1 Senator voted against the UnPatriot Act when it was initially passed.
36 Senators voted against the nomination of Alberto Gonzales.
44 senators voted against the nomination of Samuel Alito.
48 Senators voted against increasing the debt ceiling to nine (9) Trillion dollars.
(On August 7, 1964, 2 Senators voted against the “Gulf of Tonkin Resolution,” Ernest Gruening of Alaska and Wayne Morse of Oregon.)
America and its allies must encourage other countries, particularly Arab countries, to embrace capitalism and participate in the world economy. The most competitive economic player, Dubai Ports World, was set to take over terminal operations at some of America’s busiest ports. Bush could have done a more nuanced job anticipating the reaction and introducing the development to the American people. The reaction of many Americans to the sale was unfortunate but not surprising. Leaders, however, should lead, not pander. The one time in recent memory when the Democrats and Republicans in Congress stood up to Bush was the one time when they should have stood tall with him. Two of the 9/11 terrorists appear to have had connections to Dubai. There is less chance of an attack on an American port by someone from Dubai if someone from Dubai is assisting in operating it. Free trade and economic interdependence promote peace. America made an egregious mistake and forfeited a promising opportunity to build an economic link to the Arab world. America committed a self-inflicted terrorist act by burning a bridge it should have built.
In March, 2000, the economy began the well-publicized high tech slide. Manufacturing and services continued to flee the country. Technology was a transitional industry, but the best minds were disproportionately and increasingly foreign; too many of the goods and services could be and are being manufactured and provided overseas. As one bubble burst, however, another one was being blown. Only one remaining domestic industry existed that could also be subsidized effectively – the real estate industrial complex. The Fed provided the steroids. Interest rates (the Federal Funds Rate) were precipitously reduced which significantly undermined the retirement income for those retirees (born before 1935) who relied on interest income to support them during their golden years; sacrifices have to be made.
American land, American land owners, American (and Canadian) timber, American (and Hispanic) labor, American builders, American real estate agents, American appraisers, American surveyors, American bankers, and American candle stick makers all profited handsomely. The land perforce cannot be moved offshore, the houses cannot be built overseas economically, and most of the players, with a few exceptions, cannot be outsourced. Between 2001 and 2005, the construction trades and the financial and real estate service sectors provided seventy percent of the economic growth in America. Yet the largest share of the real money to construct the house of cards was foreign-born. Americans don’t own their homes today; foreigners own their homes and rent them to Americans. The Fed should have issued stronger warnings and recommended Congressional action to supervise the spew of credit; in the face of inevitable inaction, the Fed should have corked the champagne in the summer of 2003 by bumping up the interest rates. [See the April 25, 2005 e-ssay entitled “Our Friend the Fed.”] As the market peaked in the summer of 2005, however, increasingly marginal economic candidates were seduced by intoxicating no-money-down/interest only/adjustable rate mortgages to enter a hyper-inflated market. The homes were ATM’s which provided the consumer spending that drove the economy for four profligate years. [See the February 7, 2005 e-ssay entitled “The Microeconomics of Suburban Subsistence.”] The “wealth effect” engendered by the growing equity in homes encouraged more spending on credit. The homes are now occupied by “renters” who are consuming a growing percentage of their income just to service the interest payments. The savings rate predictably went down in 2005 for the first time since 1933. Something is in the cards; the house of cards will collapse by Christmas. It could not go on forever; as many have observed, what cannot go on forever will not go on forever. The last viable domestic industry has now run its course with devastating consequences. And now the country is left with vast numbers of McMansions that will soon cost too much to heat.
Ben Bernanke may be Bush’s most promising appointment. However, he will inherit a mess beyond repair or management. There is no industry in America left to subsidize. With consumers and the country up to their tonsils in debt, consumer spending is and will be inadequate to drive the economy. Foreigners will quietly reduce their purchases of t-bills and demand more return for their remaining investment in dollars. The growing demand for oil is occurring at a time when the supply may be interrupted by some unstable or unfriendly regimes. Rising oil prices will drive up the producer and the consumer price indexes. Not raising interest rates will allow inflation to soar. Raising interest rates to check inflation will stall the collapsing economy. The Fed is likely to raise interest rates to 5.0 percent to check inflation even though the economy is entering a period of “stagflation.”
