An Economic Primer: Why Americans Won’t Invest in Themselves
Consider these Americans:
Our first case is one of five million Americans unemployed for more than 27 weeks:
A second American is part owner of a $20 trillion investment fund.
A third American is terrified that her pension fund will go bust (as the Illinois teachers’ fund will some time during the next ten years, among many others).
The $20 trillion fund squirrels away its money in safe, low-yielding assets. It won’t invest in the kind of risky investments that put bricks on top of mortar and hires workers.
Because American #2 at the $20 trillion investment fund won’t take risks, American #1 can’t find a job. And because low-risk investments now pay very little — investment-grade corporate bonds and mortgage-backed securities with federal backing yield barely 3% — pension funds can’t earn enough to meet their obligations to prospective retirees, and American #3 won’t have enough retirement income to live on.
All these Americans could well be the same individual, and probably are members of the same family.
Pension and retirement funds in the United States control $16 trillion in assets. That’s more than double the total assets of the whole U.S. banking system, and more than five times the total assets of hedge funds world-wide. The retirement savings of ordinary Americans dominate the capital markets, not the sort of fat-cats caricatured in the press. Add another $4 trillion in life insurance assets, which mainly reflect the retirement savings of the middle class, and the middle class investment fund now stands at $20 trillion.
Americans won’t take risks on each other. That’s our problem. A decade ago, at the peak of China’s investment in American securities, I quipped that a rich Chinese won’t lend money to a poor Chinese, unless the poor Chinese moves to America. That’s starting to change. China’s huge trade surplus has shrunk to nearly zero as the Chinese consume more at home. The problem now is that middle-class Americans won’t invest in themselves.
Why?
We’re not talking about greedy Wall Street cheating Main Street: The plain fact of the matter is that $20 trillion of middle-class retirement savings refuse to invest in the sweat and ingenuity of the same people who own the savings. Corporations have about $2 trillion of cash on hand, and a lot has been written about the risk-aversion of U.S. companies. But that’s a tenth of the money available to pension funds.
There are two possible explanations.
Hmmm….
It looks like the “post” button was hit a bit early.
David explains a bit more on global investment in this recent book review on the Wall Street Journal. His review fits well with this post:
The Race For the World
This definately needs a bit of cleanup Spengler. That said, you forgot a couple of items:
1) The words “bold, persistent, experimentation” are the most terrifying things any president can say. “Bold” means that a lot of things will change. Bold is scary, unpredictable. “Persistent” means you will continue to try new things even after you have failed. “Experimentation” implies that your don’t really know what you are doing. Care to invest?
2) The GM bailout and the screwing of secured investors in favor of unions.
Perhaps Americans have been buffeted about by so much big stuff in the last 12 years. For me, it started with the USS Cole and America’s flaccid responses to Al Qaeda. We pretended to be too “big” to do tit for tat. All that got us was 9/11. Since then, we’ve lived under the threat of terrorist attacks at home and abroad in a way we would never have tolerated in the past, while aggressively anti-American American legislators and cultural leaders have managed to capture the educational organs and destroy the natural pride and patriotism that was the birthright past generations. If we’re active in anything but redistribution of wealth and deforming institutions to provide equality of outcomes divorced from individual endeavor, we’re evil. If we’re passive and submissive to the demands of other naitons and international actors like NGOs and the Muslim Brotherhood, we’re “team players,” working hard to find collaborative answers to common problems. On top of those issues, we’ve been rocked hard by finacial calamity unknown since the Depression, i.e., meaning few people alive today have the coping skills of the Greatest Generation, who expected little from the government and usually got it.
What I want to know is this: why shouldn’t we be unsettled and looking for some stability somewhere, even if it’s at less than 2% interest?
And in favor of a foreign company, Fiat, which gained control of Chrysler via an Obama-brokered, pro-union deal without putting in a dime. Fiat would now like to take cash out of Chrysler to bail out its Italian operations, but can’t because it doesn’t have a high enough ownership level. But it would need to risk its reserve funds/credit to buy the higher stake now. Catch-a 22, as the Italians say.
I’d add another thing: an overall regulatory environment that favors the interests of large firms and effectively prohibits new entrants.
I’d also note: high level Republican regulators tend to be generally pro industry, sometimes in a way that can seem unseemly to those who want regulations strongly enforced. Obama regulators tend to be from the activist NGO and legal world (in other words they are cranks) so regulatory opinions themselves become arbitrary and unreliable.
“One is that something has frightened Americans out of risk assets, such that the only thing we have to fear is fear itself, and maybe also Barack Obama and his legion of fiscal inquisitors.”
I will never “invest” in the stock market again. NEVER. I have been swindled out of nearly seven figures of my hard-earned savings by the criminals who run the investment houses and banks. I’m sure I’m not alone. This spans both Bush and Obama administrations. And I have taken a huge hit in my quality of life, I’m not destroyed, but greivously diminished financially. Wall Street oays for the politicians, and the politicians make sure Wall Street can’t be touched. The result has bee the syeady destruction of the very fabric of this nation.
I watched over the last decade as criminal after crimnial skated scot free, often retaining huge swaths of wealth after being found guilty of high crimes. The crimes committed by the criminals are of such gargantuan proportions that the mind boggles, and these megacriminals, along with their politico-guardians, almost never pay anything for their titanic crimes against their victims.
Wall Street and Washington are cesspoools of corruption. I didn’t know the full extent a decade ago. I remember I wept like a child on 9/11, and felt America had been attacked. After what I have seen in the ensuing decade, after the ways I have personally been victimized by the untouchable scum who run those sewers, I wouldn’t shed a tear if al Qaida nuked both locales. I recognize a certain level of irrationality in such an attitude, but there it is. And in that I’m sure I’m not alone.
Between the rape of America by the Left, and the rape of America by the criminal classes running Washington and Wall Street, I understand full well that the America I loved is long LONG gone. That is their worst crime of all. Eternal. Evil.
“frightened”? I think not. So furious that steam rises from my ears as I writte. No, that doesn’t even come close to how angry and disappointed I am in “the system”. For smart guys like Mr. Goldman, I doubt such people can even fathom the crimes committed by his peers in the financial industries. You’re too close to the open aewer to perceive the hellish stench of cpdecay and corruption.
The vituperative nature of your comment is well appreciated by someone like me. I find myself agreeing with most of what you say. However, you should realize that such vehement scolding serves no purpose but to vent steam and has no effect on the situation that you so rightly criticize. Be aware that there are victims of this great fraud that have suffered even more than you have. Some of these victims do not have the means or capacity to repair the devastating damage that has been done to their financial security.
Regardless, I personally find it helpful to view the catastrophe that has occurred in the same way that one views any catastrophe in life. Events beyond personal control are what shape the destiny of any society. And of course, in all devastation, there always lies the seed of renewal and rebirth.
The tocsin has been sounded. This process of natural destruction is not yet completed, I fear. There will be more and greater victims yet to come. One should, I believe, abide in safe harbor and abandon all trace of greed to survive. Meanwhile, life is still beautiful in its simple pleasures, and one should best ignore the furor that is yet to come.
Agreed.
Convincing small investors to put their money in the stock market was the greatest fraud in American history. It paid off fabulously for Wall Street players and NYC (it’s almost completely forgotten that NYC was a crime infested shithole only 20 years ago) at the expense of tens of millions of suckers throughout the country.
Amen and AMEN! The powers that be convinced too many Americans to give up their pensions and put their money in the stock market…and not in good faith. This was done so that criminals could LOOT the public of their money, and no one will pay for that crime. Average Americans should NEVER have invested in the stock market…they were better off in most cases with pensions.
Now the powers that be want to “privatize” Social security…that is, tie up the last great public monies in the stock market. NEVER I say. If Americans agree to do this, they will lose as this last tiny bit is looted from them also.
The result of these crimes is that Americans are now (rightly so) afraid of being swindled again by their very own institutions. Too bad, so sad. This is what you get when you let one class of people rob a whole other class…they no longer believe in the very institutions they need to for the country to function.
A much better way of putting this is “The chickens have come home to roost”.
David
Thanks for this piece. I have been 100% in equity funds for more years than I care to remember, including the dark days of 2009. Buy and hold is my way, even though I won’t say these words in public for fear of ridicule or perhaps bodily harm. My portfolio has grown slightly from July 07 in nominal dollars, although what those dollars are worth is another matter.
Here is my question: Will a bull market in equities fix the economy? The present relationship between the equity and debt markets seems like a coiled spring, ready to decimate bondholders while starting a long stampede into equities. If something like this happens, will the greater availability of equity capital be enough to get this great dormant economy growing again?
Thanks again for all your words of wisdom.
I think the question asked in this piece is whether we are quite demoralized, yet.
Morton D.’ testimony suggests that we may well be down for the count for a while. If we reach a point where our spiritual resources are indeed as badly depleted as our national treasure (the other one), then, we will be cooked, for good.
Even if Mitt Romney brings the wisdom of Calvin Coolidge back to the White House, things are still generally deteriorating all around the planet, and we may have to traverse a biblically painful path to wisdom. The next leader better be a really good man! How timely it would be!
My impression is that Americans are collectively demoralized. In a nation fed the notions of the sanctity of individual aspirations, this can be even more devastating to individuals; after all, what others feel or experience should not really affect you. To some extent, this is what we were taught growing up. When it turns out that the economic and social collective is far weightier than imagined, the shock is doubled.
