8/7/09
Here's a headline from EIN News, "European Car Sales 'Will Not Recover for Five Years'. The European car industry will have to wait at least five years before sales return to pre-recession levels and faces recording heavy losses during that period, a gloomy new report has claimed. (telegraph.co.uk).
Taking this at face value, any reasonably efficient economic market analyst will then have the following conclusions:
1.) There is enough product (cars) already on the market.
2.) New product production need only match the rate at which present product becomes unusable. This is somewhat variable, because it depends upon mechanical integrity, maintenance, and public desire for new product design. However, the original EIN News claim is that the market will be extremely "dim".
3.) The prediction that the "[industry] faces recording heavy losses" strongly implies that there are too many automotive producers.
4.) Normal market conditions will require that several producers will go out of business, in order to balance market needs.
5.) Individuals, trusts, cooperatives, mutual funds, and government (socialized taxpayers) should not put money (invest) in automotive producers, unless expected loss of equity is tolerable for other reasons deemed more important.
Saturday, August 29, 2009
Airline Deficits
EIN News says, "Fate of U.S. Airlines Gets More Dire by the Day. The combination of the economy and high energy prices is threatening the U.S. airline industry in a way it has not been threatened since crude traded above $100 and pushed jet fuel prices to exorbitant levels. (dailyfinance.com)".
Lets not start with the supposition that we are going to "fix" this by throwing money at it. This is a worldwide problem, and it is not necessary that we be miles ahead of other countries in availability of air transport. Look at it as a total transport marketing problem. We have trucks, railroads, and ships for freight transportation, as opposed to airfreight. Time considerations are many times over-done. We can also get along well with ground and sea passenger traffic using capital equipment already in place, with perhaps minor expansion as the market may require. We have passenger ships, many of which could be diverted from their standard tourist usage to Transocean business transport. We have Amtrak, which has been in deficit and requiring government subsidies for years, because of insufficient passenger traffic. Perhaps with reduced air transport availability or a high transport cost, Amtrak may be able to come into its own. There is also no reason why transcontinental bus services could not be reinstituted. All of these would reduce transport energy requirements compared to transport.
Lets not start with the supposition that we are going to "fix" this by throwing money at it. This is a worldwide problem, and it is not necessary that we be miles ahead of other countries in availability of air transport. Look at it as a total transport marketing problem. We have trucks, railroads, and ships for freight transportation, as opposed to airfreight. Time considerations are many times over-done. We can also get along well with ground and sea passenger traffic using capital equipment already in place, with perhaps minor expansion as the market may require. We have passenger ships, many of which could be diverted from their standard tourist usage to Transocean business transport. We have Amtrak, which has been in deficit and requiring government subsidies for years, because of insufficient passenger traffic. Perhaps with reduced air transport availability or a high transport cost, Amtrak may be able to come into its own. There is also no reason why transcontinental bus services could not be reinstituted. All of these would reduce transport energy requirements compared to transport.
California Parks
EIN News says, "California Poised to Shut Gates on Great Outdoors As Parks Struggle With Budgets; Public May Lose Access to 80% of Nature Reserves. The proposed shutdown of the parks would affect 80% of California's nature reserves, historic sites and recreation areas, and restrict access to 30% of the state's coastline. Affected areas would stretch from the mountains of the Sierra Nevadas to the beaches and wetlands of Big Sur, and to the deserts of San Diego, where some of the last peninsular bighorn sheep roam. (guardian.co.uk)"
Here's another one you don't want to throw money at.
This is likely another maneuver on the part of the state of California to obtain an increase of its dole from other states that have shown more prudence and respect for fiscal responsibility. However, there is also the possibility that California may be attempting to reduce its expenses, which is long overdue.
In any event loss of public access to 80% of California's natural resources is a gross overstatement. One can't shut down a park, which is a physical asset. It would still exist. A shutdown only means reducing administrative and maintenance costs. That would mean a return to "wilderness area", which likely would be applauded by environmentalists.
An alternative if California is interested in reducing deficits is to establish or increase entrance fees to its parks. Based on these fees, the market (public) will then decide whether these parks should remain open under the specified conditions.
