Wednesday, July 23, 2008

Once again our government is rolling shit downhill

Once again our government has decided to roll shit downhill to the generations that follow. Congress has passed the housing bill, and inexplicably Bush has dropped his threat of vetoing it, and the cost to taxpayers is immeasurable. However, it is not so immeasurable that we cannot easily calculate that the burden will fall to several generations of taxpayers to follow. The whole rationale for the sudden bi-partisan collusion seems to center on salvaging Fannie Mae and Freddie mac. The current housing bill gives U.S. Treasury Secretary Henry Paulson the authority to spend as much money as needed to support Fannie and Freddie. Paulson says he will provide "unlimited" government financing. But there's no government surplus. Thus, these debts will either be paid for by our children and grandchildren... if not through direct taxation which a big part of it certainly will be...through inflation, that growth inhibiting malaise that will effectively alter our lifestyles. Milton Friedman (who must be turning over in his grave) once said that if you put the government in charge of the Sahara Desert, you will soon run out of sand. Case in point, the government will bail out a bunch of crony capitalists – Fannie and Freddie spend more money on lobbying than any other two companies in the United States – by either robbing its citizens of their savings (via inflation) or by taxing several future generations of Americans. This is the greatest financial crime in the history of our country. Ken Lay of Enron? Michael Milken the junk bond king? Bernie Ebbers of Worldcom? Fugedaboudit! They were penny ante pikers. The fact is, is that no one knows what the bailout is going to cost tax payers. A government estimate of $25B is laughable. But even if it were true, we don't have $25B to spend. The only way that we will is if we print more money (more inflatio). At the moment, stock markets are buoyed (by comparison to recent months) and both oil and gold are down. It is a Bear trap. We must all prepare for the end of the denial phase. The reality of the new Amerika will be all too real in spite of it's nightmarish feel. We must all begin to realize that "retirement" is going to take on new meanings. Of course, this isn't my rant alone. And in my view, the following columnist nailed it, so I am passing it through here. The truth is that Bush-new right policies have imploded on us. The result is that the United States is rapidly becoming the largest socialist enterprise ever known. Free markets, a cornerstone of democracy, is now the sacrificaial altar to which generations of Americans will be required to pay obeisance.

11 reasons America's a new socialist economy

How free market ideology backfired, sabotaging capitalistic democracy

By Paul B. Farrell, MarketWatch
Last Update: 11:47 AM ET Jul 22, 2008

ARROYO GRANDE, Calif. (MarketWatch) -- Welcome to the conservative's worst nightmare: The law of unintended consequences. Why? Nobody wants to admit it, folks, but the conservatives' grand ideology is backfiring, actually turning the world's greatest capitalistic democracy into the world's newest socialist economy.

A little history: The core principles of conservative economic ideology are grounded in Nobel economist Milton Friedman's 1962 classic "Capitalism and Freedom." Too late to stop President Lyndon Johnson's Great Society, those principles became the battle cries energizing conservatives since Reagan: Unrestricted free markets, free enterprise and free trade; deregulation, privatization and globalization; trickle-down economics and trickle-up wealth to an elite plutocracy destined to rule the new American capitalist utopia.

So what happened? Are you guys nuts? Hey, I'm talking to all you blind Beltway politicians (in both parties) ... plus the Old Boys Club running Wall Street (into the ground) ... plus all you fat-cat CEOs (with megamillion parachutes) ... and all your buddies scamming everybody else to get on the Forbes 400. You are proof of Lord Acton's warning: "Power corrupts and absolute power corrupts absolutely."

It's backfiring! You folks turned our America from a great capitalistic democracy into a meddling socialist economy. Still you don't get it. You're acting like teen addicts tripping on an overdose of "greed-is-good" testosterone while your caricature of conservative economics would at best make a one-line joke on Jay Leno.

Here are 11 reasons your manipulations are sabotaging the great principles of leaders like Friedman and Reagan:

1. Dumber than a fifth grader with cognitive dissonance
Kids know what it means. They know most adults today can't see past the end of their noses. Liberals tune out candidate McBush for being lost in the past. Conservatives can't hear Obama without seeing that turban.

Cognitive dissonance simply means most brains cannot see past their own narrow ideologies. They dismiss any data that contradicts their old ideologies. Whether you're a conservative Republican or liberal Democrat, you only hear what you already know is "true." All else is tuned out.

2. Where did all the leaders go with their moral character?
Friedman's economics requires leaders of moral character. Did it run into Lord Acton's warning: "Power corrupts, absolute power corrupts absolutely?" Former Ford and Chrysler CEO Lee Iacocca said yes in "Where Have All the Leaders Gone?"

