Posts Tagged ‘recession’

About a year ago, when it looked like the world was about to end and the economies of countries around the world were beginning to melt away like a Salvador Dali painting, the leaders of the U.S. government, i.e. President Bush and Treasury Secretary Paulson told us that we had only days, maybe only minutes, left to rescue those great bastions of Capitalism – the banks of Wall Street.  Everybody panicked. We couldn’t shovel money into the banks fast enough. If they died, we died – or so we were told anyway.

Today, the dust has settled, the banks are alive – having been given massive transfusions of life-giving money – and the people of America are left wondering: what just happened?  Here’s what happened: we were robbed by the banks.  After Lehman Brothers melted into a little puddle of red ink, there were reports that Goldman Sachs might be next.  Goldman Sachs!?!?  How could that be?  Isn’t Goldman the underlying sine qua non of American capitalism? If Goldman goes down won’t the entire country just dissolve? That’s what we were led to believe by Bush, Paulson, and their cronies.

So what happened? We (that means you and me, the American taxpayers) gave them a loan, called TARP, to keep them alive. We gave a lot of banks a lot of money because we were told we couldn’t survive without them.  They were “too big to fail”. Of course we didn’t give them our own cash, because we were also drowning in the melting economy – so we just printed the money and decided to let our descendants pay the government back through their tax bills over the coming centuries.

Here is where the big scam comes in: while Americans made a lot of stupid decisions buying houses they couldn’t afford at prices they couldn’t pay, the banks were equally – if not more – stupid because they gave us all those loans that we couldn’t pay back.  If the banks had the intelligence of a rock they would have realized that making such loans was pure folly.  They used to know that, but in their greed they put aside their knowledge as they chased the huge profits that can be made in a bubble economy.  So, what had happened was that we, the people, lost a bundle and so did the banks, but the banks got reimbursed for their losses – by us! But nobody reimbursed us! So now, not only do we owe the money we foolishly invested in overpriced houses, we are also on the hook for all the TARP money we printed because a lot of that will never be paid back.

Meanwhile, the bailed out banks – the ones we can’t live without, the ones that are too big to fail because our Capitalist economy depends on them – don’t want to play Capitalism anymore. They don’t want to lend money anymore. Instead they are hogging all their TARP money, refusing to lend money to people who need money for many purposes. In other words the big hog banks aren’t really functioning as banks anymore, which leads one to wonder why we thought they were too big to fail. In a sense they have already failed.  If they aren’t lending then they have failed in the principal purpose of a capitalist bank – making capital available. So if they have failed in their role, and yet, here we are, still alive and functioning, doesn’t that mean that they really weren’t “too big to fail” after all?  Aren’t the big hog banks proving every day that we really don’t need them after all? Isn’t this the big lie of Bush and Paulson?  Isn’t this the big lie of Wall Street?

One of the great drags on our economy now is the lack of available capital to restart businesses.  If we had simply nationalized the banks we would now have government-run banks that would be in the business of lending money to us because we would be the owners of the banks! They would sort of be like giant credit unions.  Instead, we have the Boss Hogs of Wall Street sitting on 200 billion dollars of TARP money, unwilling to do that for which we bailed them out.  The TARP bailout didn’t rescue the economy – the money we gave to the banks is still sitting in the banks, so how could it have any effect on the economy? The only thing TARP did was prove one thing: the whole Too Big To Fail story was nothing but a Big Bank Lie that only passed on the losses of the big banks to the American people.  We were duped. We were done a huge disservice by former President George Bush and former Treasury Secretary Hank Paulson, and we will be paying the price for this for generations to come.

Read Full Post »

A few days ago, President Obama gave a speech at MIT during which he reiterated the need to switch to green energy in order to preserve the environment.  He also said that the use of fossil fuels, particularly foreign oil, places the country in a precarious situation. If a foreign country cuts off our oil supply it could cause great hardship in the U.S.  He also said that a massive effort to create a green energy industry will be a significant stimulus for our economy. Speaking about the worldwide competition to create new sources of green energy he said, “The nation that wins this competition will be the nation that leads the global economy.”  I’m not so sure of that.

As usual, isolationist Americans tend to be unaware of advances made in the rest of the world.  Ever since we won World War II we have had a tendency to view ourselves as the world leader in anything technological. It might then come as a surprise to many Americans that the call to action for the creation of green energy has been heard a long time ago in Europe – while Americans were happy to drive their gas guzzling SUVs and Hummers and heat their homes with fossil fuels and generate electricity with coal.  While Americans were comfortably cocooned in their homes watching football on their widescreen TVs, Denmark was busy building gigantic windmills for the generation of electricity. Today, Denmark is the world leader in wind-produced electricity, a result of a National plan developed in 1976.  They make some mighty large and mighty efficient windmills in Denmark. It’s not clear to me that even MIT can overtake the Danes anytime soon in this type of technology.  Do we really think we will be producing next generation windmills anytime soon and be selling them to the world?  The world already has significant wind generation capability.