One of last year’s predictions was flat wrong – the Euro went sideways, not up, relative to the dollar. That means that Europe went sideways, not up. That is not good. Untethering the Yuan, albeit slightly, in July was critical; the Yuan must be free to go up or down or sideways. The dollar must remain free to go down to balance the trade deficit. The National Debt broke 8 Trillion and continues to skyrocket. The Crusade in Iraq is a continuing failure. We as a planet celebrated the second anniversary of Bush’s declaration of World War III on March 19. The battlefield is now the entire planet; there is no plan and no end in sight. The Downing Street Memo released in The Sunday Times on May 1 confirmed that the entire Crusade was premised on a lie; May 1 is “Law Day” which is a day to reflect on our heritage of liberty, justice and equality under the law and the rule of law in a democracy; the Sunday Times article was overlooked or disregarded by almost every American commentator. The cesspool of corruption fomented by the Republicans now has some citizens scratching their heads and wondering whether we should return to a two party political system; it has served as a check and provided balance even though it is not written into the Constitution. The conquest of the Supreme Court began as promised. Activist conservative Supreme Court justices will reward the president who appointed them with a blank check to establish a Supreme Emperor. When called upon, the Supremes will reciprocate again and appoint a Republican president. Smiles mask lies. A federal government designed not to respond to major disasters such as the Hurricanes this summer will not be able to respond to major disasters. The response to Katrina and kin was intentional not unwitting. A federal judge in Pennsylvania appointed by Bush of all people provided a flicker of hope when he observed that intelligent design has no place in the classroom. Harold Pinter discussed the lack of truth in politics in his Nobel acceptance speech. Those who were confident that Bubble Boy was monitoring their conversations remain convinced that he is monitoring them. What else is he doing to us? There is a new Pope. And Terry Schiavo, RIP.
America is on the precipice of a long, harsh and grinding Depression. Don’t get depressed. The experience will be uplifting. Americans have become fat, lazy and arrogant. The coming Depression will make all of us lean, hard working and humble, the true American family values. Those few Americans who have acquired three Burger Heaven franchises have become smug members of the petty bourgeoisie. They have conspired to eliminate the safety net that underpinned life in America. They will be the ones to fall the farthest and land the hardest without the internal fortitude to survive. All of us will be better for it.
(Now that the taxes are filed, it is time to deal with death)
Ben F., the key and kite guy, observed that there are two certainties in life. Americans are so arrogant that they believe they are entitled to repudiate their mortality, although they do not believe they are entitled to pay for the effort. Now the Congress wants to repudiate life’s other certainty, the payment of taxes upon death. Is there no certainty in life?
Estate taxes (E taxes) are paid on the loot before anyone gets their paws on it. Most Estate taxes are paid to the Feds, although the states will need to reach into the pot and grab a handful to survive in the near future. Inheritance taxes (I taxes) are paid by the individuals after they get their paws on the lucre. Most Inheritance taxes are collected by the states, although the Feds savor taxing any income from any source.
Contrary to the suggestions of their phalanxes of lawyers, lobbyists, lackeys, accountants and publicists, the rich often never paid tax on large chunks of their bounty. Those who can afford almost anything should be afforded the opportunity to be first-class citizens. Getting by on $10 million per couple and 66 2/3 % of the remaining stash is fair and balanced. Anything below ten million per couple should be exempt; anything over should be taxed at 33 1/3 %. A typical $20 M estate would yield $16 2/3 M for the kids. That is the definition of fairness. Fooling around with life’s certainties is foolish. And improvident.
The “ownership state” is a movement to establish a very small cadre of Republicans who own the ship of state, and everything else.
Also marketed as the “ownership society,” the “Raw Deal,” or the “Malignant Society.”
Bush, Inc. (Ticker Symbol: BuSh), a multinational corporation incorporated offshore, offers publicly traded preferred shares affording one who can afford it an opportunity to make a pure play to “own America.” Individuals, but only very wealthy individuals, can acquire an interest in the enterprise in various dollar denominations marketed as “Rangers” and “Pioneers” and “Cattle Rustlers” and “Robber Barons” and “Inside Traders.” Bush, Inc. has successfully fooled the public into believing that ordinary citizens can acquire a share of America, but they offer no common stock.
Karl Rove, winner of the J.P. Goebbels Propaganda Award for 1999, for 2000, for 2001, for 2002, for 2003 and for 2004 and a finalist for 2005, is the CPO (Chief Propaganda Officer) and scrivener of the prospectus. Call for the prospectus which does not include investment objectives, risks, charges, expenses or other information. Operators are standing by. Read and consider the prospectus carefully before investing. Past performance can be used to predict future performance. As with any prospective investment, take the time to do some additional research. Note that many Officers and Board members stand for retention election next November. A change in management is the only way to bring about change.