Friedman's great conservative principles have been commandeered by myopic ideologues whose idea of leadership is balancing the demands of self-interest lobbyists with the need for campaign donations. Unfortunately, a new "change" president won't be enough; there are 537 elected officials in Washington controlled by 42,000 special interest lobbyists.

3. Fed and U.S. Treasury adopted Enron accounting tricks
Bad news: Enron failed several years ago because of its off-balance-sheet accounting scam. The Fed's doing the same thing: Dumping Bear's $30 billion liabilities onto the taxpayer's "balance sheet." Next Treasury proposes adding $5.3 trillion more from Fannie Mae and Freddie Mac.

Unfortunately clever accounting tricks by Treasury Secretary Henry Paulson and Fed Chairman Ben Bernanke aren't going to fool foreign lenders analyzing America's creditworthiness. Worse-case scenario: U.S. Treasury bills with less than a triple-A rating.

With 90 banks on the brink and already too many bail-outs, our so-called leaders are running out of magic bullets. So now the taxpayer's "balance sheet" has become the all-purpose "dumping ground" and it's overcrowding fast as our leaders raise the white flag of socialism.

4. Deregulation creating new socialist housing system
Back in 1999 a Democratic president and Republican Congress were in love with a fantasy called the "new economics." Enthusiastic lobbyists invented the brilliant idea of dismantling the wall between commercial and investment banking: They killed the Glass-Steagall Act that was keeping the sleazy hands of short-term hustlers out of the pockets of long-term lenders.

Flash forward: We lost 85-year-old Bear Sterns and $32 billion IndyMac. Lehman's iffy. And 90 banks. With the virtual takeover of Freddie and Fanny, Wall Street's grand experiment with free-market ideology is backfiring, having socialized the housing market. They have nobody to blame but their self-centered greed.

5. Trade deficits outsourced more of America's wealth than jobs
One look at Forbes lists of fat cats and you know the 21st Century doesn't just belong to Asia, it belongs to everyone but America. Why? Once again, remember Warren Buffett's famous "Farmer's Story" in Fortune: "We were taught in Economics 101 that countries could not for long sustain large, ever-growing trade deficits ... our country has been behaving like an extraordinarily rich family that possesses an immense farm. In order to consume 4% more than they produce -- that's the trade deficit -- we have, day by day, been both selling pieces of the farm and increasing the mortgage on what we still own."

Friedman was right: Congressional spending is the biggest cause of inflation, and, wow, those conservatives sure did love blank-check deficit spending the past eight years!

6. Banking system in meltdown, minting penny stocks
The Friedman conservatives apparently understand Joseph Schumpeter's "creative destruction." Yet, our free-market ideologues can't seem to accept that America is now on the "destructive" downside leg of the cycle, in the economy, markets, trade, politics and, yes, sadly, even with their conservative ideology.

You don't have to be smarter than a fifth grader to figure out that our leaders are clueless about the reality of our crumbling banking system, with many banks trading as penny stocks, while the Fed still panders to conservative pre-election politics rather than getting serious about inflation.

7. Ideologues preach savings, but still push spending
A core principle of conservatism is frugality, saving for the future. Grandparents raised me, struggled during the Depression, passed on strong ideals.

Somewhere over the past generation conservatives forget frugality. This distortion peaked in 2003 when consumers were told to spend, not sacrifice, and fuel the economy even as government spent excessively on war. That was a clear breach of every conservative leader's position in earlier wars.

As a result, in one brief generation, as the power of conservative ideologues grew, America's savings rate dropped precipitously from 11% in 1980 to less than zero today.

8. Warning, the market's under 2000 peak, losing money
Imagine you're on Jeff Foxworthy's fabulous show competing to see if you really are smarter than a fifth grader. Question: "If you put $10,000 in the market in March of 2000 when the Dow peaked at 11,722, how much money would you have today if the market's 10% under 11,722?" So you guess $9,000.

But then two fifth graders raise their hands: One asks if the CPI inflation rate should be considered? If so, maybe $5,000 is closer to the right answer. The other kid wants to know if you're buying stuff in Chicago or Singapore.

The truth is, the best answer for most adults is: "You've lost a hell of a lot of money in the market under the grand conservative ideology the past eight years."

9. Inflation and dollars: Is Zimbabwe the new model for the U.S.?
The Los Angeles Times ran a photo of a Zimbabwe $500 million bank note, worth $20 at noon, less at dinner. Why? Inflation's there is running 32 million (yes million!) percent annually. The German company printing their banknotes finally cut them off.

Things may be worse in America, psychologically. Our ideological obsession with "growth" is not working because there is too much collateral damage, namely inflation. Our dollar has lost substantial value to the euro because our dysfunctional leaders are convinced that a trade policy funded by debt makes sense.

Now we owe China $1.3 trillion, sovereign funds want equity not cheap dollar IOUs, and still our clueless Treasury and the Fed continue debasing our currency, printing money like Zimbabwe.

