or not you agree with the way Washington has been writing checks, you have to acknowledge the fact that our actions today will have significant financial implications for years to come.

 

I’m not here to point fingers at any particular politician, party, or belief.  I think we should instead consider why the government feels so compelled to “fix” the economy.

 

It really comes down to the average American’s sense of entitlement.  One of the most famous lines from our country’s Declaration of Independence states that we are endowed by our Creator with certain unalienable Rights, that among these are Life, Liberty, and the pursuit of Happiness.

 

That’s the pursuit of happiness, not the guarantee of happiness. 

 

First of all, if we are to pursue happiness, then the onus is on us (get it?) to discover what will provide happiness.  If you’ve read much on this blog before, you know my position on this matter.  Money will not provide happiness.  Yet when people are not happy, our typical response is to throw money at the problem.  When that money runs out and the problem still exists, we throw more money at it (ever heard of AIG).

 

Our government is really good at collecting taxes and organizing a military.  That’s about it.  It cannot be all things to all people, nor should it be.  We should not be turning to the government to bail out businesses, provide universal healthcare, regulate financial services, or guarantee the liquidity of our investments.  Yet over and over again, when we face tough times, we expect the government to reach into its hat and pull out another rabbit.

 

Another problem that I don’t think we are considering is the issue of control.  The more money the government puts into an entity, the more control it gains over it.  Look at GM.  After giving the car maker tons of cash, the administration forced the resignation of GM’s CEO.  What about the AIG bonus fiasco?  After the ridiculous bonuses were paid, the government decided to heavily tax those bonuses.  I’m not defending GM’s former CEO or AIG, but doesn’t this seem to be going a bit far?

 

Now the government is saying that it will back the warranties on new GM cars and trucks.  What?  So does this mean that Ford owners will subsidize the cost of quality for GM vehicles with their taxes?

 

The more involved the government gets, the more complicated these scenarios become.  As individuals, we need to take personal accountability for our pursuit of happiness and keep in mind that if we turn to bailouts for happiness, we lose liberty.

images

 

Ok, “decession” is not a word.  It doesn’t even make sense, but since “repression” was already taken, it is the term I’m giving to what we are going through now.  The Chicken Littles are running around saying that we’re heading into another Great Depression.  Well, we’re not there… yet.  However, what we are in is worse than what we have called a recession in the past.

 

By definition, a recession occurs when the gross domestic product (the value of all of the goods and services we produce) shrinks for two consecutive quarters.  We’ve been there since December 2007.  By definition, a depression… uh, there is no agreed upon definition for a depression.  I think economists shy away from it because it scares the daylights out of us.

 

Let’s compare/contrast where we are now to where we were around 1929:

 

Unemployment

The Great Depression – 25%

Now – 8.2%

 

True, the population of the US is much greater now than it was in the 1930’s – 8.2% of our current population of 300 million people is 24.6 million, which is pretty close to 25% of our 1929 population of 12o million people (30 million).  However, there are other factors to consider.  First of all, one out twelve people experiencing unemployment is a lot different from one out of four.  Nonetheless if you are one of the 8.2% without a job, it is of little consolation that we are only at one third of the unemployment rate we endured during the Great Depression.  Another big difference now is the diversity of work available.  Back in the 30’s we basically had agriculture, mining, and some industry.  Now, you have a plethora of opportunities even in the worst job market since 1983.

 

Charity

The Great Depression – Millions of homeless, starving people resorted to begging and relying on the charity of others for their next meal.

 

Now – Numerous CEOs making millions of dollars have resorted to begging and relying on the American taxpayer for their next “mil”.

 

The Stock Market

The Great Depression – From October 1929 to 1932, stocks lost about 80% of their value.

 

Now – Though stocks are taking a beating, the Dow would have to go down to about 2,800 to be at 20% of its October 2007 high of 14,000.

 

Money Supply

The Great Depression – From 1929 to 1933 it is reported that 10,763 of 24,970 commercialized banks failed and the money supply fell 30.9%.

 

Now – Because of what happened in the 1930s, we have a wiser Federal Reserve (believe it or not) that would likely take more drastic measures to prevent the money supply from falling so sharply.  Yes, this would lead to inflation, but it could stave off the drought of credit lines.

 

Policy

The Great Depression – Policymakers sought to increase prices (and thereby, wages) by decreasing production.  The thought was that if we had a reduced supply, prices would go up and wages would follow.  Of course the problem with this strategy is that if production is decreased, fewer workers would be needed and fewer people would be able to afford the now higher-priced commodities.

 

Now – I think we all know that creating jobs is the way out of this mess.  A lot of talented people are getting laid off and are left wondering what to do next.  I think America needs an entrepreneurial boom.  We need to stop giving taxpayer dollars to huge companies that are hemorrhaging money and start offering more assistance to small businesses and people who taking the initiative to begin their own economic recovery.

 

Living Conditions

The Great Depression – People lived in cardboard boxes known as “Hoovervilles” and used newspapers to try to keep warm.

 

Now – We complain about not being able to sell our 2,500 square foot homes while watching American Idol in high definition.  I’m not trying to marginalize our current condition.  I know a lot of people are truly struggling to figure out their finances and face losing their homes, but even in our toughest economic times, we have it pretty good.  If you don’t believe me, consider this:  50% of the world (that’s over 3 billion people) live on $2.50 or less per day, 80% of the world lives on less than $10 day, and according to UNICEF, in 2005 up to 30,000 children died every day due to poverty.  You’re probably thinking, but that’s in lesser developed countries.  Exactly.  That’s my point – we have it pretty good.

 

I didn’t plan on putting up another posting about the economy, but it’s hard not to talk about it these days.  I know that some of you are struggling.  I recently found out that one of the plants where I used to work will be shutting down and some of the readers of this blog are now trying to figure out what’s next.  Sometimes we gain perspective from the decisions we make.  Sometimes perspective is forced upon us.  Whatever your situation, it is essential to remain optimistic.  I know… easier said than done.  I’ve learned that optimism does not come from believing that you will get what you want.  It comes from appreciating that you have what you need.