As The World Turns

As The World Turns is a daytime drama that has been on for years. And as all soap operas are apt to do, the drama that unfolds on a daily basis is so complex and drastic as to be unbelievable. Well the same can be said for the World Economy…

In America we woke up this morning to news that the Swine Flu has broken out in Mexico and Mexico City is like a ghost town. Luckily the epidemic has only spread into 5 states in the U.S. and outbreaks here have been minor.

We also learned that the British Pound-Sterling will stay that way for quite some time. For better or for worse (I think for the better) the Brits will not acquiesce and diminish their economy even further by joining the EU and converting their currency to the Euro.

And yes, there’s even more world wide news, seems that China is developing even closer ties with Taiwan while property prices in Hong Kong are making a huge comeback.

So, why do I report all of these things going on around the world? It’s because they affect our bond market which ultimately affects the flow of capital and the interest rates we pay.

Weak Economies Follow the Strong

Several months ago I wrote a blog titled ‘And So Goes the World.’ The point of the article was that as our economy experienced ups and downs, the world’s economy follows right along.

I wrote that article because many of the more liberal financial journalists were decrying our capitalist system and pointing to the strength of the EU and China and implying that their economic systems were superior to ours. In truth, these journalists with an agenda were wrong.

We don’t live in a vacuum and neither do our trading partners. Many bemoan the fact that America consumes so much, but we consume because our economy is so strong. What is happening to the world economy right now is a direct result of our economy losing it’s ability to consume.

So where is all this heading this morning? I’m not trying to make a political point here, I’m making a statement of fact. Property values in Europe have fallen and their banks are a mess. Their economic cycle follows ours by about 12-18 months.

Next it’s the BRIC economies …Brazil, Russia, India and China… These economies follow ours with a 20-24 month lag.

Stabilization is the Next Step

In the US we have seen a recent stabilization of property values and in the economy overall. Things may still be trending downward but not at as rapid a pace. The same is starting to happen in Europe, however, they still have a few big hits before they get to where we are.

But, China and the other BRIC nations are just starting to feel the heat. Remember earlier in this article I mentioned that property values in Hong Kong were on the rise? That’s because Hong Kong is one the few places in the world where the economy is somewhat insulated.

Their tax system (a consumption tax akin to the Fair Tax) has made the economy very insulated over the years. They follow patterns similar to the US so now that China is feeling the squeeze money is moving from China to Hong Kong!

What does all this mean to us …US…? It means this. We are getting close to the end of our economic down turn. Nobody knows if growth will be robust or sluggish, but that’s not the point. The point is we probably have one more big-hit coming and then we stabilize.

Ferocious Entrepreneurial Spirit!

This also proves another point. Many left-leaning ideologues would have us believe that capitalism can’t work without highly restrictive government oversight. But, they are wrong, capitalism works in spite of highly regulatory environments.

If you look at the data you will find that the government actions did very little to stop our precipitous fall. Some will argue that the TARP helped save banks, but did it really? Not all of the TARP money was even used.

The government still has hundreds of billions in unspent TARP money and the banks have stabilized. A very, very small percentage of the pork-filled, ear-mark laden, $800 billion dollar stimulus package has hit the economy. Yet, we are stabilizing.

The correction of the bubble in the economy was due to normal business cycles within the world wide Capitalist economy. No the ferocious entrepreneurial spirit will turn the American and World economies around despite the best efforts of central governments around the world and NOT because of them and their actions!

Transparency Right?

Suffragette America: wham, bam, thank you mam’! Congratulations the recovery and reinvestment act is law!

Our government is borrowing and this bill is so freaking huge, both colossuses’ of Memnon couldn’t prop the thing between them if they tried. It’s ridiculous! Throughout the history of mankind this type of unchecked spending has collapsed societies.

While I am on the topic of ancient civilizations that no longer exist can I just scream out Rome! Thank you but I am dumbfounded by all of this and not in a good way. I can’t believe the people that are think certain aspects of this bill are good.

“Like, yo dude, I found an extra twenty-five dollars a week in my paycheck! It just appeared magically! Cool!” These knot heads don’t get it! Somebody will pay …all of us will pay… and we’ll pay and pay and pay!

Maybe it has all gotten to me but I see all of this borrowing as being a little like we have this giant drill and we’re boring through the earth. In the end we will pop out the other side and be siphoned into some impoverished third world nation but nobody will notice because it’s been such a slow downward spiral.