10. Free-market health care failing 47,000,000 Americans
Big Pharma loves free-market conservatism and no-compete Medicare drug programs. Nobody else is happy. Taxpayers get stuck with the bill.

"The Coming Generational Storm" tells us that without massive reforms and big lifestyle changes for taxpayers (especially retirees), within a couple short decades America's entitlement programs will eat up the entire federal budget. Medicare is the biggest cost item in your future, over $50 trillion in unfunded liabilities.

Conservative ideologues naively believe the answer is more pay-out-of-pocket insurance plans, even with 47 million already uninsured because they can't pay. Here as in so many areas of our economy, free-market junkies really are suffering a severe case of cognitive dissonance, as blind to the facts about the uninsured as they are to their outdated free-market fantasies.

11. Conservative free-market policies inflated oil 300%!
Yep, oil inflated 300% in eight short years under the "leadership of two oil men." But, you can't blame them. We put the foxes in the henhouse, knowing full well "real" oil men love digging holes on the supply side, supporting ethanol subsidies and blaming speculators -- it's in their genes! Talk about cognitive dissonance; real oil men thrive on cowboy images of Marlboro Men in Hummers, Navigators and F-150 trucks.

Net result? Another perfect example of "creative destruction" in action as conservative ideology meets "law of unintended consequences," driving GM, the symbol of America capitalism, closer to bankruptcy ... while turning America into a socialist economy.

Saturday, July 12, 2008

Sunday Morning Meandering

It's been two weeks since I made an entry here. Looking back over the blogs I've posted so far I realize that my style of writing isn't particularly suitable for a blog. Most of the blogs I read are short entries that revolve around a single subject. Cooking seems to be a favorite, or neighborhood life in a big city. There are dozens of expats recounting their experiences in foreign lands (a general theme that I had set out to do). The one thing that stands out is that there are surely a lot of great writers out there.

I spent a good part of yesterday adding an editorial to my news aggregation service that I do for clients. Those of you that read here would be familiar with the theme. As you know, I've been ranting about the economic state we are finding ourselves in. In the case of my "editorial" I express a concern about a commonly held sense in my industry that we are somehow above the macro economic forces around us. That is overstaement, but several of the market prognosticators continue to adhere to a notion that emerging markets, where the greatest growth has been for PCs and I,T, gear,is somehow decoupled from the setbacks we are seeing in America/ To a degree that has been true but I cannot believe it will last.If you are interested here is a link to that issue.

Last night was my last in Bangkok and this morning I am catching a flight back to Kuala Lumpur. I didn't want to go out to eat so I rummaged in the refriderator in the apartment. I found a couple of eggs that were still good and decided I wanted to hard boil them to put with some fresh lettuce I still had. Then it suddenly occured to me that I wasn't sure about the timing of a hard boiled egg. I can't remember having made one before, though I must have one time or another. So, feeling somewhat sheepish, (I am a great home chef after all) I turned to the net and started to google. On the google tool bar there is a feature that starts listing choices as soon as you start typing. Sometimes getting a few letters into typing your search term, and google will list ten suggestions on a scroll bar. If one of them is your query you simply have to scroll down and click on it. I decided I would simply enter "How long to hard boil and egg". As soon as I typed "How long" five of the ten suggestions had to do with boiling eggs. (Google simply lists the top searches that start with the same terms you have entered and lists those.) So I didn't feel so sheepish upon learning that timing eggs was a more popular search on Google. At least my ignorance was shared. (Funny how ignorance, along with misery, loves company.) The other thing I discovered is that properly cooking an egg in it's shell involves a great deal more than I expected. I laughed out loud when I saw how much information was presented about such a mundane subject. Check this "egg" site out to see what I mean.

I took a sojourn last week. I found myself in Thailand during the 4th of July weekend with nothing really going on except some work I was eager to procrastinate. Veronica still doesn't feel like traveling so any idea I came up with would be a solo run. I first thought of going to Angkor Wat but that is something I really want to share with someone. Nick and I have had on and off plans about going there I would like to keep that in my pocket for now. I enbded up spending four days
on the side of the Kok River in Chiang Rai in the middle of the Golden Triangle where Laos, Burma, and Thailand meet in a fascinating and historical place. I spared no expense and stayed in an upscale botique spa. My days were for exploring the history of the place and evenings were spent in the spa, and on my private balcony overlooking the river. I had many adventures and snapped many shots. I've included a couple of favorites here to whet your appetite. More on this subject later.

Just enough time to sip another cup of coffee, read a bit of news, throw the last bit of kit into my suitcase and start the dreary process of going to the airport and flying home. Lord I dislike flying these days. But the prize at the end of my journey is more then enough to overcome my repugnance for it.