Insight From Jethro Tull’s Ian Anderson

During an interview with The Telegraph three years ago, the musical wizard Ian Anderson, leader of trailblazing rock ensemble Jethro Tull, made an observation which voters might do well to take to-hand for inspiration as they next step into polls determined to anoint a new leader with the gift of substantial power over their lives.

The somewhat insightful question asked of Anderson by Mark Anstead was, “Now that you are better off, are you happier?” 

He answered, “Yes, of course. The contrary position is something I can’t imagine. But if I hadn’t been a musician I probably would have signed up as a police cadet and I don’t think I would have been any less happy doing that. I would just have been working without the same sense of financial responsibility towards others.” 

The answer tells much of the common sense with which the music legend has lived his life. However, for all those of us desperately job hunting and for all those now rethinking what nature of individual is essential to lead a Nation toiling through economic hardship, the answer holds more pertinence. Anderson has always personally managed all of his and his band’s affairs including its contracts, bookings, and accounting, with his wife of 37 years, Shona. He is a superbly talented musician who resisted the lower-hanging temptations to which celebrity rockers so readily succumb, and at the peak of his more entrepreneurial ventures, Anderson managed over four hundred people. 

Ian Anderson’s observation of the “sense of financial responsibility for others” reveals an introspection which can only be achieved through ‘doing’ it – it being the running of a successful business, large or small, and being singularly responsible for incomes of employees. 

Not everyone is cut out to be an entrepreneur nor would the world function if we were, however, when your responsibility spreads beyond your own familial charge and you become accountable for the sustenance of other individuals, something visceral occurs which can be characterized as a teachable moment. When you have to ensure that there is cash enough to cut that check, you know. You know the stress felt and you know the effort infused in all facets of guiding a business to prosperity, any prosperity. You know everything that comes with not only signing those checks, but with having been responsible for assuring that the checks you sign don’t bounce. Society cannot teach you that in a classroom at MIT or at Harvard. You can only appropriate that knowledge through experience. 

In the next private and intimate voting poll, as you bestow your name in support of a Presidential nominee, satisfy yourself that the would-be leader has felt and learned that very powerful piece of knowledge. Confer your vote on one who has seized that “sense of financial responsibility towards others.”

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U.S. Leadership Void Squanders Influence - China Steps In

During this period in American history when the economy, business, trade and currency have taken pivotal positions in the Nation’s psyche, the country is led by what may well be the most economically uninterested Administration it has ever elected.

Loudly professing to fight for the vast middle class, the Obama Administration’s actions are taking the Nation galloping toward the destruction of middle-class incomes, toward upwardly spiralling middle-class taxes, toward bloated government, and toward overwhelming debt. 

As the expansive middle-class heads off to work at its one or two jobs each day, it has the right to expect its leadership to do the job it gets handsomely rewarded to do. That job includes paying attention to all matters which affect the long term health and stability of the country. 

We were not surprised to discover ineptitude such as the State Department’s decisions in Libya or in Egypt, nor were we astonished at cover-ups attempting to hide the incompetence. However, of more import to the middle-class is the blundering neglect and disregard this Administration has shown to economic matters which will directly impact the long term health of America – both its economic condition and its military strength. 

After four years of the current Administration’s platitudes, but prevailing economic indolence, we are presented with abundance of tell-tale ‘canaries in the coal mine’ evidencing a methane cloud sweeping across the whole country trying hard to drag it into a state of international subordination. 

The EU leadership’s attitude toward Cyprus bank depositors forecasts the future imposition of punishment on Spaniards, Italians, and other profligate governments. Any word from the White House? This act by Brussels is criminal expropriation of personal property, telling of an imperious inclination. But who cares? Surely the EU’s action cannot be a ‘canary in the coal mine’ for the American middle-class. It’s just those funny Europeans who speak strange languages, and anyway, we’re not like Europe and surely our leadership would not want to emulate theirs. So let’s look at ‘telling’ events elsewhere for more suitable ‘canaries’. 

Let’s skip to the other side of the world where Australia’s Prime Minister Julia Gillard, head of the labor party, is heading to China to slide Australia further into the Chinese sphere of influence through the signing of an agreement to allow for the direct conversion of Australian dollars into Chinese Yuan. Reducing the need for Australian businesses to convert U.S. Dollars (the greenback is the predominant currency middleman), in trade with China reduces some costs incurred by Australian companies. More importantly, this arrangement provides China a more direct and less expensive access to the raw materials it requires to fuel its own growth and increase its wealth. What of Chinese exporters to Australia? China is promising better prices and better payment terms under this new agreement. How perfect is that seduction? This Australian maneuver could be dismissed as a minor ‘canary,’ representing a trivial event relative to the global daily trade turnover of over $US3 trillion. Such an event is nevertheless an economic and political statement, highlighting the progress in the long term internationalization of the yuan. China is buying up all the mining companies and raw source materials it can in Australia, as it is doing elsewhere. It has done a successful job of hiding the reality that the communist party, which controls China, also controls most entities who ‘acquire’ foreign assets, and it influences any which it does not fully control. Down the road, that centrally manipulated ideological mindset will have massive control over foreign economies. 