Here's another one you don't want to throw money at.
This is likely another maneuver on the part of the state of California to obtain an increase of its dole from other states that have shown more prudence and respect for fiscal responsibility. However, there is also the possibility that California may be attempting to reduce its expenses, which is long overdue.
In any event loss of public access to 80% of California's natural resources is a gross overstatement. One can't shut down a park, which is a physical asset. It would still exist. A shutdown only means reducing administrative and maintenance costs. That would mean a return to "wilderness area", which likely would be applauded by environmentalists.
An alternative if California is interested in reducing deficits is to establish or increase entrance fees to its parks. Based on these fees, the market (public) will then decide whether these parks should remain open under the specified conditions.
Bank Funds Misuse
E-mail to Congress:
EIN News says, "Bailout Overseer Says U.S. Banks Misused TARP Funds. Many of the banks that got federal aid to support increased lending have instead used some of the money to make investments, repay debts or buy other banks, according to a new report from the special inspector general overseeing the government's financial rescue program. (washingtonpost.com)".
This sounds like illegal operations. If such spending is legal, you folks didn't do your job right. If your phrasing of the laws/regulations did not allow such operation, what are you doing now to enforce the law? If these loopholes were created by operations of the Administration, why didn't you or why will you not now do something about it?
EIN News says, "Bailout Overseer Says U.S. Banks Misused TARP Funds. Many of the banks that got federal aid to support increased lending have instead used some of the money to make investments, repay debts or buy other banks, according to a new report from the special inspector general overseeing the government's financial rescue program. (washingtonpost.com)".
This sounds like illegal operations. If such spending is legal, you folks didn't do your job right. If your phrasing of the laws/regulations did not allow such operation, what are you doing now to enforce the law? If these loopholes were created by operations of the Administration, why didn't you or why will you not now do something about it?
Housing Value Decline
EIN News says, "About Half of U.S. Mortgages Seen Underwater by 2011. The percentage of U.S. homeowners who owe more than their house is worth will nearly double to 48 percent in 2011 from 26 percent at the end of March, portending another blow to the housing market, Deutsche Bank said on Wednesday. (reuters.com).
The implication of the above statement is that we are supposed to feel compassionate for the poor and unfortunate. Why?
US homeowners, with houses worth less than what they owe on them, still have homes to live in. Their mortgage payments are unrelated to the houses' values.
Whenever an item is purchased, there is a certain amount of risk involved. In the case of purchasing a house, one risk involves whether the value of the house will decrease. If there is a decrease in value, the first thing one must recognize is that the purchase was a bad investment under the circumstances that developed. That recognition should then lead to the fact that, "I will be somewhat more cautious in the future". A downside would be, if Congress or Administrative Agency bails these people out, they will then be conditioned to continue and even increase taking unsustainable risks.
The good news for these losers is that, if they continue to hold their houses, values will likely increase back to the breakeven or better point.
Deutsche Bank will have to explain to me how this, "portends another blow to the housing market". We already knew there was an oversupply of housing, under true market conditions. Correction requires a standard "workoff of inventory". Inventory reduction many times will involve price reduction. There's nothing new about that. Certainly, one should not be producing additional inventory of the same undesirable goods, if there is already an excess. We all knew that before Deutsche Bank made its statement.
The implication of the above statement is that we are supposed to feel compassionate for the poor and unfortunate. Why?
US homeowners, with houses worth less than what they owe on them, still have homes to live in. Their mortgage payments are unrelated to the houses' values.
Whenever an item is purchased, there is a certain amount of risk involved. In the case of purchasing a house, one risk involves whether the value of the house will decrease. If there is a decrease in value, the first thing one must recognize is that the purchase was a bad investment under the circumstances that developed. That recognition should then lead to the fact that, "I will be somewhat more cautious in the future". A downside would be, if Congress or Administrative Agency bails these people out, they will then be conditioned to continue and even increase taking unsustainable risks.
The good news for these losers is that, if they continue to hold their houses, values will likely increase back to the breakeven or better point.