What about solar power?  Surely the world needs that. True, but the world has been working on that for quite a long time – while we were driving our SUVs around town trying to find houses we could flip.  Germany is the world leader in solar technology and has been for quite a while. The Germans are currently building a 40 megawatt solar power plant for their own power generation needs. I doubt that the Germans will be one of our customers for solar power technology. Germany is the world leader in producing solar power.

OK, so what else is there? Nuclear? Whoa, hold yer horses, fella. What do you mean “nucular”?  That’s dangerous. Don’t you know they make bombs out of that stuff?  We Americans don’t want that! (Just disregard our stockpile of thousands of nuclear bombs.) Meanwhile, the French – actually not “meanwhile”, ever since the Arab Oil Embargo in 1973  the French decided that they would never again be held hostage to foreign oil.  So they built a bunch of nuclear power plants all over France.  France is the world leader in nuclear power plant technology, not the U.S. I don’t think they’ll be lining up to place any orders from the U.S. even if we do decide to resume nuclear power research.  The leading institution in the world for the future of nuclear energy, i.e. nuclear fusion, is called ITER. It’s in France.  Under the Bush administration the U.S. had all but dropped out of this research effort. Our country stopped paying its dues and had almost zeroed out all funding. Meanwhile the other six members of ITER: China, European Union, India, Japan, Korea, and Russia have made great strides toward the production of power from controlled nuclear fusion – a process that produces very little radioactive waste. Recently the U.S. chipped in a little money that helped to make back payments that the Bush administration failed to make. Even so, we are hardly on the cutting edge of nuclear science compared to the rest of the civilized world.

The fact that President Obama wants to spend a lot of money on energy projects in America is good news. It’s about time. But let’s not kid ourselves. The rest of the world is way ahead of us.  The Obama plan will undoubtedly create more jobs in the U.S.  for people who will be engaged in energy research. It is something we need to do.  It is also something the rest of the world realized they needed a long time ago.  It is unlikely that we will find a large foreign market for our energy technology, whether it is solar, wind, nuclear, or anything else in the near future.  We have too much catching up to do. Because of that, it is unlikely that launching a massive energy research and development project can be the near term solution for our economy. We won’t be exporting windmills to the Danes, solar panels to the Germans, or coals to Newcastle. They have enough, thank you.

The fundamental problem with our economy is not that we don’t do energy reserach, it is the outsourcing of people’s jobs by multinational companies.  We simply cannot go on having our multinational companies make everything in China and then sell it to us in Wal-Mart stores while we get the money to pay for all this stuff by playing economic bubble games and getting home equity loans.  Green energy research is good. It’s good for the scientists and engineers who need jobs. It’s good for the environment. But let’s not kid ourselves, it’s not going to be the solution for the much deeper problems of our pathetic economy.  The solution will only come by tackling head on the iniquities of multinational economics and the exportation of American jobs and manufacturing capabilities to foreign countries.

Read Full Post »

Of course they are, and therein lies the problem for the U.S.  A great many of the world’s multinational companies were at one time American companies.  They were located in America, they manufactured their goods in America, they hired American workers to make those goods, and they sold their goods in America.  Not any more.  It’s hard to find a large, completely American company these days – there are better profits to be made elsewhere.  So, the question that needs to be asked is this: are these formerly American companies helping or hurting America?  Does America benefit from their existence or does their existence harm America?

If we go back to the beginning, it is easy to see that the multinational companies arose out of two desires on the part of the owners: 1) a larger market and 2) a cheaper labor force.  Fifty or a hundred years ago this desire was satisfied by the movement of American companies from the industrialized north to the agrarian south.  Everything was still in the family, so to speak, and because these companies were still entirely contained within the boundaries of the U.S. no one could say they were un-American.  On the other hand, there were a lot of confused people in the north staring at vacant factory buildings, slowly being covered by weeds and blowing dirt, who were wondering only one thing: “Now what do we do?”

In time, the costs of labor in the American south became a burden to the business owners and they began looking for other, even less expansive ways to manufacture their goods.  Sure, they turned to mechanization, and that certainly eliminated a lot of jobs – thus increasing profits.  But machines can be expensive too.  And they break.  And they get outdated.  So the business owners began to look further afield and soon saw that there was a semi-infinite supply of extremely cheap labor in the developing world. These people would work for next to nothing compared to American workers. All that was needed was some sort of legal framework to enable the companies to exploit this newfound source of labor.  In time, with the help of the U.S. government obligingly creating favorable tax legislation and foreign governments doing the same, a new mechanism was created where companies that were based in the U.S. could manufacture their goods someplace else, but still sell them in the U.S.  Of course their American workers lost their jobs as a result, and therefore couldn’t buy their products – but that wasn’t a problem, there were plenty of other Americans who had jobs, and they could buy the foreign made products.  And they did – gleefully – because the products cost much less than they used to.  The company owners had passed on the savings to the customers (well, some of it anyway, they of course pocketed a lot of it too).

