Big Business & Big Government

One of the refrains I’ve seen of late is how capitalism failed and that’s why we are in an economic crisis. Something I’ve tried to explain to people in the past is that real capitalism is rarely seen in America these days.  What we have is huge corporations that dearly wish to be monopolies.  Monopolies don’t want competition, they want total control and are big believers in centralization.

So I’ve found it interesting how Republicans have been labeled the party of big business when so many big businesses mainly contribute to Democrats.  When big government and big business conspire, you get what we have these days.  What I am is a believer in competition of the free market which is different than being pro-business.  Jonah Goldberg has an excellent piece on this that everyone should read.

At Blogmocracy, Rodan has a post based on Goldberg’s op-ed that connects the union of progressives and big business with the policies of fascism.  In it, he uses a term I’ve used for years, Neo-feudal to describe the attitude of those wishing control through making everyone beholden to them. I have to point out that the ever increasing number of “czars” in the Obama administration accentuates the impression of feudalism to me.  Having people with cabinet level power who directly report to the President is all too much like vassals reporting to their lord, in my view.

I will say that the video in the post is annoying, it has some good content on socialism and George Orwell, then completely goes off the rails with the cartoony stuff at the end.

I think a fundamental human mistake is to vest power in one organization and then have all the decisions be made at the top.  This is the essence of centralization and history shows that it leads to inflexibility, inefficiency, and corruption every time.  This applies to businesses, organizations, political parties, and governments equally.

But here we are, repeating the same mistakes and being shocked when it goes wrong. While I think people are starting to wake up and see what is happening, I wonder if it is too late.  The consolidation of power by the federal government and large corporations has been going on for some time now.  The ACTA shenanigans are a good example of how it works, with the US government doing the bidding of the entertainment industry.

The solution is smaller government and small business.  A focus on these things will lead to better economic and political health in the country.  But will the American people do what is needed to bring reform about?  That’s the multi-trillion dollar question.

Economic Worries in Europe

Plus a Black Friday Update

There are a couple of worrisome reports from the Telegraph today, one about Germany and the other about the UK.

Germany

Chancellor Angela Merkel has proposed another bank bailout in Germany as part of another large economic package.  This is not a popular idea with the public and I sense a hint of desperation involved.  Another credit contraction has been predicted with 90 billion Euros of bad loans being written off in 2010.

A survey by Munich's IFO institute revealed yesterday that lending conditions in Germany had tightened sharply in November. Some 53pc of large manufacturing companies found credit hard to obtain, suggesting that the problem has spread beyond small firms without access to the bond markets. "The financing situation of firms remains critical and poses a risk to economic recovery," said the group's president, Hans-Werner Sinn.

If the problem is spreading to the larger industries in Germany, that spells trouble for all of Europe because they are the manufacturing engine of the EU.  What worries me even more is the solution Mr. Sinn proposes:

He said it was an error for the government to buy toxic debt, urging Berlin to direct equity stakes in the banks through partial nationalisations.

Oh great, fascism in Germany, what could go wrong with that?  It makes bailing the banks out look good by comparison.

Interesting stuff, but the quote of the article involves something I think is happening in the US as well:

Volker Treier, chief economist for the German chamber of industry and commerce (DIHK), said worries were mounting among Mittelstand family firms. "The real test has yet to come: the drastic decline in sales has not yet shown up in balance sheets," he said.

I have to wonder what our balance sheets really look like. Creative accounting may be hiding a lot of bad news.

United Kingdom

Over in Britain, Morgan Stanley has warned that the UK may have a massive debt crisis next year. The US company’s prediction is that the economy there will collapse completely, taking the pound sterling down another 10%. Oddly enough, they think the dollar will go up, so I am taking their analysis with a shaker of salt.

Quote of the article:

While the report – “Tougher Times in 2010” – is not linked to the Dubai debacle, it is a reminder that countries merely bought time during the crisis by resorting to fiscal stimulus and shunting private losses onto public books. The rescues – though necessary – have not resolved the underlying debt problem. They have storied up a second set of difficulties by degrading sovereign debt across much of the world.

Boy that really gets to the point.  All these stimulus packages and bailouts have been stall tactics with long term negative consequences. When all is said and done, historians will look back and point to them as madness.  Well, except for utopians who think government solves everything, I don’t think that will ever go away.

