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Posted on 03/03/2011 8:19:38 PM PST by DeaconBenjamin
February 28, 2011 -- In prison on death row, they often refer to condemned men as "dead men walking." We are now living through a period in history when the US and its economy are "dead nation walking." Why do I say this?
I've gone over this before, but the cover of the current Bloomberg Businessweek put it so starkly, that I decided to discuss the whole picture again.
The cover of the magazine reads, "Would You Invest In a Company that lost $2 trillion last year, and has a net worth of a negative $44 trillion?"
And what is this company? Why, it's USA Inc. The article is written by the well-known stock analyst, Mary Meeker. She writes about the US's finances as though the US was a corporation.
Mary writes, "Imagine no Army, Navy, Air Force, Marine Corp or Coast Guard, no federal courts or prisons, no national park service, no food and drug administration, no embassies, no salaries for Congress. That's what it would take to finance the budget by 2025 and still pay interest on America's debts, without either raising revenues or reducing entitlement growth. That's certainly not a recognizable America."
Later in the article, Meeker notes that the nation's problem is not a revenue problem, it's a SPENDING problem. She writes, "Simple math says that balancing the budget purely by raising taxes would require doubling rates across the board, which would kill growth."
So as I see it, what's coming up is a massive cut-back in federal (plus states and municipalities and cities) spending.
This is the stark and painful picture of the years ahead. The pressure is going to fall on our craven politicians. They are going to be faced with the duty of ordering massive cut-backs in spending. Every politician wants to cling to his or her office (because of the power and huge perks), and one of the ways to do that is to present juicy spending programs to their constituents. Now politicians are faced with the exact opposite. They will have to present the voters with LESS in the form of painful cut-backs and with those cut-backs the chance of being voted out of office.
But what about the markets? What of the Dow and the S&P which have been rising steadily for two successive years? As I see it, investors are taking it "one step at a time." Corporate earnings on a year-over-year basis have surged. And that's what investors have tuned in to. As far as the coming cut-backs, investors' attitudes are "We'll worry about that when the time comes. In the meantime, hasn't the 'good ol' USA come out of every tight problem with ringing bells and confetti. We'll do it again, and the hell with the deficits." Recently and rather ironically, I read that consumer confidence was at its highest level in three years. The history of America has been perpetual optimism, or that well-known expression -- "What, me worry?"
Which is where I believe we are today. The Bernanke experiment with massive money-creation has been going on for a few years. The Fed has fought the "bogeyman" of deflation with huge infusions of liquidity. Ben Bernanke, our Fed Chairman, is convinced that if he creates enough liquidity, housing will levitate like the stock market, and business will, in turn, rocket up with the stock market. The Bernanke creed: "Give them the money, and they will spend, once business improves, businessmen will hire again, and the unemployment problem will be solved". I believe this theory will be put to the test during the remaining months of 2011 and into 2012.
What do I see ahead? The debt and deficit problems alone will keep the market and the economy on edge. The Dow can levitate just so far with the help of enormous Fed-created liquidity. I think we are close to the upper extreme of the Dow level now. "So what's really new about the current situation?" you argue. My answer is that we are, indeed, experiencing something very new. Never before in history have trillions of dollars been manufactured out of busy computers -- all in an effort to create a bit of inflation in the face of world deflationary forces. Furthermore, much of the happy market action has been created by an anxious Fed with the help of enormous stimuli. Soon the stimuli will end. And that will have a negative effect on the markets, particularly the stock market. At the slightest sign of a 'double dip,' I think the Fed will turn to Qe3 and more money creation.
"But what about the dollar?" you ask. I'm convinced Bernanke is willing to sacrifice the dollar in his relentless effort to jump-start the US economy.
But there's another problem that is exerting negative pressure against a higher stock market. And it's the dividend yield. The dividend yield on the S& P 500 Composite has now declined to 1.80%. The real kicker behind the growth in stock portfolios has, for decades, been reinvestment of fat and rising dividends. But on balance, stock dividends are ridiculously low today. With a dividend yield of 1.80%, stocks are not priced to generate profits in the years ahead.
While I'm at it, I'm asking my subscribers to be sure to read the article in this week's Barron's by Stephanie Pompoy. It's an eye-opener and a must read.
Up-date on the economy, as seen through the eyes of Richard Russell (and with the help of anecdotal evidence).
I live in La Jolla, which happens to be a very wealthy community. Actually, home prices in La Jolla have not come down in the same way they have in the rest of the nation. In other words, La Jolla tends to be somewhat immune to hard times, unlike the rest of the country.
Yet, everyone I talk to here in La Jolla needs business, needs action and needs income. Restaurants are coming up with juicy promotions in an effort to entice diners to "come in and try us" or they're simply going out of business. Dentists need patients and are giving out "special" cards to bring new patients in (free teeth cleanings are offered). Rents are outrageously high in La Jolla. Greedy or spoiled landlords have been reluctant to lower rents, As a result, many "for rent" or "for lease" signs are going up in La Jolla. Businesses that have been here for decades are suddenly closing shop.
