The American Economy - Where to Next?

Unless you've been living in a cave on Mars and the TV antenna is broken or just don't see how it affects you in the least you probably know that the U$ Stock Market has been doing quite well over the past three months or so. Most of the experts and commentators see this as a 'surprising' comeback. Now, admittedly these pundits are really just paid by the mass-media to fill up space between advertisements and not to think too deeply but nonetheless it seems like sound advice  - don't listen to the official experts.

Now I'm not an expert in financial matters and listening to me remains completely voluntary but neither do I get paid by volume I just look at the fundamentals and think carefully about where they will lead. So think about it, is the rise in the stock market really that unexpected? The overall health of the American economy is not great but neither is anything very bad happening or set to happen either. At any given moment be it a recession or not, billions and billions of dollars are out there looking for a place to go with a percentage return. Pension funds, personal retirement accounts, insurance funds, the list is endless and the amount of money they hold is staggering. With the U$ Federal Reserve interest rate set at 1.25%, safe investments just don't return enough to even compensate for the weak inflation eating away at the value of the Dollar. And you know, the average savings account at your bank will only pay you about 0.5% on your money now! Go give them $20,000 and ask them how much you'll have in ten years at the current savings rate.

So where do people with money put it? Housing and real-estate has been one place but land and property exist in a finite supply and most of it has already been speculated on and bought up and refinanced too. In other words the housing market is pretty much saturated for casual investment purposes and lacks the liquidity of a simple savings account or stock market investment. The real-estate market just doesn't have the fungibility required for most investment purposes and even a REIT (Real-estate Investment Trust) is not much better. Low interest rates make debt-based investments less appealing and this means that in order to get a decent percentage return the money must be moved into progressively more risky destinations such as corporate or junk bonds.

But long story short, nothing out there can compete with equities for return hence the increased movement of cash into stocks. With low rates even junk bonds don't have much appeal anymore. Yet that isn't the only reason for a stock market rise for the Federal Reserve and the Bush administration itself wants to see gains because it boosts the overall economy or at least lends credence to that view. And a good economy means good elections for Bush & Associates. Hence the latest interest rate cut which is rumored to occur June 25 or so and may have already happened by the time you read this.

Add it up - the stock market is like a volcano ready to blow - where else is the money going to go? And lower interests rates only add fuel to the equity fire. Money can't sit in a bank vault and make half a percent of interest for long or a lot of people won't be able to retire! As soon as most investors see that the stock market is a viable and not too dangerous location to stash the cash they will be all over it like stink on a monkey.

Right now the stock market is the axis around which the economic growth of the United States economy rotates and by extension of its global dominance, the economic health of the world. Bush & Associates know this and they know the stock market has to start gaining ground or they will not be around in 2005. This is why they worked to get the dividend tax reduced to make stock investing more attractive and by corollary and perhaps more importantly, make debt investing meaning bonds less attractive. The stock market also has the psychological effect of being very visual in nature, think of nice line diagram going upwards. It also has the benefit of affecting most of the voting population either directly or just through the five second piece on the nightly news. The stock market is a symbol of economic health in the mind's of the public, perhaps not an accurate one but I'm not trying to debate that here.

In the longer term a stock market rebound is only a Band-Aid for serious global economic problems. Japan especially looks forward to a nice run-up in the Nikkei index because all of their bad banks are kept afloat by the collateral values of the stocks they hold in portfolio. The Japanese government would be wise to take advantage of this respite from impending national financial meltdown to initiate an orderly purge of bad-investments and hollow financial institutions, but let's not hold our breath on that one.

Japan is increasingly marginalizing itself as a financial power and being eclipsed by an economically fascist China in communist colors, but that's a saga for the historians. More importantly the fundamental problem with the world economic system is lack of alternatives, a lack of viable competition. Oil and most commodities are all denominated in U$ Dollars and thus controlled by the American government and Federal Reserve which prints the money. This system is called Dollar Hegemony, for an explanation read Oil & The Dollar Economy.

Capitalism is a strange system because it claims to want what it acts to defeat, namely competition. Competition is a healthy thing because in the long-run it minimizes waste and increases efficiency and when setup properly maximizes the ease of entry for new players. Yet we all know that the rich don't want competition taking their money away so they support Capitalism when they can win and then undermine it when new players want a chance too. On a larger scale the Euro economy and currency is a direct challenge to the Dollar and a welcome sign of viable competition that has great potential to shake up a dying system and an increasingly dangerous and unhealthy empire of Dollar dominance resorting to reckless military violence to scare others into line and forcibly appropriate key resources. Nonetheless, and this is a widely applicable rule, new alternatives will not be adopted unless they are clearly superior to that which is already being used even if they are really just as good already - the status quo, even when it's broken, still offers safety.

Even if you're not interested in crumbling empires or life in the near future - just the status of your own bank account, then you may want to consider the short-term fundamentals and stash some cash in a few well chosen stocks while the volcano is still building up because remember: all speculative systems be they a Ponzi, Pyramid scheme or Stock Market, they all reward the first ones in at the expense of the last ones. 21.06.03

Update / Second Opinion

SALE! cheapest oil in the world

Profile: Warren Buffett

Warren Buffett is someone worth listening to because he doesn't jerk people around, he's not trying to BS people into buying anything and he's not out trying to hype himself or his investment services (he just outsources it to Geico 20.02.05) he just says what he knows but most importantly he admits what he DOESN'T know. And that last element is really the sign of a respectable and probably fairly intelligent individual, someone that can publicly admit that they do not understand something. He's even admitted fault in the past for his own financial failings?! What planet is this guy from? Planet Omaha evidently. Compare this with say, David Geffen who has to hype everything, probably because it would never sell otherwise. Maybe that's why Buffett is in Omaha and Geffen is in Hollywood?

At the time of this writing Buffett's company, Berkshire Hathaway, sells for $63,900 per share while Class B shares (for the wannaBe's?!) go for a paltry $2,133 a share. Warren Buffett doesn't have to hype because he has an internal confidence in his own abilities and he can demarcate his energies between what he knows and what he doesn't (like Internet tech stocks because they're too difficult to valuate). This does have a negative consequence, that being that someone like Warren Buffett has a very proscribed range of interests and also skills in the sense that his specialty and his fame lies in investing money and making a profit. But this is good enough to make him the world's second richest man. So he's definitely in a position where he can say nearly anything and still have enough influence to repel the criticism that would ensue. But he's not likely to buck the system beyond what he is familiar with, it's just not the way someone like that works. Warren Buffett is low profile character that rarely if ever leaves the confines of his range of expertise and that's how he keeps his reputation.

