Day: July 31, 2009

Demand–Now That Is What I Am Talking About!

Since the economic collapse I have been saying that demand needs to be created not liquidity–for without demand nothing will move in the economy. I even have a page on the subject. We have pumped billions into banks and still not much is happening in the demand arena. We have tried to pump dollars into the infrastructure and again not much demand has been created. Then what shall the admin do to create the demand that is needed to jump start the economy?

Well they had a good start….with the cash for clunkers program. The WaPo is reporting:

Passed by Congress in late June to help the flagging U.S. auto industry and launched just a week ago, the $1 billion program gives vouchers worth up to $4,500 to consumers who trade in gas-guzzling cars for more fuel-efficient models. The highly publicized effort was scheduled to run until Nov. 1, or until money ran out. It was not expected to run out of cash so quickly.

The effort, formally known as the Car Allowance Rebate System, or CARS, appeared headed for a temporary shutdown at midnight Thursday. Federal transportation officials became increasingly concerned that the program’s popularity with consumers could drain its budget by week’s end, according to sources familiar with the discussions who spoke on the condition of anonymity.

The government’s “cash for clunkers” program, aimed at boosting stagnant auto sales, is almost out of money, putting its future in question, according to sources familiar with the effort.

Gee, sounds like they created demand…..you think that this could be an answer to the economic crisis? Some of us have been harping on that for a long time and it looks like we were correct in our premise.

Now that is what I am talking about…..create demand and the economy will start working again.  Go figure!

Stop The Presses: A Health Deal

Associated Press is reporting as we speak”

Democrats on a key House committee said Friday they have patched up their differences on a health care overhaul, and went back to work confident they can advance the complex legislation.

“We have agreed we need to pull together,” said Energy and Commerce Committee Chairman Henry Waxman, D-Calif. Liberals, moderates, and conservatives negotiated late into the night Thursday to reach a deal that would restore some subsidies to help low-to-middle income people pay their health insurance premiums, would preserve a strong public insurance option, and would cut drug costs more deeply, lawmakers said.

“We have agreed to work together”…..gee imagine that…Dems working together.,…would someone please tell the morons that is what people in the same party do…they work together to pass needed legislation.

Beyond the obvious, this is just politics at work…….not a binding agreement. Please do not hold your breath that this is a positive sign.

Dems Have A Deal On Health

The Wall Street Journal is reporting that the Energy and Commerce Committee has struck a deal….

Mr. Waxman (D., Calif.) broke the impasse with the so-called Blue Dog Democrats when he agreed to changes designed to hold down costs, exempt additional businesses from requirements to provide health insurance and change the shape of a proposed government insurance option.

In the Senate, Finance Committee Chairman Max Baucus (D., Mont.) said his effort to build a bipartisan bill is advancing. He cited an estimate by the nonpartisan Congressional Budget Office that the bill in the Senate Finance Committee would cost less than $900 billion over a decade — less than other versions of the health legislation in the House and Senate — and ensure insurance coverage for 95% of Americans.

Among other things, the House deal, put together with heavy involvement by White House Chief of Staff Rahm Emanuel, would exempt more small businesses from a requirement to provide insurance to employees or pay a penalty. The deal would require that payments to health-care providers under a new public health plan not be pegged to Medicare, the health plan for the elderly. And it would also pare back the 10-year cost of the bill, estimated at roughly $1 trillion, by $100 billion. The cuts would be achieved in part by asking states to share in a planned expansion of Medicaid, which offers health insurance for the poor, and by requiring low-income people to pay higher premiums to purchase insurance.

When you hear that they are searching for a bi-partisan I ask , “when did a deal between Dems and Blue Dogs constitute a bi-partisan approach?”

Where is asking low income people to pay higher rates a good thing?  Just who in the hell do the Yellow, oh sorry blue dog dems really respresent?  Sounds to me like the health industry money was well spent on the coalition.

Hell even the Repubs doubt the Blue Dogs.

Republicans on Wednesday said even the revised bill would raise costs for small business and kill jobs. “It proves once again that the so-called Blue Dogs have no bite when they’re forced to choose between their constituents and the radical leadership of their party,” said Ohio Rep. John Boehner, the House minority leader.

Liberal House lawmakers complained the changes would weaken the bill, in part by raising costs for lower-income people and diluting the strength of the public plan. “It’s terrible and totally unacceptable,” said Jerrold Nadler (D., N.Y.). Reflecting the challenge for Democratic leaders in keeping the party united, Mrs. Pelosi met with a group of liberal lawmakers late Wednesday in an effort to calm tensions.

The deal cut by the Blue Dogs didn’t address rank-and-file Democratic concerns about a proposed surtax on wealthy households. The House legislation has included an extra tax on households making more than $350,000 a year, while Mr. Obama has suggested he would support a tax on those making more than $1 million to fund expanded health coverage.

Under the revised bill, companies with payrolls from $500,000 to $750,000 would face a penalty equivalent to 2% of payroll if they fail to offer insurance. Companies with payrolls above $750,000 would pay an 8% penalty.