Deutsche Bank will have to explain to me how this, "portends another blow to the housing market". We already knew there was an oversupply of housing, under true market conditions. Correction requires a standard "workoff of inventory". Inventory reduction many times will involve price reduction. There's nothing new about that. Certainly, one should not be producing additional inventory of the same undesirable goods, if there is already an excess. We all knew that before Deutsche Bank made its statement.
Stimulus Package
Randy Neugebauer's latest Newsletter asked for comments on the Stimulus Package. He pointed out that 57 percent of adults say the “stimulus” is having no impact on the economy or making it worse. The poll also found that 60 percent of Americans do not believe the “stimulus” will help the economy in the years ahead.
I have replied to Randy as follows:
This refers to your Roundup comments on the Stimulus Package.
Contrary to the majority, I feel the Stimulus Package may already be improving the economy and ultimately will have a positive effect. However, the favorable aspect of stimulating the economy is completely overshadowed by the damage that results from this effort.
This distribution of money is loaded with pork, which is an expenditure of funds on unnecessary and wasteful projects. It creates a massive amount of debt, which increases budget deficits through payment of interest. It creates demand for products and services above what a normal market can supply and thereby leads to inflation. All of this becomes an intolerable future burden for present middle-aged citizens, their children, and grandchildren.
Finally, it leads to an increasing public dependence on government to solve all problems, which is a socialistic/communistic mentality historically proven to develop a society without personal responsibility or incentive to individually or collectively accomplish anything.
The stimulus package was a mistake, but it appears that nothing can be done to correct it now.
I have replied to Randy as follows:
This refers to your Roundup comments on the Stimulus Package.
Contrary to the majority, I feel the Stimulus Package may already be improving the economy and ultimately will have a positive effect. However, the favorable aspect of stimulating the economy is completely overshadowed by the damage that results from this effort.
This distribution of money is loaded with pork, which is an expenditure of funds on unnecessary and wasteful projects. It creates a massive amount of debt, which increases budget deficits through payment of interest. It creates demand for products and services above what a normal market can supply and thereby leads to inflation. All of this becomes an intolerable future burden for present middle-aged citizens, their children, and grandchildren.
Finally, it leads to an increasing public dependence on government to solve all problems, which is a socialistic/communistic mentality historically proven to develop a society without personal responsibility or incentive to individually or collectively accomplish anything.
The stimulus package was a mistake, but it appears that nothing can be done to correct it now.
Fiscal Irresponsibility
EIN News says, "Pimco Says Dollar to Weaken As Reserve Status Erodes. Pacific Investment Management Co., which runs the world's biggest bond fund, said the dollar will weaken as the U.S. pumps massive amounts of money into the economy. (bloomberg.com)".
We are starting to see the first negative effects of the GRANDE Stimulus Package. This becomes evident in two forms; foreign exchange and local inflation.
PIMCO addresses the foreign exchange aspect. A friend of mine recently returned from the Norway, where a cup of coffee costs US$10. Norwegian prices may be high, but the major point is that US dollar has already been significantly weakened.
On the local front, we haven't seen much inflation yet. But that must come, as government is unable to balance the federal budget because of substantial increases in interest debt and the piling on huge costs for health care, various energy subsidies and the like.
The Obama Administration undoubtedly has the thought that it will be able to obtain significant taxes from private companies and the "rich". However, the Obama Administration is making every effort to drive companies out of business through the imposition of mandates. The "rich" will not invest their money under those conditions. Even if they did, their income (profit) would be so meager that income taxes would be insignificant. Government can then only get to the "rich's" assets through confiscation, which would then completely destroy the capitalistic system.
Governments only alternative is to inflate the currency through overprinting. Will we see a situation similar to that in Germany after World War I, when it took a wheelbarrow of Deutsche Marks to buy a loaf of bread?
Unfortunately, we are now in the soup, and I don't see anything that we can really do about it. Perhaps we can moderate the damage a bit by turning down the temperature of the "soup".
Very helpful actions would be to kill Socialized Healthcare and Carbon Dioxide Cap and Trade.