His latest report condemns the massive derivative exposure of many major financial institutions. Derivatives are complex financial formulas often used to mask risk and inflate short term profit - a (legal) scam basically. But the beauty of the scam is it's complexity and the opacity of cause and effect within the derivative itself so nobody really knows how they will operate over the long term and Warren Buffett is big enough to come out and admit that these derivatives just don't make sense and can pose a huge downside potential by virtue of that giant unknown that they pose. Derivatives aren't new, they've made and broke banks and millionaires for years. Orange County California for instance went bankrupt a few years back from derivative exposure, if I remember correctly. The fools had no idea what hit them and it resulted in one of the largest municipal bankruptcies in American history.

Whatever the field be it finance, science etc. listen to the people that know what they are talking about and one of the most evident ways of determining that is to listen to those that can admit they don't know something. 05.03.03

"Buffett's the kind of guy who might do nothing for a quarter, or two or three, and then the next quarter spend $10 billion,'' said Henry Berghoef, head of research at Harris Associates, which manages about $30 billion. "He's always going to do it on his timetable.'' From: Bloomberg News (italics added).

Bad News is Good News

13.07.02 A little perspective - the stock market is a reflection of the (perceived) state of the collective economy not the other way around, that would be confusing symbol and substance. Similarly, consumer spending does not "drive the economy," that's confusing cause and effect. Even the recent growth here, mainstream economists have upheld as proof of a rebounding economy, this is due to expansion of consumer debt anyway! So in other words the anti-logic here is that if you increase your indebtedness, you're increasing your wealth and your quality of life; yeah, maybe for the banks and lending institutions!

The U$ economy is surprising in it's ability to divest itself of flawed and corrupt companies and business leaders, not all but some. The widespread news of corporate scandals, by virtue of the fact that they are news and investors are reacting accordingly, this is a testament to the transparency of the American economy. And I would argue that still makes it the safest investment market in the world, generally speaking.

Most of the doom and gloom with any legitimacy, meaning that which does not emanate from the bottomless ignorance of the mass media, is based upon technical measurements. Many of these financial indicators are at unusual levels, for instance the S&P 500 is at a 5 year low, some measures put the bear market as the worst in 50 years. So what? The bubble for the past five, ten years was the same way, except in a positive sense. In economics one simply cannot predict the future from the market statistics of the past because the fundamentals are totally different, every age is unique. One can certainly draw apt lessons from the past but just because such and such statistics make it look like 1929 all over again doesn't mean a market crash is imminent, or even remotely similar. Same with the flood of corporate bankruptcies. So what? If you couldn't see this coming miles away, what were you smoking anyway? A doomed company going bankrupt is immensely better macro-economically than the alternative of prolonged stagnation and throwing good money after bad.

The revelations of corporate corruption and malfeasance from WorldCom to Enron are most enlightening when it comes to the plutocratic connections between institutions. Perot Systems incorporated has (tenuously) implicated Ross Perot in fixing power prices during the California power crisis, even though the state legislature basically created the mess in the first place. President Bush and virtually the entire Texas government from judges to politicians have been implicated in the Enron fiasco. Dick Cheney has been dirtied by Halliburton, Carlyle Group and most recently when somebody remembered that he made a promotional advertisement for Arthur Anderson accounting, extolling their virtues just a few years back.

So even as relatively fair and open as the U$ economy is compared to much of the world, with big business so intricately linked to big politics the trend towards increasing corruption and cover-ups is only set to get much worse in the future. Ten years ago the SEC could have investigated now president Bush for shady oil business deals but chose not to, perhaps because his father, Bush senior, was president at the time; of course that's just wild speculation on my part. Still, this makes Bush junior's surprising pledge to get those corporate crooks and put them in jail, all the more ironic (and hollow). Similarly today the SEC and other government watchdogs are likely to roll over yet again, making a big noise and doing mostly nothing of any real significance.

Endrun at Enron

I love reading news stories featuring peoples troubles that make my own daily difficulties trivial in comparison, it brightens my day immensely. Case In point, Enron and the thousands of employees that took the bait and funneled their cash into 401(k) stock portfolios instead of the partially insured but lower return pension plans.

Enron was a real high-flier and with corporate matching shares who could refuse? After all, fickle Wall Street liked the company and it's every employees duty to have total faith in their corporate benefactor, right? Well turns out Enron was a little crooked after all. Yeah I know it's hard to believe but all those billions made buying and selling power in an unregulated market made 'em just a tad greedy. So they cooked the books, lied about their debt and assets for a few years, you know stuff like that, nothing oversight committees like the SEC should have investigated long ago or anything.

An employee flees the sinking ship of Enron Corp.

So Joe Schmo (names have been altered to protect the foolish) works 22 years and accumulates 8000 shares of Enron once worth $720,000 only to wake up recently and find it worth less than 5000 dollars. Of course this story was written on Wednesday but today, Thursday, Enron is de-facto bankrupt and by the time you read this will likely be in the process of Chapter-11 dismemberment (largest in history) rendering Joe Schmo's net assets a whopping zero dollars and zero cents. Twenty two years of slaving away day after day for that old, reliable mega-corp and that to show for it - whoa, bummer dude!

Enron will not the be first or last of the mega-bankruptcies to rock corporate America. Remember, it was a new model that could only go one way - up, so don't worry about socking away your retirement into one stock, don't worry about the precipitous debt to asset ratios - it's a new economy, stupid! All that federal funny money, the years of speculative investing and reckless lending inflating the bubble that all the famous economic experts proudly proclaimed could never burst ... is bursting.

Americans are the most productive workers in the world that put in the longest hours of any industrialized workforce yet have a pathetic minimum wage, the most minimal social security benefits, and paltry (if you can get them) unemployment funds. Despite this and a rainbow of other mitigating factors, American workers hardly ever strike or form any meaningful concerted, collective complaints with most even going so far as to support the entrenched system of corporate rights over worker rights! And not even a lawsuit will get a dime of Joe Schmo's money back because shareholders are at the bottom of the bankruptcy food chain!