After the changes, some 5.3 million employers would be exempt from the mandate, about 400,000 more than under the original House proposal, said the National Federation of Independent Business, a trade group representing small businesses. Even so, the federation said it believes the burden on small employers is too high.

The article reporting on the outcome of the deal was written by Greg Hitt and Janet Adamy.

If you have been paying attention to what I have been saying and posting about the health care debate, you will notice that I have said all along that the original health proposal would look nothing like the final product and so far I am looking pretty insightful.

We Have Economic Growth

This is a cross post from my entry on Progressive Independence ( visit sometimes a very good site).

Professor’s Classroom

Subject:  Economics

We hear daily that the markets are up, at least for now, and that economic growth is slowly returning.  That brings to mind a saying I heard from MSNBC’s Dylan Ratigan, “slowly down is the new UP”…Sorry I digress.

Have you heard the words economic growth?  Are you tired of it yet?  Do you even know what is truly meant by economic growth?

Economic growth means an increase in the production of goods and services…this is represented by the Gross Domestic Product (GDP).  A strong economy is likely to strengthen the revenue pool that the government has at its disposal.  This is likely to make the redistribution of wealth  (entitlements) more acceptable to the population because they are experiencing a rise in their own wealth.

That is a classical explanation of what is meant by economic growth…but there is a problem with this…..what you ask?….GREED…economic growth is NOW based on greed and with the rise of that the likelihood of any expansion of entitlements unlikely…the attitude now is ..”I have made mine…let everyone else do the same”.

Nowadays, at least to some, the expansion of economic growth hinges on tax cuts…tax?…is not that where the government gets its income?  Short answer..uh huh.  Then how does the government get more money and have economic growth if they are getting less money?

Damn good question!  The theory is that if the wealthy pay less taxes they will expanmd their monetary endeavors and that will put more people to work and that will mean more tax revenues.  But then, Congress passes an income tax cut…and less money comes in…it is all the old “trickle down” theory…that never gets to the taxpayer all the benefits stay with the wealthy.

The problem with economic growth fueled by greed, it eventually leads to an economic slowdown or a recession.  Let us look at the recent rise in the markets….employment is still low….prices still high….inflation rising….credit tight….foreclosures still running rampant…consumer confidence is still low….yet housing starts are up…markets are rising…..profits are starting to rise….a mised bag of indicators.  If so, then why the optimism about the economy?

Yet another good question and there is a one word answer….SPECULATION!

Speculation simply put is….buy low sell high…Speculation has been the leading causes of economic slowdowns in recent years…the current one, of course and then there were the recessions of the 80’s and the bust in the 90’s…all lead by speculators and the search for maximizing profits at all costs.  And the cost was the recessions that followed.

This is a very simple and easily understood explanation of the happenings, as written by economist Henry George:

Enterprises slow down their expanding. We have reached the inflection point. Even though enterprises are still expanding rapidly, the rate of expansion has slowed down due to the too-high price of real estate. Contributing to the slow-down are higher prices for labor and other inputs as well, but these have not increased nearly as much, because only with land does an increase in demand fall fully on an increase in price – because the supply of land in a given area cannot be expanded, unlike other inputs!

The slowdown in real-estate construction spreads to other industries, as, for example, less furniture is ordered and less steel and lumber is demanded. Industries producing such capital goods, which expanded rapidly, now contract. Workers laid off or working fewer hours spend less. The rate of increase in the economy slows even more, until the slope becomes horizontal – growth has halted. The economy is at its peak, but is now headed for a fall! Because the growth rate has been decreasing, and now turns negative.

When investors realize growth has stopped, many will want to unload stocks, and a crash in the stock market often heralds the coming depression. But that’s only the beginning, and only a symptom of the problem, not the originating cause, although the loss of stock value contributes to the decline, since those who have lost their financial wealth will no longer spend money on large items.

The recession feeds on itself, as lower output leads to lower income and to lower spending, which reduces output even more. Real estate prices have remained at a plateau even though vacancies have increased, because the owners don’t wish to sell below peak prices. This phenomenon repeats itself each cycle! But eventually, increasing bankruptcies result in lower rentals for landlords, and some of those with negative cash flows must sell. Prices now start tumbling down. Many landlords go broke, not being able to pay their mortgages. In many cases, the debts of real-estate owners are greater than the value of their properties. Loans are not being repaid, and banks are losing great amounts of money. Many banks fail.

Check today’s news….do you not see everything written by George coming true?  Re-read his explanation…..Damn!  He was spot on and over a century ago…..somethings never change.

There is little economic growth, there is however, a rise in speculation.  All the talk about economic growth in today’s news is just window dressing to help protect the markets and speculators.

And now you have it…if you learn these points you can keep from losing your ass in the next bust and make NO mistake there will be another one in due time.

Post Script:  I have been writing and lecturing on politics and economics for the last 40 years or so, when you get to be my age you lose track of the years, and I have tried to keep all the info I can find on a subject out there to educate the reader and the people…..I will now go out on a limb…..the sitcom playing out in Washington is doing nothing to solve the problems and eliminate the causes…for that reason we will see the same thing play out in the next couple of decades…in other words…we will be in same exact spot in the coming decades and a whole new group will be having the same conversation they are having today…..watch for it!