The BOPAC Report:
America’s Economy Needs to Find Its Bottom before Regaining Sobriety
But Enablers are Moving the Bottom to Places of Extreme Peril
Yesterday, I was surprised by the U. S. stock market going up 221 points. What surprised me was not the gain but how many investors and media people appear to be closing their eyes and crossing their fingers “hoping” the economy will make it and become some sort of orderly, predictable creature. It’s like those who enable the drinking or drug use of addicts. It’s okay honey, I understand all the pressure you’re under, but you need to get up and go to work if we’re going to get that promotion.
The buyers looked at a decline in personal spending that was not as bad as was expected, a small unexpected gain in construction spending, a small increase in personal income, an increase in disposable income, and a contraction in the ISM manufacturing index whose pace of decline seemed to be decelerating and they promptly pushed their rose colored glasses higher on their noses and saw rainbows in the future. Oh my.
I’m sure many investors are simply gaming the system, reading the emotional tea leaves, seeing the “Yes We Can” recover sentiment in the media, and then buying low and selling quickly to make a quick buck. Don’t lose heart, these are the ones who are always feeding off of the swings of market emotion, the ones telling the functional alcoholic it’s early, urging him or her to buy another round of drinks.
But, the investors who are looking at these snapshots of spending, income, and manufacturing – using common sense and seriously considering the total economy, these guys may be in and out of the market daily, hoping some durable enthusiasm takes hold, driving the market up for the next few months to comfort China and other foreign investors in U.S. debt. However, these buyers are also acting as enablers of a system that desperately needs to find its own bottom so it can make the fundamental changes necessary for a sustainable future. Because this enabler (the serious investor) is afraid he or she might lose some profit, they don’t demand economic soundness. (One fundamental that could have helped is if GM had gone bankrupt months ago instead of being a money pit for scores of billions of taxpayer dollars.)
However, true to form, the media simply tries to provide cover for the Obama “Fairy Tale”, hyping any seemingly good news and selling the general public on the idea that the economy is improving because of Obama. Let me make this perfectly clear, the media is the true villain here because it is their job to inform Americans citizens of the true dangers facing the economy. They are the principle enablers who will allow the economy to crash beyond repair rather than admit that Obama’s actions are detrimental to sound economic growth and stability. “Honey, make it work, I trust you, I love you, it’s not your fault” is what the media says 24/7.
Why shouldn’t Obama believe it? They’re the supervisors in the Air France maintenance shop that continues to cover for the mechanic who comes to work hung-over. Make no mistake, we remain on the cliff and Obama’s relentless spending, government takeovers of business, disregarding contracts that protect bond holders (GM), disregarding the rule of law, and printing money from thin air are inching us closer and closer to calamity.
Are these indicators really predicting a turnaround or just the common sense reactions of the public?
There was an unexpected gain in construction spending! But unexpected? We are just out of winter. Have investors and the media not heard of spring cleaning? Every year small construction projects increase in the spring because the ground is not frozen, concrete can set, hands are not frost bitten. This year should be better because people have been cutting back on spending due to uncertainty in the economy, so they have a little money in the bank. Many of us “Joe the Plumber” types are not quiet ready to bet on the stock market as a long term investment and we are not expert enough to try to predict the market short term. So, it seems fairly basic that improving the home (value) is the best place to put money right now because there is only so much land and housing will return one day as a good investment relative to the others (if local governments don’t tax too much). It’s common sense.
Everyone please remember that disposable income went up, not wages and salaries, and that consumer spending declined. People are holding off on spending until they absolutely have to or the deals are just too good to pass up. Good deals are still available (computers, TV’s, stereos) and some may continue for the next few months for those with money or credit as producers continue clearing their inventories before they begin producing closer to capacity.
Maybe that explains the slowing decline of the manufacturing index?