Black Friday in the USA

Here in the States, Black Friday weekend sales were disappointing as while there were more shoppers, they each spent less. Unemployment and under-employment still loom large with no relief in sight. Personal debt is at suffocating levels too. Is it any wonder people are spending less?  Hoping the consumer will bail us out is ridiculous as long as there is high unemployment.

Wish I could find some good economic news for the future.

Dubai Financial Problems Get Worse

I’m still watching with keen interest what is going on with the collapse of Dubai’s commercial real estate ventures.  Dubai World is not going to be bailed out or their debt backed up by the government of the small nation. $60 billion in liabilities will not be paid back and this is going to cause quite a few problems for the UK banks.  The Bank of Scotland may be on the hook for billions of dollars but things are murky yet.

An intervention by the central bank of the United Arab Emirates has helped markets recover, but I don’t see how a liquidity infusion will help a solvency problem in the long term.  It may not even help in the short term other than to temporarily reassure the stock markets.  Whatever the case, this may be another canary in the coal mine. I fully expect bank failures to come out of this.

Black Friday and a Hint of Black Tuesday

Another day and more bad economic news.

It is the day after Thanksgiving, when minds turn toward shopping for Christmas presents that often go to oneself. It will be interesting to see how all the sales go, some stores and online firms have had them going all week already. My gut feeling is that they will be down because high unemployment combined with overextended credit means no money to spend.  Personally, I can’t afford gifts or even to mail Christmas cards this year, unless I find a way to get extra cash – which is very hard for a chronically ill disabled guy.

But I doubt I’m alone in this boat.  One of the shoes I’ve been predicting to drop has been the hidden problems with commercial real estate loans. Nobody has been more ambitious in growing their commercial land than Dubai and things have come to a head there.  The city state of Dubai has asked for a suspension of their loan payments for six month and that has spooked the world markets today.  UK banks are particularly at risk due to this, but the ripple effect looks to be large and spanning the globe.  The Dow Jones opened with a 200 point slide before stabilizing around 150 points down.

Meanwhile, the dollar continues to slide.  I wouldn’t consider Japan to be that strong an economy due to its going into deflation. So if the US dollar is so weak against it what does it say about the US economy?  We will be seeing considerable inflation as this continues and that in turn will depress domestic spending even further.

Oil is down as well, going below $75 a barrel due to the Dubai crisis. I remember when a crisis was a much bigger thing, but that is the media for you.  Gold and precious metals are down for the same reason but that will be temporary as foreign central banks move out of the US dollar.

All the ballyhooing going on by various governments that the recession is over seems to be more propaganda (and wishful thinking) than reality.  The instability still remains and the world market reactions reflect it. With commercial real estate investments set to blow up and only a lull in the home loan failures, much will go wrong with in the next 10 months.

Is the Economy Really Growing Again?

The Feds announced the end to the recession today,  but dig deeper into what’s being reported and it seems premature at best.  Personally, I’ve never bought into the concept of a “jobless recovery” and much prefer the drier term “recalculation” to describe the employment situation.  To be blunt, if the jobs don’t come back and new ones are not being created, it isn’t a recovery.

Ed Morrissey (formerly of Captain’s Quarters) blogs at Hot Air about some of the hidden problems of the 3.5% growth rate, pay particular attention to the commercial property market quotation.  This is the other shoe waiting to drop in real estate, as I’ve posted before that banks are failing because of loans in this sector.  Most of the growth noted is based on Cash for Clunkers and tax credit breaks for homes that will go away in the next quarter, so I suspect we’ll see worse figures next quarter.  Negative growth wouldn’t surprise me, but there will be Christmas shopping to temporarily buoy things.

Meanwhile, the jobs are still vanishing and people are running out of unemployment. The stimulus is not doing much to help and to further exacerbate the problem the Obama administration has come up with a bogus figure of 30,083 jobs saved.  Even the AP had a hard time buying that and figured out that 5,000 of those don’t exist.  With work scarce and salaries being reduced, consumer confidence index is still poor at 47.7.  That bodes poorly for consumer fueled growth.