On the domestic front: The new bankruptcy reform bill may be a trigger for America’s bankruptcy. The new bill makes it more expensive for someone who has no money to file bankruptcy. Everyone mired in debt is now under the gun to file bankruptcy under the current scheme before the effective date of the new legislation in 180 days or to forsake the opportunity. Debtor bankruptcy attorneys will be doing a land-office business filing petitions in the next six months. The credit card industry that benefits from usurious interest provisions and late fees is protected by the new legislation. However, the very industry that provided the “crack cocaine of the middle class” (Feb. 7) now may be hoisted by their own petard.
On the international front: Japan, China and South Korea are approaching one trillion (T) in Yankee debt. Japan is looking askance at China and South Korea; China at Japan and South Korea; South Korea at Japan and China. Europe is looking East then West then East then West the East. Each player knows that pulling the plug will produce devastating economic consequences; not pulling the plug will produce devastating economic consequences. What does game theory suggest? One country will concoct a convenient domestic political crisis to diversify out of American dollars or to simply quit acquiring dollars or American debt.
International Economic Seismic Activity (IESA):
Player: Stake (Bs): Anxiety:
Japan 701.6 March 12-Prime Minister Koizumi seeks “diversity”
China 194.5
U.K. 163.0
Caribbean 92.5
Korea 67.7 Feb. 22- Central Bank thinking about foreign currencies
In addition, the Producer Price Index (PPI) is stirring and soon the Consumer Price Index (CPI) will accelerate in response. The price of oil is driving up the PPI (John’s dear tractor is more expensive to fuel) and also the CPI (Jane’s dear SUV is more expensive to fuel). Gas may hit $4 a gallon. The Fed must raise interest rates to stave off inflation. With inflation on the rise, the nominal interest rates must rise even more to provide a real rate of return. Those half dozen Americans who have the discipline to save also have the knowledge to understand a ROI (return on investment). The rising interest rates will tank the bond market. The stock market is tanking of its own excess. And few are concerned with domestic spending. The body politic needs life support. Congress will soon need to pass a Crisis Budget (CB).
[Thirty-six (36) Senators voted to reject the nomination of the legal architect of torture; there is hope.]
Seven years ago at the age of 30 the prospect of paying off a 30 year mortgage was incomprehensible, so they did not comprehend it. She liked it, the kids liked it, the dogs liked it. $150,000 was a lot of pizza and beer but with a few sacrifices not much more than the monthly rental payments. Empty photocopy paper boxes still served well as end tables. Seven years have passed; seven summers, with the length of seven long winters. They are finally retiring some of the interest obligation and will retire the mortgage before they retire at age 65. They don’t expect to be able to retire until the house is paid for.
The news states that the value of the place has gone up and interest rates have come down. $250,000, for the bungalow? But the equity was just sitting there. A friend who is a broker provides a broker’s opinion of value (BOV) for $275,000; the friendly bank provides the money. They are now seven years older paying more on the place for another 30-year sentence. 67 isn’t all that old.
For what? Some of the money pays off credit card debt which is not what the homebuilding industry intended when they constructed the mortgage interest deduction. The couple’s decision is rational to the extent that the interest payments for the mortgage are deductible, whereas the interest payments for the credit card debt for his beer and her shoes are not. Someone once observed that one should never ever ever ever ever ever ever finance something for longer than its useful life. His beer has a useful life of one night and her shoes have a useful life of a fortnight. They do not even sell replacement shoestrings for women’s shoes. Those living on a shoestring budget discover that credit cards are the crack cocaine of the middle class. An over-leveraged mortgage is its Methadone. Methadone cures one addiction and creates another.
The news states that his company is downsizing. Everyone hates his job except when he does not have one; how he loved the job he hated. Life was never “easy come, easy go,” but “hard come, easy go” worked while he worked. They say there may be some rehires in two months, but they are two paychecks away from bankruptcy. If they skip the mortgage payment for a month or two, they can buy more time. The foreclosure process takes three months anyway. Another credit card solicitation arrived with today’s bills. The problem and the recent solution are delivered in the same box. The finance company won’t repossess three-year old furniture with negligible salvage value; caller id allows them to continue ducking the calls from the collection agency. He had the better health care plan; she opted for the better retirement plan with her company. It worked so well when it worked. Little Egbert is not well. Loss of a job, an illness not covered by health insurance, and divorce are the three horses of the suburban apocalypse. The Surgeon General has determined that unemployment can lead to illness. Unemployment and illness tax a marriage. Taxes and money issues really tax a marriage. All three horses are chomping at the bit.
