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1st Time User | Obama - New `Bargain` Needed -  Barack Obama is saying
that long-term economic recovery won't be achieved
unless the government fixes Social Security and
Medicare.
These web sites are an attempt to contribute to that
process. I'd very much appreciate if you would take a few
minutes to review the material on these websites.
Any comments, suggestions,
criticisms, insights, etc. would be appreciated.
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Summary -
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Opportunity |
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Faced with courage, honesty, and strength, the economic
and financial crisis facing us, is a once in a lifetime
opportunity to build a better future for not only ourselves
and our children, but all who follow us.
The simultaneous collapse of the housing, commercial real estate,
and stock markets is scary and dangerous. Worse, it
is well on its way to exposing the failures of three
generations of politicians, bureaucrats and corporate
executives to provide a solid basis for Federal, state,
and corporate guarantee programs. As those failures
take place, the current economic crisis will become
a political crisis.
They have promised far more health care (Medicare, Medicaid, and health
insurance), retirement security (Social Security, Federal
military and civilian pensions, state and corporate
pension plans, Pension Benefit Guarantees), financial
security (Federal Deposit Insurance (FDIC), mortgage
guarantees (Fannie Mae/Freddie Mac)), then can ever be
delivered.
No one will receive all that they were promised, but
everyone can come out better than they were. The only
positive solution is to give the people
of the United States (the voters and taxpayers)
direct control over the difficult choices that must be
made, both as individuals and at all levels of government.
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| Feedback, Fixes, News, and Ideas - The goal of these websites is to be accurate in both
the facts and analyses and then to help solve the
problems that are presented.
We very much appreciate feedback, fixes, news, and ideas.
Click for more information.
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Economic Crisis
Threatens Guarantee Programs
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Could Become Political
The financial and economic crisis resulting from the
simultaneous collapse of the housing, commercial real
estate, and stock markets (see below) could evolve
into a political crisis as the basis for Federal,
state, and corporate guarantee programs are
threatened.
The money to deliver the promised health
care (Medicare, Medicaid, and health insurance), retirement
security (Social Security, Federal military and civilian
pensions, state and corporate pension plans, Pension Benefit
Guarantees), financial security (Federal Deposit Insurance
(FDIC), mortgage guarantees (Fannie Mae/Freddie Mac)),
isn`t there.
In order for the `baby boom` generation to receive
all of their promised benefits, current taxpayers
will have to decide to pay for more in taxes
than did their parents and grandparents.
For the moment, the government is dealing with
the crisis through massive borrowing, almost $1.2
trillion in 2008. A political crisis would be
triggered if foreign investors, mostly governments,
were to stop lending to the U.S. government at bargain rates.
The more immediate problems are the Federal Deposit
Insurance Corporation (FDIC) and the Federally
sponsored mortgage guarantors (Fannie Mae and Freddie
Mac). Between them they guarantee roughly $10 trillion
in deposits ($4 trillion) and mortgages ($6 trillion).
With U.S. consumers owing around $14 trillion and facing
both a declining economy and falling home values,
some analysts are worried that there might be
as much as $3 trillion to $4 trillion in debt at risk of default.
Even a small fraction of that amount would be a huge
problem for the banks as well as Fannie and Freddie.
Debt - Up $1.2 Trillion in 2008
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Opportunities
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From Danger - Comes Opportunity
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Opportunity |
There are a number of opportunities that could not only
help resolve the current crisis but would make the future
much better as well. Among them are:
- Alternative Energy
- Solar
- Wind
- Biomass
- Hydrogen
- Improved Battery Technologies.
- Information Personalization
- Medical Robotics
- Improving Healthy Behaviors
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- Alternative Energy Breakthroughs Needed - When you consider that the world has spent the last 100 years
and tens of trillions of dollars building an infrastructure
around fossil fuels, government subsidies
won`t work. What is needed are true breakthroughs in
alternative energy.
- Medical Robotics -
The Vecna Robotics BEAR project (pictured) is an Army
project to designed to locate, lift and rescue people in
harm's way.
With an aging population, robots might have a role
in:
- Hospitals
- Clinics
- Nursing homes
- Home care
Click for more information.
- Information Personalization - Dumb Information surrounds and overwhelms us. Everywhere we
look more and more information is available. It wasn`t enough
to have radio, television, newspapers, books, and magazines.
Now the Internet adds the whole world. And the whole world
is jumping on the bandwagon. Adding even more things that
we can`t possibly have the time to sort through.