It is all pretty sad. I have a relative, an in-law, who works for a major financial institution that was bailed out courtesy of the taxpayer. I think the main reason the taxpayers were asked to save his firm related to the disastrous impact on the financial system were the company to fail. I do not know if he has had a salary cut, but I do know that he continues to draw a nice salary while many people have taken big hits because of the behavior of top executives and sales people at such firms. As Morton’s post suggests, the anger caused by such losses can be sufficient to alienate people from the system on a permanent basis. And then the road back is very long indeed..
No one can over-estimate the destructive effect upon American custom through the revolution of 1933. It is well said that the Constitution was an anti-trust act for government, it’s very purpose to withdraw many subjects from the even being subject to political debate.
“History affords us many instances of the ruin of states, by the prosecution of measures ill suited to the temper and genius of their people.”
Benjamin Franklin, slave owner
I read immeasurably more sentient thought in current racist garbage than in certified, government approved non-racist garbage. A starving African could get fat going through it.
Benjamin Franklin slave owner??? Back to the history books with you.
Wilson must be watching “Abraham Lincoln: Vampire Hunter” too many times …
Franklin’s manservant was a slave, sonny boy. I’m sure it was an equitable arrangement for the times.
Two words ought to be sufficient: Jon Corzine. That’s why Americans won’t invest in Americans.
Scott, Brilliant.
Jon Corzine’s story could make a great fairy tale about the rise, and rise, and rise, of an American Mr. Big, the financier and politician. Except now there is no appetite for exposing or prosecuting this new variety of Mr. Big. He and his friends and people like him are running the country.
It’s sad, but there it is.
It’s funny, only financial professionals like Janet Tavakoli and Matt Taibbi (who is generally wrong) seem to care. Considering his status as an Obama money raiser and former democratic politician, this should at least be a partisan issue.
To be more concise, the American Middle Class isn’t going to take risks with a small business because;
1. It is probable that the government will find a way to destroy the business before it breaks even.
2. If it becomes profitable, it is likely that the government will keep more of that profit than the investors / entrepreneurs.
don’t forget number 3) estate taxes and other regulations make it impossible to pass along a business to your heirs. So why spend your life building something only to know it will be dismantled to pay the taxes due upon your death?
Lots can be added to the list. Just to name a few:
a. Killing coal and shuttering over 240 power plants. Obama’s war on carbon. Home electricity prices already have increased 30-50% where I live.
b. Fed printing press eliminating returns on bonds with the specific intent on driving people to riskier investments.
c. hiding inflation. look at the inside of your Kleenex box and note how the tissues have “shrunk”. It’s not “green”, it’s reducing the product size but the price stays the same. It’s everywhere now. Even canned foods have increased their water content to reduce the volume of product.
d. an administration that routinely lies to the public. who really believes the unemployment rate?
e. Regulations pouring unfunded mandates out to the tune of 1/2 trillion dollars and they’re still writing them.
And to top it all off, see the video on those that say ‘he gave me a free cell phone, he’s gonna give me more”.
And they want YOU to go hire folks, start a business, risk your money and work 120 hours a week to support Obama’s 1.4 billion dollar a year entertainment and travel? Wow!
You know, in my lifetime, I might see the fragmentation of the US. The socialist on the coast and the real workers in the middle, Illinois and Michigan excepted.
Wrong analysis. The reason why US production is weak is because the financial collapse in 2008 is still lingering. The banks are not willing to finance domestic consumption because household wealth has been reduced by forty percent thanks to the misguided GOP policies of Bush era. There is simply too much mortgage debt in the face of falling housing prices. So, there is no domestic demand for US goods. Overseas, European financial and political meltdown means no appetite for US goods. As for the rest of the world, well there is not enough Chinese, Indian Brazilian domestic demand to compensate for loss of US and European demands. In short, your analysis is wrong just like Romney’s: it puts cart in front of the horse. Firms are not going to produce when there is no demand for their goods. That is so, even if you give them one thousand tax breaks. Today, US and European household indebtedness is strangling both US and Europe financial and productive sectors. The way out is to boost the middle class to encourage them to consume. Print money and give households tax breaks. That is why Obama will win and Romney will loose.
Wouldn’t it be simpler if the government just bought those goods and services and gave them out to the middle class. Purchasing and hence production would be more dependable and orderly. You could bring to bear Walmart-style economies of scale in purchasing and distribution. I for one have a long list of things I would like.
Centralized buying and selling – what could go possibly go wrong? Nothing, if you don’t mind getting an ironing board when you order a cheeseburger.
I can haz cheeseburger??? Vote Obama! Obama’s going to buy us cheeseburgers!
Cats can vote, right?
Beg to differ, MSTR.
The real culprits for the 2008 collapse are revealed in the book “Reckless Endangerment”, Gretchen Morgenson and Joshua Rosner. See the USA today review of the book for a quick read.
http://usatoday30.usatoday.com/money/books/reviews/2011-06-17-reckless-endangerment-mortgage-crisis_n.htm
Redoubter is right –if you read one thing that doesn’t mis-allocate the blame, read ‘reckless endangerment’. Oddly enough, the authors are associated w/ NYT –that’s a head-scratchin’ chin-rubber, i realize. It may be a case of trying to expiate guilt ahead of the nearly-inevitable knowledge of the truth working its way into the people, as the crash had been systematically arranged, basically a ten-year plan, beginning with the reform of Glass-Steagall in 1998. Folks love to point at GOP’s Phil Gramm for that slow-percolate catastrophe, but the real power was the lobbying effort led by Goldman/Sachs-to-Clinton Treasury-to-Citibank’sRobert Rubin. Rubin and Bill Clinton had been working together since Clinton as AG then Gov of Arkansas and Rubin as Corzine’s replacement as CEO of Goldman Sachs set up an Arkansas development fund that began –it is said –laundering foreign money almost ASAP it was chartered.
Goldman Sachs went public in ’96, all shares bought by insiders except the two largest blocks, 12 and 10% (iirc) purch by Japan’s –it is said –Yakuza bank, Mitsui Sumitomo, and a native Hawaiian edu trust that owns frabjous amounts of prime Hawaiian real estate, the Bishop Estates Trust, whose board included the bank employing a trend-setting female exec who specialized in mortgage lending, one Madalyn Dunham, Obama’s grandmother who raised him thru teenhood, introducing him steadily to family friends from America’s communist party.
Mitsui BTW is a ten-percent partner of BP in the Macondo well. Look up the genesis of the name Macondo sometime. Mitsui also started-up an oil-trading firm named Arcadia, in Moscow, in 2000, in conjunction with a sister company started up also in Moscow by (Eric Holder and Clinton friend) Marc Rich.
Mitsui sold Arcadia in 2006 to Norwegian oil shipper John Fredricksen. Arcadia is in US courts right now, accused of manipulating the oil futures market in the spring/summer of 2008 –remember the pump-price spike panicking voters? –and to complete this simplified broad thumbnail circle from hell, Fredricksen is or was invested in and on the board of the technical engineering company, Det Norske Veritas, brought in by Ken Salazar of the US govt to certify the final report (“mechanical fault, accident”) on the forensic investigation of the blowout preventer that failed on the Macondo blowout.
And the devil is in the details, none of which i’ve mentioned, as it’s too prolix for a comment thread –but you have the web, you know, just ask it your questions and read the back pages first.
Ask it which entity, of all the need-work heavy industry in Russia, got the heavy-infrastructure (roads, tunnels, bridges) concession for Putin’s baby, the 2014 Sochi Olympics. The answer is, Mitsui Sumitomo.
Sorry to go off thread –but –it’s not really off-thread. It’s the Mob operating out of the highest political offices over much of the world –and private investors feel it if they don’t know it –and stay the hell clear if they can.
After this great downturn some predicted the economy enter a bottomless pit unless the government intervene (2008) everyone is risk averse. How can you make people Trust the money god of Wall street now? the people who turn yo worship of the Bachus god increase as we see pornography skyrocket and sex slave trade go through the roof so the poor who live in housing project trailers not worthy of making money from worship of the Bachus god get all the blame and the EVIL EYE in the movie Lord of The Rings see the need to UNITE ALL the People as was done in Communism and the Nazis way
As things get worse in economy worldwide as we see in ATHEIST COMMUNIST fake capitalist CHINA and they save face by Making ” holy” their communist party as I read in nyTimes today and there goes David Brooks with his way of uniting the people
http://www.nytimes.com/2012/09/28/opinion/brooks-the-psych-approach.html?hp
I believe only by mass coversion to Christian and Islam once we make them the religion of peace bowing down to Jesus people converted and united to big big risks in the worship of the True God by their great faith and repent if they get ,islead by the Wall Street Money fake god.
On the day of Cleansing two goats were used one sacrificed to the True God and one sent to the Wilderness both representing the people who put ALL their Trust in the True God and not in the Money god or the Bachus god as wee see today but then comes the Evil Eye Mighty god and only by the Three Abraham faiths and the world be saved from the Coming Great Evil I believe
The answer is simple: The risk is too high. In fact, it’s not that the risk is known and it’s too high. In the current climate it’s impossible to know what the risks actually are.
As a business owner, I can comply with all the rules and regulations yet if some government official decides he doesn’t like me then he will find a way to put a stop to my project. And all that money and energy I’ve spent is wasted. Chick-fil-A is a great example. They’ve complied with every law and regulation, yet a Chicago government official is putting a stop to their expansion.
Barry spent $5 trillion or so to ‘fix’ the economy without any observable improvement. Is it possible that he’s not that stupid, that he did this intentionally to exaserbate the economic problem?
