“Deleveraging”? Does it mean giving up our lifestyle?

Adapted from Investor Glossary.com, “deleveraging” is:

The pay down of debt, whether public or private. Individuals, companies or nations use leveraging (i.e. borrowing) to accelerate their consumption, growth or return.

But when an entity is concerned about defaulting on its obligations, about to be forced into bankruptcy, or concerned about rampant losses, it can use deleveraging to lower its risk of default and mitigate its losses. By deleveraging its balance sheet, a company sells off debt to lower its overall risk profile. Deleveraging can have serious financial consequences when a company, individual or nation tries to dispose of assets that are illiquid.

In this case, deleveraging may mean selling assets at relatively steep discounts. When an individual does this, he sells his widescreen TV he paid $2,000 for last year for $500 and whatever else he can unload for 5 cents on the dollar at a garage sale. As a result, deleveraging may lead to downward pressure on security and asset prices as more and more companies, individuals, or nations tighten their belts during the deleveraging process.

What happens when a nation deleverages because of rampant debt that no other nation wants to hold anymore?

One investment company in Europe tells clients how to prepare for potential 'global collapse'. Here’s another description of what US deleveraging might involve.

The preferred method of national deleveraging is inflation of the currency. For example, in the next five years, the United States might need to make the dollar worth 50 cents. A $2.29 half gallon of milk will cost close to $5.00. Inflating the currency to achieve deleveraging requires incomes to remain the same as they are today while prices of everything increase substantially.

Will our lifestyles be affected? Absolutely. Is that necessarily a bad thing? No. Such action would bring us back to a sustainable level of consumption – a place we strayed from several decades ago.

Is this what will happen? Probably not. We are so clever that we will figure out a way to prolong our over-consumption until the only recourse is a total collapse of our economy. That will most certainly affect our lifestyle, with unpredictable and extremely unpleasant consequences.

LiveJournal Tags: economy,deleveraging,inflation,over-consumption,unsustainable consumption

Aid to Enemies; Betrayal of Allies

Obama continues his insane Husseinness.  It is becoming even more painfully obvious that his prior sucking up to Islamist, socialist, and communist nations were not isolated events.  That is his continuing practice – with a vengeance!  It is not enough to become buddies with Chavez and his friends, Hamas and other Islamists in the middle east and in the USA.  It is not enough to turn our backs on Israel.

So now we have the dismantling of our defense shield in Europe.  We have our long time allies saying Obama betrayed them.  We have millions of Americans saying “what the hell are you doing?” (I don’t have a link to that sentiment yet, but I see it coming real soon.)

Most of us agree that American is stretched too thin and cannot continue to be the worlds’ cop. But, if we want to note another clear divide between liberals and conservatives in this nation, it is all about how we sprinkle our resources around the world.

Liberals tend to treat enemies like friends and friends like enemies.  Aid is cut off to those most likely to be our friend and aid is increased to those who have declared us their enemy.

Conservatives tend to treat enemies like enemies and friends like friends.  We think helping our friends and cutting off assistance to those who declare us “infidels” and wish our destruction are good ideas.

Obama wants to buy the love of our enemies.  He naively believes if only we are nice enough to them, they will embrace us – their fundamental reasons for their “former” disdain will melt away.  But that is not enough for him.  We also have to demonstrate to our enemies that we are backing down from aiding our friends.

This practice might pluck the heart-strings of the half-thinkers for a few months while they hear the heaps of praise from the fascist nations who are the beneficiaries Obama’s misspent gifts.  Talk about waste of taxpayer dollars.  Shooting ourselves in the foot would be more cost-effective.

Our Problems: More "Us" than Obama and friends

Rick Newman has an excellent article documenting many themes I have presented in Muccings over the years.

• We (our younger people especially) don’t want to work – we think we are too golden for that
• A larger proportion of us than in the past don’t want to sacrifice
• Too many of us are uninformed – and informed only by our uninformed pop cultural icons
• Too many of us feel “entitled”; entitled to the “best” and entitled on someone else’s dime

Read the excellent article below and see if you agree.

4 problems that could sink America

American ingenuity has solved daunting problems before and could again. But it would be a mistake to assume that American prosperity is on a preordained upward course.

[Related content: financial crisis, Barack Obama, recession, health care, China]

By Rick Newman, U.S. News & World Report

If we're lucky, the recession is winding down, and life will start to feel a bit more comfortable before long. But that doesn't mean things will go back to the way they used to be.