It wasn’t long before a lot of other companies caught on and a slew of multinationals were born, giving rise to the Celtic Tiger in Ireland, the Asian Tigers in the Southeast Asia, and the Hidden Dragon/Crouching Lion we call The People’s Republic of China – or just China Inc for short.  Everybody got into the act and what had once been American companies established roots all over the world.  And then a transformation happened. These corporations began to look at themselves and found a new identity – they weren’t American, nor were they Irish, nor were they Chinese – they weren’t anything except corporations.  And with this internal revelation they realized that they owed nothing to any country.  They no longer had any allegiance to any flag.  They had no responsibility for any particular population group.  Their only “raison d’etre” was to make money – profit actually – for their owners, and they did.  Lots of it.

It is now becoming clear that all the favorable tax treatment the multinationals have received from the U.S. and other countries has been shortsighted.  Sure, there was a temporary benefit for a lot of people when U.S. jobs were exported. A lot of stuff became cheaper to buy for those Americans who still had jobs, but eventually the whole thing caught up with us. We’ve exported way too many jobs and now we can’t afford to buy even the cheap imported stuff that comes in.  So we use our credit cards. And we get home equity loans. And we play financial roulette, buying and flipping houses.  Now, as our economy lies a smoking ruin, we look to the multinationals for help.  Will they hire us?  Will they create new jobs for Americans?  Hardly.  These stateless entities care only for themselves; they have become parasites rather than good citizens. They are by definition un-American.

So what can be done to save the American economy from being completely bled to death by these heartless leeches?  Tax reform.  Of course that takes a government that isn’t being paid by lobbyists for the multinational corporations, but that is our only hope.  The cure for the multinational problem is simple: give huge tax incentives to truly American companies, i.e. companies that hire Americans, manufacture in America, and sell their products in America.  As for the multinationals – tax the Hell out of them.  Then send every American a check (sort of like how the State of Alaska sends every citizen of Alaska a check based upon oil company revenues) – their share of the tax on multinationals. We could then use that money to buy goods made by truly American companies.

Oh, by the way, that’ll never happen…

Read Full Post »

There are a lot of Americans who are invested in the stock market one way or another.  Many have 401k retirement plans.  Many have 529 college fund plans.  Some have IRAs and others simply buy stocks or bonds directly through a broker.  One way or another, I would guess that perhaps half or more of the adult population has investments in the stock market.  Let’s say that is about 100 million people, give or take.

Today, the Dow Jones fell precipitously from the opening bell.  It fell very quickly and stayed low the entire day without a lot of up and down motion after its initial drop.  By the time the market had closed the Dow had dropped 2%.  There are a few curious things about this.  First, the Chinese market had fallen 5.8% earlier.  Interestingly, the Japanese market had also fallen.  The Nikkei fell by 3.1 %, despite the report that Japan had just exited from recession and was now in an economic recovery. So one has to wonder a bit.  Did those 100 million or so American investors suddenly wake up in their sleep, perhaps due to a bad dream about the stock market, and sometime in the wee hours of the morning place a massive amount of sell orders before the U.S. market opened?

And if they did, why did they also bail on the Japanese economy?  Japan is now the third major country, after Germany and France, to announce that they have recovered from the recent economic meltdown.  Wouldn’t you have thought those sleepy Americans would have held onto their Japanese stocks? Or was it maybe the Japanese citizens themselves who panicked when they heard the dire news that they had recovered from the recession? And what got into all those people who had invested in Chinese stocks? China has the largest stimulus package in this corner of the universe and they also own several tons of U.S. treasury bills.  Did the investors suddenly forget that?  Why would all these little investors suddenly wake up in the middle of the night and scream, “Sell all my Chinese stocks!”

Why indeed.  Unless there is more to this instantaneous worldwide sell off than meets the eye.  I wonder.  Could it be that this massive, worldwide purge of investments wasn’t the result of millions or billions of investors all making the same “sell” decision at the same instant?  Could it be that perhaps something else was going on?  Could it be that maybe this was an orchestrated sell off instigated by a relatively small group of traders?  And if so why?  Why would any group of traders that control maybe 5 0r 10% of the entire world’s stock markets suddenly sell everything?  What could they gain – except to maybe trigger a massive number of stop losses.

And even if they did.  What good would that do for them?  What would they do then?  What would you do?  Perhaps we’ll see tomorrow.

Of course, I could be wrong.  Maybe everybody did just run to the same side of the boat at the same time.  It could happen…. Right???  Couldn’t it?

Read Full Post »

%d bloggers like this: