Economic turn of events may not be so bad…

December 14, 2008

(Copyright 2008)

The WALTHER REPORT

By Tony Walther

Let me get this straight: the government is giving (lending?) billions of dollars to the banks so that they will extend credit to businesses and consumers, but instead, the banks fearing that loaning money out in that fashion would be too risky right now, are buying Treasury bills, in essence, loaning it back to the government. And they’re in many instances getting either zero interest or even negative interest.

Well, that can’t be quite right or can it? but maybe someone will help me to understand this better.

Meanwhile, on Meet the Press this morning I heard the CEO of Walmart say that “Walmart moms” are being frugal and spending more money on food rather than consumer luxuries and are using leftovers for dinner more. He also said that restaurant owners are using yesterday’s receipts to go to Sam’s Club (a Walmart operation) to buy today’s restaurant dinners (as opposed to buying on credit, I suppose).

Consumers it is reported are holding off on big purchases and saving back to some extent – or maybe they lost their jobs and simply don’t have the money.

We already know that the drop in driving caused by that gigantic spike in fuel prices a few months back has led to a just as dramatic drop in fuel prices (although I read in today’s news that fuel has started to go back up in the last two days). That is good for the pocketbook and good for the environment.

Actually the only problem I see, and it is a big one, is that if things continue on the downward trend in our economy a huge number of folks (yours truly is not immune) could go without food and shelter.

But if we can keep roofs over the heads of folks and food in their stomachs, the overall economic picture is not so dire after all. I mean it seems like the realities of life and the market place and simple economics has injected some sense into the picture (giving money to the banks and talk of bailing out Detroit automakers as a result of their poor business decisions notwithstanding).

Decades ago I wrote a paper for one of the few economics courses I ever took in college. I don’t have it, but I recall something of what it was about and the fact that it was indeed a sophomoric approach to the subject. On the other hand, I am not so sure that I was too far off track. I disparaged the wide use of credit and opined that if people had to buy things cash and had to save back to do it, prices would be lower.

And now the part that hurts. At the time, my wife and I had just entered into a government subsidized mortgage that required very little down and I think our monthly house payment was something like $100 over 30 years and the principle was $28,000. Had we stuck with it, we’d be living in a paid-for house now. The CEO of Walmart said on Meet the Press that in the early 70s (the same time frame as us) he and his wife purchased a home through a government program for $30,000. Apparently he made better life decisions.

Give me a few moments to cry….. Okay, I’m over it.

Personally, I think everyone, individuals and businesses, needs to go back to the basic principles of economics, such as don’t spend more than you bring in and be wary of credit. And our government must enforce practical rules of businesses and strict oversight in the public interest.

In the meantime, the government will have to take unusual steps to avoid mass homelessness and starvation. But we actually do have the resources in land, raw materials, and even capital (the money is not actually gone – it’s just not being distributed in the normal way) to move forward.

If we really did believe in that higher power as so many of us profess, rather than worshiping at the alter of self-indulgence, things might not look so bleak.

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Economic crisis: thanks we needed that…

October 24, 2008

 

(Copyright 2008)

The WALTHER REPORT

By Tony Walther

As painful and scary as it is, I think that the current economic crisis we are going through in the United States is a healthy thing (as to the world-wide situation, well, that’s their problem).

Collectively as a nation we’ve been living on borrowed time or borrowed money for too long and the chickens have finally come home to roost.

You know things are bad in my local area when the home foreclosures have skyrocketed, they are starting to build smaller homes – when they build them – and the contractors are going before the city council to get public funds to build low-cost housing. That last one mystifies me. If the homes are lower cost, why do they need public funds? I mean if they are cheaper to build, why do they need help? And don’t tell me it’s the cost of union labor. Home builders to my knowledge don’t use union labor in this area, for the most part, at least. There’s a lot of “Joe the Plumber” entrepreneurs no license required types around here. There’s also a lot of under-the-table work in the best why should I pay taxes Republican tradition. Of course these same folks are quick to sign up for public assistance when they get hurt or run out of work. The underground economy is no secret here. It’s been covered in the news over the years.

But back to the economic crisis. My way of looking at it is this: maybe living on credit and living beyond one’s means is not the way to do things, even though the powers that be have encouraged us all to this very thing. And maybe an economy, nationwide, that is focused more on handling imports and the so-called service sector and delivering pizzas to one another leaves us all kind of empty.

To be sure, there are a lot of folks out there who have been prudent with their money, worked hard, and now are being made to feel some of the bad effects of the nation’s profligate and imprudent ways. While things are bad all over, it is particularly unfair to those people.

While credit at some level is apparently a necessary and integral part of our capitalist economic system, I think the idea that everyone lives on plastic was always a bad one. Consumer credit is what makes things cost so much. When businesses know that their customers can charge it, they charge more for the products and services they sell. They, the sellers, know they get paid up front, and then it is someone else’s problem to collect later. And even with all the home foreclosures and the mounting credit defaults, banks are still mass mailing credit cards, no questions asked. We get them at our house and even get calls from banks wanting to offer higher credit limits (apparently they are working on either no information or bad information).