The global recession that began in America's housing market has shaken the world's economic order and possibly knocked the United States down a notch or two. The spendthrift American consumer is out of money. American wages are flat. Despite some hopeful signs, the U.S. economy could muddle along for years.

Meanwhile, actions in China -- rather than in the United States -- may have been the trigger for a global economic recovery. Many other nations will grow faster than the United States over the next few years and command an increasing share of the world's resources.

"The message to Americans," says Mauro Guillen, an economist at the University of Pennsylvania's Wharton School, "is you need to redouble your efforts to be more competitive."

American innovation has solved daunting problems before and could again. But it would be a mistake to assume that American prosperity will continue on some preordained upward course. Nations rise and fall, often realizing what happened only in retrospect.

Here are four problems that are undermining our future prosperity:

We don't like to work

Sure, now that jobs are scarce, everybody's willing to put in a few extra hours to stay ahead of the ax. But look around: We still expect easy money, hope to retire early and embrace the overly simplistic messages of bestsellers like "The One Minute Millionaire" and "The 4-Hour Work Week."

Unfortunately, the rest of the world isn't sending as much money our way as it used to, which makes it harder to do less with more.

Kids in Asia spend the summer studying math and science while American mall rats are texting each other about Britney and Miley.

White-collar jobs are now migrating overseas just like blue-collar ones. Kids in Asia spend the summer studying math and science while American mall rats are texting each other about Britney and Miley.

"We need a different mind-set," says Guillen. "People need to invest more in their own future. Instead of buying stuff at the mall, spend the money on evening classes. Learn a language or skills you don't have."

I recently interviewed entrepreneur Gary Vaynerchuk, who transformed his father's neighborhood liquor store into a $60 million business anchored by the Web site winelibrarytv.com. An overnight success? Hardly. Vaynerchuk has big plans, and he works at least 16 hours a day to achieve them. "If you want to work eight hours a day," he says, "you're going to get eight-hour-a-day results. There's nothing wrong with that, but I don't want to hear you bitch about money if you're only willing to work eight hours a day."

Vaynerchuk is only 33, but he has something in common with John Bogle, the founder of the Vanguard mutual fund company, who's 80 years old. I talked to Bogle recently about how Americans need to change their approach to work and money. He told me this: "We need more caution, more savings and we may have to work harder. Maybe we need more people who like to work and don't count down every day till retirement."

Nobody wants to sacrifice

Why should we? The government is standing by with stimulus money, banker bailouts, homeowner aid, cash for clunkers, expanded health care and maybe more stimulus money. And most Americans will never have to pay an extra dime for any of this. Somehow, $9 trillion worth of government debt will just become somebody else's problem.

When he was campaigning, candidate Barack Obama dabbled with the "personal responsibility" theme, and in his acceptance speech in November he called for a "new spirit of sacrifice." But now that he's in office, there's less interest in such quaint ideas.

During Obama's prime-time news conference about health care reform in July, a reporter asked the president if ordinary Americans would have to give up anything in exchange for better, more widely available care. Obama's answer: "They're going to have to give up paying for things that don't make them healthier." Hooray! Something for nothing! He may as well have said, "Here's a magic pill that will make all your problems go away."

Obama's plan is to get a tiny portion of the American public -- the wealthy -- to pay higher taxes for the benefit of the majority. Hey, while we're at it, let's see if we can convince 1% of the population to bear the entire responsibility for fighting two open-ended wars that are supposedly in the interest of every American. It would just be too uncomfortable to tell the middle class that if they want something, they need to earn it themselves.

We're uninformed

The health care smackdown -- sorry, "debate" -- is Exhibits A, B and C. The soaring cost of health care is a problem that affects most Americans. It's shrinking paychecks, squeezing small businesses, bankrupting families and swelling the national debt.

Yet outraged Americans seem most concerned about fictions like death panels and government-enforced euthanasia, while clinging to the myth that our current system of selective availability and perverse incentives somehow represents capitalist ideals.

But let's take a break from that burdensome issue to examine the likelihood that President Obama was born in a foreign country and hoodwinked America into believing he was eligible to run for president.

People who lack the sense to question Big Lies always end up in deep trouble. Being well informed takes work, even with the Internet. In a democracy, that's simply a civic burden. If we're too foolish or lazy to educate ourselves on health care, global warming, financial reform and other complicated issues, then we're signing ourselves over to special interests who see nothing wrong with plundering our national -- and personal -- wealth.