Smart infomation learns by watching our behavior. It makes
more of the information that we seek, available easily and
transparently while reducing the information that we
ignore.
Click for more information.
- Promoting Health Behavior - For most of humankind`s existence, living a healthy lifestyle
was `easy.` People had to work hard just to get enough
food to live. Physical exercise was necessary to survival.
Getting enough to survive was the problem, not overeating.
For most of the developed world, that has changed. For
many people, it changed in less than a human lifetime.
Click for more information.
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Moving Forward
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Recovery - Hit Bottom First
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Analysis |
By definition, a recovery can`t start until the
economy hits bottom. A variety of forecasters
(see below) are predicting a bottom as early
as mid-2009. Others, including
Nobel winner Paul Krugman, are worried
that there could be a `lost decade.`
The date will depend on certain conditions being met.
Among those are:
- Housing Stabilize
- Subprime resets end in 2001
- Underwater Mortgages
- Foreclosures
- Unsold Inventory
- Resolution of U.S. Auto Crisis -
- Pension Payments
- Health Insurance
- Brands
- Dealerships
- Consumers
- Wealth - Housing and Investments
- Credit Card Debt
- Confidence
- Resource Availability and Pricing
- Employees
- Facilities
- Supplies
- Capital
- Business Climate
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MegaBubble |
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Is It a MegaBubble? -
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Analysis |
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As the chart below illustrates, housing, commerical real
estate and stock values, all started increasing far more
rapidly than their historical trends. The stock market
took off in 1996, housing in 1999 and commercial real
estate in 2003.
Most analysts believe that housing prices rose due to
the decision by the Clinton and Bush administrations
allowing Federal mortgage guarantors to accept sub-prime
loans. The collapse of the housing market as many
sub-prime mortgages went into default and then foreclosure.
When represented visually, it appears that the stock
and commercial real estate markets also may have
been `bubbles`
The data from which this chart was developed came from:
The data for each year was computed by dividing the data from
the first of each year by the high point of the index to
derive a percentage value for each year.
The line representing an extrapolation of the pre-bubble
trend was done manually. If the various indexes were
to fall to those lines, the percentage decreases from
their current levels would be:
- DJIA - 22%
- Housing - 41%
- Commercial Real Estate - 40%
Mega Bubble?
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- Housing - A recovery of the housing market faces a number of
serious challenges including:
The old real estate saw `location, location, location` may
be the most optimistic way to look at the housing market.
Some areas of the country suffered less over building
and may be in for earlier recoveries than others.
Click for more information.
- Commercial Real Estate -
The economy, especially store closings, will be the
biggest challenge for the commercial real estate market
in 2009 and beyond.
Most analysts expect that there will be a high number
of store closings. the International Council of Shopping Centers
is predicting that close to 150,000 locations will close
during 2009.
That is about 13% of the estimated total of 1.1 million
locations nationwide.
Click for more information.
- Housing -
The Stock Market - According to the St. Louis Federal Reserve the money supply
was increase by almost $9 trillion in December alone.
Some of that explosion of cash is undoubtedly bouying
the stock market. The question for investors, who
have lost an estimated $7 trillion over the last year,
is whether that money will lead to a recovery or
will create problems of its own.
Click for more information.
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Auto Industry
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Big Three - `Recovery Plans`
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Challenge |
President-elect Barack Obama said that the auto companies
need realistic recovery plans so that we can create
`a bridge loan to somewhere as opposed to a bridge loan
to nowhere.`
One requirement of the GM and Chrysler loans are
that the companies present `sensible` business plans to
Congress by the end of March.
The problem for the automakers
is that they face many of the same problems
that the country will face over the next 20 years,
including a crisis of leadership, too few workers trying to support too many retirees
and out of control health care costs.
The companies` management and the UAW
leadership failed to face the ever rising costs of retiree
payments and health care costs. Rather than confront
the problem, they hoped that they could pass along to
their successors, just as their predecessors had
passed it along to them.
Unfortunately for them, each U.S. active union
employee is expected to produce enough support three retirees.
GM has by far the worst problem. Each GM worker has to
support four retirees. As bad as this problem is now, it
will only get worse as more workers retire or are laid off.
As recently as 2005, each GM worker supported only
2.5 retirees.
In 2005,
GM had an annual health care cost of $5.6 billion
and covered 1.1 million workers and retirees.