Brazil is moving in the same direction with a $30 billion currency swap with China. Such arrangements are expected with other Chinese trading partners including the United Kingdom and Japan. This new and consequential trend is about receding the greenback’s and America’s prominence. 

In Canada, the disdain and the disrespect which the Obama Administration has shown for its leader, Prime Minister Stephen Harper, and for its economy, has pushed that country to bend over backwards for China. When the head of CSIS (Canada’s equivalent to the CIA), mentioned that the Chinese government had infiltrated the Federal and Provincial governments at the highest levels, the country’s predominantly liberal media admonished him and shut him down. How dare he talk against a country so busily buying up Canada’s natural resources. How dare he be so politically incorrect? The Canadian MSM actually placed the label ‘racist’ on him. As for Stephen Harper? Since Obama is not only uninterested, but recalcitrant, Harper is determined to forge a trading relationship with China to the point where everything is ‘for sale,’ including the out-of-control indebtedness of Canadians who now on average owe more than the average American. A whole generation of indentured citizens seems apathetic to its plight. China finances construction of hundreds of thousands of pigeon-hole condos, selling them to Canadians who cannot afford them. How is that for a perfect storm? A currency agreement with China such as Australia is entering into, can only be just over the horizon for Canada, further erecting the yuan’s position and sidelining the U.S. dollar. 

As any country’s trade with China increases relative to that country’s other trading partners, China’s ability to dictate trading ‘conditions’ increases. In Europe, the general weakening of the Euro trading block opens the door to sidelining the greenback. China can hardly be accused of being subtle in its efforts toward economic dominance. Here is a statement from a Professor Yu, who was a member of the monetary policy committee of the People’s Bank of China and an economic adviser to the government ”It is a simple case of invoicing and settlement currency, it is not about making the yuan a reserve currency.’’ Of course. 

Australia, Canada, Europe, South Korea, Japan, Indonesia, and, . . . and, . . . and, all depend on America for security. Individuals in much of the world go about their day, conscious that America has for as long as they’ve been alive, been a positive influence on their safety and on their stability, and most importantly on their freedom. The capacity to provide that stability has been financed by the strength of America’s economic engine, the health of its currency and confidence in its ability to lead. Flaccidly standing-by as ‘friendly’ economies become smothered and influenced by a communist government does not augur well for our well-being and our way of life. 

History dictates that maintaining a strong position on the global stage is essential for self-preservation and is imperative for the preservation of freedom and core values. It requires interested, visionary, and inspiring leadership. True leadership cannot be concocted through alchemy, or fashioned on a Hollywood back-lot, or discharged through a teleprompter. It is innate. Before more canaries prognosticate degradation of the Nation’s international stature, America’s taxpayers should make themselves heard, and demand pro-active leadership in Washington.

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In The Bubble of Stupidity

The brilliant and colourful English Lit professor and occasional philosopher Marshall McLuhan presciently wrote, “Politics will eventually be replaced by imagery. The Politician will be only too happy to abdicate in favour of his image, because the image will be much more powerful than he could ever be.”

 McLuhan passed away in December of 1980, yet he seems to have had the capacity to perceive so many vacuous celebrity politicians which today fill our electoral landscape – empty vessels which float to re-election on electoral carpets of wishful thinking and ignorance. With an uninquisitive media abstaining from accurate reporting, the misinformed public remains in the dark.

No-where is that ignorance of “imagery” politicians in more glorious display than on all matters economic. Politicians may not hold forth on brain surgery or Mars landings, but they certainly expound profusely on the economy and its forces.  This week we were treated to a rather typical display of incomprehensible idiocy by none other than a Ranking Member of the House Financial Services Committee. Perhaps we should underline “Financial Services Committee.”

Congresswoman Maxine Waters made the following statement,“Yesterday we did have Mr. Bernanke in our committee and he came to tell us what he’s doing with quantitative easing and that is trying to stimulate the economy with the bond purchases that he’s been doing because he’s trying to keep the interest rates low and create jobs–and he said that if sequestration takes place, that’s going to be a great setback. We don’t need to be having something like sequestration that’s going to cause these jobs losses, over 170 million jobs that could be lost–and so he made it very clear he’s not opposed to cuts but cuts must be done over a long period of time and in a very planned way rather than this blunt cutting that will be done by sequestration. . . . . And so, we are here today, one more time, talking about women and children and families and how we can protect our women, children, and families and have a decent quality of life–sequestration will set us back. All of the gains that we have made will be lost with sequestration.”

So there you have it from very near the top of the Nation’s political hierarchy – a statement providing clear insight into the frightening lack of comprehension with which the country’s financial affairs are supervised.  Let’s ignore the absurd claim, “170 million jobs that could be lost,” since there are only 141,614,000 jobs as of January 2013 in total – and well, anyone can make a mistake when making a supposedly critical statement to the Nation. No?