One major problem is that there is no consistent and comprehensive program to teach basic consumer finance in the schools. I have a BA degree and never once, kindergarten through senior in college, took a basic consumer finance course. I did take a consumer law business course, but it had little about basic consumer finance. And the Bank of America did pass out bank books when I was in first grade, but no one explained what they were all about. That would have been a good start, though, and if they don’t still do that, they should, and get the schools to provide instruction assistance to the program.

And don’t get me started on what the public schools don’t teach. What they don’t teach, or at least not well enough, are the basics of reading and writing and arithmetic. That’s why the state four-year colleges in California have to send many of their students to remedial classes at the junior colleges.

Computers and technology are an essential part of life now. But we still need to get back to the basics, both in education and in our economy.

In a nation as geographically large as ours, with as many people, and as many natural resources as we have, there is no reason that we should not be a leader in manufacturing and producing everything from food to basic durable goods, to high tech, and of course we will have a service sector to support all of this.

It makes no sense to waste our resources and to have the government (read taxpayers) be forced to pay a substantial portion of the population to do nothing. We actually wind up importing workers, legally and not legally, and outsource work.

A nation with a strong manufacturing base can support all of its citizens, to include the sick and disabled and aged, defend itself, and not be dependent upon other nations for capital and the reduction in its own sovereignty that comes along with being a debtor nation.

The best days are truly ahead of us. And they can get under way with either John McCain or Barack Obama, but it looks like Obama is to be the one, “that one”, as McCain would say.

We’ve been reduced to such a wretched state with the poor leadership from both major political parties over the past several decades that we find ourselves in the uncomfortable position of adopting socialist-like state-run economic measures. This may or may not work in the short term.

History shows such measures don’t work in the long term.

Postscript:

I believe in reasonable controls on the economy that would seek to prevent the excesses that have occurred. And I support some type of universal health care for reasons I have stated in previous blogs. Health care no matter which way it is delivered is expensive. It needs to be delivered in the most efficient and equitable matter available. But leaving a large portion of working people and others out because they can’t afford health care is certainly not equitable and is not the way to achieve efficiency. One of the problems is that universal health care is often wrongly tagged as “free health care”. We all should invest, but that investment should pay us back in the form of security that would free all of us who are able to be productive members of society. And for those of us who are disabled, have some compassion. And don’t count me out. I may come back yet (and I am still paying on private insurance at the moment (won’t be able to soon), so that ought to make all of you die-hard Republicans happy).


Easy credit makes things cost more…

October 3, 2008

(Copyright 2008)

The WALTHER REPORT

By Tony Walther

Those who control the nation’s credit markets rule. When you sign that note of credit you have signed a deal with the devil.

The world of high finance loaned money to people who could not pay back and then loaned more money based on notes with people who could not pay back and so on and so on and it worked for a long time. When the bubble finally burst and the paper was shown to be worthless, the high finance people told us all you either bail us out or we are taking you down with us. There was some resistance. But the high finance people were better at poker, natural-born gamblers that they are. They called the bluff of the resisters to the $700 billion Wall Street bailout by refusing to lend money. In turn Wall Street stocks went into the tank (even though they did go up and down after that). But that one-day drop and the fact you can’t even get a car loan was enough to make the resisters fold their hands.

So now we have the bailout. If it works, well I guess that is good enough. We go back to status quo and go on with our lives. If it does not, what then?

It seems that the Democrat Barack Obama could well win the presidency over the economic mess. He will probably be forced into applying even more government involvement into the economy, strangely enough something started by a Republican president.

If this all brings more caution into the credit markets, maybe this is a good thing (with the bailout I am not sure that it will). In my non-economic mind, I have always thought easy credit makes things cost more.

Tight credit should bring higher interest rates and more savings. If those who sell things know that people can’t just charge it, they might be forced to bring prices more in line with what people can afford.


The debate, Newman death, credit woes…

September 27, 2008

(Copyright 2008)

The WALTHER REPORT

By Tony Walther

It’s the morning after the great and flat debate (yawn), but I interrupt this blog to note that I just read that actor Paul Newman died at the age of 83 on Friday of cancer.

I think the first time I ever saw him on screen was in “The Hustler” in 1961. I had just recently reached the age of puberty and I was at the movie theater in the old downtown of Yuba City, Ca. I went to the show by myself and saw this incredible black and white movie – and I interrupt myself here again to note that once when my granddaughter was younger she was watching TV and asked, “why is it (a movie, not The Hustler) in black and white?” Well, I don’t know why they chose to shoot The Hustler in black and white, but then again I know that it would not have had the effect if it was in color. And I don’t even know if it was considered a great movie. But both Jackie Gleason playing legendary pool player Minnesota Fats and Newman playing a young hot shot hustler “Fast Eddie” Felson were at their best.