GM hourly workers and retirees pay no monthly premiums or deductibles.
Health care costs at GM add approximately $1,000 in cost
to every GM vehicle, compared to $215 for Toyota`s U.S. plants.
Taken together these costs add an estimated $3,000 per car
to the costs of U.S. makes at a time when the car
maker in Japan, Germany, France, South Korea,
and Italy are also in scrambling to stay alive and maximize
their own bailout takes.
GM, Chrysler and Ford are also handicapped by the
`Job Bank Program` under which laid off workers are
paid 95% of their full pay and benefits not to work.
With sales down over 40%, the companies need to cut
costs, but don`t gain any benefits by laying off workers.
If these weren`t enough problems, most analysts think
that the U.S. manufacturers have far too many brands
and far too many dealers.
By comparison with these problems, the difference
between the actual pay to hourly workers in U.S.
owned plants to that of foreign owned plants is
a small (but still significant) problem.
Last, but far from least, is the political dimension
of the auto bailout. U.S. taxpayers are paying
union workers not to work and allowing the auto
companies to continue to pay retirees not to work.
But the bailout doesn`t do anything for workers at
auto-parts supply companies or dealerships. Layoffs
and failures among those businesses will mount creating
the potential for serious political problems.
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- Pension and Retiree Health Benefits -
Any serious 'plan' for a bailout of Chrysler, Ford,
and General Motors will have to address the issue
of the companies' pension payments and retiree health
care benefits.
According to the United Auto Workers, each active
employee had to support three retirees.
- Employer - Workers - Retirees - Spouses - Ratio
- Chrysler - 48,927 - 55,183 - 23,252 - 1.6
- Ford - 58,300 - 94,824 - 28,183 - 2.1
- GM - 73,454 - 269,614 - 69,288 - 4.64
Click for more information.
- What About Other Countries? -
In 2007, a total of 71.9 million new automobiles were sold
worldwide: 22.9 million in Europe, 21.4 million in Asia-Pacific,
19.4 million in USA and Canada, 4.4 million in Latin America,
2.4 million in the Middle East and 1.4 million in Africa.
Among the countries that manufacture automobiles are Japan
(1), U.S. (2), Germany (3), France (4), South Korea (5),
and Italy (6).
Autmomakers in many of those countries are also
seeking government help.
Click for more information.
- Dealers -
As of 2007, U.S. automakers had over 14,000 dealerships:
- GM - 6,700
- Ford - 4,200
- Chrysler - 3,700
By contrast, Toyota, with sales roughly equal to GM, has
around 1,600 dealers.
The auto dealers association
estimates that new-car dealers employed over 1
million workers with a payroll of over $50 billion annually.
They accounted for 1 in 5 retail sales tax dollars.
Click for more information.
- Suppliers - Compared to the U.S. auto manufacturers, U.S. auto-parts suppliers
employ far more workers.
David Cole, chairman of the Center
for Automotive Research estimates that auto-parts suppliers
employ three times as many workers as the auto makers.
Matthew N. Murray, executive director of the University of
Tennessee’s Center for Business and Economic Research
places the ratio at 2-1.
There are an estimated 3,000 auto-parts suppliers
employing around 600,000 workers.
Click for more information.
- Workers - The AP estimated that auto companies employ:
- Chrysler - 66,000
- Honda - 27,000
- Toyota - 37,000
- Ford - 85,000
- GM - 104,000
- Nissan - 14,500
It is estimated that
Ford, Chrysler and GM workers make about
$27 per hour and receive benefits equivalent to around
$10 per hour. That would work out to an average
compensation of around $74,000 per year.
Union workers also benefit from the
job banks program, under which laid off
receive 95% of their full pay and benefits when not working.
Click for more information.
- Competitive Position - Former Wall Street Journal columnist,
Roger Lowenstein says that
GM`s failure to compete effectively with Toyota
was due to the fact that Toyota was spending roughly twice
as much as GM to develop the next generations of car.
With GM spending $7 billion a year in benefit payments,
it just couldn`t compete. Lowenstein points out
that `GM invested so much in its pension fund in the
mid-1990s that, with the same money, it could have
acquired half of Toyota.` (p. 60)
Click for more information.
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Politics
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- `Stimulus Bill` - Of the $550 billion in spending, only around $150 billion
might creatively be described as an effort to `create`
jobs. The states get $167 billion of around $190 billion
that may help `save` public service jobs. Another $100
billion goes to potentially help some of those who
have lost their jobs. The final $100 billion is hard to
categorize. Cynics might well label it as special interest
pork.