Of greater import is Waters’ description and characterization of Bernanke’s presentation to her Committee?  Does she, or any other member of her Committee understand enough of what Bernanke is doing, or why?  She states,  “he came to tell us what he’s doing with quantitative easing and that is trying to stimulate the economy with the bond purchases that he’s been doing because he’s trying to keep the interest rates low and create jobs.”  Huh?  Does anyone ask her how her brain connects all those dots? That would be embarrassing, since the dots don’t connect.   They don’t and they can’t.  Did anyone on her committee ask Bernanke to connect those dots?

Her statement demonstrates that this “imagery” politician is lost and baffled by economic matters and realities, but she is evidently confident of achieving a successful outcome for herself through the spewing of unintelligible gibberish as long as it is followed by a comment about the sky falling on single women and children.  Pretend to somehow be protecting single women and children, which is even better than championing motherhood and apple pies, and Walters succeeds in propping her own statue another day.

Waters is simply another fear-mongering politician ignorant of the fact that the Fiscal Cliff is only reducing some of the planned increases in discretionary spending.  Almost nothing will be cut from mandatory entitlement programs – Social Security, and Medicare, or from debt interest payments.  The Nation’s financial problems rests primarily on mandatory expenditures and their looming explosion.  Should someone point that out?

With the quality of economic acuity we are subject to, as demonstrated by politicians of the Waters caliber, it is hardly surprising that nothing is being done to bring spending and debt under control.  Nothing is being done to restrain the excessive growth of government.  The complexity is too difficult for uninformed and uncreative minds of the “imagery” politicians to confront. It is so much easier to ignore a complicated reality, particularly when doing so might throw shadows on their ideology.

Let's take another prod from Marshall McLuhan’s stimulative mind, in which he prophetically defined mindsets of the current leadership in Washington, “I wouldn’t have seen it if I hadn’t believed it.”

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• World Awaits America’s New Entrepreneurs

The developed world, and most of the struggling third world, as much as it may pretend otherwise for politically expedient reasons, is depending on an American economic turnaround. This means that the world is in fact awaiting, not for Washington to solve its debt crisis, not for a forestalling of Obama’s armageddon, not for resolutions of budget deficits, but for the resurgence of America’s unique brand of entrepreneurialism.

American entrepreneurs have always been the consummate optimists, whose innovation, creativity, ingenuity, resourcefulness, and financial diligence, have produced the most successful economic engine in history. Entrepreneurs have independently created companies, big and small, that have sustained the tests of time and market adversities, and some have gone on to become international behemoths.

Today, America is spinning and twisting under leadership that vilifies businesses and maligns corporate America. It imposes laws, and institutes structural dictates that push entrepreneurship into the realm of the nearly impossible. An administration that promotes a climate of government growth and government dependence, is promoting the destruction of the fundamental and positive core of the human spirit that makes for a dynamic society.

When government grows faster than the private sector, net productivity shrinks. Such is the trend in America. It would be a complete waste of time to look to Washington for ideas or programs that might actually be helpful to any advancement of the entrepreneurial exercise. Furthermore, let’s not look to those glad-handers, who’ve gravitated to the beltway to rub shoulders with this Administration, for any answers. The agenda is being manipulated by less than a handful of ideologues behind Obama. Everything else is showcasing and pretense for the masses, accomplishing nothing positive toward improving productivity or increasing GDP.

Not everyone is cut out to become an entrepreneur, however, the urgent need for supporting entrepreneurship is now more manifest than at any time in the past century. Far too broad a swath of the MSM has been supportively trumpeting the Obama Administration’s ideological convictions and hostility toward corporate America. Too many Americans are sliding into the slothful perception that heaping taxation on those who “have,” is an answer to deficits produced by bloated government spending.

Since America’s earliest days, entrepreneurs have disseminated enthusiasm and passion for success which has been contagious. American entrepreneurs champion the work ethic while playing by the country’s rules and laws that much of the world may not emulate, but furtively admires. I say "may not emulate" because, as we have discovered in so many other socio-political environments including China, laws and decency don’t often matter.

In high schools, colleges and universities, students should be encouraged to break new ground for themselves as new entrepreneurs, rather than to go out and “find a job.” It’s always easier and is the default to pursue the latter, but some encouragement is required to attempt the former. Educational institutions should place more emphasis on the stimulation of entrepreneurial thinking, and should allocate class time and courses to the encouragement of new entrepreneurs. You may not be able to “teach” entrepreneurialism, but you can certainly induce its discovery, and inspire its actualization.

Some entrepreneurs may be born, but entrepreneurialism is also a mindset that can be ignited and nurtured, and its required skills developed. More effort should be addressed to cultivating the perception that entrepreneurs are among the most positive contributors to a vibrant and successful society. They are critical to the economic health of America. The entrepreneurial attitude is the antithesis of the union led bureaucratic morass that has grown out of control, and clogged the wheels of progress and the financial well being of companies.