The American worker is like a rube so dumb and full of goodhearted naiveté they can serve as an unlimited source of corporate exploitation. You can even promise them retirement money and then disappear with the loot laughing as they're left to dangle helplessly, cursing "liberals" while flailing about struggling to find another job at lower wages and longer hours. All that's required is a little dishonesty and greed, basic prerequisites for any corporate climber.

So any bets Joe Schmo, after 22 wasted years of labor will finally get a clue and put up a modicum of intelligent and concerted resistance? Hey if you think so I've got a great 401(k) stock plan consisting of one stock, just for you! E-mail me today and I'll put you on my 'new-economy' bulk-mailing list. 29.11.01

* * *

Nor is Enron a corporate aberration, some rogue quirk typifying Texas style fascist corruption but rather a highly respected and even more heavily promoted example of the new corporate paradigm: the profit in power and the power in profit.

• Enron serves as an enlightening example because it proves the Wall Street 'experts' and analysts can't be trusted - they only want to promote and sell.

• The corporations can't be trusted, they'll do anything to achieve the appearance of size and profit.

• The accounting firms can't be trusted, these self-regulated institutions are more than willing to help cook books and destroy evidence. Crooked accounting practices typify many high-flying corporations such as using stock as substitute for worker wages. Using overvalued stock to mitigate the appearance of liabilities while magnifying perceived assets; it goes on and on. And when one company starts doing it the others have to follow or else they look undesirable, inferior to shareholders.

• The government regulatory commissions can't be trusted. They knew but ignored due to campaign donation favoritism and the big is influential philosophy.

• The legislative and executive leadership have both shown their true colors for they knew beforehand of Enron's impending collapse, nearly bailed them out, and still obfuscate their connections in the dirty aftermath.

• Nor can any branch of government be trusted. The judiciary from Texas to DC has been bailing out on the record number of legal cases Enron is generating due to conflict of interests, even Ashcroft had to recuse himself!

American capitalism is now a wholly unfair, imbalanced and corrupt system from top to bottom. Think about this when compelled to invest your hard-earned income because it may cost you every dime you have. Something Enron and subsidiary company employees learned the hard way. 14.01.02

Faking It

The common perception of the Federal Reserve (if the public gives it any thought at all) is this monolithic, perfectly prepared, well-oiled institution like some Swiss watch dispensing dollar bills, carefully adjusting interest rates and making business run to the cesium pulses of their atomic money clock.

The ugly truth seeps out under the pressure of panic. "Among their biggest worries was that the nation's banking and payment system would freeze up. The 12 Federal Reserve banks worked aggressively to make sure there was enough money in the system, even going so far as to keep filling ATMs in Lower Manhattan with fresh $20 bills. Even relatively minor things required calls. The government had to cancel a bond auction, meaning it was temporarily short of cash." [Washington Post]

So on September 11 the omnipotent Fed is going around stuffing their inflated funny money into ATMs to prevent a public panic. I can just picture it, Alan Greenspan running around Manhattan like a capitalist Santa Claus popping open ATMs and cramming in wads of 20s!

The government of the richest and most powerful nation is run by phone calls to friends, special favors and the expediency of panic. Timely exceptions for the 'too big to fall' industries in trouble, discount loans for the big banks, billion dollar bailouts for airlines that fire tens of thousands without so much as a friendly good-luck getting a job let alone severance pay. Yes and isn't it curious that the most vociferous proponents of laissez-faire free market capitalism turn out to be the biggest meddlers in the "free"-market? Apparently yet another brutal truth has escaped it's incarceration: rules are just for the little people. 27.09.01

Euro

Another aspect of the new euro currency I'm forced to ridicule, I mean question, is why it's set in such huge denominations? 200, 500 euros! That's a single bill worth nearly $500 USD. I'd hate to have a wallet full of those stolen. I mean come on they claim to have thrown in every anti-counterfeiting measure possible (even "secret" ones) from foil strips to holograms, yet they violate the simplest rule of all - the smallest maximum denomination possible to make counterfeiting more difficult.
And you know instead of going to this horrendous expense and effort to make a single new currency they could have both saved a huge amount of money and boosted consumer spending by just giving out credit cards because it would automatically convert currencies upon purchase. Then everyone would be happy!

A Novel Notion - Tax The Loans

It's somewhat ironic but the richer the person the more they borrow. The reasons are numerous, but think of the greater need for fluid funds to fuel frenetic buying habits. Wealth tied-up in stocks, bonds and similar often illiquid assets necessitates recurrent trips to the money-lenders.

But this seems like a critical weakness of the capitalist system; correction a vastly under-exploited weakness. If the goal is to really equalize wealth (or increase tax revenue) maybe the income tax doesn't go far enough. Perhaps there should be a tax on borrowing, this could take the form of a percentage tax on all borrowed money. Like a 'transaction fee' that goes to government. Commercial interests could be exempted but I tend to think any exemptions would merely be co-opted as loopholes.

It would be the perfect valve to control not just the economy like a central bank but also a valve to control individual wealth. But wait! This gets more interesting because not only could government control economic contraction or expansions by manipulating the percentage rate here but they could do away with a central bank entirely. Let interest rates blow with the wind of natural supply and demand, just flex the transaction tax.

Now this idea actually has significant upside potential because as we're well aware governments are always keen on new means of generating tax revenue. This has the social appeal of 'socking it to the rich' and even big business - if authorities become so inclined. Now government can control the fluidity of the economy with a simple tax which could easily be charged at 'point of sale' like a sales tax and electronically transferred to government coffers. Also they would eliminate the cost and hassle of a central bank, reserve branches and staff. And you know it should seem odd that despite the revolutionary technological and social advances of the past century we're still left using archaic economic theories and tools, the flawed, outdated character of which merely becomes more painfully manifest with each passing day.

All primitive-minded institutions will likely remain belligerent on the notion. But maybe banks would like the idea of replacing the central bank with their own influence or even currency. Certainly things do get interesting without a central bank or federal reserve corporation as the case may be, both of which are superfluous outside the conservative, collective monomania read lack of imagination or search for solutions. Yes indeed let the banks print the money and let the government do what it does best - set standards. Just as government sets the standard for a unit of length, or the voltage in a power cable or any number of things they would simply extend this trend into the currency. 31.05.01

Supply Inflation In The Internet Era

Supply expands exponentially as everyone with a computer and a modem can now contribute, sell, buy etc. Yet demand remains the same since people don't have more time or more money ha! So the monetary reward for many things like writing or software production plummets as these products are ubiquitous anymore due to the ease of market entry. It's good that ideas and opinions are transferred with so much less friction but at the same time without adequate compensation many can't do these things professionally or full time anymore or at all.

And one who really comes up with something creative is no better off now because they would have found a publication outlet before anyway. No, the present revolutionized system is a flattened pyramid with one or two dominating entities at the peak a few more in the middle level and millions at the base. The mid and lower level suffer because they can no longer gain anything near the same profit levels as before. Competition at these levels goes up exponentially . Earlier one only had to shout to be heard, now they need a megaphone and soon everyone else will get a megaphone too and then one will need a sound system at 120 decibels to compete and after that ....! Exacerbated by the fact everyone wants to spread their ideas (memes), software, stories or what have you even without payment in return, or at least to the degree that free time allows.

Consequently profits for most drop, profits for a few at the top go up and the consumer has a field day. So clearly the winner is the consumer the loser is the producer by and large. Until taxes on Net transactions or other friction enters the transference equation here I don't see any major changes or at least not any reversals. What this trend is really stating is that specialization and niche markets are the new opportunities because no longer is everyone restricted to buying the same mass-marketed generic products in the mega - warehouse stores. People can find exactly what they want and get it like never before. So the best opportunities are to market unique products thus avoiding the shouting match anyway. And still when people want their Levis™ jeans and their Campbell's™ soup they'll still go to the brick and mortar store to get it because the cost of shipping and transportation outweighs the savings from cutting out middlemen and buying from factories and production nodes, unless of course the product is unique.

This creates a realm of specialization where cliques and groups form based on similar interests and products. So green activists can buy directly from certain green farms and political conservatives can get their news from certain conservative online newspapers, etc.

Like always specialization has its positives and negatives. It's good that people have choices and freedom to buy or read what they really want but this also sets up competitions between new cliques or strengthens the narrow-mindedness of existing ones. 13.04.01

Screwed by their own hubris and blinded by greed many employees enriched by massive stock options often exercised instead of higher wages now have found themselves gaining little and owing much to the tax collector.

Whether through bad luck, mismanagement, market restrictions, ignorance or greed, many people failed to sell enough stock to cover the bill. They treated paper gains as real and even borrowed against them. And they presumed that when tax time came, the money would be there.
"This problem is far more widespread this year than in previous years," said Kaye A. Thomas, an authority on stock options and author of "Consider Your Options." "Many people have fallen into the trap where they owe more money in taxes than they got out of their stock options," he said. "Some people have basically been bankrupted by their tax liability." NYT Suddenly, the Stock Option Looks Just Like a Bad Penny Feb.18, 2001

Anyone remember the true tale of Charles Ponzi? 18.02.01

Califirony: How to turn a nuisance into crisis

Here it is the 21st century, the worlds sixth largest economy and the most concentrated region of hi-tech on the planet and the state can't even keep the lights on. Ones reaction is pretty much determined by their proximity to the disaster zone in this case you laugh as a spectator, cry if you live there. But it's truly ridiculous because every analyst could see this situation building for years, although no one really thought it would get this bad, but then not many counted on the profound ineptitude of the state legislature either.

The state's ultra-stringent environmental regulations have meant that all new power plant production is both costly and mired in red tape, not surprisingly then no major power plants have come on-line for ten years! Over half of the existing ones are over 30 years old leaving them unreliable due to chronic repairs. Furthermore the production of energy has become monopolized by a single commodity that being natural gas which has skyrocketed in price recently due to supply and demand fluctuations. Natural gas burns very cleanly which is nice but the plants don't produce a lot of power for size as opposed to say nuclear energy at the other end of the scale. Furthermore like all big industry no one wants to live near them meaning that finding suitable land for construction is another time-consuming problem.

California's AA credit rating is on the chopping block because of bailout and need by state to buy power itself on the open market at exorbitant prices also the states multi-billion dollar budget surplus is likely to evaporate on contact with the debts accrued by SoCal Edison and PG&E. President Bush has no desire to intervene because his oil homies and campaign donors in Texas are making a killing off of selling overpriced power to California, like Dynegy Inc.

Industry is being stung by power outages causing the loss of millions of dollars a minute since it's tough to do much work in the modern office with candles and flashlights - blow the dust off the abacus and fire up the pocket calculators everyone! Jobs cuts are increasing.

The whole event even if it blows over in a week (which it won't) is till likely to tip the state into recession. Intel has already put on hold all further plant expansions. Anyone else thinking about expanding into California will be forced to think twice about building in a place that can't even keep the lights on.

Deregulation gets most of the blame but that's not an accurate place to look for answers. The free market was never allowed to play due to the above mentioned factors such as state environmental restriction's and the asymmetrical price system which allowed price caps for one party and none for others at the same time. Energy prices have had more effect, clearly NatGas is a big factor, but the Bonneville Power Administration which manages dams in the Northwest has been unable to bail out California as they usually do this time of year due to low water levels on the rivers. That and the need to rescue salmon which means a restriction on water levels anyway. A system which incidentally the northwest power consumers are supposedly paying something like half a billion a year extra to maintain, expensive salmon indeed.

So how can California get out of this? The California legislature created the mess in the first place with their poor planning and ever worse lawmaking, they are flaw #1 but unfortunately they're also the only party at this stage which can do much to fix it. So clearly the prognosis is not good. Governor Davis can either bail out the power companies and stick the bill to the taxpayer and probably get run out of office or he can beg the federal government and regional power sources to cover his ass. The second option hasn't worked so far and it looks increasingly as if the first one will be the fallback. The bailout is necessary because the two main power providers SoCal Edison and PG&E have accrued nearly $12 billion in debt, have had their collateral seized, can't buy power from anyone else because no one thinks they will be repaid, and have junk bond credit ratings; it's called bankruptcy.

In the meantime the state is buying power itself to provide to consumers but with astronomical spot prices the state is just substituting itself for its sunken power companies. $700 million will buy about a weeks worth of power. Not even the state of California can pony that bill for long. Either consumer power bills fly to the moon to match supply (not a smart option for any Governor), they come up with some way to build 100 new power plants in a week or massively cut energy consumption. The fundamental problem is the supply of power, it's just not there because the state didn't plan for a power crunch and they didn't plan to build new power sources for the predictable growth in demand, consequently the people of California that elected their own abysmal leadership will now pay for it to the tune of several billion dollars and rotating blackouts extending into the near future. Americans may be able to get away with almost anything but 34 million Californians can't, not anymore. 20.01.01

Consumo-Vision: entertainment for the bleary eyed

It's the Holiday season and you know what that means - fulfilling your civic duty by spending lots of money putting those floundering retailers back in the black! After all you don't want to be un-American and put minimum wage-slaves out of work (before they can be laid off in January) right?