The iCulture

We may be chastened by the recession, but Americans still believe they deserve the best of everything -- the best job, the best health care, the best education for our kids. And we want it at a discount -- or better yet, free -- which brings us back to the usual disconnect between what we want and what we're willing to pay for.

Rationing is a dirty word, so we can't have a system that officially rations something as vital as health care or education. Instead, we have unacknowledged, de facto rationing that directs the most resources to those with the best connections, the most money or the savvy to game the system.

What keeps the rest of us content is the illusion that we, too, will eventually be able to game the system -- as long as the government doesn't interfere.

Solutions that serve some public good -- like Social Security and bank deposit insurance in the 1930s and Medicare in the 1960s -- usually require everybody to give something to get something. If it works, the overall benefits outweigh the costs.

Good programs leave individuals the option to pay more if they want more. Bad programs promise more than they can deliver. But often we don't know that until it's too late.

___________________

Update: Just a day after posting this, the veracity of this article was confirmed in a small way via a brief conversation in a restaurant with a recently retired couple and their 30-something daughter. During the course of conversation about current events, the trio showed vague understanding and no insight, and the daughter was entirely clueless as so many of us remain.

Discrediting “Green”

The continuing existence of Van Jones as Obama’s “Green Czar” is discrediting both the “green movement” and the office of the president.

Not that that green movement has much credibility among thinking Americans in the first place. Several examples:

- The highly debatable global warming policies: – should we sacrifice our coal industry, our greatest source of energy – to achieve the ridiculous objective of reversing global warming that we are not causing and which may not really exist? Spending billions in increased energy costs, all in the midst of “the great recession?”

- Reliance on technologies that do not exist or are premature to provide any significant source of energy or cost savings. The compact fluorescent bulb (life expectancy is highly inflated and disposal is a nightmare) and windmills (where’s the multi-billion dollar grid to connect them?) come to mind.

- This “green” thing is a half-baked populist fad, unhinged from any reliable cost/benefit analysis or economic feasibility - driven by a heard mentality headed for a cliff.

Van Jones is its perfect leader. An avowed communist, radical ties throughout most of his life up to and including the present. His defenders say he gave up his communism two years ago. Not very likely. He continues his associations with fellow radicals in the White House.

The green movement has enough problems with credibility without Van Jones. This man discredits the cause.

Obama in Action

Classic Obama exercising his change in the realms of the economy, national security, and foreign relations.

Paradigm Shift: More Than Obamanomics

A paradigm shift is what appears to be a sudden shift of values of what is right and true.  A “paradigm shift” is occurring in our nation’s economy, health care, religious values and national defense, all at the same time.  I will coin a new word for this:  Megadigm shift.

To provide some perspective, here are several examples of “paradigm shifts” that have occurred in the social sciences:

• The movement, known as the Cognitive revolution, away from Behaviourist approaches to psychological study and the acceptance of cognition as central to studying human behaviour.

• The Keynesian Revolution is typically viewed as a major shift in macroeconomics.^[2] According to John Kenneth Galbraith, Say's Law dominated economic thought prior to Keynes for over a century, and the shift to Keynesianism was difficult. Economists who contradicted the law, which inferred that underemployment and underinvestment (coupled with oversaving) were virtually impossible, risked losing their careers.^[3] In his magnum opus, Keynes cited one of his predecessors, J. A. Hobson,^[4] who was repeatedly denied positions at universities for his heretical theory.

• Later, the movement for monetarism over Keynesianism marked a second divisive shift. Monetarists held that fiscal policy was unimportant for economic stabilization, in contrast to the Keynesian view that both fiscal and monetary policy were important.^[5]

• Fritjof Capra describes a paradigm shift presently happening in science from physics to the life sciences. This shift in perceptive accompanies a shift in values and is characterized by ecological literacy.^[6]

  ^{(Source: Wikipedia)}

Barack Obama is either blamed for or credited with our current megadigm shift.  But in reality, he is merely the spokesman and facilitator for it.  This shift has been brewing for several decades. I’ve known of Obama’s radical, socialist, communist, racist and terrorist connections since he first began his presidential campaign – he wrote about them in his second book that my daughter gave me two and a half years ago for Christmas.