Typically the entrepreneurs who grab public attention are those who cut new trails in technology, however, any new business, in any industry, that can be formed to employ at least one person, is a step in the right direction. America has no choice but to reverse the current trend toward disaster. The Nation must enthusiastically promote entrepreneurialism and its optimistic perseverance.

The world looks forward to America’s new entrepreneurs and the energy they will inject into the world’s most consequential economy.

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• Obama’s Impossible Gordian Knot

Over 2300 years ago, birth was given to a myth which in time became a powerful metaphor that has served us well through the ages when addressing seemingly impossible or intricate challenges. Halfway through the current Obama Presidency we face a moment when reaching back for an ancient Greek analogy has become self evidently appropriate.

Legend tells us that Alexander The Great fulfilled a prophecy by bringing a creative solution to the Gordian Knot – he sliced the complex knot with his sword, thereby showing himself capable of thinking outside the box. Gordian, the mythological king of the Phrygians had tied his oxcart to a palace as an offering to Zeus, and an oracle had foretold that whoever untied the knot would conquer Asia. Although he died at the young age of 31, Alexander’s conquest of a continent started with a bold decision.

History has provided ample debate on the event of Alexander’s controversial “solution,” and whether it was actually any solution at all, however, Alexander’s omen, has remained a favorite metaphor.

The present moment in history finds a society struggling with overwhelming unemployment, as well as a worrisome personal and national level of debt. Productive employment is critical to sustenance of a vibrant society, and it is through that employment that the costs of all of society’s “structural and functioning” needs get paid. A majority of Americans also understand that it is business and industry, large and small, that create employment, and the basis for all other employment. Without such employment, government doesn’t get paid. While this should be abundantly obvious, the American taxpayer is being led by an Administration that seems not to understand.

America went to the poles during the midterm elections and emphatically voiced its displeasure with the way the Administration and Congress were treating its most serious and urgent concerns. America is looking for leadership capable of making bold decisions.

This week, Obama is facing his archetypal Gordian Knot, IMHO. The current debate over the maintenance of the Bush tax cut has been worthwhile, and pushes economic discussion to the fore, which serves to educate. The solution to America’s economic woes however, does not rest with an extension of the Bush tax cut. The solution rests in the aggressive stimulation of job creation, and leadership that will-not-sleep-until unemployment numbers have been halved.

On Wednesday we were treated to novel expressions from an American President such as this one uttered by Obama to 20 CEOs in a session held yesterday with the Administration, “I want to dispel any notion we want to inhibit your success.”

The fact that his grammar is questionable matters less than the fact that he would have to say anything remotely close to an attempt at denying he has and will continue to “inhibit” the success of all businesses. His actions precede him, so his words appear to come from a distant corner of the twilight zone. It is not in his DNA to either stimulate economic growth, or care what the fat cats (his own rhetoric) of corporate America need to see from their government in Washington. He does not understand, and cannot understand.

The MSM is even posting articles about “détente” between this Administration and business. Détente? As in, “he’s at war?” Who would have thought this concept remotely possible in twenty first century America? In the middle of an extended recession, who would have expected a question posed to a sitting President such as the one asked by CNBC’s John Harwood, “Mr. President, can you repair your relationship with business?”

Pretend all he wants at “dispelling,” Obama is incapable of providing a solution to his Gordian Knot, because he does not comprehend the most significant problem facing the country over which he presides.

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• More Erratic Economic Notions From Obama

After almost two years of demonizing corporate America, holding a “boot to its neck,” and doing nothing for small businesses, Obama suddenly pretends to reverse himself with a “corporate tax break.” This is political pandering, and at odds with what is required to set employment trends on an upward path.

In between teleprompter stopovers and golf games, Obama comes up with helter-skelter strategies aboard Air Force One that serve little but confuse the country he was elected to lead. Obama’s new one-year tax relief on capital investment looks like a stroke of genius in his mirror. Does he know that companies, from the local bakery to the coalmine, actually have plans - long term and mid term action plans? Evidently not. Your local dress shop spends more time on “planning” than this President. I also suspect that the owner of that dress shop spends less time holidaying, and more time struggling to keep the business afloat. The “I will not rest until . . .” incantations from the Oval Office not only ring hollow, they are overt lies.

This Administration’s disconnected actions assert that no cohesive economic plan is in the offing. Prolonged uncertainty will continue to limit hiring and minimize commitment to long-term capital expenditures. Only a very few large corporations with plans already on the books to expand capacity will take advantage of this temporarily accelerated tax break. This plan enables an acceleration of depreciation allowances which businesses would deduct over time, as such implementations fit into corporate long-term plans. It should be pointed out to this Administration that all companies develop and implement strategies which include capital expenditures constructed from outlooks on such elements as market expansion, market penetration, competition and product demand. Corporations set budgets that include major spending, years ahead of time.

Perhaps Obama has also not checked interest rates lately. If a successful company needs money to expand, its interest costs are minimal, and it will be able to deduct its capital expenditures over time. On the other hand if the company is feeling strain it won’t get the credit very easily. Either way, before getting a tax break, companies have to have decided on the expenditures, and acted on them – you have to spend before you can claim. This Obama tax credit will have little real impact on corporate America. When there is uncertainty, companies retrench, and hold tight. Only a fool of a CEO would run out and build a plant that wasn’t in the works just because of the sudden and temporary appearance of an accelerated tax break. Government should not insinuate itself into the efficiency with which corporations allocate their resources.