The near future will see them breaking up, spinning off and generally doing everything to recover from their past buying binge unless something happens and buyers don't want their debt in which case they go bust. Oh well.

Another sector I've personally questioned for quite a while is the hi-end chip makers like AMD and Intel. Especially Intel. Now Intel comes out with a faster chip every few months, the nerds rejoice and Intel takes their money to the bank, same old story. But today we've already reached the point where even the high-end user doesn't need the processor power Intel is churning out. We've got home computers with the speed to design nuclear weapons, but people use them for word processing and cruising the Internet! Publicity and marketing focus for Intel has gone up dramatically recently with obvious motives, they're in a desperate situation. Intel must continue to convince the public, the home and office computer crowd that provides then with their revenue that they must own the latest, fastest chip (despite all logic to the contrary). Yet Intel's structure has not changed, they are still aimed at making the top of the line microprocessors, expanding facilities (even doubling the Rio Rancho New Mexico facility!), yet their legitimate customer base is effectively shrinking to nothing. Soon Intel will be like Coke or Pepsi, something, overpriced that nobody needs but people buy for brand awareness and status. 17.12.00

When you work for a company you must never forget one thing: your sole purpose within that organization be it private or publicly held is to increase owner & shareholder value. In other words your employer is compelled to offer the minimum compensation to you for your labor while delivering the maximum profits to the corporate owners.

Since it's unlikely the vast majority will ever see anything approaching the wealth of the ownership class it is succinct and accurate to state that your purpose as an employee is to make the elite's richer.
Happy holidays! Now stop reading this and get back to work!

Replacing Capitalism

The American Constitution guarantees freedom's but not to the extent that one entity can deprive another of those same freedoms by virtue of their size, wealth and influence. It is increasingly apparent within American society that hostile, sprawling multinational corporate entities have deprived average Americans of their Constitutional rights by manipulating wealth, media and even democracy itself just to name a few offenses. Capitalism is not codified in the Constitution.

We need a new economic ideology to replace capitalism because capitalism is misdirected fatalism: it puts money in the hands of whoever gets it first. It doesn't appeal to any sense of fairness or justice. Money is power, and money like power in the wrong hands is dangerous. That is the fundamental concept behind the Constitution, division of powers. In that spirit I present this concept, a rough outline that took me about an hour from inception to completed writing.

If money in large amounts is such a hazardous commodity maybe it should be treated as we classify other dangerous substances. To speak of the rights and responsibilities of owning money, the responsibilities that come with money ownership. Giving order to a dangerously unregulated commodity that has already created fiendish power barons perverting the rule of law and public opinion into their own twisted versions of plutocratic elitism.

Therefore I propose the legislation of a maximum personal wealth capacity, where once exceeded all money must be immediately divested or face a legal freeze of those assets. After all why would anyone need a billion dollars in their bank account? And if one makes more than the allowed amount it goes into a giant fund invested into various public and private interests including but not limited to, stocks, bonds, venture capital and art, music and various cultural endeavors. Although realistically these investments would have to be very rigid though to prevent unscrupulous agents from using the money as tools of political interests, so primarily were talking about federal bonds. The interest income generated from this fund is then redistributed to the lower income bracket annually through tax refunds and direct to household grants.

How about wealth capped off at 10 million including house all possessions, corporate and all speculative interests such as stocks and 'gifts'. This figure could be adjusted for cost of living differences between disparate regions of the country. Why would anyone need more than that except for nefarious purposes right?

Of course I'm just throwing out numbers here the idea is to shrink the fantastic rift that presently exists between the super wealthy, the Larry Ellison and Bill Gates of the world, and the average taxpayer like you and I. And if they start playing the shell game, investing in Bermudan banks or what have you, we play hard ball just as our 'leaders' in Washington should but don't. We freeze their domestic corporate assets and forbid them from doing business within our sovereign countries boundaries. And if they screw us twice we revoke their citizenship.

This does not preclude anyone from being a billionaire, it merely disallows them keeping any of that money above the proscribed maximum wealth. So the obvious problem is that someone making 20 million a year would just spend his 10 mil and not worry about the law. Of course he couldn't easily horde his wealth as can be done now but it wouldn't solve the problem of income disparity. One exception though would be for long term investments that penalize early withdrawal such as bonds and Certificate of Deposits. In other words one could put a lot of money above the limit into these types of investments because they would encourage healthy long term investments rather than short term speculation. On an individual basis this is really a remarkable idea because it would for once stimulate safe and solvent investing by the average citizen. Instead of buying lottery tickets or dot-com stocks they would be compelled to wisely invest their income in interest bearing savings accounts generating money for times of crisis as well as the kind of prudent savings that drives a solid economy.

Q: Wouldn't this destroy the incentive to invest?
A: Investing would change true but the individual can still give their profits to any organization they want, if they wish to give their money to their friend, favorite charity or Global HyperDynamics Mega-Corp, that's great. They simply cannot legally own any wealth above the max, after say the annual or biannual tax deadline.

Q: What is to stop him from giving his profits to a crooked cause, the 'perverted arts foundation' or something?
A: Easy come up with a list of approved donation charities, just as our present government already does to a limited extent by granting tax exempt status to charities and write-offs to donors. Or boost his wealth limit if he donates to the national trust fund, etc.

Q: How does that prevent them from buying socially unsafe interests in media and business?
A: Well it would certainly change the system because they would not be able to use massive stock assets to control corporate interests or conduct buyouts etc. Corporate entities would not have the same limits on wealth that individuals do, thereby allowing transactions that exceed the limits of the personal wealth maximum. However a larger corporate wealth limit would force very big companies to split into smaller entities thereby fulfilling a wise American principle, the aversion to large monopolies.

Q: Would this discourage growth?
A: This would not be a disincentive to growth, merely a structural limitation on the unwieldy, large corporate conglomerations. This would also diffuse stockholder and other stakeholders undue influence as they would be forced to split their time and energy between the multiple companies they are trying to control.

Q: What about banks?
A: They are corporate entities same as any other business.