Oh and if you thought Cash for Clunkers was a brilliant stroke of genius, please read this and you may change your mind.  With the major downturn in auto sales following the end of the program, it is obvious this was a poorly thought out stunt for PR purposes by the administration.

Right now, I don’t trust anything this government is saying or doing about the economy.  Things are looking bleaker as more instability is appearing on the horizon. I’ll cover that in my next post.

Links for the Weekend: Economic Problems

There have been some interesting things brewing in the domestic and other economies this week.  Interesting as in the ancient Chinese curse of "May you live in interesting times."  There has been a push in the media and especially in the economist circles that things have improved and we are in a recovery.  Even ignoring the 9.8% official unemployment (hey you can't count those 800,000 or so who've given up on full time employment), I'm beginning to suspect there is willful blindness going on.  Like the condo tenants in the Monty Python sketch who hold up the apartment building by faith in its existence, it looks like people are trying to will the economy into being better by words alone.

That said, here's what I've run into around the Web the last few days:

Over in the U.K. things have been predicted as getting rosier, but indications are they've been wearing red tinted sunglasses in the gloom. A report that was supposed to show an anemic growth of 0.2% growth showed a contraction of 0.4% instead.  Most interesting quote from the Telegraph article for me was this:

The Office for National Statistics figures showed that every sector contracted except the public sector, which was flat.

Yep, everything but government shrinking sounds familiar.

The Times reported on this differently, with economists reacting with disbelief and doubt over the accuracy of the government report.  Now I distrust governments as much as most people do, but they tend to fudge numbers to the positive as much as they can get away with.  It is always "the economy, stupid" with the voters whoand I'd be surprised if the numbers do improve.  Quote of the article:

Ben Broadbent, an economist at Goldman Sachs, said: "At a time when all other indicators are consistent with much stronger growth, we expect today's data to be revised significantly higher in time."

Oh, yeah -- I really trust something coming out of Goldman Sachs these days.

On to the U.S. economy, where a word has come to my attention.  That word is "Recalculation." A Recalculation is where jobs are lost permanently as opposed to temporarily in a Recession. More here, with the thought that this is what we are seeing now.  Not reassuring, that's for sure.

Megan McArdle has an interesting post about declining tax revenues in The Atlantic.  Check out the CBO produced graph. Looking at that, I don't understand how anyone thinks more spending is the solution.

I've been following bank failures as a barometer of economic health, with a particular eye toward local banks.  Don't have any new ones locally to report, thankfully, but we just passed 100 failures nationally. The latest ones Friday take us to 106 for 2009 with worries many more are coming.  I'm still waiting for the retail property loans to blow up for the bigger banks, once that happens things will get ugly in a hurry. This quote should worry people:

Dozens, perhaps hundreds, of other banks remain open even though they are as weak as many that have been shuttered. Regulators are seizing banks slowly and selectively -- partly to avoid inciting panic and partly because buyers for bad banks are hard to find.

With the FDIC underfunded, they have to stall for time or a lot of money will simply evaporate.

So what are we to do?  Well, our legislators at all levels need to get their acts together to control government spending.  We can't keep spending money that doesn't exist.  This video of the State Treasurer of California lays out the brutal realities that must be faced.  Of course, California has never been very good at dealing with reality in the past, but they are up against the wall now.  It is said where California goes, the nation follows.  I hope that is wrong.

Raining Friday Links

Don't know if I'm up to posting a real essay today, as I'm waiting for the rain to stop to mix a mad scientist brew of sand/concrete and Sheetrock plaster to repair the hole in my bedroom ceiling. Finally tore all the plaster down from the water damaged areas and was pleased to find the lath in very good condition, with only some mold. One repaired cheap sprayer and some bleach water later it was left to dry overnight. I suppose I should take photos of it now for the classic before and after shots -- that's assuming my improvised plastering methods work!

While I assume only bots are reading this blog, I'm going to start posting links to things I find interesting on the Net in case any human eyeballs ever find their way here.

First up, a video link to Milton Friedman on Donahue back in 1979. Friedman lays out why only capitalism works very succinctly and to great effect. He also quickly lays out why government isn't the answer.

Bolstering that last point -- the automakers are having to back the "Cash for Clunkers" program. It is a fine example of how the U.S. government runs things that they are having to be bailed out of their own stimulus program. GM being involved makes this even more surreal.