The biggest portion of the tax cut is a $500 per taxpayer reduction in
payroll taxes. That would give each wage earner about
$40 per month in additional spendable/savable money.
Click for more information.
- Public Expectations -
Barack Obama will start his administration with a good
deal of public support. Obama will likely begin
with the highest ratings since Eisenhower's second term.
The Obama team's dilemma is that they almost have to
present their stimulus plans as being able to
'to create and save three to four million jobs,' that
is a tall task. Many economists doubt that it will
have much impact. Other think that is needs to be
three or four times larger.
Click for more information.
- The Auto Industry - Despite fading from the headlines, the 40% drop in car
sales is creating significant unemployment among auto parts
suppliers, dealership employees, as well as employees
of foreign-owned auto manufacturers. Unless sales dramatically
rebound, it is likely that significant bankruptcies
and closings will follow. Resentment of the fact that
U.S. auto workers and retirees are being paid by the taxpayer
not to work could follow.
Click for more information.
- Housing -
 The housing market also presents
a number of no-win choices. The housing market is
a mess. It faces a difficult economy, millions
of 'underwater' homeowners, three more years of
subprime mortgages, millions of unsold homes, and a
million unemployed construction workers.
The simplest way to understand the problem is to realize
that by 2007, both the sales of new and
existing homes and their prices more than doubled from
a decade earlier. At the height of the boom, the total
value of sales were almost four times the amount of
the early 90's. The total value of the sales in the
years between 2000 and 2007 were over twice the value
of sales in the whole decade of the 90's.
The numbers are massive. Existing home sales exceeded
$15 trillion while new home sales exceeded $2 trillion.
The corresponding numbers for the 90's are $6.5 trillion
and $1.2 trillin.
Click for more information.
- Banking - The Paulsen/Bernanke Troubled Assets Relief Program (TARP)
was sold to the public as an economic recovery measure,
intended to `unfreeze` troubled assets.
Once it was passed, it morphed into a bank investment program,
an auto bailout bill, and more. The second portion may
have some kind of homeowner foreclosure relief in it.
In order to qualify for money, a variety of Wall Street
firms and auto financing companies have become `banks` as
well.
So far no `troubled assets` appear to have been purchased.
The unspoken reason for the programs easy passage through
Congress is that the Federal government was already liable,
not to the banks, but to their depositors.
The Federal Deposit Insurance Corporation (FDIC)
insures over $4.4 trillion in deposits. To make good
on that money it has an estimated $55 billion in reserve.
Click for more information.
- U.S. Debt - The administration`s dilemma over the U.S. debt is not that its large, nor that
it is likely to grow wildly, it is if and where the
money will come from.
As of November, about 50% of the $6.3 trillion in U.S. debt was
funded by foreign countries with a little over half that amount
owed, in order, to China, Japan and the United Kingdom.
Click for more information.
- Entitlement Programs - The president-elect is planning to create a new
`bargain` between the government and the
people with respect to Social Security and Medicare.
As he said, `What we have done is kicked this can down the
road. We are now at the end of the road and are not in a
position to kick it any further.`
After 60 years of funding Federal deficits, the two programs
are now spending more than their payroll taxes produce.
Both Bill Clinton and George W. Bush recognized at least
part of the issue, but found that coming up with the
$40 trillion the programs are short was beyond them.
Click for more information.
- Job Creation Depends on Small Business - While academic research shows that small business
creates a vastly disproportionate share of the net new
jobs in the United States, small business doesn`t have
the lobbying power of many of the other special interests.
There is also no direct way for government to produce small
business jobs.
The creation of new small businesses produce
two to three times the number of jobs as do
small business expansions.
Click for more information.
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Forecasts
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- Dont` Worry - Be Happy - When is `bad` news really `good,` when it is
the Blue Chip Economic Indicators poll of 52 top economists.
While the economists expect the current recession to be the
longest since World War Two, a majority of those polled
thought the recession would officially end in the third
quarter of 2009. While the National Bureau of Economic Research,
has concluded that the recession began last December,
as the graph below shows, employment wasn`t hit
hard until October.
Click for more information.
- Ok, Worry! - Typically the qualifications needed for an economic forecaster
are computer skills and economic knowledge. Today, they
are possession of a crystal ball, extra-sensory-perception
and a knowledge of psychology.
Click for more information.
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