Most of the people who elected Obama knew of his radical associations – they were not kept secret. A man with this kind of background would not have been elected if this “megadigm shift” had not been brewing within the American psyche for some period of time.  Our current president didn’t come to power via a coup.  He was elected by American voters.  While there was considerable deception via his public rhetoric, most of his value system was already on the table.

The American voter was part of the megadigm shift now unfolding on the national stage:

• Shift from capitalism to socialism and beyond
• Shift from private sector to public sector services and ownership of major corporations
• Shift toward quadrupling the national debt in less than a year
• Shift from being a “Christian nation” to being a “Muslim” nation (in the president’s view) or at best, not a Judeo/Christian nation.
• Shift from discernment in morals and sense of right and wrong to a belief that those are outmoded concepts that are “judgmental, bigoted, and intolerant.”
• Shift from winning wars as a logical and essential objective, to winning becoming a poor, archaic objective because we no longer have the stomach, the sense of purpose enough to sacrifice to win.

These and other components of our megadigm shift are the ultimate consequence of a democracy that lost its self discipline – a consequence of losing faith in our own value system and believing every else’s values are just as good or better.  The people of this nation have lost their sense of history and purpose to the point of accepting the “un-American” principles we fought against for the past six decades.  We are at the point where what appears to be the easy road – the government doing for us what we should do for ourselves – is the most appealing.  And Hussein Obama, with his hoard of czars and community activists will help lead us down that path.  He is leading us toward losing our liberties.

God help us…if half our population can recognize Him.

Wisdom About Our Recession

After reviewing several books on our current recession, I discovered one that is spot on: "Contagion" by John R. Talbott publish in January 2009.

Mr. Talbott wrote three other books of note where his predictions were accurate at least a year before the events he predicted actually occurred:

"The Coming Crash in the Housing Market" - 10 Things You Can Do Now to Protect Your Most Valuable Investment: April 2003

"Sell Now" - The End of the Housing Bubble: January 2006

"Obamanomics" - How Bottom Up Economic Prosperity Will Replace Trickle Down Economics: July 2008

I don't concur with several of his philosophies and opinions, namely, that global warming is man-made and we can do something about it, we are wasting money on the war on terror, and seeking pro-life candidates results in unqualified legislators.

But when he remains in his zone of expertise, as opposed to his zone of unsubstantiated opinion, what is says is very compelling.

Here are several eye-opening observations discussed in Contagion which I believe are accurate:

* A corrupt alliance between big business and congress in the form of lobbying and campaign contributions created the lack of regulation and oversight that led to our economic debacle. Only sweeping reform to prohibit this self-serving relationship will correct the legislative and regulatory lapses that result.

* This recession will deepen over the next 3 to 5 years (2011 to 2013) - best case - if our government institutes major reforms ending the influence of big business over congress. If not, our problems will become deeper and last indefinitely. He is doubtful reforms will occur.

* A "perfect storm"-like scenario has been created by a myriad of events and circumstances that in many ways will cause our current economic problems to be worse than those during the Great Depression. Among them are:

- The retiring "productive and investing" segment of our population who will consume social security assets while producing nothing and saving and investing less.
- The younger, more productive, cheaper cost-of-production nations such as India and especially China who will continue to out produce us.
- Excessive per capita consumption in the form of over-sized housing and other consumer items that we haven't paid for and can't pay for.
- Our lack of savings and investing compared to other nations.
- The vast, unregulated morass of derivative markets and credit default swaps that were trillion dollar Ponzi schemes.
- Expected continuing incestuous relationship between big business, special interests, congress, and the regulators.

He concludes that we are a nation of self-absorbed folk compared to a generation or two ago. In part he blames this situation on the growing income disparity between the owner/executive class and the worker class. Yes, I know, he is beginning to sound like a socialist here. But the data bear this out. Income for most workers has been flat relative to the gross domestic product over the last four decades or so while income for the owner/executives has sky-rocketed. It is true that only since the 60's did most families feel the need for women to work outside the home to "make ends meet", or to consume what the ads convinced us we had to consume. In any event, he argues, we have felt less secure financially and less relevant psychologically to the point that we have drawn ourselves inward, refusing to be as altruistic as we were a few decades earlier. We have become more selfish, and obviously, less moral.

A word about Ayn Rand and "enlightened self interest." It doesn't work yet. We humans have not reached the required state of perfection needed for this concept to to be put into practice. In the meantime, "Atlas Shrugs" thinking only results in greed, corruption, screwed up government, and a screwed up economy.