We are starting to see the first negative effects of the GRANDE Stimulus Package. This becomes evident in two forms; foreign exchange and local inflation.
PIMCO addresses the foreign exchange aspect. A friend of mine recently returned from the Norway, where a cup of coffee costs US$10. Norwegian prices may be high, but the major point is that US dollar has already been significantly weakened.
On the local front, we haven't seen much inflation yet. But that must come, as government is unable to balance the federal budget because of substantial increases in interest debt and the piling on huge costs for health care, various energy subsidies and the like.
The Obama Administration undoubtedly has the thought that it will be able to obtain significant taxes from private companies and the "rich". However, the Obama Administration is making every effort to drive companies out of business through the imposition of mandates. The "rich" will not invest their money under those conditions. Even if they did, their income (profit) would be so meager that income taxes would be insignificant. Government can then only get to the "rich's" assets through confiscation, which would then completely destroy the capitalistic system.
Governments only alternative is to inflate the currency through overprinting. Will we see a situation similar to that in Germany after World War I, when it took a wheelbarrow of Deutsche Marks to buy a loaf of bread?
Unfortunately, we are now in the soup, and I don't see anything that we can really do about it. Perhaps we can moderate the damage a bit by turning down the temperature of the "soup".
Very helpful actions would be to kill Socialized Healthcare and Carbon Dioxide Cap and Trade.
Mortgage Defaults
EIN News says, "U.S. Mortgage Defaults Soar to Record 13%. Widespread joblessness is causing more Americans to fall behind on their house payments, triggering a new round of foreclosures that some analysts fear could delay the nation's economic recovery. (latimes.com).
There are two possible answers for government.
If government feels this is not an immediate disaster, it should take no action. Let the market handle the problem by the previously developed standard procedures.
If government feels this is an immediate disaster, it should declare a mortgage moratorium. Pick a year or two. During the moratorium, mortgagors who are able to make their mortgage payments should continue to do so. Mortgagors who are unable to make mortgage payments will continue to accumulate the debt of back interest for some future resolution. There will be no forgiveness of debt.
There are two possible answers for government.
If government feels this is not an immediate disaster, it should take no action. Let the market handle the problem by the previously developed standard procedures.
If government feels this is an immediate disaster, it should declare a mortgage moratorium. Pick a year or two. During the moratorium, mortgagors who are able to make their mortgage payments should continue to do so. Mortgagors who are unable to make mortgage payments will continue to accumulate the debt of back interest for some future resolution. There will be no forgiveness of debt.
State Budget Pain
EIN News says, "Budget Pain Spreads to Energy-Rich States. Energy-rich states, flooded with cash last year when oil and natural-gas prices soared to record highs, are now being drained as gas prices plunged to a seven-year low Friday. In Texas, revenue from gas-production taxes has fallen 43% from last year, costing the state more than $1 billion in lost revenue. In New Mexico, lawmakers are scrambling to close a $433 million budget gap even as they worry the gap could widen if gas prices stay low. In Oklahoma, the state government is furloughing employees and cutting school budgets. (wsj.com)".
Government should not have taxed those industries to pay for its bloated operations. It's time now to pay the piper.
Notice the statement that there is "$1 billion in LOST revenue". Government didn't lose any revenue. Government just didn't receive revenue it THOUGHT it was entitled to.
Government should not have taxed those industries to pay for its bloated operations. It's time now to pay the piper.
Notice the statement that there is "$1 billion in LOST revenue". Government didn't lose any revenue. Government just didn't receive revenue it THOUGHT it was entitled to.
Stimulus Package
Federal Reserve Chairman Ben Bernanke recently said the world financial crisis is over and the US economy is improving.
This has occurred, even though only 10% of the US Stimulus Package has been spent.
Wouldn't it seem logical that Congress should now cancel the allocation of the unspent 90%? This would tend to reduce the tremendous debt previously foisted on the public.
This has occurred, even though only 10% of the US Stimulus Package has been spent.
Wouldn't it seem logical that Congress should now cancel the allocation of the unspent 90%? This would tend to reduce the tremendous debt previously foisted on the public.
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