“Americans won’t take risks on each other. That’s our problem. A decade ago, at the peak of China’s investment in American securities, I quipped that a rich Chinese won’t lend money to a poor Chinese, unless the poor Chinese moves to America. That’s starting to change. China’s huge trade surplus has shrunk to nearly zero as the Chinese consume more at home. The problem now is that middle-class Americans won’t invest in themselves.”
So where is all this money the American banks are supposed to have? The Federal Reserve has pumped literally hundreds of billions of dollars into American banks and what do we have to show for it? Interest rates are very low, but that doesn’t help you if most Americans cannot get a loan. If the banks are now flush with cash, how come they are not loaning any of it out? The banks have to bear a lot of this blame and so does the Obama administration. If the goal was to give the banks billions so that they could hand out cheap money to people to create new businesses, it ain’t working. If the banks don’t cooperate with this “recovery” and start handing out more cheap money to investors and businesspeople who want to run and grow corporations, then we are going nowhere fast. I don’t know what the banks are waiting for, but they certainly are NOT investing in America.
Hundreds of billions versus 20 trillion: that’s an order of magnitude difference. If that 20 trillion outside of the banks and outside of Fed or government control continues to sit on the sideline, there is little the Fed or the banks can do. They don’t have enough ammunition to float the whole economy. The steady rise of the stock market and the capital pool it represents is a direct result of pension funds and their auxiliaries in the various forms of 401, 403, and 457 instruments. Pension fund managers are facing a huge gap between projected outlays and future returns. Any uncertainty regarding future losses in light of their legal obligations will likely make them risk averse. The same holds for individuals managing their own 4xx accounts. I know of quite a few individuals, including investment advisers, who’ve pulled back substantially both out of concern for risk and the related expectation (hope?) of a large correction on which to capitalize. Foolish? I don’t know. But the sentiment is there and will remain until some fiscal sanity returns to the lumbering giant living in DC.
re: “I know of quite a few individuals, including investment advisers, who’ve pulled back substantially both out of concern for risk”
Bingo. You are talking about me. My old granny taught me a few things. One was the age-old wisdom: “Fool me once, shame on you. Fool me twice shame on me”.
I had GM secured bonds in my 401K. All through the GM bankruptcy process, very little information was publicly available. My husband and I read the WSJ every day, so we were looking. We knew there was no bankruptcy judge, no courtroom. We did know there were government, company, and union lawyers behind closed doors for weeks and months.
It was finally resolved, and 200 plus years of US commercial law regarding distribution of assets in bankruptcy – was trampled in the dust. The amount of money the lawyers took from MY CLAIM and gave to their union friends was in five figures.
“The UAW walked away with my money”, is how I explained this to my sisters. It’s not a sophisticated explanation, but they are RNs and have never read a business or economic journal. Perhaps if they get a government lawyer or UAW official as a patient, they’ll remember how their sister was shafted, and let the SOB wait before they answer his bell.
We grew up loving the old black and white cowboy movie reruns. At least then the robbers covered their faces with scarves.
Mr. Goldman, this is one of the best PJ columns ever, and the thoughtful responses include the wisdom of many individuals whose “boots” have been on the ground of US commerce a long time. University PhDs in economics ought to come out of their ivory towers to follow all these good arguments.
I lost part of my 401K money in the GM bankruptcy (I had secured bonds). I will not invest in a unionized company again. The government’s end run of US bankruptcy laws was both unexpected and COSTLY for me. Watching 90% of my secured bonds go into the pockets of a group with paid-for political influence has made me SUSPICIOUS. It made me recollect the scene in the Godfather movie and the dead fish wrapped in newspaper. In my imagination, the dead fish is comparable to “secured” bonds of a unionized company. I was a sucker once. I will not be a sucker twice.
How far will unionization advance, especially in an Obama second term? I live in a right-to-work state. Here’s a question. Might future federal diktats make an end run around states’ rights?
People take for granted the rule of law. Most countries attending the UN confab last week have magnificant human rights laws plus commercial laws – that they do not follow. “Bought” judges ruling in favor of the connected and the few are routine. Now the prospect of religious judges using laws developed in ancient economic times is marching onto the world stage. My head is swivelling. What about yours?
If trust and belief in the US rule of law fails, and the non-prosecution of Jon Corzine raises some very big red flags, I am afraid the country’s commercial future will be bleak indeed. I cannot believe I am writing these words. Very sad for our beloved country.
“If the banks are now flush with cash, how come they are not loaning any of it out?”
I believe that the answer is that the banks are not flush. I believe that many, if not most, banks are actually insolvent if their mortgage backed securities were actually to be accurately evaluated and they know this.
Some banks are holding onto houses that they cannot unload because doing so would further depress the price of houses on which they hold mortgages so that those houses too would be under water. Then there are all the mortgage based instruments bought in the secondary market. There have been years in which to untangle the components of the derivatives and, aside from the dubious legal chain of ownership, there is plenty of bad news when they finally dig down to find out who owns what and how much it is really worth. The banks also know that housing prices have still not reached the bottom.
The banks know that eventually the music will stop and everybody will have to scramble for a chair and that there will not be enough chairs for everybody. There is uncertainty as to when the music will stop and just how much in assets they will need to have when the music stops and just how sternly the value of their assets will be evaluated when the music stops. The bankers know that the least solvent banks will be eliminated. They also have the “reward your friends and punish your enemies” precedent of the GM dealerships that the least politcally connected will also be eliminated. All this uncertainty means that banks are inclined to hoard cash and make loans only in cases of extremely low risk or high political connection.
This is how the government can dump trillions of dollars into a stagnant economy and see very little domestic inflation.
Take a look at how the new over seas manufacturing class lives and compare that to how the former blue collar American working class lives.
There’s your answer. No point in investing in America. American’s themselves prefer to exploit poverty when they make their personal purchases.
Actually, US buying abroad helps alleviate poverty abroad. Ironically, by buying foreign goods with borrowed money, we’re importing poverty for our progeny.
I have a story that is a microcosm of the problem with job creation in America. I have had an idea for awhile to open up a frozen custard stand, as there are very few in my area. I’m not moving forward for the following reasons:
1. Refrigeration requires a lot of electricity. Obama is forcing the closure of all the coal plants (not owned by G.E.) and we face losing half of our generation capacity. The electrical grid will soon be unreliable and rolling blackouts will be a regular occurrence. And the rates are going sky high.
2. Frozen Custard is a high calorie, high fat treat. But the Obama Regime is waging war on fatty foods. Municipalities, like NYC, are following this lead. Who knows when a government decree might come down that destroys my business, or takes away a big part of my customer base (minors).
3. In New Jersey, the state imposes a tax on a corporation’s GROSS earnings quarterly, not my net earnings. This imposes a tax burden that is indifferent to my actual operating expenses.
4. I cannot find a bank that will give me a loan. I am a middle aged white male with a good credit rating, and the banks are all sitting on a ton of cash, but they won’t take a risk on me. But if I go get a black person as a partner, they might consider a loan to a minority owned business. The traditional funding route for the entrepreneur, a second mortgage on my home, is also a non-starter due to the value of my home having fallen precipitously, plus the fact that bank appraisers now low ball home values by as much as half their true value.
So, I stay on the sidelines in my current job, self employed and under employed, with no employees. I used to have a secretary, but had to fire her due to a drop in revenues. Everywhere there is nothing but economic stagnation.
An interesting way to describe the predicament, Spengler. I tend to wonder if it is truly a predicament of trust, though. Example this: When the likes of Jon Corzine go scot free for outright mega theft and indeed the follow up is to pass laws that allow more co-mingling of investor accounts with at risk activities, the corruption is embedded. Republican and Democrat. Trust in the system has evaporated. We are in a twilight time when those who remember what can work are holding fire waiting to see if there is any chance of reclaiming the fundamentals.
Are we seeing in the macro a John Galt moment on the part of investors, and more especially in the corporate decisions to develop? The government is out of control and cronyism is a nice-we-can-fix-it term for fascism. Big government unions, big corporations at the teat of government and the unending expansion of government legislatively has finally reached the tipping point. The fascist predicament is a lock down on real development. Is there any chance of getting things back?
The new wrinkle in this old story is that there is nearly 700 trillion dollars of hypothecations out there in the shadow banking world of derivatives and it only takes a black swan event, say in the slow motion collapse of the Eurozone, to make a margin call for collateral – collateral that doesn’t exist in US or European banks. People tend to hang onto cash in this environment.
I think this election will turn the dial for many decades to either improved domestic activity or entrepreneurs looking to off-shore growth. My own company will not spend a dime in the US until we can sort out the future here – if it looks as if the fascist community is to expand here for the next decade, then we are off to Asia and other parts to develop. For now, we circle the wagons. Hire no one, invest in nothing that will tie us to US geography, strengthen our off shore relationships and plan the moves away from the US should it come to that.
The odds right now are for more free phone people than business development people going to the voting booth. That is not a predicament, it is the reality of liberal fascism.
In September 2008, Hank Paulson got on his knee and begged Nancy Pelosi to save Goldman Sachs. In March 2009, we decided that banks needed to buy more time by initiating stress testing. China was presented with the opportunity to reset the world order but didn’t. Since then negotiations among nations have been rather peaceful. Negotiations among classes have been rather peaceful. We are better off than we were 4 years ago. Glass is half full.
What is the value of America’s other assets including Navy, energy, constitution, patents, Fed, and agriculture? $100 to $200 trillion?