Example: Joe Smith has stock and real estate investments valued at $50 million dollars plus an $800,000 home in San Francisco. He works as a lawyer and makes $200,000 a year. And if you ask Joe if he's rich he'll just chuckle and quickly reply 'oh no'... The Monetary Safety Act is enacted and Joe worries that his hard earned investments may be confiscated by the 'commies' in the government. Despite Joe's fears, the government doesn't take his money and in fact the only thing that changes is his invested income. Joe must decide to transfer it into a long term savings plan at around 4-6% interest or gift about 40 million of his investment money to someone else. Not surprisingly being a "selfish capitalist" Joe decides to put his money into a savings plan. Still he throws a hissy-fit whining that now he can't make the fluctuating 20% annual return he's making now on his tech-stocks. His investment analyst points out that due to the longevity of his savings plan he will actually make a more reliable, even more profitable return on his money. According to the graduated scale measuring time versus money Joe will need to have at least a 30 year CD or equivalent, but theoretically if he so chose he could have up to $9 million dollars taken out of the fund for his personal use every year. Instead Joe finally catches on when he realizes the tax breaks he will get (a few fringe benefits of the Monetary Safety Act) by using the CD and gifting a large portion of the money to his dependents in the future as education and inheritance money. A few weeks later the bottom falls out of the stock market and Joe expresses a sighs of relief his money is safely earning interest in an insured and accredited financial institution that is still  small enough that he can visit their corporate office downtown and even talk to the president if he felt the need. 29.11.00

Money

Money is the jealous god of Israel, in face of which no other god may exist. Money degrades all the gods of man -- and turns them into commodities. Money is the universal self-established value of all things. It has, therefore, robbed the whole world -- both the world of men and nature -- of its specific value. Money is the estranged essence of man's work and man's existence, and this alien essence dominates him, and he worships it. - On The Jewish Question by Karl Marx 1844

Marx believed that in a utopian communist system, where money wasn't the ultimate measure of all value, the Jew would be rendered outmoded and useless because they could not practice 'hucksterism' their 'true essence as commercial beings.' Evidently he didn't think (or didn't express) that any tangible ethnic thread existed between Jews. Naiveté or disinformation - you decide?

Anyway, it seems almost ironic that Marx, the son of a rabbi himself, was so obsessed with money, perhaps because he never had any himself apart from Engels' contributions of course. I'm not negating his right to criticize the capitalist system which is both unfair and abusive towards its intellectual contributors. There's plenty to complain about, but is money the correct target? I mean money and commerce have existed since the first civilization yet that hasn't meant that every civilization was bereft of culture, benevolence or even justice. Money and wealth is a perennial problem and if we put it into a historical context we will discover that greater inequity of wealth than that of our present day has been the norm. Money is a tool and to fix problems you don't get rid of tools you just start using them in the right way. 31.10.00

Here's a thought, what would happen if the Saudi's, and the rest of OPEC suddenly decided they had enough U$ Dollars already and wouldn't accept them in trade anymore. What would America use to pay for oil? Say OPEC now wants gold or mining rights to large tracts of land in Colorado or fishing rights to the Atlantic seaboard. Could they not ask for anything, and would our country not be soon be forced to grant it to them?

Oh but they have an insatiable appetite for U$ dollars right? Hardly. A low Euro helps for the time being but the real inevitability is the fact that the rest of the world will soon grow sated, nay sick on a dollar binge. It's happened before (remember the 70s, Nixon anyone?) and it will happen again.

Unsustainable Imbalances

The Federal Reserve views the trade gap as one of several imbalances that threaten the continued growth and stability of the economy. Alan Greenspan, Fed chairman, has called the growing deficit "an outcome that cannot continue without limit".
He has said it reflects an excess of consumer demand, bankrolled by foreign lenders, that leaves the US dollar and the US economy "vulnerable to rapidly changing conditions overseas".
But the US dollar has shown a remarkable resilience to the rising trade gap. In each of the last five months, the trade deficit has exceeded market expectations, yet the dollar has ended the session higher on four out of five occasions. On Friday the dollar gained more than half a cent against the euro in London trading to end the session at $0.909.
Economists said the dollar had been supported by a seemingly insatiable appetite for US assets. "A ballooning trade deficit and a strong dollar have long been happy bedfellows simply because the US is seen to offer superior rates of return," said Ray Attrill, director of research at 4Cast, an economic consultancy in London. Excerpted from: FT Aug. 19, 2000

The economists keep saying it's unsustainable yet the statistics belie the opposite. Yeah and the trade deficit has been expanding since the early 1970's, and even before. What gives? Well it is unsustainable, but only if the Fed reserve stopped expanding credit and printing money. If they did the U$A would lock up from lack of liquidity, since all the money is hemorrhaging outwards into the hot little hands of those dastardly foreigners. But by building up the perception that this imbalance is sustainable dangerous expectations have been established throughout the globe. That being primarily that the U$A will never stop the presses and that the value of the almighty dollar will never fall and that interest rate returns will never reach extremes. Now few economies can pull off that kind of 'guarantee' for long since they're simply too small to weather the storms and panics. Even the U$A had a king size problem back in the 1971 which is why Nixon had to quickly dump the gold backing of the dollar (the Bretton Woods conference). Otherwise the country would have hemorrhaged real value (gold) and instead of those foreigners holding piles of green and black toilet paper they would have claims to the nations gold reserves and the country would be broke. So the Bretton Woods maneuver has worked out fairly well for 30 years, at least as a Band-Aid pseudo-solution. But now we're finding that the fundamental problem of the trade imbalances has only gotten worse and it's anybody's guess as to how long charade can be maintained. One piece of evidence that points to the fact it may be nearing an end is the recent mass-sell off of gold, and although the FED has claimed not to be participating at the moment they certainly aren't emitting so much as a peep of displeasure at such action by certain European central banks who need the money from the gold sales prop up bad investments both the egregious institutional kind but also the funny-money being printed up like the Euro. Also In order to maintain liquidity after massive margin 'gambling' losses based on the price of gold by Too-big-to-fall investment houses. The greatest advantage that central banks have is the total lack of accountability they exercise in their actions. After all how many oversight bodies watch them? How many people even understand what the hell they do? The truth is as long as the economy appears prosperous and people have jobs they can get away with nearly anything. 19.08.00

Perpetual Motion

Mike Rosenberg of Deutsche Bank in New York said: "People were looking for a hard or a soft landing, but I don't see much evidence of a landing at all."

