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!

A Lesson on Greed

When you look around the world and see the haves and have-nots, does it make you wonder if this capitalist society filled with greed is injurious to the world?

A powerful question to be sure. I like the answer given by Milton Freeman and countless other modern day philosophers. Is there some benevolent benefactor within mankind that is so pure that they can order our society for us?

The answer is NO. When you look around the world, the truth is that the societies with a free enterprise system (capitalism) have the highest living standards on the planet. As a matter of fact the freest people have the best quality of life.

However, look at the world where governments restrict free trade and control societies. Their standard of living is squashed and the motivation to improve society is squandered.

Ah, but human nature is not abated. The leaders of these ‘controlled’ and closed societies are greedy. We need only look at the standard of living the leaders enjoy as compared to the poverty they force upon their populous. Is this not Greed?

The problem with heading towards socialism was best stated by Margaret Thatcher when she said that the problem with Socialism is that eventually you run out of other people’s money.

But I think there is an even greater problem. When you look at the history of countries that trend towards Socialism and Communism you see what happens when men are entrusted with ultimate power.

Their Human Nature overtakes them and the next thing you know you move towards Totalitarianism. In a free trade, free enterprise, capitalist society with a Republic form or government, the market and the rule of law helps to minimize our human nature and acts as a checks and balance to human greed.

Sure, greedy people do succeed, but so do people those that aren’t greedy. In a capitalist system, the non-greedy can compete with the greedy and many times the non-greedy win. This creates a better society, not control by some authoritarian overseer.

Some would blame our current economic situation of the greed of capitalism, but the truth is that this situation was caused by poor government policy, shoddy oversight and mismanaged regulations.

In other words, this problem was caused by powerful politicians attempting to dictate to industry how they should operate.

Now the USA moves towards Socialist policies and I find it ironic that as our President visits his once vaunted campaign trail in Europe he is being met with cold shoulders and words of warning.

Even the once Socialist stalwart nations of Germany, France and Italy are now looking upon the actions of Barak Obama with disdain. They have publicly questioned the soundness of the Presidents push for governments to spend more money to get the world economy moving again.

What they are saying (without saying it) is that this has been tried before. They have tried it before …and…. IT DOES NOT WORK!

So I leave with this one question. If the great Socialist Utopias of Europe are not willing to go further down this path because they understand that it will only do more harm than good, then why are we the citizens of the freest nation on earth allowing our government to lead us this way?

Watch the video and learn… I welcome your opinion.

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 One Sided

Okay, I just realized something. I've been to one sided. I'm bashing the so-called stimulus plan, referring to it as a huge chunk of pork. It really is nothing more than one giant 'earmark' written as a law.

But that's not the point I want to make today. Along come the Republicans and they band together and not a single Republican votes for the bill. They rant about the pork and they rave about the lie Obama supposedly told about working with both parties.

The one thing they don't do is offer any viable solutions themselves! Tax cuts is cannot be the end-all/be-all answer for the Republican Party every time their is an economic crisis. The answer must be radical change, but not in the way that the dems want. More spending is NOT the answer either!

These guys just don't get it! We need real change! Change, real change, would be the elimination of the tax code as we know it. You want to talk change, let's change our economy from a spending economy to a saving economy by installing the Fair Tax! That's real change.

Change would be the elimination of Corporate Taxes. Everybody talks a good game about bringing manufacturing jobs back to the U.S. but nobody is doing anything about it! Imagine if corporations didn't pay any tax at all! (well they don't really, we pay the tax in the form of higher prices on goods and services)

All that money would be enough to make up for the extortion large manufacturers pay to the Unions. That's CHANGE!

Nobody gets it. Obama hasn't changed anything yet, he's just changed who's in charge. We still have the same old politics. The Republicans need to quit complaining and start offering us something real.

Just pinning the bad ideas on the Democrats so that they get full credit when these ideas fail ...and believe me, they will fail... is not good for America. If Republicans want to be seen as more than obstructionist, then they need to propose real and radical change!

"Change we can believe in", it's what Americans thought we voted for, now can we get some please?!

Porked Again!

While the President lectures America's CEO's about excessive pay and the Vice Pres plays buddy-buddy with Al Gore, the Democratically controlled Congress voted to hand $93,000 to each and every member!

So the earmarking will stop under the Obama administration, right? Of course that's unless you take into consideration that the $800 billion stimulus is nothing but one HUGE earmark!

Now the Dems have found a new way around future earmarks, you need only look at their most recent actions. They just gave themselves $93,000 per congressman as pocket change.

It's being sold to us as 'a necessary increase to help out constituents'. Bull Sh%#! It's an earmark without being an earmark!

It has been intimated by the Vice President that its patriotic to pay taxes. It has been suggested by Harry Reid and Nancy Pelosi that we all have to tighten our belts. So tell me something, why don't the politicians have to tighten theirs?

I thought we were going to get some leadership out of the Obama administration. Turns out we're all just getting Porked Again!

Here Today but Tomorrow? Not so much!

So the stimulus package is here! Yeah! The Dems are here to save the day. They intend to dump $800 billion dollars into the economy! That should get things moving again!

What? What do you mean only 3% of that money will make it into the economy over the next 18 months. Huh? How come 25% of the money isn't spent until 11 YEARS from now?

I'll tell you why, because ramming this particular spending package (notice I didn't call it a stimulus) through is nothing more than an attempt to create bigger government programs well into the future. This idea is as bad as the idea to stop charging payroll taxes on people making less than $50,000 per year.

You haven't heard much about how the tax break works because its a really, really bad idea as well. We all know that Social Security, Medicare and Medicaid are underfunded and virtually insolvent. We also know that the 'payroll' tax is what supposedly funds them.

So what's our solution to the problem? To have even less money come in to fund these programs? What?

We need a new program in America. We need to change this economy from a 'spending' economy to a 'savings' economy. We can't do that if the government keeps spending, spending and spending some more.

Taking away the payroll tax for some and not all is not the right step. The right step is scrapping the entire income tax system all together. Change our system to a consumption tax.

With a consumption tax, like the Fair Tax, every time someone buys something the government gets paid. Think about all those illegal aliens that burden our hospitals and school systems.

They would not be under the 'tax radar' anymore. They buy food, they pay tax. They buy gas, they pay tax. Heck, they buy anything, they pay a tax!

Our poorer citizens, you know the real Americans ....the ones that were born here or did the right thing and did what was necessary to stay here legally... those people would get a card to rebate them for the tax they paid!

That would transform our economy from spenders to savers! What's so wrong with that. There are many excuses why it can't be done, but those excuses are mostly made by politicians that would lose power and be forced to come up with REAL solutions to REAL problems.

Let's force the politicians to stop pitting us against each other based on whose wealthy and whose not and lets stop electing our politicians based on who will tax you less or who will rape the rich! It's time for a paradigm shift in the way we operate. Stop spending and save!