A couple of other books on this topic I considered but declined to purchase were these:

"Meltdown": A Free Market Look at Why the Stock Market Collapsed, etc. by Thomas E. Woods, Jr. and Ron Paul. This is the libertarian perspective. This is the perspective that too much government interference was the cause of the meltdown. I don't buy it and I didn't buy it.

"The Great Depression Ahead": How to Prosper in the Crash Following the Greatest Boom in History by Harry S. Dent - January 2009. This book sounded promising until I learned that in 2005 Mr. Dent wrote "The Next Great Bubble Boom: How to Profit from the Greatest Boom in History: 2006-2010." His timing was way off with this earlier book. I couldn't trust his new one.

Being "Green" Right Now is Being Stupid

The wave of "greenness" covering the globe was questionable from the start, and is even more questionable in this economy.

Even in a good economy, the claimed benefits of "green initiatives" are as quirky and questionable as global warming and the end of the world in 2012.

Back in 2007 when, as a City Planner, I was asked to research the benefits of the City joining the green bandwagon, I couldn't find any - except the "good publicity" that might follow: the feel good feeling that comes when you follow a popular fad, however useless it might be. All the evidence pointed to the benefit of good public relations much more than any cost benefits.

As a college student 40 years ago, the teaching at that time was that good environmentalism will pay for itself. Much of the environmentailism being promoted today does not. It actually creates greater expense.

The Waste Management truck that picks up recycing materials just passed my house. Its' crew picked up clear plastic bags placed along the curb in front of each house. Each bag contained probably 20 or 30 empty used plastic containers. Most folks would probably consider this a great green program - recycling plastic bottles. What could be more American and Apple Pie? But consider the cost.

The four ton diesel garbage truck, the crew of two, the burning of the fuel, the wear of the streets, the processes for recycling the bottles, the meager value of recycled plastics. I will bet this is one program that does not pay its way. And there are hundreds just like it.

This type of government program is questionable in a good economy. In a bad economy it is unconscionable and stupid.

During the worst recession (possible depression) since the 1930's, why would we...

- Impose greater mileage restrictions on automobiles when two of our three manufactures cannot sell cars and are on the brink of bankruptcy.

- Impose greater emission standards on coal and other fossil fuels, when right now, they are the most cost-effective fuels we have and raising such costs will bankrupt hundreds of additional businesses at this stage of our economic meltdown.

- Impose a system of "carbon credits" when no US producer can afford their costs.

- Continue with the hundreds of other attempts to be environmentally sensitive when the lifecycle costs of such programs in fact demonstrate that most are more costly and more damaging to the environment than doing nothing. These programs are nothing but slipshod government manipulation of the free market without an understanding of all the costs and components impacted by a particular program.

This is not the time for our federal government to impose any environmental agenda. If anything, it is time to reverse the least effective and most costly environmental programs at least until those who pay for them - American business and American citizens - can get back on their feet to pay for them.

Talk about misplaced national priorities. Stabilize the boat before you let the mariachi band get on.

How will Obama era affect economy in 5 years?

With record spending, record deficits, with higher taxes for the "wealthy" and business, with the bailouts and handouts, where will we be in five years?

Where will be be with inflation? 3% or 10%
With unemployment? 3% or 10%
With the cost of gasoline? $1.50 or $4.50?
With medical expenses? More affordable or less so?
The Dow Jones Industrial Average? Still less than 8,000, or a big recovery to over 12,000?

Here are my predictions:

Inflation - 2008 averaged 3.85% for the year. There has been a dip in the consumer price index into negative values over the last several months due to the recession. This dip is likely to extend through the middle 2009. However, by 2014 there is a good chance CPI will exceed 8% to 10%. Sidebar: I visited an "investment advisor" today (a current hobby) who asked several questions typical of the diagnostic questions investment advisors ask. One question he posed, as serious as could be: "What do you think the rate of inflation will be?" I answered: "There are Phd's in economics earning $200,000 a year working for Bank of America who can't answer that question" as I was thinking to myself "YOU'RE the expert - why are you asking ME that question - how many sows can dance on the head of a pin?" Then I asked him: "What do YOU think the rate of inflation will be?" He answered, "Let's assume 3%." I'm guessing the lower we guess the rate of inflation, the better the performance of his recommended investment products will seem. Since last years' rate of inflation ended at 3.85%, I'm wondering if he is an advisor to be trusted.