However, when businesses give the really good deals – their profit margins decrease and so does the ability to provide pay raises, hire new people and reinvestment. It looks a lot like a cycle that’s creating its own headwind against recovery. The big question is: Once the inventory is depleted and new production is going strong, will the consumer be there to buy? I don’t think so because Obama is putting too many obstacles in the way. Let’s count them.
First of all, I want to make this perfectly clear, I don’t think Obama is an enabler of our struggling economy. From my vantage point, it appears that Obama is the “friend” of the alcoholic who has his eye on the alcoholic’s wife or husband (ask Larry Sinclair). Everything Obama has done or is doing is leading to the demise of the U. S. economy. His prize appears to be a socialist economy with a state run media. Obama must believe that he needs to completely tear down the old to make room for the new no matter how many people’s lives it destroys; or he’s simply incompetent. Please consider the recent article in Pravda.
He has quadrupled the budget deficit with no way to raise sufficient revenue other than printing money out of thin air.
If Obama were to tax American businesses and the wealthy to the extent necessary to raise sufficient capital to cover his ballooning debt, our economy would grind to a halt and much less revenue (taxes) could be collected by the government. If business people can’t pass these taxes on to consumers through higher prices, many could or would close down because it wouldn’t be worth the anxiety for the pittance of profit that remains. As is always the case, the truly wealthy will find a place to move their money to keep it safe from the tentacles of this out of control government. Remember that bump in the consumer’s disposable income that helped the stock market go up? It will be gone. You can probably count out any increase in wages and salaries. Let’s also count out millions of jobs while we’re at it.
Obama’s people are looking in every corner for revenue and they are likely resort to gimmicks such as taxes on junk food, tobacco and alcohol to raise money. It doesn’t seem to matter that such actions will break Obama’s campaign promise not to tax the poor and middleclass? (I guess it’s time to start brewing my own beer.) Notwithstanding campaign promises, additional attacks on every consumer’s wallet are in our future.
Obama’s people are said to be considering an across the board value added tax (VAT) on everything we buy. That’s really going to help bring consumers back in the market. And, they’re even talking about taxing the value of health benefits provided to employees which might (will definitely) cause some employers to stop providing health insurance. Tax after tax as far as the eye can see – the alcoholic might need to close one eye so he or she doesn’t get double taxed.
The nearly certain Cap and Trade legislation will definitely raise everyone’s “taxes” – although they will be called higher gas prices, higher electricity prices, and higher “fill in the blank prices” (and will be blamed on someone else). Every business that experiences higher costs due to cap and trade (CO2 reduction) will attempt to shift increased costs to the consumer, cut labor costs, reduce quality and/or go out of business. Higher gas prices will naturally raise transportation costs for every product made and will need to be passed on to the poor consumer. And of course, higher gas prices for personal vehicles will further reduce the amount of disposable income consumers have available to make purchases to fuel the recovery. (Obama should be focusing on encouraging the development of ways to remove CO2 from the atmosphere and using it. We should be drilling our own oil, developing new nuclear plants to create job and lower costs and reduce CO2 emissions.)
If politics don’t get in Obama’s way, Cap and Trade will eventually drive the clean coal business out of business forever. Anyway, I sincerely hope the Democratic Governor of West Virginia is paying particular attention given the fact that he might need to name a replacement for the Senior Senator from West Virginia, the Honorable Robert Byrd due to health reasons and/or his age. Therefore, it might be in West Virginia’s interest to name an Independent to replace Sen. Byrd should the need arise. Just saying.
As part of Obama’s apparent GM takeover and to appease the UAW, the Obama Administration has apparently agreed to prevent GM from selling (in the U. S.) fuel efficient models that GM currently builds overseas. Another concession to the union is that Opel’s new owners must agree to stay out of the U.S. and China; so much for being committed to the environment. This is pure protectionism and Union payback that prevents lower auto prices for consumers and contributes to the perfect storm that our economy is facing.