The news states that the company is taking an extended overseas vacation. Housing prices drop 30 percent in the community. The estate is now worth $175,000 on a good day. Why continue paying off a $275,000 note on a $175,000 house? The adjustable-rate mortgage (“arm”) sounded good at the time, but with rising interest rates it now has them in a headlock. An “arm” could be a shorthand word for “costs an arm and a leg.” And the rising interest rates drive up the actual cost of a $175,000 house to the few otherwise curious buyers. Why not return the keys and rent a place? Last year’s thought that the equity in the house might be part of the overall retirement plan is quaint and distant.
Home ownership is one of life’s joys. Home ownership is part of “the pursuit of happiness” even if the roof, the faucet and the foundation leak. This piece is intended to be analytical rather than judgmental. Who is at fault and what to do is another concern. Our friends in Suburbia are under “economic house arrest.” Visiting them in six months may not be pretty.
Ontogeny tends to recapitulate phylogeny, they say. These economic decisions are also the core of the current business plan guiding the Republican government.
How do you create a small profitable airline? Start out with a large profitable airline. The move of small and large airlines to unprofitable status in America is cause for concern. The survival of many of Americas private air carrier system is in everyone’s interest.
The current insane pricing system is too baroque and requires one to earn a merit badge or obtain an MA in Ticketology. There is so much effort expended and time wasted that does not provide any utility attempting to find an even cheaper ticket. On any given flight, one would need to search a few rows to find someone who paid the same or even a similar price for a ticket. “That fellow in seat 6C looks smug. He got a better deal. I know it. Next time, one more search, by golly.” The search itself provides no social benefit. By contrast, a hurricane that inflicts a billion dollars in damages also inflicts a billion dollars in benefits because of the resulting purchases of plywood, overtime for insurance adjusters, sales of batteries and bottled water, etc. By contrast, the process of searching for a cheaper ticket does not provide much utility even if a successful outcome provides some fleeting happiness.
The fare structure should be simplified to one fare with desperately few restrictions, conditions or limitations. Business class fares are undesirable because the tickets are purchased by the public via an income tax deduction provided by our even more baroque and byzantine tax system. On the other hand, in a free market, perhaps a business class section meets an acceptable public desire. A Saturday night stay or a Tuesday afternoon stay or a Friday morning stay is not related to the actual cost of transporting humans; stay stays altogether. Current thirty-day limitations on travel are unfounded, although a requirement that travel be completed within a year provides for the elimination of the liability to the airline within the fiscal year; this limitation really only impacts five customers. Charging more for a ticket as one gets close to the date of the flight may appear to trap those who have no other alternative. Trapping those who have no other alternative is inelegant, unsporting and bad business. Set one price and then let those who want to have that ticket in hand buy a ticket early. One astute frequent flyer plan allows a participant to walk up to the booth on the day of departure and fly if there is an available seat. The airline satisfies a previously satisfied customer while extinguishing a liability. The additional cost of the passenger is little more than peanuts, although admittedly some more fuel is consumed, blankets are worn and thus worn out, flight attendants must attend, etc.
The airlines should not serve much more than peanuts on a domestic flight. They should provide fast flights not fast food. All the different dietary needs that have been met commendably by the airlines to date (such as no peanut products in the food, etc.) are too expensive and unwarranted. Food courts at the terminals provide food more efficiently. Aircraft space currently committed to the galleys could be used for more seats and for an additional two inches of knee room between each seat. Flight attendants who were originally nurses would no longer hand out fries and would instead nurse the safety of the larger number of passengers in more spacious seats. Eliminating the food delivery to the aircraft eliminates the most vulnerable opportunity for a security breach of the aircraft. And if someone wants to change a return time and there is an available seat, change the time once for $25 and a second time for $100. Allowing for free time changes does not force the passenger to spend sufficient time at the outset determining his or her realistic travel plans. Passengers treated this way will be back.
Any action by the government is likely to botch up the necessary market forces. Create a CAB II? BAD. Those who laud the apparent lack of government involvement in the airline industry since 1977 overlook the nearly complete regulation of the industry at this time by the government. The government agency is known as the United States Bankruptcy Court For The __________ District Of __________. Bankruptcy courts are appallingly poor economic air traffic cops. The airlines need to behave rationally with as little government activity as possible.
An airline that cut costs by eliminating these inefficiencies (and absurdities) may survive long enough to achieve profitability. That best serves the public interest. There are still the problems of unfunded pension plans and inadequate health care, but that is for another flight.
e-commentary 