Good question. According to wikipedia (yes I know it’s not the most reliable source) the assets and liabilities of the U.S. recently were:
“The overall financial position of the United States as of 2009 includes $50.7 trillion of debt owed by US households, businesses, and governments, representing more than 3.5 times the annual gross domestic product of the United States.[1]
As of the first quarter of 2010, domestic financial assets totaled $131 trillion and domestic financial liabilities $106 trillion.[2] Tangible assets in 2008 (such as real estate and equipment) for selected sectors totaled an additional $56.3 trillion.[3]
The net worth of the United States at the end of 2008 was $75 trillion or 5.2 times GDP.[3]”
Debt has gone up since 2009 and assets may have gone up, down or sideways.
Thank you. Would you know the value of America’s intangible assets?
“The total net worth of the United States remained between 4.5 and 6 times GDP from 1960 until the 2000s.” It seems that we might be still within that range.
Intangible assets are, er , intangible. Their inclusion in a balance statement seems to me like an attempt to muddy clear waters. Endless quantitative easing and the Fed buying its own U.S. bonds can only reduce the net worth of the country. I think that known and increasing unfunded liabilities from various entitlement programs not included in the wikipedia numbers, will weaken the balance statement of the U.S. and its networth. Not much to be cheerful about.
“One sign that the United States is truly an idea-based economy comes from Federal Reserve data, which show that since the mid-1990s, a majority of U.S. business investments have gone into intangible assets rather than traditional physical assets.” “The value of the intangible assets – which includes intellectual capital plus economic competencies – in the U.S. economy totals an estimated $14.5 trillion in 2011.” — Kevin Hassett and Robert Shapiro
“Mitt Romney believes that the federal government should publish a balance sheet each year—just as it requires public companies to do—so that Americans can understand the burden that future entitlement spending will place on our budget and economy.” — Romney’s website
The Fed buying it’s own US bonds has been incomprehensible and a good cause not to be gloomy. Maybe we are fortunate enough to be able to make up numbers as we go along while others can’t. Thumbs up to smoke and mirrors and the Fed.
Just found this:
Upcoming Report
G20-reports on Intangible Assets. Economies covered are the US, the UK, France, Germany, Spain, Italy, Sweden, Denmark, the Netherlands, China, India, and Brazil. — The Conference Board
Intangible assets derive their value from their ability to produce income. What is a patent worth? Answer: The risk-adjusted net present value of the cash flows it will generate.
From Brahma above (in reply to another commenter): “…such vehement scolding serves no purpose but to vent steam and has no effect on the situation”.
Well said, but unfortunately there is more and more of that at PJM.
But it is the truth. But a lot of the Eeyore’s have an issue with being scolded.
To quote that Aussie dude from months ago – ‘Harden the …. UP!’
I do not trust the Fascists in DC anymore.
Think they are not? See the film maker that got jailed. For misdemeanor charges he is held without bond?
“Think they are not? See the film maker that got jailed. For misdemeanor charges he is held without bond”?
Wrong.
See the analysis by former DOJ attorney and PJM columnist J. Christian Adams (hardly a left-winger) @ http://pjmedia.com/jchristianadams/2012/09/16/roundup-of-basseley-nakoula-no-big-deal/ as well as this news article, http://www.csmonitor.com/USA/Justice/2012/0928/Nakoula-Basseley-Nakoula-behind-bars-but-not-for-anti-Islam-YouTube-video
Nakoula Basseley Nakoula appears to have seriously violated the terms of his release agreement made before a federal judge after his sentence and incarceration for a prior federal bank fraud conviction. The federal judge who oversaw the agreement was understandably upset at his apparent breech of the agreement.
You might try doig some research before hyperventilating about “fascists in DC” and black helicopters.
“We have an administration that can’t get its act together to steer the economy away from a fiscal cliff.”
Dave;
Obama was raised, mentored and has surrounded himself with Marxists his entire life. HE IS A MARXIST.
Since the days of Karl Marx, their goal is the destruction of capitalism and its leading icon, the USA.
This is Obama’s goal.
His economic policies are not inept nor is he stupid. They are intentional and purposeful
His goal is to destroy the USA and he is doing just that by bankrupting the USA, by discouraging or shuttering energy production, and generally discouraging any sort of business investment.
PEOPLE ARE SCARED !!! of Obama and when people are scared, they simply sit tight.
That is what is happening. No one will take any risk at all while this anti-American, communist, POS is in office.
Yup exactly correct.
We are watching the purposeful destruction of America here in Canada by a 100% MARXIST administration.
Very staggering to watch this for me as I know we need a strong America and so does the world.
My circle of friends are very concerned as are my wife and I.
I guess we’ll see whether or not enough morons actually come out and vote for this evil administration.
I’m cheering for the America I knew growing up to get this right.
Once again the concentration is on the President, and I’m not saying he isn’t the worst of all possible choices, ever! The problem extends to every Democrat politician. Obama is out of control, mainly because the Democrat controlled Senate refused, and continues to refuse to do it’s job.
Because American #2 at the $20 trillion investment fund won’t take risks, American #1 can’t find a job
Spengler, I don’t even know wtf you are talking about here.
Investment funds don’t set economic directions any more than a butterfly flapping its wings in the Amazon creates hurricanes – any linkage is immensely chaotic and indirect.
It’s the business leaders, the macroeconomic environment of globalization, that sets the mode.
If you want to make a point about anti-business environments in the US, try to make sense before you discredit the whole truth of the matter.
“Investment funds don’t set economic directions …”
But they can sure conclude that the environment is too uncertain and decide to sit it out.
Or, they can conclude that the situation is much more sinister and they’re waiting to see who is in power after the election. See my post below.
I spent my career advising pension funds and life insurers, among others. I still do this via my consulting firm. How many of their portfolios have you analyzed? Will they buy equity rather than debt? Riskier or less-risky debt? Will they include venture capital in their alternative investment bucket? Will they buy small-cap, emerging companies or utilities? The risk appetite of investors determines whether startups get funded down the line. Talk to entrepreneurs about how tought it is to get capital, talk to VC’s about how the pension funds have dumped them, and then report back to us what you learned.
You just used an argument to authority. His point is still valid. I had the same sense when reading your column. What were you talking about, investing in people? One invests in opportunities. One relies on numbers, mostly. You might invest in a project, depending on the people involved, if they have a solid rep, but it is not about some touchy-feely thing about investing in Americans.
Just for the record, how did your clients fair in the meltdown? I bet Glenn Beck did far better, when he put his money into gold in 2003. But, yeah, he’s just an amateur. The professionals made this mess. Anyone who knew what the heck he was actually doing would not have been participating in the deal after 2006. I bet your clients lost their shirts taking your advice. I reject your appeal to authority.
“Just for the record, how did your clients fair in the meltdown? I bet Glenn Beck did far better, when he put his money into gold in 2003. But, yeah, he’s just an amateur. The professionals made this mess. Anyone who knew what the heck he was actually doing would not have been participating in the deal after 2006. I bet your clients lost their shirts taking your advice. I reject your appeal to authority.” Point well made. The professionals also wrote Russia off for dead in 2002-2003, but as Moscow based fund manager Eric Kraus observes, he’s made boatloads of money in the Russian bond market capitalizing on the Russophobia of the Western press keeping the dumb money out.
And second, there was a comment from a PJM guy who goes by the handle of ‘Whiskey’. It was borderline if not actually racist. But it would be fair to ask whether America’s present NAFTA first immigration policy is making this country better or worse off, with hardly any racism at all. After all as Steve Sailer observes more than 80% of the people on this planet are poorer than the citizens of Mexico and many of them also happen to have darker skin.
Mr. Goldman is noting that Josh has missed his point: Business expansion is very difficult when the capital pool dries up. Drain a lake and the fish die. If you think business expansion and new startups are irrelevant then you must believe that there’s not much difference between GDP growth of .5% and 4%. We’re much closer to the former than the later. You need capital to fund that additional growth and domestic expansion remains largely a function of domestic capital – globalization or no. Therefore, Mr. Goldman’s experience is directly relevant to his comment as that of an expert witness is in a trial; it’s not an argument from authority. However, the implication you seem to float that his clients performance is relevant to his observations here is a non sequitur.
Speak to ‘Marc’, not to me, while David’s fine with my comments usually, the PJM filters can be tricky when it comes to my email address.
I still would love to hear MarcH’s explanation as a military guy for why DHS has ordered 1.6 billion rounds of ammo, far more than the Pentagon typically stocks in a year. Is it strategic metals buying in preparation for inflation, albiet not of the gold and silver variety? Or is it Fast and Furious on mega steroids with the .223 and .303 rounds getting shipped to the Free Syrian Army? You tell me, guys.
Just to be picky, an appeal to authority or argument from authority (argumentum ad verecundiam) is not per se fallacious. Mr. Goldman was accrediting himself as an expert and the statement of an accredited expert as authority is not a fallacious argument but rather creates a rebuttable presumtion. So, the attack on the argument as a fallacy fails but the argument could still just be wrong rather than fallacious.
I happen to agree with Goldman, at least in part.
As Marc Malone noted.
The experts like Spengler created this f-ed up economy.
People that still trust their ‘expertise’ are fools and idiots.
And what kind of an economy do we end up with when all the investment capital ends up in gold? The stuff’s shiny, but you can’t eat it. If you kill the economy pursuing shiny things, all I can say is enjoy the shine, because you’re not going to have any tangible goods (including food) to buy with it.
See: Weimar Republic.
This comment is idiotic.