This stroke of genius will accomplish nothing for Middle America and the unemployment ranks. Evidently no one around this President has managed a large corporation, and he is ignoring any useful advice if he’s getting any. This announcement might be more palatable if it was one minor element in a broader strategy to inject confidence, stimulating businesses to action, particularly smaller businesses. Much like the Clunker For Cash program, this temporary manipulation of the tax code is a desperate political Hail Mary with no regenerative effect. It is also a manipulation that dares Republicans in Congress to react negatively to a “pro-business” pretense.

The President could announce something meaningful like restructuring the corporate tax code to drastically simplify the process for all businesses, thereby reducing their headaches and costs.

Obama’s other sudden stroke of brilliance, the Research Tax Credit, is a non-starter for the simple reason that the American economy will only get going again when small to medium sized businesses start hiring. If this sector of the economy isn’t with you, nothing is happening. As for the large corporations, they will not suddenly spend some “research” money that they aren’t already spending, just because there’s a tax break on the table. If that were true, any CEO making that decision should be fired for incompetence and poor planning. Small to medium sized businesses are the engines of a successful and stable Middle America. Those businesses don’t spend much on research. They find a need and they fill it. This $100 billion tax announcement panders to the education industry, and does little for the business environment where it counts. What it creates is a cash-bag whose contents will be dished out in allotments proportional to the political affiliation of the recipients. What a surprise.

Obama’s $50 billion stimulus package announced this week for roads and runways will be similarly designated in political vote-purchase-bundles which will create temporary employment, but create nothing for the long term. This could be momentarily seen in positive light, if it was capital invested from surplus funds. Such billions created out of intolerable debt is another toxic tin can being kicked down the road for our grandchildren to feed out of. This is not part of a cohesive long-term plan that will increase national productivity. It smells more like a haphazard “throw stuff at the wall,” and “make noise about how many jobs we’ve created,” deficit spending bill looking for Congressional approval. Obama may be deaf to his electorate, but Congress is getting the message, and we can predict this will not get passed even through the back door.

While the President is stomping and performing in the grand and absurd political theatre of the campaign trail, shouting about his opposition “talking about him like a dog,” or making strange comments about “blue skies,” and “fish in the sea,” (what audience does this appeal to?) Obama should ponder the structure of a firm policy statement to immediately table major cuts in government spending.

This, above any other announcement he might make, would inject renewed vigor, and confidence into the National landscape.

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• Economy – The Outlook Is Your Outlook

You can listen to conflicting opinions of self proclaimed experts on government activity or lack thereof on “stimulating,” the economy, however, the reality is that the economy’s progress remains in your hands. The top of the financial food chain with the government’s help wants to prejudice your perception toward positive spending.

The American taxpayer is provided an abundance of opinions and fantasies surrounding economic progress packaged as truths, facts or principles. The certitude applied to the delivery of this inspiring radiation has maximum impact on the behavior of the audience.

The vast central swath through the middle of the American political spectrum representing a majority, seeks reasonableness from government. The majority expects its business to be conducted with some integrity, without the encumbrance of concrete boots of left or right extremism demanded by party affiliation. This expectation of common sense, and forthrightness has not been honestly accommodated by politicians. The cost of reaching elected office has so escalated that special interests have become the overwhelming force behind all thrones influencing legislative agendas. As a result, every utterance emanating from a political pulpit has become suspicious.

When Paulson and Geithner browbeat their economically illiterate, and incurious bosses, into bailing too big to fail financial firms, and to launch profligate spending programs, the taxpayers had no input, nor were they provided enough truthful information to know right from wrong. Furthering confusion came in the form of suddenly popular Keynesian economists affirming government stimulus spending. Their continual proclamation of mission accomplished, and the recession is over, has become a tired refrain.

With unemployment hovering at 16%, when you include marginally attached workers and part timers for economic reasons, the principal energy in the system is the government’s $1.25 trillion mortgage support program artificially inflating home prices, borrowed with future taxpayer sweat.

The two principal pulls at opposite ends of the government intervention string, are Financial Stimulus, and Lowering Taxes. The arguments move the cursor of political will along this confusing line with abundant force pulling effectively from both ends. Over the long term, practical evidence suggest that there is little positive impact on GDP from supposed spending multipliers, so the amount spent as financial stimulus will not find itself increased or even mirrored in the amount of the nation’s gross domestic product. From the other side of the great divide, the lowering of taxes has shown some positive affect, however long-term impact has been almost impossible to empirically quantify.

In the middle, rests the most reasonable path which mandates that government, and politics (humans guided by special interests), remain out of the equation altogether, with some leaning toward easing of corporate and personal taxes, and reducing government expenditures. As his will not occur, and as we have seen, the likely reality is for a continuation of tax increases facing the enormous deficit demanding to be satiated.