Unemployment- The nationwide unemployment rate is now at 7.6%: many states lower; industrial states higher. The rate will increase to between 9 and 10% by the end of this year, peak in 2010 at around 12% and settle to 7 to 8% by 2014.

Cost of gasoline - Now hovering around $1.90 for regular, the price will gradually rise to $2.50 by the end of the year, and reach between $3.00 and $4.00 a gallon by 2014 due to additional taxes and declining value of the dollar. Alternative energy sources and supplies will not significantly effect the market until beyond five years. Even then, their prices will not necessarily be cheaper. In fact, if alternative sources were cheaper, the market place would have already made these alternatives available to us.

Medical expenses - Due to an aging demographic, the simple "supply/demand" equation for health care services for the elderly, medical costs will rise significantly over the next five years, likely 30% to 40% higher by 2014. No government subsidized health insurance program will be able to keep pace with rising costs. Any such program will lower health care quality at great taxpayer expense.

The DOW - Experts suggest that the stock markets typically recover 6 to 12 months ahead of the overall economy. The DOW is now hovering around 7,200. By next year it will still be below 8,500. By 2014 the market may again reach 12,000. Much of this gain will be a result of inflation.

I would like to hear your prognistications to see how they compare with my guesses.
The poll, below, asks your opinion about inflation...

What will be the rate of inflation in 5 years?
	Prices will still be deflating
	Around zero
	1 to 3%
	4 to 7%
	8 to 10%
	Higher than 10%
pollcode.com free polls

This next survey question allows you to provide more than one answer...

What is the basis for your opinion?
	Just a hunch
	We're not doing enough to free up credit and encourage spending
	We're pumping more money than ever into our economy
	My knowledge of economic history in this nation
	My financial adviser
	Financial or economic newsletter or guru
pollcode.com free polls

Do Financial Advisers Challenge Your Sanity?

I would like to take a moment to challenge the sanity of financial advisers or at least their logical inconsistencies.

Four things I hear incessantly from most if not all financial advisers...

- Buy and hold
- Stay invested in equities
- Past performance is no guarantee of future returns
- It is a mistake to believe that "things are different this time".

I was recently "fired" as a potential client by an advisor selling Variable Annuities because I challenged him on the viability of these cherished commission-generating anachronisms in a crumbling equities market.

Buy and hold may be good advice for folks in their thirties and forties. But not so much for folks in their sixties and seventies. History has shown it takes an average of 5 to 10 years for investors to recover to their former position after a 30 to 40% market decline. Why would an old fart relying on his retirement stash want to gamble away his survival kit in a down market, believing that "history shows the market will recover." The modified old adage is "you can't take posthumous gains with you."

Stay invested in equities. This is a good one. The advisor was talking this one up while trying to convince me that a Variable Annuity requiring NOT LESS THAN 35% of the invested funds to be invested in EQUITIES was the way to go - in this market!!!! You've GOT to be kidding. I reminded him that even BONDS declined in value along with stocks this time. The old balanced portfolio trick relying on bonds going up when stocks go down didn't even work this time. They all tanked. The advice to keep a major chunk of cash in equities is even worse!

The latest pitch designed to bolster the courage of burned investors demonstrates market recoveries after every down market. One example compares post-decline recovery between an account fully invested in equities, and an account fully moved to a fixed 5% investment after initial loss in equities. "See how much more equities recover in 5 years?" the advisor grins with awe. "See how foolish you would be to get out of the equities market?" he warns. All the while I'm thinking, "see how foolish it would be for sixty-year-old retirees to stay in equities when the market is still declining, when no one yet knows how deep the recession/depression will get, and they might not live to see a market recovery?"

Past performance is no guarantee of future returns. This is a required small print warning at the bottom of every investment product ad and salesman's' flyer. Yet every ad and every pitch focuses on past performance. As described above, past performance is illustrated to convince investors that "markets always recover." I don't believe that anything is "always", especially markets. Especially the markets that are showing so many "firsts", so many "this has never happened before's", so many "these companies are too big to fails."

And the clincher coming from one advisor: "You are a fool to believe that "things are different this time", strongly inferring that nothing is new, that recovery ALWAYS occurs like clockwork. Please refer to "these companies are too big to fail", above.

The fool is the one who gives away not only his retirement funds, but his gift of logic and common sense and all the wisdom he has acquired over the past 60 years to one whose full time objective is to get 6 to 10% commission for providing canned, anachronistic, and illogical advice.