Printing trillions of dollars, pretending that the United States is solvent is reckless and is not sustainable. It’s not at all credible. Last week, Treasury Secretary Timothy Giethner was in China to reassure the Chinese government that their investment in U.S. securities was secure.
“Chinese assets are very safe,” Geithner said in response to a question after a speech at Peking University, where he studied Chinese as a student in the 1980s.
His answer drew loud laughter from his student audience, reflecting skepticism in China about the wisdom of a developing country accumulating a vast stockpile of foreign reserves instead of spending the money to raise living standards at home.
Michelle Malkin has it right when she says:
Tax cheat Treasury Secretary Tim Geithner is a laughingstock in Congress. A permanent punchline on late-night TV. And he’s a joke in China…
Luckily, one thing we can count on is that China will act in accordance with China’s interests. They do not, at this time, want America’s economy to collapse because they have trillions to lose. Notwithstanding, China should be demanding higher interest because of the increased risk of an American default. China should be reducing its long term exposure to the American economy by buying shorter term Treasuries and diversifying into copper, gold, silver, etc. It makes sense. If China and other countries stop supporting our economy by not buying our debt, we are cooked. The dollar will be worthless. It will be time to lock the door and load the gun because extreme times are coming.
America is not too big to fail!
On that note, something that we might want to study and pay attention to (instead of the media) is the yield trend on the 10 year Treasury note because that might give us some warning of a coming train wreck. When the price falls on bonds, the yield goes up. When foreign countries sell (dump) large amounts of our debt, the bond price will fall and the yield goes up. Even though China cares about returns, if they begin dumping our bonds causing serious increases in the yield, it indicates that China has no confidence in our currency or economy. Like I said if there are no buyers, we’re cooked. It will take a truck load of dollars to buy anything.
I’m fairly sure that we prefer selling these longer term bonds because we can put off having to pay up and also have time to pray that something good happens. The bond prices are what the Fed tries to manipulate by buying and selling U.S. Treasuries so they can stabilize the yield on bonds. If they are successful, our government doesn’t have to pay so much interest on our debt. However, it is also one BIG thing that the Fed can’t seem to control. An excellent article to get a sense of what is going on is Fed Credibility Bubble Bursts as Too Big to Fail General Motors Goes Bankrupt.
…Since the Fed has no Plan B, what does it do next?
Does it print more money, buy more bonds and pray that despite no change in policy, it will magically see a change in results?
Does it try to repeal the law of gravity — to somehow prevent sellers from selling and falling prices from falling?
Does it seek to travel back in time — to somehow reverse the blunders of past Fed Chairmen who helped create today’s debt monster in the first place?
Sorry, but those “solutions” are both insane and impossible….Continue Reading
One thing that the Fed cannot do is to guarantee the debt of California whose credit rating went from stable to negative. America’s economy cannot take anymore debt or anymore unfunded spending.
We need real income such as comes from unsubsidized energy like oil, natural gas, clean coal, and nuclear. We need to find ways to remove carbon from the atmosphere and utilize it. We need to cut taxes on corporations to lower costs to consumers. We need to utilize markets and capitalist solutions that punish incompetence instead of rewarding it (GM). We need a free and fair media that does its job. We need Dr. Orly Taitz or Philip Berg to cause Obama to be removed from office because he is (probably) not a “natural born citizen” as required by the Constitution. We need Larry Sinclair to hold Obama’s zipper to the fire. We need judges who interpret the Constitution and don’t try to rewrite it. We need to resist transnationalism with every fiber of our bodies and souls. We need to support our military and their families.
We need the Fed to stop acting as a major enabler and to demand sustainable solutions.
I’m sure Glenn Beck could add a lot concerning enabling and addiction.
And speaking of Larry Sinclair – it seems that Mr. Sinclair is seriously considering running for the United States Senate seat of Mel Martinez. I wonder if the media will cover his allegations then. Probably not. What if he won?
I do have a great deal of respect for Mr. Sinclair’s determination and resolve.