No it’s not, Josh. Technically speaking, precious metals are not an investment, but rather a capital preservation tool. Diverting capital goods production to gold and silver is bad for the economy. It may be necessary in light of bad fiscal and monetary policy, but it does real damage.
Corzine and the other Ivy League Banksters and fascist cronies won’t go to jail until we restore something like a legitimate federal government, something a long way off even with a Romney victory. The person who WILL go to jail is the fund manager of a public and even some private retirement system who does anything that loses any money for that system.
In the already socialist states where the unions own the government, e.g., CA, IL, the fund managers are “made-men” who can do no wrong except to fail to dance with who brung them. But if you do put in an opposition government and try to fix the corrupt mess, when the Democrats take over again, the people who tried to do the fixing are at best thrown out into exile, demonized, and, of late, made the objects of criminal probes. In much of America we’re not far from where Hitler’s Germany and Stalin’s USSR were in making any opposition to or criticism of the Democrat Party and its allies a crime. A “made” Democrat will be able to loan pension fund money to Democrat approved businesses and even if the money is lost or, more likely, stolen, there will be no consequence for him. A Republican who makes a risky investment or engages in anything that can be characterized as cronyism will be at minimum pilloried and in some places prosecuted. Those corrupt Democrat states fully expect the party to go on forever and if they can’t pay their bills, the US will step in, confiscate some money from the non-crony Red States and bail them out – and they’re probably right, right up until the whole thing collapses and we have our “The End of the World As We Know It” moment.
We have established a new paradigm in the last decade or so. There has always been a certain amount of “dance with who brung you” and “if you can’t give a job or a contract to a friend, who can you give one to?” at all levels of government. It’s facially illegal in most places but tolerated most of the time almost everywhere. From inside a government if you see someone get charged with an ethics violation or accused of defrauding the government, you generally think either that he forgot to make the payment or “who did he piss off?” But with this administration we’ve adopted the thuggery of the big Blue cities at the National level; not only do they do things for their friends, something Republicans do too, but the Obama Junta does things to its perceived enemies or the perceived enemies of its cronies. Your business in America today exists at the sufferance of the government.
We are not far from the state where the hostile takeover of your business is done through the offices of an instrumentality of the government. Using the example of the stillborn frozen custard shop above; the risk today is in the unlikely event you could get financing, you’re going to get shaken down at every level of the permitting process and if you don’t swear fealty to the government in the form of the prescribed contributions and privileges, you’re going to have the undivided attention of the whole alphabet soup of regulatory and law enforcement agencies available to a fascist government.
If you’re looking to start something bigger than a custard shop, it starts with the financing. Even before the Obama Junta, the unions and the Democrat controlled pension funds could muscle a bank to impose conditions on a borrower with threat of removing their funds from the bank. In today’s World of banks that live or die at the government sufferance, the political conditions are built right in; there will be union labor and a project labor agreement, there will be materials bought only from approved providers, the new business WILL employee only members of approved groups. As I type FOX has a story on a new solar boondoggle with a government guaranteed $200MM loan. Of course it is in safely Blue Portland, OR. It can be expected to go bankrupt if its only purpose was as was the case of Solyndra to launder some money to some cronies. But if it isn’t just a money laundry, anybody needing a loan or a permit will be expected to buy its technologically inferior and over priced product.
There are people and companies who will resign themselves to be the “good American” and do what the Party requires. The reward will be that the Party will funnel business to them and destroy their competition. Lots of people wanted to invest in that system the last time it was so openly tried. We’ll see how it fares here in America. It didn’t work out well in Germany and Italy, but then they had a communist USSR and a more or less capitalist democracy in the US and GB opposing them. That opposition is gone now.
see Leo Gerard entries on Ulsterman Report for more on this.
In the period between the ratification of the 16th Amendment and the Wickard supreme court case the seeds of our destruction were sown. Today they bear fruit, ripened to rottenness.
The income tax and the creation of the FED gave the government the perfect tools to order our lives in scope and detail. Wickard was the courts’ green light to commense the dissassembly.
Justice Roberts’ ruling in the Obamacare case only served to disrobe the wool off the wolf.
People see the connections, even if they can’t verbalize them. Investors, entrepreneurs, busniessmen and women no longer have control over the risk factors nor can they ameliorate the risks they can’t control because government is a rogue and a wild card.
You and Art Chance, as I see it, got this EXACTLY right. Bravo!
Add that incredible dimbulb from yesterday’s video, presumably the typical result of our failed education efforts, proclaiming how “Romney sucks” because “…she got her cell-phone from Obama…”, and any potential investor with even half a brain is scared, and I mean really scared, scared sh!tless.
He’ll be looking to “invest” in the safest, most unglamorous, asset he can find. And, if that means some precious metals as a partial hedge against inflation while his savings account loses a couple -real- percent per year, he can do the math, and that’s what he’ll do, hoping that this demonic economy we’re in won’t last forever. Better to lose a couple percent each year than trying some “opportunity” likely to evaporate, be smashed, or stolen to “pay off” that cell-phone critter who probably couldn’t get even a union job, not even if she wanted one, which she emphatically does not; but she’s gonna vote!
Watching one’s money becoming more worthless month by month is a bitch. But risking it to ultimately pay for some lazy bum’s cell-phone, EBT card, or campaign / vacations on Air Force 1 or 2, or equivalent (Soros and Gore come to mind) adds insult to the bitch-slap. Don’t personally know any sane person wanting to inflict that upon himself. So, the comment suspecting there is an element of “gone Galt” embedded in there, somewhere, is equally “on the money”, pun intended. Not yet mentioned in a big way is that many smaller investors were drained, or ruined, by the last disaster. They have no more money, certainly not to risk it!
Romney will not solve the problem, and if he wins and tries to, he will be hounded by the Libtard media mob from dawn to dusk, or even 24/7, but at least he’ll have the guts to try, and he’ll put a lot of honest effort into it. All that could buy some time. On the other hand, unraveling the Gordian knot of entitlements, for poor and rich scum alike with FedGov alphabet noodles, will take an Alexander, nowhere to be seen. The complete breakdown will get here sooner, which, come to think, is likely to accomplish the same end as an Alexander. Obama, if he wins, will speed up that process. Either way, I can see potential investors sitting tight for another, maybe long, while to come.
So the pension funds should be the first to grab the falling knife?
We’re going to stake the hopes of our economy on a bunch of fund managers that got duped in the last mortgage debacle? I’m sure they’ll be chomping at the bit to jump on that grenade.
Is being forced by the government to make housing loans to Democrat trash with no income, no job, and no assets being duped? As I recall GWB tried to institute some reforms in Fanny and Freddie but was thwarted by the Democrats and financial geniuses like Bawny Fwank and Maxine Waters assured the Nation that the housing industry was fine.
Art, you’re crossing arguments here. When I say duped, I mean that Investment Banks sold these amazing financial instruments that promised great reward for little risk.
Pensions weren’t strong armed by the government to buy these. They were however often sold complete and utter junk that was the equivalent of taking the scraps from the island of misfit mortgages and frankensteining them into an ever more fraudulent product.
You keep wanting to point your finger at borrowers and ignore the fact that the brokers held out their hand and collected their commissions, mortgage originators got their cut, investment banks got theirs the ratings people got a cut too and the folks who sold you insurance in case all this fell apart – well they were doing just fine for a while.
Builders, developers, hardware stores, cable tv shows telling you how to make money by throwing a doylie on a piece of crap house.
But nobody is to blame except the guy on the bottom.
Art, it was a bubble and everyone took what they could grab, because that’s what you do in a bubble. As Chuck Prince said, “We have to dance until the music stops.”
No, I blame the guys at the top, starting with Carter and the Community Re-Investment Act, Clinton and Reno for muscling the banks – with a lot of help from SEIU, ACORN, and a certain “community organizer,” and last and certainly not least GWB and Republican leadership for being so feckless in their opposition; they tried but not nearly hard enough.
What I blame the guy on the bottom for is being stupid. Now pretty much everybody with a brain knows that most people who are poor but not disabled are poor because they’re stupid and once upon a time, banks didn’t loan money to people who were poor and stupid. When it became obvious that not only was the government forcing banks to loan money to people lacking the necessary character, credit, and capacity – remember that phrase? – but the government was also pretty much guaranteeing the loans, I can’t much blame the whole industry for deciding that since the house was burning, it would keep warm. Can’t blame people who used their house as an ATM; I know I did.
Those of us in our late ’50s and early to mid-’60s came to adulthood in the troubled economic times of the ’70s into the early ’80s. We learned to ride inflation and to have little faith in the stability of the economy; if inflation upped the grocery bill, we found some way to up our wages or we fell behind and became a bitter lefty. Maybe it’s an Alaska thing because so many of us settled here as 20-somethings in the wildly inflationary Pipeline Boom of the ’70s and early ’80s; everybody I know has a finely honed sense of when to bail.
All through the ’90s and up to the early ’00s, I turned my house upside down and shook most of the equity out of it several times and lived high on the pig as the result. But first, I had some equity, and, second, both of us had very good jobs and a secure retirement, and, third, we weren’t stupid, knew that anything too good to last wouldn’t, and we stopped shaking well before the Soros Cabal burst the bubble so we weren’t left under water. Sold the house in ’11 for less than it would have sold for in ’06, but still with decent equity, pocketed the money and moved on. I did lose a lot of money on my boat; after the Soros/Obama Crash, boats under 40 feet or so became worth what some recently divorced, unemployed, bankrupt, and foreclosed on guy in California would sell his for plus the $4K or so it would cost to ship to Alaska.