But growth is still likely to remain at a level well above the average of recent decades. "What separates this expansion from all others is that growth has accelerated rather than decelerated the farther the expansion has gone," said Mr Littman. "You cannot find a precedent for this - not in the post-war experience. It's a sea change." Financial Times July 29, 2000

[Concerning the latest US growth rate of an amazing 5.4%.] It seems Greenspan was a little quick to claim success. Mr. Littman brings up a point, one begging explanation, why has the growth rate for the US economy increased as the incessant expansion races onward? It's not savings driving renewed investment, but it sure is the opposite, loans and credit. My guess is it's due to the need for covering bad loans through rollovers and refinancing schemes. Think of a company like Amazon.com, a titanic loaded down to the rim with excess debt the but the only way to stay afloat is ironically to get more loans and continue operations hoping to 'break even'. In the perverted logic of modern finance-economics if you aren't succeeding in business, you need to expand - idiot! Likewise the higher interest rates are becoming less relevant as the do or die deadlines draws nearer. Where does this lead us? And who has time for prudent savings and wise investment to payoff if ever? Momentum... join the crowd, get burned by the crowd.

One factor that is very nearly an absolute is the labor factor. Even if companies can find enough workers (which is statistically impossible) they won't be able to pay the wage rates and turn a profit. Something has to give and it doesn't look like it will be corporate expansion; they will continue to expand until they run out of fuel (resources), either labor or raw materials.

But this is a good thing, just happening for the wrong reason. Supply and demand is really out of synchronization and the most likely culprit is artificial controls on the economy; Fed Reserve rates are a good example because they distort the balance between what can be produced and what can be sold. 29.07.00

Republic of the New-Economy

Utopia is freedom within order but the paradox of such a state lies within the fact that both require strong authority to perpetuate against the forces of dissolution and disorder (entropy). But especially given the scale at issue. Small communes may work for a while but when they are expanded into something the size of a city they break down because citizens can 'cheat' and opt out of participating in community tasks with minimal consequences. Instead of direct contact society here relies on indirect and amorphous concepts such as ethics and morality in order to convince everyone to participate and keep the wheels of society rolling along, so to speak. And when those incentives fail authority rears its ugly head and punishment manifests through constitution, so much for utopia...

The only freedom possible for any historical length of time is that granted by the central authority. Freedom is an ancillary bone thrown to the placated crowds during times of plenty. Freedom is not self-perpetuating, but centralized authority is. Order and therefore freedom can only come from the regimentation of society and the force to keep it that way. Why? Because human nature is primarily self-interested not society interested.

The city is the culminating symbol of authority because it can only be maintained through the implementation of a central authority. The parts come together through self-interest but the whole only works for the benefit of everyone when the wealth is redistributed usually through taxation and spending.

Authority doesn't die it just mutates:

Cities are completely outmoded means of economic aggrandizement because the economies of scale are rendered geographically ubiquitous through advances in communications. The Internet (and UPS!) destroys the local-spatial barriers to trade because the entire globe is (theoretically) a single marketplace. So the city will slowly dissolve into suburbs and more healthy low density matrixes of residential and commercial with regional industrial clusters scattered around like "edge cities". Yeah, boo-hoo.

The result is a checkerboard of nodes interconnected through telecom-links, to control any single one is relatively pointless, to control all of them is where the power is at. Thus local laws give way to global laws.

So many voices so many needs:

But the answer isn't the UN, committee planning on a meta-scale is thoroughly ridiculous, a three ring circus more useful as a sop to the public than a legitimate instrument of control.

Where's the outrage:

Through the very narrow limitations of the traditional viewpoint the breakdown is occurring because the standard methods of taxation and redistribution are being circumvented by trans-national commerce and industry, largely due to the lagging response of national legislation and the inability of these institution to deal with radical change. The answer we're supposed to swallow is fairly clear by this point, hand over the reigns of power to a global regime that has the ability to tax on a similar scale and redistribute the wealth thereby lessening the growing disparity between poor and rich.

Gain the world, lose your soul:

How is it everyone can win through global commerce yet lose control over themselves at the same time? I don't believe it has to be that way, the answer isn't global uni-authority; if for no other reason the lack of efficiency within such a system. Once again within the confines of orthodoxy we know that power resides within the ability to tax and spend. If commerce and industry can locate virtually anywhere then clearly direct taxation of those corporations is counterproductive. Which is why most places do the opposite, providing benefits and tax-cuts to new industry. So, tax the ubiquitous, abolish the taboo, tax the trade, tariff the products. This is why protectionism and tariffs are such a dirty word because it is the most direct means of usurping global control and transferring it to regional entities. Let's not forget that evils such as the income tax are quite new additions to the American scene, and actually for many years America had NO direct taxes on the people but did quite well balanced budget and all with nothing more than trade duties on imported items.

Nothing is free:

Free trade isn't free and even recent history has shown that the consequences leave few happy but the Multinationals backing the deals in the first place. Free trade meaning absolving regional authority of the ability to levy trade duties is the equivalent of granting power carte blanc to the global despots and their corporate allies. By installing trade duties on imports local authority can not only regulate the quantity and quality of those goods but can even exert political and social comment. In other words why not tax the products made by slave-labor based economies higher than those manufactured by living-wage earning workers, perhaps even leveling the playing field? Contrary to the advertising, tariffs would actually have the opposite effect and work to balance wealth distribution and if used in conjunction with socially responsive government work to usurp the unauthorized authority of despotic regimes. And I would posit that 'free-trade' actually is being used to support those despotic regimes, can you say made in China?