For many we are just nibbling on the sweet illusion of socialism but not quite ready for the commitment. Some are excited, some are exasperated and I just may be resigned to what is happening. Trust me I don’t want that and I am almost confident in saying that you don’t want to see it happen either, what a nightmare!

Now I know I am being a little rough on the new bill and some say we need to give it time. All I can say in my defense is that we’ve seen this before and it hasn’t worked. But this time we have ‘transparency’ so everyone can see what’s going on. Right? That makes it all different…

The seductress is Lady Transparency. She’s all dressed up for us and promises the fulfillment of our wildest fantasy, a government that is for the people, by the people and keeps the people free. A government with no corruption and where we can spend all this money and do ‘good’ for ALL people.

But underneath the seductive trappings is a two-timing tramp that is telling lies and stealing from us. You need proof, then just look at the new government web site, recovery.gov. It’s one huge piece of Socialist propaganda. The so called transparency is fiction, read the fine print and the asterisk on the site. Transparency my a**!

Hold on America! I started this blog entry with a song so I’ll end with one. Back in the USSR, you don’t know how lucky you are boy, back in the, back in the, back in the USSR!

The Good, The Bad and The Ugly

Finally we might get some movement on solving the bank and mortgage mess! It is about time. I've always said if the problem is really bad loans then get them out of the system and everything will be fine.

Now we here that's exactly what might happen. New Tres. Sec., Timothy Gheithner has suggested the creation of a 'bad bank'. This bank would be an aggregator used to accumulate the loans that are in default, essentially removing them from banks books and getting them out of the system.

This 'bad bank' would absorb all of the delinquent assets and turn our banks back into 'good banks' again! Stupendous. But wait, here's the ugly part, there's not enough money left in the TARP fund to buy all the bad loans.

The answer might be to seek investment capital from the private sector. With enough government guarantees on returns, that money might come flowing in fast and furious. However, the real ugly part would be if the American tax payer were to be burdened further with those guarantees.

For now all we can do is take a wait and see stance on this. This is the most logical decision to be made by the Treasury since this whole thing started over two years ago.

Let's hope Timothy 'the dodger' Geithner is right. I think he is, it's what the economist I follow have been saying for a while ....and they are all conservatives so maybe they all got it right this time.

What? 'the dodger' comment above? What's that all about? Sorry, it's just my swipe at yet another Obama appointment where the appointee had a tax problem....but that's a subject for another blog isn't it.

Sorry, back to the subject at hand. If the Secretary of Tresury is correct on this one, the fix could be in and we might see our economy improve as early as the 4th quarter of this year.

But the recovery may still be blunted if the Democrats are successfully in Porking America again with this huge, over inflated, pork barrel, pig belly so called stimulus package. Again, we will all just have to wait and see.....zzzzz.....zzzzz..... Somebody wake me up when this nightmare is over please! ;-)

To Big To Fail

There is a huge problem right now and it's about to cost the American economy even more money! It is the concept of 'to big to fail.'

That's what was said about Chrysler back in the late 80's when they received their first bailout in the form of a loan from the federal tax payer. That's what happened with the Savings & Loan bailout that created the Resolution Trust Corporation.

To big to fail? Didn't we learn our lesson? Now we're at it again. Banks that are to big to fail! The problem was the repeal Glass-Steagall Act and Clinton's signing of Grahm, Leach, Bliley which deregulated the banks, securities and insurance companies allowing them to compete with each other and even combine operations.

Now CitiGroup is 'un'grouping and Bank of America (who thought it would be a good idea to swallow up Countrywide Home Loans) is getting another infusion of capital from the Feds. We're talking tens of billions of dollars of our money!

Well, as I think about it, I guess it isn't our money yet. From what I understand the Feds have the printing press ramped up and ROLLING! The green stuffs flying off the presses faster than lemmings over a cliff! (excuse the obscure reference to a 1980's arcade game, but you know, I'm olde! LOL)

The point here is that we keep buying into this to big to fail concept. Now we're creating a situation where our debt is escalating from an already unfathomable high amount and the dilution of our currency may some day create hyper inflation!

It has to stop! Yes, there will be some pain. We have to remember that we have bankruptcy laws for a reason. It's so businesses can restructure.

The bottom line is that we need to restructure our entire economy. We need to change from a spending economy to a savings economy and the only way to do that is to leave this 'to big to fail' concept in the trash heap and change our tax system from an income tax to an embedded consumption tax like the Fair Tax.

I mean, what are we thinking? Do we believe the World will look at America and decide that we are to big to fail? Doubtful, they'll cheer while they watch our collapse. Time to wake up before we reach the point of no return. The we really do fail.