Your perceptions as consumers, and taxpayers, will impact economic activity. You will dictate the direction, which the economy takes, and through that process, minimize the influence from politicians and experts confusing your judgment with mutable notions of economic confidence. Instilling confidence is intended to move consumers to borrow and spend. Ignore the noise.

As the recession continues, and it will, we should all remain diligent with each dollar we earn, and even more so with each dollar we borrow, unlike the examples set by Washington.

The biggest financial decision we make pertains to our dwellings. We will be hearing newly energized implorations of mortgaging ourselves into evermore elaborate dwellings, or increasing the debt on those we already inhabit. The reality remains that a home’s increasing value should never become a source of newfound cash while we live in it. Perceive your home as an expense if you have purchased one. If you still rent, congratulations, you have bypassed the heavy stress that millions of mortgage borrowers have endured over the past couple of years.

As the ravages of unemployment persist, we can each contribute to a return of long-term national economic stability by viewing each dollar we earn as if it were your last one for a while. The behavior might just be contagious, and will hopefully spread long enough for political representatives to assimilate the message since elections don’t appear to change much in Washington’s behavior.

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• Don’t Believe The Pundits On This Being China’s Century

While countries struggle, muddling their way through stimulus packages and bailouts, China is being touted as everything from, “the best current place to invest,” to being, “the engine that will pull the globe out of its recession.” These entreaties and prognostications are sprinkled with reminders of the power it wields over America, given the huge dollar reserves that it holds. If I may quote Tony Soprano, “forget about it.”

China has asked rather politely, that the U.S. maintain its creditworthiness. No kidding? That plea was less a wish that the U.S. not skip town on its debt (devalue the dollar dramatically), than it was a declaration of a deep desire for a return to excessive U.S. borrowing. When the U.S. borrowed, it bought. When it bought, China prospered. This is rather basic, however, what is not so evident, or obvious to many pundits and experts, it seems, is the fact that China became inebriated through the glory days of consumerism. China now suffers the consequences of its acquiescence to a surety that the intoxicating euphoria enjoyed around the globe for a generation, would never end.

China understood that to become America’s principal provider of goods, it had to manufacture less expensively than anyone else. China excelled at squeezing productivity out of its labor force. It rapidly implemented a sweeping expansion of the necessary infrastructure to manufacture products faster, better (sometimes), and cheaper (always). New plants sprouted at an unprecedented rate. China’s expansion of its machine was based on an enormous assumption - the rate of growth it was enjoying through exports would continue unabated. It is now shutting down plants faster than it opened them. The capacity that was preparing for demand twenty years out, is now shutting down, and the Chinese are not about to ramp up their own consumption to energize reopening of the plants. While China has become a major manufacturer, the majority of its manufacturing is for, and on behalf of foreigners, selling established brands. China’s authoritarian “system” has made the creation and recognition of its own brands, all but impossible.

American consumers are not returning to the binge behavior of the past twenty years, although their ambivalence on trade with Asia persists. As for China, it focused on creating trade surpluses, and it adroitly squeezed its workers, but it did not prepare them, or its industries for broad based consumption. It has not created a self-sustaining, stable economic environment. China will dip into its coffers to stimulate internal employment, spending on infrastructure, or investing in what it knows best - export industries. Endeavoring to attract foreign investments, China will claim improvements in efficiencies, forensics, accountability and accounting practices of its indigenous infrastructure. The claims are beyond its ability to deliver. Until such critical elements as property rights, or a welfare breadbasket are implemented through appropriate taxation, Chinese consumers will be more prone to save, as they must individually concern themselves with how to pay for tomorrow’s meals.

Any cash China spends outside will go to acquiring natural resource producers for pennies on the dollar in the present climate, and countries, including Canada will be happy to sell out. This will do absolutely nothing for the long-term health of the North American economy.

There are currently foreign reserves of around $7.5 trillion held around the world with particular concentration of dollars held in East Asia, where since the late 1990s there was perceived need to protect against currency speculations, and a tendency, no, make that urgency, to feed (finance) the American engine driving China’s growth. We should note that the size of China’s reserve accumulations have, in the past couple of years, attracted the very speculation they sought to themselves protect from, which has further accelerated the bloating imbalance. The size of China's dollar reserves forces a tentative, even precarious, equanimity between the U.S. and China, but it is a potent equilibrium nonetheless. It will be a long road traveled before China finds sustainable balance in savings, consumption, exports, and internally stimulated (broad based) investment. It will also be a long wait before we witness demonstrations of international responsibility emerging out of China. Until then, China will continue to flex its new-found influence to push for such things as an independent currency a few degrees removed from the dollar.

The world’s economic history has been fueled by leaps from one bubble to the next, but the current recession may have a long wait for the next bubble of consequence that will yank the world out of the doldrums. Whatever its form, it is not likely to come out of the less than transparent, state owned, and controlled economy of communist China. China has created a massive middle class in a single generation, but it has yet to empower it. China will not soon be supplanting Americans, or Europeans, in the mall line-ups yearning for China-made-American-invented-branded-and-engineered products. American consumers are unconsciously pushing back the clock on that empowerment of the Chinese middle class through their dramatic behavior modification of the past year. Like it or not, global economic stability will for the foreseeable future depend on the West, and very particularly on America.