There are opportunities in this market. As a young but wise administrative assistant consistently warned me as I left the building to go to meetings: "Be careful out there - there's lions and tigers... and bears...and wolves."

Wall Street: Greed is the Motivating Factor

Wall Street is whining already. But I have to defend Obama on this one. Companies who participate in the bailout (the bailout wasn't forced on them - they begged for it) should not allow their leaders the accustomed compensation.

But, Oppenheimer & Co. analyst Meredith Whitney argues on behalf of rip-off salaries, “No one goes into Wall Street to save the world,” Whitney said today in an interview on Bloomberg Television. “Compensation is the motivating factor.”

Yeah, that's right, Whitney, compensation = greed IS the motivating factor.

The salary caps Obama is talking about are a mere $500,000 per year. Oh, poor deprived money sucking corporate America, you will be deprived of your $2,000,000 salary plus benefits for your crappy performance. Gosh, you didn't "save the world." You not only didn't save the world, you screwed up the world while screwing up your company. And you want to be compensated how much? And obviously most of the analysts on Wall Street are in bed with their greed-hound buddies.

Jealous at their wealth? No, just pissed at the irony and outrageousness of their unbridled greed.

More appropriate would be for remaining corporate execs whose firms receive the government dole to give back last years compensation to the federal government AND agree to limit next years' to $100,000 for every 10 per cent of the taxpayer dole that isn't paid back. If nothing is paid back, they get nothing. If 10% is paid back, they get $100,000, of 60% is paid back, they get $600,000, etc.

I like it.

The Good Side of the Downturn

I received an e-mail from a friend listing several hundred retail store closings as a warning about the potential for giving or receiving worthless gift cards.

While the long list of store closings may sound foreboding, from the standpoint of sound economics and responsible human behavior, this is great news.

Economists and investment gurus have been complaining for years that personal debt is excessive and the personal saving rate is dismally low. Most recently the complaint has been that excessive credit has been extended to many millions who are not credit-worthy. Based on the unworthy credit, we have been spending and buying "stuff" at unsustainable levels. Retailers, sensing a good (though unsustainable) thing built an excess of stores to satisfy our excess greed.

Our unsustainable orgy of credit and spending lasted so long that its fall is hard and fast. Consider our current economic problems as a too-long deferred market (and behavior) correction. Retailers are adjusting by closing unprofitable stores. This may be just the beginning.

The phenomenon that makes this recession likely to be a long one is another consequence of our greed: Our lack of productivity. Our "value added per buck paid" is not competitive in the world market place that we have been hell-bent to create and participate in. As the promoters of illegal aliens are fond of saying, others are doing the work Americans won't do.

Why did the 1929 depression end in the late 30's through the early 40's? We worked our butts off to win the war. We were motivated. Our personal productivity was high. This "high" carried over into the 50's. In the 60's we saw a new culture emerge...the flower children, the druggies, and the culture of excess consumption. This dysfunction evolved in the 70's through the present with an attitude of entitlement. "You deserve it" is not only the banter of the advertisers, but the expectation of those to whom the attitude of greed is promoted.

We are a consuming society, not a producing society any more. The chickens are coming home to roost. It will take something on the order of WWII or mega-9/11, or a really wicked depression to shake us out of our slouch into Gomorrah, as Bill Bennett so aptly lamented.

If current economic events help us straighten out our personal and national priorities, that is a good thing indeed.

Anything but...

Neel Kashkari - as in "cash 'n carry", the "back in the day" throwback expression used to describe a cash transaction for merchandise - is the Interim Assistant Secretary of the Treasury for Financial Stability in the United States Department of the Treasury. God has a dry sense of humor. This is too funny. The man placed in charge of the greatest credit binge in this nation's history is called Cash N. Carry.

Another not so funny thing, though. I don't see anything in his bio that qualifies him for this critical economic policy implementation task. He designed latches for TRW.

Weird Presidential candidate pleas about economy

Both presidential candidates and many in Congress are pleading to pass the $700 billion bailout to enable Americans to get more credit to keep the economy going. In their next breath they bemoan the fact of our excessive national and personal debt. Isn't there a disconnect here?

Am I the only one confused by this?