But then I also live in a fairly solidly Republican state that has a lot of natural resource income. My state has also always had a very traditional banking culture. For most of Alaska’s history as a state, the only way you could get a loan from National Bank of Alaska or First National Bank of Anchorage, the dominant banks, was to prove you didn’t need it; they left the risky loans to government and to upstarts, many of which have failed. NBA sold out to Wells Fargo in the late ’90s or early ’00s and my experience with W-F is they specialize in milking the poor and stupid with a truly predatory fee structures and they participated wildly in buying up mortgages here. (I would never do business with W-F personally and the only reason we did at all was we had one kid in college in the Lower 48 and another in the Army and W-F was the only bank that was available to both of them that also had a branch in Alaska.) Consequently, most of the foreclosures here have fallen on W-F. That said, there haven’t been many foreclosures here and most of them are related to downturns in the US and global economy and the effect on the air cargo and maritime industries or those at the very bottom, of the market and the economic ladder
What I blame the guy on the bottom for is being stupid.
Uh huh,
Unlike the oracle Bernanke that was saying as late as 2007 that there was no housing bubble and that prices would keep rising.
But those stupid borrowers should have known better than to listen to the Fed Chairman, right?
If American companies have boosted productivity by 30%/employee, reducing the need for new hires and surplus people, perhaps the lack of investment in our own companies and by our own companies explains why we fell from #1 to #7 on the global competitiveness scale. All very troubling.
History does not support your thesis.
History has repeatedly demonstrated that when productivity increases, it leads to more investment and real economic growth and real increases in the standard of living.
The best example was Ford’s invention of the assembly line in which he was able to produce a car much faster and efficiently than previously, which allowed him to raise wages (to lower turnover of workers), to lower the price of cars which led to greater car sales, which led to the new car owners realizing efficiencies in their business, etc etc.
Of course, the invention of the PC and laptop created far more economic wealth than it destroyed (by rendering other products and occupations obsolete).
So, why today are not companies investing to increase productivity and efficiencies?
Well, in addition to the marxist-leninist, hate-America-first, piece of garbage president who is going out of his way to discourage business investment, we have an unlimited output of rules, regulations, codes, edicts emanating from the Federal Govt. that makes it very difficult or impossible or simply to damn expensive to do anything. Combine this with a very scary and frightening future – courtesy of our commie president and his water carriers in the socialist-communist-democratic party – and nobody has the optimism needed to risk anything.
Of course, competition from overseas is also a killer.
But wait a minute !!!!!! Germany has very high fixed labor costs and taxes and somehow they are either the number 1 or 2 or 3 exporting nation on earth.
How are they doing this?
My guess is that Germany does not tax the profits of German domiciled/ registered companies for any sales generated outside the borders of Germany. Also, their must be some other govt. benefits that allow German firms to be very competitive in the export markets.
But for US based companies here in the USA our govt. looks to screw them over every which way; so, why should they bother building or expanding here??
Well, they do not.
You can thank our tyrannical, overbearing, unjust govt. for that. Of course, it is the working stiffs that get screwed over and over.
Productivity is a gov supplied number and subject to manipulation. If a $10 part US produced is replaced with an imported $5 part, productivity goes up.
German exports stay high because German made products are reliable and of the highest quality. US produced products often have Chinese components; Chinese produces junk.
“Germany has very high fixed labor costs and taxes and somehow they are either the number 1 or 2 or 3 exporting nation on earth.
How are they doing this?”
No, there’s no fixed labor costs in Germany, like minimum wages, though Schröder froze the Labor class wages in his 10 years plan for the german industry, 10% of the social charges that were incumbent upon the enterprises passed onto the workers’s. Also do not ignore that Germany has 30% of part time jobs, whereas 20% are under Hartz IV program assisted jobs, meaning that these workers only get ~€400 per month, difficult to get a life with that, and certainly not a relevant retirement.
Schröder implemented these rules to keep Germany competiveness vs France and Italy within the euro. In France and in Italy wages followed inflation, increasing in the meanwhile the production costs, whereas a thiner margin became the enterprises forecastings.
“My guess is that Germany does not tax the profits of German domiciled/ registered companies for any sales generated outside the borders of Germany. ”
Not was was seen by the QE2 whereas Bundesbank got loaded with mediterranean clearings
“Also, their must be some other govt. benefits that allow German firms to be very competitive in the export markets.”
yes, since the beginning of the euro crisis, foreign investments focusing on Germany, bank runs… brought about €90 billions benefits to Germany
My story is similar to this story. My mother’s father founded a successful small manufacturing business. My father managed pension funds for the phone company for 25 years, then was a consultant in that field. I worked for a renewable energy start-up company until I was laid off in August, 2009, and was out of work for more than 26 weeks.
I think there is a lot of truth to the comment that the popping of the housing bubble took away potential equity that could go into starting a business.
But there is more to it than that. During the housing bubble, when everyone was using their home equity as an ATM, how many people used this money to start a business? This was a golden opportunity for entrepreneurial start-ups, but it wasn’t a golden age of entrepreneurship; we would be seeing the fruits of it now, ten years later, if it were.
I left the private sector at that point to go to work for a federal government contractor. My job is to identify and set up energy saving projects. Our contract requires three times the energy savings to the size of the contract, a requirement that we’ve never had any trouble making.
My work takes me to Solano County, California regularly (just east of the Bay Area). Of the ten largest employers in the county, only two are for-profit enterprises. And the things that they make, beer and jelly beans, aren’t exactly the products that we can rely on to carry the economy forward.
The community has a significant immigrant population. Immigrants and their children have been the backbone of the entrepreneurial class in this country for much of our history. On that basis, I expect great and exciting things in that community going forward. Maybe it’s always been this way, but it seems like most of the small businesses are restaurants and small stores. Somehow, it’s gotten harder to identify needs and build a business to manufacture them. The service sector is much easier to get into, when everything made comes from somewhere else.
Take a look at the Congressional discussions about “annuitizing” our private retirement savings. Some of us with IRA and 401K accounts plan to take the tax hit and get as much as possible out before second term Obama grabs them all.
Think I’m blowing smoke? http://www.humanevents.com/2010/05/04/republicans-sound-alarm-on-administration-plan-to-seize-401ks/
To the Academic Central Planners of the Left, this is the ‘obvious’ solution, no? If the private pension funds won’t invest in risky assets, and the union pensions are underfunded because of lack of returns, well, seize the private pension funds and invest them in Obviously High-Return Projects (/s) like high speed rail, wind and solar power, electric car plants, etc.!! I believe Cristina Fernandez of Argentina is doing something similar, with results that will be equally fantastic. We are moving toward the Peronization of the United States at blistering speed… Maybe this is what Obama really meant when he talked about ‘the fundamental transformation of the US.’ Superb and concise statement of the US predicament, BTW, Dr. Goldman.
Just Mr. Goldman, thanks.
Mr. Goldman, I meant to attach a link to this article, via Greg Mankiw’s blog. You may find this of interest re the question of policy uncertainty as a deterrent to investment. See esp the second from right column in Table 1 at the end of the article. http://faculty.chicagobooth.edu/steven.davis/pdf/PolicyUncertainty.pdf
Best wishes,
Lawrence Franko
I would add that I have nothing against annuities when they are written by life insurance companies or non-profits like the Catholic Church. Those are perfectly good reverse life insurance policies that will protect you against outliving your savings, and they’ll invest your money wisely to cover your checks, eating any losses themselves. It’s the government that I don’t trust.
I lived in France in the early eighties. And, I traveled Europe frequently during that time and for just a bit after. Comparing the attitudes of the French and other Europeans of that time with what I hear Americans saying now, I can’t tell any difference at all. President Obama has turned American into France. If he gets a second term, it will be permanent. And, then we’ll have persistent unemployment, a barely-growing if not stagnant economy, and risk-averse behavior in every facet of business.
Notice however that after the nationalizations that happened in France came the privatization.
An interesting thing did happen though when the socialists were riding high in the ’80s: French industries went on a buying spree outside of France, including in the US. I worked for a couple of formerly American chemical companies which were bought by the French. Why? Because they couldn’t make any money in France.
If Obama’s reelected, watch for this to ramp up. It’s already starting, with GM building plants in Europe, Mexico, and China using taxpayer money.
“orked for a couple of formerly American chemical companies which were bought by the French. Why? ”
Non sense, the French entrepreneurs understood GLOBALISATION as much as the others
They weren’t entrepreneurs, they were government bureaucrats. You understand, don’t you, that Elf and Rhone Poulenc were government agencies at the time, don’t you?
n’importe quoi
clichés have a long life by you
“la vache qui rit” aussi LMAO
what about Halliburton, Boeing, northrop grumman…?
oh and Goldman Sachs?
France in the early eighties is hardly the same France of 2012, because in between, the Ost wall fall down, and globalisation became generalised. There far less state shareholdings in enterprises, and or nationalised enterprises
Important article and good information about the scale and lack of real investments by the pension funds. But I would have titled it “Why Americans are scared shitless to risk a dime with obama in charge of anything bigger than a lemonade stand.”
There is no doubt whatsoever that there will never ever be a recovery with these monsters in charge.
Look at the disaster FDR perpetrated for 9 years, and he actually liked the country.
If obama is elected again, millions of small businesses will close their doors, investment will continue at level zero, and ordinary Americans will cut their lifestyles even futher and even before they are forced to again.