"Peace of Mind. Piece of Happiness." That's the slogan for the Japanese government's new ad campaign to sell their national debt to their populace. The Telegraph rather waggishly asks what slogan the UK could use.

On a more local note, Marty Seifert was in La Crescent as part of his campaign for Governor of Minnesota. I hadn't realized the number declaring to run was in the dozens! On the Republican side, I think he has the edge at the moment, coming off of successfully holding the caucus together in the Minnesota House of Representatives during the last session. Time will tell, of course.

The Rochester Tea Party Patriots will be holding a Health Care Freedom Rally Saturday at Noon in Rochester. Click on the link for details!

Related to Tea Party activities and health care concerns, across the Mississippi Representative Ron Kind D-WI had 800 people to deal with at his townhall in Tomah Thursday. From the article, it sounds like he got an earful. This shows how more intensely opposed the public has become to government expansion of health care. I don't remember this kind of civic involvement back during HillaryCare. Of course, the country wasn't broke back then and didn't have a possible second Great Depression looming.

On a lighter note, I've been watching how people slavishly buy the latest Apple iPod or iPhone when there are usually superior products for much less money out there. What I wasn't aware of is how technologically inferior products on the US market are compared to overseas. Just another sign of America's decay, as the article points out our falling rate of broadband penetration. Don't know if I agree on the "Wal-Mart factor" so much, I think being an 80% service economy might play into this. Or maybe it is that we have so many wide open spaces to play with that we don't need gadgets for entertainment as much as crowded Asia.

As I've gotten older, the less enchanted I've become with intellectual property rights. It seems that instead of coming up with more new and innovative product, individuals and corporations want to keep making money off of old things. With the rise of file sharing then torrenting and piracy of music, movies, television, books, and software this is surely being eroded. While I don't advocate piracy, I do think there needs to be some limits. Now the biggest torrent site, the Pirate Bay, is preparing to go legal. Reading the comments tells me that things have gone past being just college students looting music and there is a rebellion against any regulation of content. How much of it is ideological and how much is just greed is the question.

Last two articles were found on Blue's News, a gaming and tech website that occasionally has interesting oddball items.

A Must See Video on the Banking Crisis

Watch this video all the way through to understand what has just hit us and the real culprits that caused it:



Then pass the video on to everyone you can.

Tax Reform and the Fairtax

Last night, my dad and I rolled into the driveway at a quarter of midnight after a round trip of over 250 miles. Now why would anyone be out on a Monday night on that kind of trip?

The answer is we were giving a presentation to a Farm Bureau board in a distant county on the Fairtax. Or I should say, I was assisting my father as he gave the presentation. Yes, it is more volunteer work that I'm writing about. There are important causes that need volunteers and they are the ones people don't think about first. These are civic minded causes, not charities, and are very important because they are about things that affect most of us, not just some of us. In this case, it is one of the two things you can't escape in life and it isn't death. It's the other one, taxes.

We are being taxed to death in this country, mainly because of non-compliance that adds up to the hundreds of billions of dollars and the federal taxes inflicted in every step of production of products. That's one of the big reasons all our factories are being moved overseas, other countries give massive tax breaks as well as have cheaper labor. Most of the taxes we pay are hidden from us, as companies pass their tax burdens to us in the retail price of products but even with that it is still too expensive to manufacture in the USA. Well, unless you are the Japanese, who have it even worse and are building more and more automotive plants in the Midwest. Anyway, we need to do something to simplify taxes and take the burdens off of the middle class and poor, but most of all make taxation completely transparent to the American people.

The best solution to this and the only one that really guarantees fairness is the national sales tax proposal called the Fairtax. Please check out Fairtax.org and especially their FAQ here. It will take some studying to understand it totally, but once you do you will most likely approve of it. Right now, 50% of the lobbyists in Washington, D.C. are there lobbying for tax exemptions and legislation to for companies or organizations who want tax breaks. This is how our Senators and Congressmen dispense favors and is a source of great power in the Legislative branch. Pork in earmarks and riders attached to bills often includes specially worded exemptions for specific corporations without actually naming the company. We get the Fairtax in and the 16th Amendment repealed and we'll see the biggest transfer of power from the federal government back to the people since the Bill of Rights was passed.