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• Obama, The Third Tell

Previous articles on this post observing certain “tells,” have hopefully laid useful stepping-stones in the analysis of Obama’s attitude or inclinations towards the nation he leads. The President has just delivered another significant reveal.

During an attempt to turn positive in contrast to his consistent negative affirmations on the economy since his election, Obama said that "profit and earning ratios are starting to get to the point where buying stocks is a potentially good deal if you've got a long-term perspective on it.” Whether or not this was a planned attempt to appear reassuring to Wall Street, the statement’s impact was broadly revealing.

Obviously no-one expects that such a “buy” signal from the President will stimulate unfamiliar investors to leap into the markets. If anything, the observation raises concern on his evident lack of familiarity with the most critical elements of the American capitalist system. At the very least he could have taken the time to become familiar with some of the essential vernacular long practiced by the investment community, Wall Street and management of corporate America.

The Dow is down 30% from its election day levels. Although Obama has rushed to stimulate the economy, amplify government presence and government spending, his policies have thus far not found acceptance from Wall Street and the markets. The state of the economy, and its persistence at the top of the priority list, should have provided him some incentive to become educated on the key components of American industry, and the nature of business.

Profit and earnings are usually considered the same thing, therefore the ratio between the two is one. Price-to-earnings ratios on the other hand, have been effective deciding measures used by investors when assessing relative risks inherent in purchasing individual company stocks or baskets of stocks through index funds. The price divided by the earnings through the most recent trailing twelve-month period, provides the P/E ratio, and can easily be compared to that of other companies.

While Obama’s commentary might have been well-meaning, it suggests a general lack of knowledge about profitability and yield. These are the biggest concerns of all business leaders whether they manage large corporations or smaller employers. The success of these companies, their ability to raise capital, and their profitability, will be a source of the much touted, but little defined economic growth that will supposedly result from the stimulus billions. These companies will in future provide a principal source for the cash that will repay the overwhelming debt. Obama will therefore require more than a vague or passing acquaintance with the engines that will enable a return to prosperity, as he leads the charge to inject trillions into bailouts and the so-called stimulus of the economy.

Is this a foretelling of outcomes similar to what we witnessed in the aftermath of Bush’s disastrous decision to invade Iraq? A President completely unaware of all things foreign, made a historically momentous decision to invade another country for still vague or questionable reasons. Are we to assume that in the equally significant decisions that are required when addressing a depressed economy, a complete lack of awareness will somehow surprise us and serve the day with wisdom? Is Obama aware that he absolutely must provide himself a condensed education on the inner workings of small and large businesses?

As we have previously suggested, the 44th President must rapidly acquaint himself with a few fundamental economic elements if he is to become effective in managing the largest economy in the world, and he must absolutely understand inflation, that destructive monster waiting just around the corner. The markets have never been forgiving, and will not likely find comfort where out-of-control spending and excessive debt are the principal measure of the world’s leading government.

The President should also become very inquisitive as to the nature of his nation’s currency, its bonds and its capital markets. On his way to borrowing the trillions of dollars to fund his agenda, he will better understand what he is asking for from the country’s international creditors, and will better comprehend the relative position into which he will be placing his country. Those behind the lending wicket will have little empathy for America’s concerns over currency, national security or trade balances. It is hoped that a little more knowledge will heighten the wisdom during the chastening process of borrowing, and will stimulate the discovery of less expensive paths to economic health. Such appreciation might also provide the administration with some confidence that business and capitalists are not its enemies.

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• America’s Overnight Transformation

The centerpiece of the Administration’s rushed, colossal bailout and stimulus program is the taxpayer support of the nation’s 20 largest banks. Treasury Secretary Geithner, former Federal Reserve Bank of New York President, is Obama’s point man on the aggressive plan to bolster the financial system. As he leads the charge to inject hundreds of billions into banks, he cringes from applying the term, “nationalization,” to his strategy.

In the American lexicon and consciousness, nationalization of corporations steps across the threshold of socialism. Obama and his team are being careful not to overtly to be taking that gambit so early in the game.

By allowing this strategy to move forward, taxpayers are betting their futures that the collective mediocrity which mismanaged the financial institutions into an incomprehensible mess, will suddenly become masters of rational thought, and will transform into diligent financial management. Are there any taxpayers in America who would independently place their hard earned cash with any of these failed speculators? Not likely, so why is the greater collective mindset rushing into the abyss?

While he is not an economist, Geithner is supposedly an expert in monetary policy, yet he has no idea of the depth of the banking problem and cannot evaluate the viability of the financial institutions. He is also unable to establish their near term or long term solvency. Unfortunately, neither can anyone else, it seems. America is looking for guidance from a man who was one of those who not so long ago believed the banks were strong and their risks were distributed broadly enough to satisfy expectations for long term stability.