Which is exacly what the stat/soc/marx/comm/fascists want.
Rest assured. They won’t suffer for a second, and they will gain the one thing they want more than anything in the world. Permanence.
There is no gaffe, no stupid act, no misinterpretation, no liberal tendancy that Romney say or enact in a billion years that can compare to that outcome.
Economic theorists on long business cycles would call today a depression as there is lots of liquidity but low returns. At some point that capital will seek higher returns by making riskier investments in potentially profitable new technologies.
Look at the late 30s – out of that period came the jet engine, television, and computers. Those were the new businesses that fuel the growth of productivities into the 50′s and early 60′s.
We stalled for a while and then found outselves awash in cash – the 70′s era of the junk bond when the only route to higher returns was in financial instruments with higher risk.
Suddenly, the 80s and early 90s saw an wave of investments in semiconductors, fiber optics, PCs, and the internet. Risk-taking venture capital was the main avenue for risky investments that paid off. These fields made huge improvements in general productivity and wealth grew rapidly.
Today, the grow leaders of the last wave are near spent – anyone need a new program for their PC that will make them money? Liquidity is again piling up with no returns except from borrowing from the Fed and lending it back to the government at a premium.
With the proper political leadership, getting government out of the way, that capital will again seek return from taking risks and reaping the rewards from intelligent investment. What fields will pay off? Sure won’t be electric cars or windmills!
To everything there is a season. A time to sow and a time to reap.
We did get jet engines and the like out of the late 30′s. What you seem to forget is that it took a war with a real possibility of serious strikes against the US to shake the money loose.
Given the risk of defeat in war set agaisnt the risk to captial it was an easy choice to make.
What I want to know is what will it take to shake the money loose again now? Another war? It feels like it to me and I fear for the world my children will inherit.
It took the war to break the grip of the New Deal! Capital was on strike during the New Deal and FDR had to give up demonizing and stiffling business to prepare to fight the war.
Granted, war is the most intense of competitions and war aids technological development (for potential weapons, at least).
The end of the junk bond era was a more recent example of excess liquidity forcing capital to seek higher returns. A similar process happened near the end of the 20s when holding companies created high leverage and a run-up in the stock market.
War won’t fuel such innovation these days. Nuclear weapons have rendered a WWII -style conflict obsolete. If war were to break out with, say, China, we’d either win quickly, lose quickly (i.e. decide that it wasn’t worth fighting China over their objectives) or escalate to nuclear warfare. China looks tough, but its navy is small, and we have three Seawolf Class attack subs that could devastate them in an hour or so. Need to shut down their sea lanes? Send in the Seawolf Class subs to torpedo their armada and then use Virginia Class attack subs or Ohio Class SSGNs to lay mines and hit their shipyards with cruise missiles. With their fleet at the bottom of the East China Sea, their army won’t be able to reach the islands they want to conquer.
Your history is bogus. Television already existed in the ’20s, and jet engines and working electronic computers are products of WWII.
Carry on.
Television was a lab demonstration in the 1920′s, but became a working reality in most American homes only by about 1950. Jet engines weren’t a determining factor in WWII and computers that calculated shell trajectories weren’t up to processing payroll cheques and bank balances – again until after 1950…….
right….. we’re off…….’>………
Both of you are correct, which gives a clue as to what’s going on today. Back in the 1920′s all the new technology — cars, airplanes, new tricks with electricity like TV, etc. — had made the old economic patterns unprofitable enough that many of the old investments lost much of their value, causing the crash and depression of the 1930′s.
If you think these new inventions weren’t big game-changers, just look at the silent movies made in the 1920′s. Although action tends to focus on one or two primitive cars in the foreground, there are still lots of horses around in the background, only a very few telephones around inside offices, and so on. By in the 1930′s movies, all the horses are gone, replaced by more comfortable-looking cars, and we begin to recognize the outlines of how twentieth century Americans lived their daily lives. What happened to all those companies whose business was supporting the horses — the farmers who grew grain to feed them, the trains to take the grain to the cities, etc.? They disappeared. What happened to all the businesses that had a “horse component” to what they did — perhaps they made a 10% net profit with lots of horses in use but lost 10% year after year when nobody wanted horses any more? Most of them disappeared too. What happened to all the middle-aged workers who thought in terms of horses, trains, telegraphs, circuses instead of cars, trucks, telephones, and movies? They tended to lose their jobs, and those who had risen to the top and made decisions on how money was spent became very cautious in what they invested, secretly knowing how out-of-date their business instincts were. By the late 1940′s enough people had grown up with the new possibilities (and enough of the obsolete decision makers had retired) that non-obvious ways were found to make money, lots of money, off the new technologies — as just one example, businessmen invented broadcast TV financed by advertising, establishing TV as a real money maker instead of a mere laboratory curiosity. (And yes, WWII helped by spreading knowledge of the new technologies around widely).
The comparison to today, where cell-phone technology and the internet have completely re-written the basic rules of what can and cannot be done, should be clear. The 1990′s boom when these new technologies first became established compares to the 1920′s boom when the twentieth century technologies became established, and the ensuing years of bad economic growth after 2000 correspond to the 1930′s depression. People making investment decisions at the top secretly know their business instincts are out of date, so they are very cautious in how they invest. Many middle-aged people have obsolete skills and have to take less skilled jobs or retire. Lots of business models are basically unprofitable and have to be scrapped. The government gets in the way of the needed destruction cycle by trying to preserve the previous generation’s way of doing business. Can government help by subsidizing businesses of the future? No, because that would involve predicting the future, an obvious impossibility. Government can’t even help by subsidizing education, because who can tell which of the new skills will be the important new skills before it becomes obvious?
There has been a lot of blame placed on the corrupt investment practices that immediately preceded the housing bubble and stock market crashes of 2000 and 2008, but consider how likely it is that pressure from the new, more profitable technologies forced businessmen and financiers stuck with the old ways of doing things to cut corners in an attempt to keep up. So yes, when new technologies blow up the old ways of doing business, desperate men do desperate things and bribe their government cronies into helping them — hence corruption runs rampant but in the end doesn’t keep the old ways profitable in a free capitalist economy.
You can read more about this sort of “creative destruction” in
http://en.wikipedia.org/wiki/Creative_destruction
Be sure to go all the way to the end of the article to see how this originally rather left-wing idea ended up being adopted by right-wing economists to show the superiority of free-market capitalism.
People only make an investment in the future when they can see a future worth investing in. The American public is still if fear mode or has lost enough money that their isn’t enough left over to consider investing in a future. My wages are down considerably from the past few years and I’m making about as much now as I did back in 07. Any money left over is spent on items that have not been replaced due to a lack of cash over the past few years. If I had an extra few thousand dollars I need to think about replacing a vehicle before I would take it down to the brokerage office. Folks are worried about what am I going to do right now, not what am I going to do tomorrow.
I’ve got another reason: why invest money, work hard, take risks to make a few bucks only to have a lazy, useless nitwit in the Oval Office call you a “fat cat” who needs to have his taxes raised because he’s not paying his “fair share”? Better to relax, put your money in tax-free munis (avoid financial death-traps like California, Illinois, etc) and await a better day? Hopefully, one will come before the nitwit collapses the economy totally.
The reason americans don’t invest on themselves is the same italians don’t invest on themselves or french don’t invest on themselves, etc.
The reason is they are no more free to act for thier self interest.
The governments are after them with taxes, laws, regulations of every sort. And insiders are rewarded at the expenses of outsiders. But the outsiders are the people producing the real wealth. The car, the houses, the saving.
They don’t invest because their investment it is perceived too risky; too much at the mercede of the whims of politicians. The return is too low and the risk too much.
They dont’invest just because they have lost too much in the bubbles blowed up by the Fed. Wall Street and likes and they need to rebuild their savings before reinvesting.
If you want investment you need saving first. Lower consumption, higher productivity. But the government is keeping the return of saving near zero, the taxes high and the spending higher. In this environment people is more interested in keeping their saving, not to risk them. The people with them money usually is not stupid and many, instinctively or not, feel or understand what is written on the wall in flashy multicolor neon lights: deflationary default or inflationary default.
In a deflation no one want have money in the bank (because many fill go broke) and in an inflationary default no one want have inflated money (because it will go to zero value). Difficult to invest in something in such environment.
Well, FWIW, I invest (using dollar cost averaging) in American companies. Not *primarily*, I believe in diversification, but if I buy a bond it’s an American bond — my securities may go anywhere in the world, but never China.
I’m youngish, 33, and I’m just beginning to invest independently outside of my IRA’s index fund. In fact, I just bought a bunch of Ford stock, which I feel is a solid buy-and-hold value play. My bias in securities is to buy American, and Ford is a great American company. Not only did it never take a penny of bailout money, they managed their near-bankruptcy brilliantly, restructured, practiced discipline (remember that?) and now are optimistic about the future.
Their story is my story. I hope to pass that stock onto my children, not for earnings, but as a symbol. Ford will still be around.
We’ve both had tough times, but anyone who agrees with Fitzgerald that “there are no second acts in American lives” never listened to the music of Frank Sinatra, watched the Red Sox in 2004, or studied the life of Abraham Lincoln.
The American century isn’t over yet.
Can you explain to me how oil from Canada, shipped to the Southern Coast for export, provides energy independence. It seems that it just enters the international market. Thanks for the reply.
Supply and demand govern price, but some factor of both is physical proximity and it’s effect on availability and ‘political and natural risk’ –the converse ability to be made or become unavailable per distance/time/transport cost and political geography.