Some say borders are meaningless anymore, perhaps they are but a good way to redefine them is to use tariffs as the demarcation line. If economic considerations are all that concern politicians then why not define the country as a tariff boundary. Let the populace decide the nature of the tariffs and who to levy them upon. The new-economy based Republic? Tax your enemies, 'free-trade' your friends but don't become so irrationally inflexible to assume that all trade must be tariff free! Just look at the supporters of such ideas, are they haves or have nots? 18.07.00

Burned Again

According to the Federal Reserve Board's survey released earlier this year, one out of every five households with incomes less than $50,000 had debt service burdens greater than 40%, which is considered high. By comparison, in each of the last three previous surveys, covering 1989 to 1995, about 15% of such households were weighed down with that much debt burden. LA Times May 13, 2000

Oh yeah but the economy is fantastic right now so who cares right? And we’ll all live happily ever after. Besides being facetious my point is that economic trends have reached a point of total unsustainability, no half-point interest rate hike is going to matter because the damage has already been done. Most of us already know what the rising interest rates are doing to credit card debt but living without one is nearly impossible. About half of the U$ population is caught between these two walls of static income and rising interest rates and at least one of those walls is already closing in on them. Some are worse off then others but most have a false sense of security inflated through virtual wealth generators such as the stock market. In the very near future spending will be forced to drop off ; this will precipitate a decline in consumer sales and a recession. The recession like always will mean job cuts and pay freezes. This in turn will cause an increase in consumer debt defaults and a general increase in the numbers caught in the debt trap. All the signs are there for any fool who can read between the lines. The next recession will be very ugly. The reason is that nothing exists to support the working class if they lose a job or get crushed under high interest rates, they’re left out to dry while the banks and debt agencies make a few extra bucks on foreclosures and defaults. 14.05.00

Banks aren't the only way - Many Indians wear their savings accounts.

Banker Bashing

Given the incredible potential for damage possessed by money it’s ironic that nuclear weapons are considered the greatest threat to human life wielded by governments. Money is far more dangerous to civilization; it is also ubiquitous and possesses an uncanny corruptibility on large scales. Our ‘New World Order’ is one built on monetary cohesion with a minor but growing emphasis on political and social cohesion. This money is literally a bomb waiting to blow up because no one has any confidence of controlling it like an unstoppable force it can merely be channeled into certain directions. I fear a nuclear holocaust much less than a money holocaust - as would most anyone with even a limited comprehension of global capitalism:

ROBERT HEMPHILL (Credit Manager of Federal Reserve Bank, Atlanta, Ga.): "This is a staggering thought. We are completely dependent on the commercial Banks. Someone has to borrow every dollar we have in circulation, cash or credit. If the Banks create ample synthetic money we are prosperous; if not, we starve. We are absolutely without a permanent money system. When one gets a complete grasp of the picture, the tragic absurdity of our hopeless position is almost incredible, but there it is. It is the most important subject intelligent persons can investigate and reflect upon. It is so important that our present civilization may collapse unless it becomes widely understood and the defects remedied very soon".

This is true but what of large corporations that use stock as their currency for acquisitions and purchases. They create their own money and in a boom market and a popular niche (like dot.com stocks) their own virtual interest income! Something as apparently simple as money seems to generate an unlimited retinue of confusion paranoia and conspiracy. Primary among these misleading ideas is the concept of a fixed money supply meaning that debt is impossible to repay because the bankers create just enough virtual accounts dole out a loan but not enough for everyone to pay off the principal combined with interest. That’s just not true loans are paid off indeed any loan in existence can be paid off (the U$ money supply alone is measured in the trillions!) It’s just that it really isn’t profitable to pay it off. Like a 30 year mortgage, it does get paid off eventually its just such a long time that it rolls over between different people eventually ending up in some far removed parties hands, ‘nobody lives in one house 30 years’. Not only that but the actual supply of money is easily altered by merely printing currency without any backing – the beauty of fiat money. No one bank is all that powerful, even the FED has limits on its power. And what good would it do to drive the economy into depression and foreclose on everything when the banks can make more money by interest income anyway? I mean if I were a banker I would rather have a boom economy and just make loans like crazy then sit back for the next 30 years and rake in the usury! Hell I don’t want the trouble and problems of actually owning the flippin' farm or the factory – I’m a banker not a welder or a dirt farmer. No I’ll keep everything nice and happy, only burning people when it’s easy to foreclose and auction off and that’s not easy to do during a recession when no one has money to buy anything or take out my loans.

That said the primary message that interest robs the people is basically sound and Biblically documented as well, which not coincidentally is where so much misguided ideas on money seem to spawn from.

Still we need to be careful delineating our definitions. Contrary to Biblical texts I don’t believe Interest or banks are singularly evil, the problems arise with whom the bankers hold their ulterior motives and foreign alliances. You get a loan from a crook and you’ll have problems, get a loan from your best friend and you’ll have slightly fewer problems, know what I mean? And interest free loans would be great but is it really practical to build a fluid economy on ‘free’ money, where is the supply and demand then? This concept would imply central planning of the money disbursement and that's a bad sign from the start.

It’s not that complicated, all you need to do is balance the banking power with the government power – tax usury and interest income! Not necessarily to the point where you kill all loan profit motive but just enough to control the economic growth, indeed you could even adjust the tax rate and create a control mechanism akin to central bank interest rates.

Another idea would be to nationalize all the banks and all the money. I believe this was Alexander Hamilton’s idea – the bank of America. Not a bad idea but it gets messy when the powers start to corrupt and we’ve already seen what government does to centralized institutions.

When all is said and done supply and demand is about the best system around to control the movement of money, well that and insurance polices on the accounts to protect stored assets from banking mismanagement. As long as government doesn’t get involved by bailing out special institutions and the system and foreign interests are carefully guarded from domestic capital the system works about as well as possible. Introduce entangling alliances, multinational banking and instantaneous global fund fluidity and problems start to creep in as well. This is the real bomb waiting to blow – global finance. Someday it may be plausible like perhaps when we can control the weather, but today??? 13.02.00

Take my money, please!

Judging from the number of credit card applications I get in the mail everyday I would judge that our present credit expansion shows no signs of abating anytime soon. In fact I would judge that it’s ballooning out of control if anything. On one application form for a card, which of course I’m completely ‘pre-approved’ for, right below the fill in the blank section is a query for a cash (loan) up front! So now I can go into debt before I even get the card, wow!

Nor am I especially concerned about interest rates being significantly increased anytime soon despite popular economic concern to the contrary. The FED wants the party to continue and higher interest rates are just too heavy to pull out of the bag right now. And truthfully things are to the point where it may very well be too dangerous to slow down let alone stop the party. Of course a quarter or half point raise is to be expected, but nothing big enough to put a dent into the credit institutions or slow anything like the stock market down. These guys are floating in excess cash. They have so much they’re begging people for loans - credit cards with 9% a year or less fixed interest - pretty cheap money really.

No wonder our trade deficit gets bigger every month, so much cash in the economy has to go somewhere and it isn’t profitable enough to save it so we all have to spend it. Yes spend it all at an ever-increasing pace. And why are savin