The Barnard Observer
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Home Vault Misc Contact c2003-10 Thomas Barnard
Year End 2009
In the Crosscurrents
Still a lot of fear about the double dip, and the jobs bill is proof of that. There is an argument that the government should be spending a lot more money than it is. Krugman is very vocal about the need, and he gets back up by FDR, who claimed that for all his public works programs, it was the big spending of the war that made the difference.
I'm very much afraid that the window for this kind of spending is closing. The Democrats had their chance, Obama left Nancy Pelosi to her own devices, and I think he is already regretting it. The Stimulus Bill gave a lot of tax credits, and while tax credits might work in minor recession, they are of little use in an economy with 20% unemployment.
Which brings me to the governments unemployment statistics. It's too much of a game, if you take out those who are no longer looking from the employment picture, then sure, you can dip below 10%. But nobody believes it. The pundits look straight through that to see that a million people are no longer looking. The point of these misleading statistics is to try and put a happy face on things.
I think the use of tax credits was a waste. Won't do any good. Paying Medicaid bills by including them in the National Debt is a disaster, and scares the hell out of me when you consider this is what might happen if we have a national health plan that is run by the government.
Instead of spending $700 million on improving the infrastructure, only a paltry $50 billion was finally assigned to that. I'm not necessarily against spending massively on infrastructure, but one has only to look at what's happened in Japan in the last 20 years to see that such massive spending might not do the trick.
Inflation vs. Deflation
Certainly, in the short run it looks like deflation. I saw that a unit in my condo building is now offered at $129,000, down from $208,000 a couple of years ago. That is deflation, and there is no doubt about it. Natural gas prices have not moved anywhere, and oil now seems under pressure.
Everyone talks about the increase in the money supply, and yes, I'm concerned, but I think you still must consider the mechanism of inflation. The housing debacle is a case in point. With easy money, that is, low interest rates, the easing of traditional loan criterion, and you have people with money bidding up housing prices. That's inflation. Interest rates are not high, but the banks have raised loan standards, and it is no longer a piece of cake to get the money. So, okay, money is out there, where's the bubble? Well, to some extent the bubble is in the stock market, where money on the sidelines went back in to create a 60% recovery from the low.
But aside from the stock market, what prices are going up? Well, here and there prices are going up. I saw book prices higher. A $30 or $35 book is now up to $40. Food prices are creeping up, but rents are decidedly not moving up from what my pals in that business tell me. I'm not yet concerned at all about inflation. I am concerned about deflation. I don't think we have seen the bottom in real estate prices, and I'm not clear when that will happen.
There is the push-pull of wage inflation, where, because the economy is booming labor demands higher wages to share in the general improvement in the outlook. Nothing like that is going on.
I'm talking to friends of mine who have closed down their businesses and are unemployment insurance, and they're okay for now, but eventually these benefits will run out and then we will see where we are. I'm very much concerned.
I would certainly spend more on infrastructure, that's the thing to do in economic hard times. Franklin Roosevelt was absolutely correct. Unfortunately, he pushed even higher the increase in income taxes that came under Herbert Hoover (the high bracket moving from 25% to 60% - Andrew Mellon believed in balancing the budget). He pushed them up to 77%. You can't get blood out of a turnip. The Clinton rates were okay.
But no one believes after the idiocy of George Bush that government can ever be collared. Without going into the problem of political labels, don't be surprised if true fiscal conservative government comes from the Democrats. If wars can be conducted even if we don't have the money, and you can lower taxes when you're already borrowing for a war, then why would anyone believe in the government's ability to bring numbers into line.
Re-balancing
So, I guess I would re-balance things. I would tax gasoline, and spend it on infrastructure. I want to make gasoline high because it will encourage the high tech industries. It will encourage people to think about public transportation. Higher rider-ship will ease the burden on city governments. It will reduce the flow of dollars to the Middle East, and lower our borrowings. Sure, it will hurt people who have long commutes, but then, painful as this is, maybe people will think more about commutes before taking jobs. Sure, it will make a long, cold winter expensive. But then people will really think about sealing up their homes, getting good storm windows, stuffing the attic with insulation. Thrift will come back into the vocabulary. It will hurt the auto industry initially, which I am unhappy about. But it's the right thing to do.
I hate what's happening to the auto industry. A lot of good paying jobs have already been lost. And witnessing the crash in Argentina, I saw the damage that losing the middle class can do. One doesn't want to forget that the middle class does all the buying and selling and living and dying and all that George Bailey stuff.
Mostly I saw young girls working through the garbage. They were called cartoneros, they would gather stuff to sell - cardboard, metal. It's young men in this Youtube link: http://www.youtube.com/watch?v=kmPHbqhfqfI
I would rather not see this happen here, but I think when some of the unemployment benefits wear off, it could be possible. The larger problem we have to face is globalism. The upside of globalism has been the transfer of jobs to Asia, instead of a war, and a higher standard of living there. Good for them! The downside of globalism is the relentless reduction in the standard of living in the States. Instead of jobs with benefits, it's temp jobs (even if those jobs are called consultants) without benefits. This comes into bold relief as we move into the depression.
The problem is: rich folk just don't spend enough to keep a large economy growing. You must look out for the middle class, it is cornerstone of democracy. Otherwise, you have economies like Argentina. I lived across the street from what looked liked a very high class prison. Walls, a gate house, magnesium lamps, video cameras everywhere. It's a lousy society. And the rich get kidnapped, of course. Big surprise there. It's not any kind of society I want to live it.
Investments
I have increased my short position. I think it will be harder and harder to maintain optimism as the labor statistics are announced
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December 29, 2009 and January 12, 2010