I see vagrants all over La Jolla and further south to Pacific Beach. I've always quipped that "Nobody ever froze to death in San Diego." I guess the word has spread around the country, because we now have vagrants parked and sleeping on half the benches in La Jolla. San Diego provides pitifully few facilities for vagrants. San Diego's attitude is: "We don't want 'em here, and we won't baby them. Let them go someplace else to litter the streets and look for free handouts of food."
Frankly, it reminds me of the Great Depression days when, if you were sight-seeing around Southern California, the cops would stop you and ask if you were looking for work. If the answer was yes, they'd put you in the back of the squad car, and drive you to the nearest bus station. California didn't want out-of-staters looking for work in SoCal territory. I know this because I was here, and I was stopped and interrogated many times.
My conclusion -- if wealthy La Jolla is in trouble, then everybody is in trouble.
So much like the Depression. FDR and his brain trust was convinced that tinkering with wage and price controls would magically solve serious, fundamental problems.
Everybody is in trouble.
No good can ever come out of trying to solve a fiscal problem with a monetary solution.
Unfortunately we seem to want to "blame" Bernanke. He is not nearly as culpable as Obama and the dems.
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The blame truly rests with fractional reserve banking as practiced by Bernanke and his central banking peers. Everything else is just a distraction.
“Dentists need patients and are giving out “special” cards to bring new patients in (free teeth cleanings are offered).”.... and “I see vagrants all over La Jolla and further south to Pacific Beach. I’ve always quipped that “Nobody ever froze to death in San Diego.”
SO ironic because I was just talking to my mid-western dentist yesterday about living in SoCal (we used to live there) and he was saying how he loved San Diego. I told him it’s a nice place to visit, but you wouldn’t want to live there.. mainly because the weather is so nice it attracts LOTS of people... more people, more wackos. Plus taxes, CA bankruptcy, high cost of living, etc. I think I talked him out of it LOL.
“All setting the stage for a global currency when the dollar collapses and/or is replaced by a global currency. Euro-Chinese or something like that, I’m guessing.”
Won’t Obama be SO PROUD! /barf
As oil goes up, everthing else follows suit. The Middle East turmoil will not settle down any time soon. The price of oil will most likely go beyond the 2008 record prices, and with it, everthing else, from food to manufactured goods, imported and domestic. Tie this in with the Fed printing pictures of dead presidents, like the Wreck of the Old ‘97, there will be inflation unseen since the German Weimar Repuhlic or Zimbabwe of today. Our savings will be wiped out. $10,000 will buy a weeks groceries. I look at the McDonald’s and Burger King signs advertising a breakfast sandwich for $1.99, but they don’t use the decimal, so they have $199. I believe that one day soon it will actually be true.........
"But what about the dollar?" you ask. I'm convinced Bernanke is willing to sacrifice the dollar in his relentless effort to jump-start the US economy.The powers-that-be still need to convince me that Bernanke's dilution of money power has anything whatsoever to do with "jump starting" the US economy. Bernanke seems to create money just to pay the bills.
This is far far worse.
Well, that’s cheery. I think I’ll drown my sorrows in hot chocolate.
“Unfortunately we seem to want to “blame” Bernanke. He is not nearly as culpable as Obama and the dems.”
I agree completely. Bernanke has no choice. When the democrats spend trillions more than the government takes in, trillions more than the world bond markets can afford to buy, he has no choice but to print money.
Get rid of the Bush Tax Cuts is 850 billion
15 percent across the board cuts is 550 billion
1.4 trillion is a good start......as long as we freeze spending, otherwise its like the border, what you cut will come back under another name.
Some of us may remember the slogan, “Nobody died when Clinton lied.” Another was, “Bush lied, people died.” Now, it’s conceivable that we could have a slogan to top all slogans: “Obama lied, America died.”
I haven’t given up hope that we can get out of this. Since 2008, Americans have reduced their household debt by some $200 billion. But we need to get Obama out of the White House. He isn’t evil, but he’s wrong, dangerously wrong.
REV6:6
Then I heard what sounded like a voice among the four living creatures, saying, “A quart of wheat for a day’s wages, and three quarts of barley for a day’s wages, and do not damage the oil and the wine!”
Basically a days wage for one days worth of food.
Yes, I agree with you. I think we have not seen the worst of it yet. I personally know of many people who are struggling and have been for a long time. It’s catching up with them. People are filing bankruptcy, losing their homes and vehicles and just trying to figure out how to survive.
I lost a $24.00 an hour job, I now work for $8.40 an hour. I am thankful to have family who are helping and I have a place to live but I gave my home away in a short sale because I had no choice. Now I can’t even afford to rent a home. I believe I am just one of many in the same situation.
sufferin succotash
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