An idea for you: search ‘brent’ vs ‘west texas intermediate’. You’ll see that in an indeed global market of fungible transaction factors, there needs to be an accommodatiomn of distance, transport time, and carrier risk between OPEC and non-OPEC, between East and West. Think of Brent crude as the OPEC price, and WTI as the price of USA and USA-proximate crude.
Now think of the cost of defending the supply and the transport system. Compare, the world sea lanes to the route of an internal pipeline.
You’ve got to pierce the words and sentences of questions such as yours, and go into the meaning.
The concept here is plain and simple –yet your question probably more than any other was allowed to serve as a major truth with the right to block the Keystone.
All the proponents ever needed to do was counter with a request to explain the existence and price differential of Brent and WTI –and the question would then have answered itself.
The Gulf Coast is home to our oil refining and petrochemical industries. Today, it receives both domestic production and imports from Venezula. The Keystone Pipeline would substitute heavy Venezulian oil with Canadian tar sands production. This is an interior route from a country that is our closest ally.
You forgot to count: Investment risk = litigation risk
In The west the war of words with each other gets worse , Islam people finding reason to hate Christian and Jew and Christain and Jew find good “reason” to hate Islam as the new leadership taking over in China find ways of uniting their billion+ people and they will not share power with the alien
from wikipeda of the past and now 2013 is very near
On Mr Xi and his bosom buddy General Liu Yuan
“In 2010, Liu wrote the preface to a friend’s book titled Changing Our View of Culture and History, which has aroused notice for criticizing recent Party leadership and calls for the rejection of foreign models and a return to a supposed upright military heritage.[1][3]
Some believe Liu is politically close to other “princelings”, especially Xi Jinping, the expected upcoming leader of China”
to Lawrence Franko underneath comment #30, please search and read some reviews of Amity Shlaes best-seller of a couple years back, The Forgotten Man.
Her thesis for a large section of the study is that ‘regime uncertainty’ was the secret weapon with which FDR sought to hang onto enough non-recovery long enough to get his main ‘transformations of America’ accomplished.
The way he did it was with earnest concern for the little guy, which caused him to impatiently discard programs and initiatives because (FDR would say) there is something better, let’s try that instead.
And the optics were of course of an administreation working very hard, and confound the luck, getting little help from Lady Luck.
The effect on the nation’s little band of entrepreneurs was, natch, immobility, due to the uncertainty, which to a capital-starved businessman, is not just money, it’s ‘the’ one chance a fella’s got –if he loses the nut, he’ll play hell finding another.
And program changes, rules & regs changes, tax code changes, policy-by-person changes, rolling out of DC in a steady procession, are not just ‘a threat’ but the actual warp and woof of the undoing, arbitrarily, of one’s entire existence, at the whim of the govt powers that be.
I have the personal experience of it, btw, so i do not speak from an academic point of view. My experience with an agency pre-dates Obama, tho, so I’m no longer burning enraged hot, but rather am able to coldly recognize that the vast brain trust operating from DC at the moment surely cannot have missed Amity Shlaes’ book, and if for no other reason than that, what they are doing re the bell-clanging madness of the current version of ‘regime uncertainty’ is, oh, a million times? –more likely to be deliberate than accidental.
No rational person will invest now, because investments require the level of stability provided by a rule of law. There is no rule of law currently in the United States. Mention has been made of Corzine, the housing bubble, the banking/housing collapse, the GM bankruptcy thefts, Obamacare, unaccountable and arbitrary bureaucratic regulations, and other things. But it goes beyond that. We literally not had a constitutional budget for 4 years. One Party is holding it up, and has been holding it up, any budget. It is not a matter of differences of opinion. Even if the Senate voted a House budget down, it could come back amended or be reconciled. Instead, there is a protected refusal to discuss one or vote on one.
The courts? They have steadfastly refused to deal with any of the pressing issues of the time, have enabled every illegal act, and while the ruling on Obamacare was itself a travesty; HOW it was made itself was the most destructive thing.
“Justice” Roberts wrote what became the dissent. He was going to be the vote that drove a stake through Obamacare’s heart. Something happened, or more likely someone got to him. He changed sides without explanation, and wrote what became the majority opinion. He is owned. And the rationale he used to “justify” Obamacare was the most destructive thing possible. Granting that the mandatory program was unconstitutional, he allowed that since the penalties were taxes, it was instead a matter of Congress’ taxing authority. The prison sentences for refusing the program and to pay the penalty were therefore constitutional. In other words, the Federal government has the power to deliberately violate the Constitution in any way as long as they couch it in terms of taxes.
If you are wronged, by the government, or by an individual or entity in the favor of the government; where do you go for redress? The courts? The law? Do you appeal to the Constitution? Or is it only a matter of who has the power to ruin or end the other’s life?
In the absence of a rule of law, investment is folly at best, and more likely suicide. Wealth is something to be hidden, preserved, and moved away from the reach of the rapacious.
For all the insulting talk of “gold bugs”, holding precious metals is not an investment strategy, it is an attempt at a wealth preservation strategy. Holding bonds, equities, or paper instruments of credit localizes your wealth for confiscation; instantly by nationalization or drop by drop by taxation and payoffs to those in power. Holding tangibles that can be defended or moved out of reach of the barbarians is the only reasonable thing to do. Precious metals are a rational part of such a strategy because of both portability and negotiability. Y’all don’t eat gold of silver. But the reason they are called precious metals is because they can be traded pretty much anywhere for goods.
In the interest of disclosure, I am not someone in the position where the above is an action plan. I am poor enough, and old enough, that when TSHTF; I will probably not survive. But like a lot of Americans, I may not be rich, but I am not ignorant.
Subotai Bahadur
…when TSHTF; I will probably not survive
–i tink we are in same boat, Subotai. Maybe on the other side this heavenly voice is in the air, instead of them sonzabitches on the High Noon train.
Perhaps the main reason for the unwillingness of the institutions to lend to new small corporations that are not established is because the foreign trade deficit is an indication that the US is unable to compete. But if the foreign trade deficit is confronted by the government, then the financial institutions will be more willing to lend to small corporations. If the non-oil component of the annual trade deficit is $400 billion, and if there are 20 million unemployed or underemployed people in the United States, then by dividing the first figure by the second we get: $400,000,000,000 / 20,000,000 = $20,000 for each of those 20 million Americans who are not employed sufficiently. Thus if the non-oil component of the trade deficit were “confronted” by the government, then this will make the financial institutions trust that the small companies will actually be able to pay back their loans.
If we take into account both the oil and non-oil components of the annual trade deficit, the total sum is nearly $600 billion per year, close to 5 % of the annual GDP, and so most of the annual government deficit spending is actually used to compensate for the trade deficit.
I think the following quote from Robert Heinlein sums it up nicely.
Throughout history, poverty is the normal condition of man. Advances which permit this norm to be exceeded — here and there, now and then — are the work of an extremely small minority, frequently despised, often condemned, and almost always opposed by all right-thinking people. Whenever this tiny minority is kept from creating, or (as sometimes happens) is driven out of a society, the people then slip back into abject poverty.
This is known as “bad luck.”
I know that many of you seem to idolize writers such as C.S. Lewis, Edmund Burke, and the like. I think Robert Heinlein was at least as good of writer and as historically significant than any of these other writers. I will tell you that I identify with Robert Heinlein’s writings far more than those of, say, C.S. Lewis.
I also believe that 10,000 years from now that Neil Armstrong will be more remembered than other historical figures, including Jesus Christ or Mohammed.
Whiskey, this is racist garbage and I won’t allow it on the site.
Whiskey does, however, have a very precise grasp of the feminized soul. Americans don’t like risk because women don’t like risk, and the male employment statistics are much nastier than your charts. Women and beta males are favoring either “safe” investments such as utilities and staples, or bloated momo fluff like Lululemon and Amazon. The caveman right has been hiding gold and bullets under the mattress, and it has outperformed the market for a long time.
Trust in markets does vary among races, for what it’s worth, and it’s probably more than what anyone cares to admit.
Does “racist” cover the sum and substance of his remark so I won’t waste my time reading it? I don’t know. I didn’t get a chance to read it before it was pulled.
Discussion of racial characteristics can be relevant, as in why blacks suffer from sickle cell anemia is prevalent in blacks, or why they suffer from high blood pressure and diabetes at much higher rates than whites. Remember when medicine “suddenly” discovered that women experienced heart attacks very differently from men, yet no studies had been done on women in order to make them more aware of that fact?
I don’t think we want to be like the black leader who declared firmly that she’d rather die of high blood pressure than take a treatment that was targeted to blacks because it had been designed to be racially specific. We avoid discussing these differences at the cost of learning from each other, indeed at the cost of wasted lives. What other differences are there? Researchers are afraid to explore them for fear of the fallout.
Whiskey showed up here with his same old schick, eh?
Is it racist to suggest that Canada lets in highly qualified Asians instead of just adopting a NAFTA, U.S. citizens first immigration policy because Canada has a large American-Canadian voting bloc?
http://instagram.com/p/PzT6cfSdik
Now hold on a second: I’m risk-averse in my investments not because I’m afraid of risk in general, but because I’m investing my emergency fund for yield. Besides, a dividend is something real, and something you used to be able to get in any decent company. Historically, 40% of return was dividends. There’s nothing feminine about not over-committing.
It is racist to even mention the word Canadian. Didn’t you get the memo?
http://blogs.transparent.com/polish/murzynek-bambo-julian-tuwim