From Wikipedia: "As of September 2008, the total U.S. federal debt was approximately $9.7 trillion[2], about $31,700 per capita (that is, per U.S. resident). Of this amount, debt held by the public was roughly $5.3 trillion.[3] Adding unfunded Medicaid, Social Security, Medicare, and similar obligations, this figure rises to a total of $59.1 trillion, or $516,348 per household.[4] In 2007, the public debt was 36.9 percent of GDP [5], with a total debt of 65.5 percent of GDP.[6]"

Consumer debt alone is nearly $2.6 trillion dollars. This is about $8,500 in debt for every man, woman and child - not including mortgage debt.

We have been warned for decades that this magnitude of national and consumer debt is excessive and will come back to bite us some day. While that debt is in the midst of biting us (it is the root cause for the current failure of our financial system), our leaders are in the process of getting us $700,000,000,000 MORE in debt so that that consumers can get themselves more in debt.

What am I missing here. I know there are two theories of national fiscal policy. One is that we ought to avoid "excessive" quantities of national and personal debt. The other, and the one that we are told we need to follow to "survive" is that national and personal debt are essential (without limit?) to maintain our national and personal prosperity.

Have we, as a nation, passed the fiscal "point of no return" whereby we have no choice but continue to embrace suicidal economic policies to prolong the agony? Or does someone really know what they are doing and things are not as bad as they seem?

The Stockholm Syndrome and Trickle Down Theory

As a conservative, a blasphemous thought has encroached into my mind concening the benefits of the "trickle down" theory we often hear about during discussions of how to stimulate the economy. I wonder whether most of us might be subject to the Stockholm Syndrome in this regard.

The conservative's solution to economic woes is usually centered around "the trickle down" theory. The opposite solution embraced by most liberals and many moderates is "tax the rich and tax big business" because they can afford it.

In an article entitled "Trickle-Down Ignorance" by Thomas Sowell (April 2, 2005) he states:

"What is often confused with a trickle-down theory is supply-side economics, such as that advocated by Arthur Laffer. That theory is that tax cuts can generate more tax revenue for the government because it changes people's behavior, causing more economic activity to take place, leading to more taxable income, as well as a faster growing economy.

Sowell continues: "Whether it will happen in a given set of circumstances is what is controversial, but none of this has anything to do with money trickling down from the rich to the poor. It has to do with the creation of more wealth in the economy as a whole."

The question I am plagued with: Does "the creation of more wealth in the economy as a whole" necessarily mean that the middle and lower classes benefit? Or do we just hope we will benefit? Does this merely result in the rich just getting richer and the middle and poor getting poorer?

Turning to the "Stockholm syndrome" for a moment, as Wikipedia defines it, the

"Stockholm syndrome is a psychological response sometimes seen in an abducted hostage, in which the hostage shows signs of loyalty to the hostage-taker, regardless of the danger (or at least risk) in which they have been placed. The syndrome is named after the Norrmalmstorg robbery of Kreditbanken at Norrmalmstorg, Stockholm, Sweden, in which the bank robbers held bank employees hostage from August 23 to August 28 in 1973. In this case, the victims became emotionally attached to their victimizers, and even defended their captors after they were freed from their six-day ordeal."

The Stockholm Syndrome is "Loyalty to a more powerful abuser — in spite of the danger that this loyalty puts the victim in — is common among victims of domestic abuse, battered partners and child abuse (dependent children). In many instances the victims choose to remain loyal to their abuser, and choose not to leave him or her, even when they are offered a safe placement in foster homes or safe houses. This mental phenomenon is also known as Trauma-Bonding or Bonding-to-the-Perpetrator."

I wonder if the poor and middle classes who support the idea of the "trickle down theory" are subject to the Stockholm Syndrome?" Out of years of conditioning, are we being loyal to a more powerful abuser - in spite of the disadvantages we might reap from buying into the alleged benefits of trickle down theory espoused by the wealthy and big business (the "abuser")?

Before we buy into the alleged benefits of the trickle down theory with its' tax cuts for the wealthy and big business, let's understand whether or not there are any real economic benefits for the rest of us. Let's dare to step out of the shadow of the abuser and look at objective evidence. As Sowell wrote, all too often we take one side of an issue for granted and blindly accept it as fact without bothering to understand the other side.

It is way too easy for us to feel excessively dependent on the wealthy to make our economy work as the easy way to continue feeling comfortable and taken care of.

Let's not be intimidated by those who might be abusers who use us to further their quest for tax-free and often obscenely excessive wealth.