Newman had his boyish good looks (nearly all his life) but he also had what great actors all have, that certain something that made him unique, otherwise he’d just be another pretty face (and I hope I’m not sounding gay here – hey, I have a wife, two children and two grandchildren). And he could really get into character, method acting, I think they call it.

Gleason of course was a comedian primarily, but a natural-born actor, who you got the impression just automatically went into a roll without effort – he certainly did so in The Hustler, with only a few short lines, a puff or two on a cigarette and gestures.

Fast Eddie was addicted to gambling via pool, and booze and would forsake all, even his girl friend, for it.

But a great thing about Mr. Newman, the real person, is that unlike many in his trade, he stayed with his wife, actress Joanne Woodward, since 1958. They had acted together in the movie “The Long Hot Summer.”

….. I’m still reading debate reactions (I gave my own immediate reaction as soon as the debate was over in my last blog). And I’m trying to scan the web to see what the polls suggest as to the outcome. So far I get the sense that it was, as I initially concluded, a draw. But if you were for Obama going in, you may have felt he won and if you were a McCain partisan, you probably thought he won (in my immediate reaction blog I gave the edge to McCain and I’m definitely not a McCain partisan, just different I guess). I think the Wall Street Journal concluded McCain won on foreign policy and Obama on domestic policy. Although I definitely favor Obama, I don’t think he gave a knock out performance (one thing I read was that McCain was too mean, and Obama too nice).

And I think one of the problems is the debate formats they use nowadays. It’s been so long since I have seen what I would consider a real debate – seems like the last one I saw was William F. Buckley vs. I don’t know who on whether we should give up the Panama Canal (we did under Carter).

Correct me if I’m wrong, but in a debate, shouldn’t both contestants be given a topic and then each one presents his case, with each getting a rebuttal (with the moderator’s only function being to begin and end it and make sure rules are followed)? I think that gives the listener a more coherent and complete message and forces the debater to lay out a case and support it with evidence. Some might think that unfair because it might give a polished debater an advantage. But I suggest that if you are running for President of the United States, you don’t have to be a silver tongued orator, but you ought to have to be able to give a full explanation of your position and be able to support it. There was far too much bickering back and forth between the two on semantics more than anything, or on whether one or the other voted on some version of a bill. The multi-multi question back and forth and back and forth method to me is too confusing and lacks focus and serious discussion. And this is serious.

We’re not looking for details here candidates; we want your broad policy outlook, even though of course you may have to make some references to individual actions to state your case.

I’ll move on – maybe I’ll do a full day after or two-day after debate review later (or not).

…I’m reading that the powers that be are still hoping to get some version of the $700 billion Wall Street bailout bill into law or all-but into law over this weekend. And I have read in a couple of places where people have reminded the public that it was not just Wall Street who got carried away but anyone who is over-extended on their credit or who went into a mortgage and should have realized they had no ability to keep it up. It all adds to the mound of bad debts that have clogged our financial system. I still say just cancel everyone’s debt and let us start over again – but then I suppose that would make everything worthless, I don’t know.

As little as I know about economics, I have written a lot this past week or so. I have noticed that nearly a week after we were told the world would come to an end if congress did not pass Bush’s bailout with no strings attached for Wall Street everything is still standing, okay a couple of banks have gone under. I still say, take it a step at a time and along the way let’s revamp the system, not perpetuate the problem.

For some strange reason, business people, who often or usually consider themselves conservative, have over these past many decades pushed folks to charge things up on credit cards and the real estate industry, abetted by Wall Street financiers, and yes Democratic (and Republican, I think) politicians pushed for everyone to get in on home ownership and either dropped qualifications or looked the other way as to the probability that folks could really pay back their mortgages.

The old timers were right. They shied away from credit and saved back, putting their money out at interest, knowing that better a lender than a borrower be (although someone has to borrow for someone to lend).

And the inflation in housing caused by easy credit hurt renters too. They have to pay high rents for landlords who don’t own property free and clear and may be behind on their own payments and property taxes.

I’m so far out of my league in economics that probably no one would want to pay attention to me, but I think there is something to be said for a cash society. In capitalism, there does need to be capital, and in order for there to be capital (at least the kind with any liquidity), there needs to be savings so financial institutions can take those savings and lend them out at interest. If there is caution and careful rules, such as requiring sufficient reserves, things can work out fine.

And now I’m really getting in too deep. But I think that for the most part capital should be used to invest in things such as the production of food and durable goods, and the provision of services, all of which, along with jobs created in the process, make up our quality of life. But when you reduce the whole thing to some type of gambling game in which you just borrow money and lend it out and then turn around and borrow money on the money you lent out and so on, that can lead to too much wealth in too few hands and a reduction in the quality of life for the nation as a whole. I know that some of the financial trading has the utility purpose of I think they call it adding liquidity to the market. There has to be safeguards, though, in order to prevent the near catastrophe we are told we are facing.

I apologize or beg forgiveness to anyone who has read this far and understands this whole thing far better than I and feels he or she has just suffered a fool. But don’t get too haughty, I think I get it better than you may realize.