Bottom line, the government’s approach for instilling a return to “confidence in America,” means taking mountains of debt raised dollars, and placing them into giant unfathomable baskets of risk. Countries around the world are looking to America for a return to stability, but do they really care if the U.S. taxpayers drown in debt as the U.S. government rushes into territory it knows nothing about?

We are subjected to emphatic statements that the government must take these drastic measures of a scale never experienced, because the alternative will hold consequences of a far worse crisis. How can the Administration make such absolute and foreboding claims, when the government doesn’t fully comprehend the problem. It has also been unable to satisfactorily explain the specifics of its plan, or the expected outcome. Is the problem really insurmountable, or is this a massive cash grab and a government bloating exercise being quickly actualized while the historically unique opportunity presents itself?

It appears everyone in the MSM supporting the current plan uses Lehman Brothers in the argument, suggesting that its collapse almost destroyed the global financial system. That is a fabrication based on vacant assumptions, fuelled with panic. Are we expected to accept that the calamitous repercussions awaiting us are so overwhelming, they must be true? Surely Obama, Geithner and a list of well-educated experts along with NYT can’t be wrong, nor would they lie. When they tell Americans that Citigroup, Bank of America and Morgan Stanley hold the future of the world in their hands, surely they must know what they’re talking about.

On the surface, adding capital to an undercapitalized bank might seem to make sense. Unfortunately, the capital is coming from the taxpayer, and however the Administration camouflages it, this will be a nationalization of banks because the capital injections will exceed current market values of these financial institutions. In any case, this nationalization has already begun under the FDIC, and will accelerate as the largest banks get bailed. Equally disturbing is that the degree of undercapitalization enjoyed by all these banks is unknown. The taxpayer is being forced into guaranteeing the credit and balance sheets of these banks without any measure of as to the size of liabilities awaiting them. Such guarantee of unknown obligations isn’t even “throwing good money after bad,” it’s worse. And don’t believe them when they tell you taxpayers will get money back when the distressed assets are sold.

This panic driven overreaction will siphon an anticipated $3 trillion or $4 trillion from taxpayers over the coming three or four years. The strategy, being energized by Wall Street and its stockowners, reminds us of placer gold miners using overpowered firehoses that completely destroyed the landscape in the hope that it would render an occasional nugget and some gold dust. Somewhere on the side of that mountain, might be some gold. Somewhere out there, if trillions are immediately thrown at financial and other institutions, some jobs will be generated. The parallel isn’t quite appropriate of course, because miners of nineteenth century Northern California actually knew which hillsides sheltered the wellhead to their fortunes.

The administration suggests that once the economy recovers and these banks become viable once again, they will be returned to private status once again. Given the degree to which these banks are undercapitalized, such anticipation would appear to be an impossibility, and is therefore either disingenuous or lacks basic knowledge.

It would be more prudent for the Administration and Congress to reign in the panic, take control of The Fed and regain control of the U.S. dollar. The Fed did not do its job, and did not step in to restrain the out-of-control leveraging that allowed the crisis to bubble. Showing the world that the U.S. is changing the ways of its wayward financial community with specific plans, would bring back some confidence. It would also be more responsible to apply measured responses to specific pressure points in the financial industry, as the extreme demands surface, that are not efficiently answerable with bankruptcy protection. Taking the term “bankruptcy” out of the financial lexicon is a mistake regardless the size of the institution. Such attitude will only lead to further inappropriate consolidations such as the many we have already witnessed. There are many viable and well-capitalized banks remaining that will gladly lend, with minor inducement to take on risk from The Fed and the FDIC, but without bailout capital.

In its rush, the new administration does not appear to have come up with any creative or novel programs to address the financial industry’s decay. We appear to be coaxed into a dark alley, still drunk from two decades of profligate spending, and expecting magical overnight answers hoping the walls will keep us upright. Much more had been anticipated from this Presidency, or at least much more had been hoped for from a majority of the voting public. Much more, and certainly not the short-term uncreative thinking Taxpayers are being presented with. We are, however, witnessing a rapid transformation of America.

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• Consumers And Volatile Oil Prices

Consumers across North America daily check the wildly fluctuating prices of gasoline at their favorite neighborhood stations. Magically, prices change at all pumps in unison. Just as strangely, pump prices have not dropped in step with the currently defeated price of crude.

Price of crude oil today floats around USD$35 per barrel, down severely from a high of over $147 only months ago. You don’t require a calculator to realize that the current price is now at approximately 24% of it’s high which is not reflected in your wallet’s hemorrhage as you fill-up. You drive off disillusioned and frustrated, but you feel less anxious than you did following your recent summer fill-ups during the oil speculation frenzy. You hear rationalizations like, “OPEC is contracting its output by 2.2 million barrels per day,” or you read, "... global demand is expected to shrink by about, …" well it doesn’t matter, you just know that you and millions of gasoline consumers are at the front line of this commodity’s implications on the future. What can you do? What will you do?

It would be easy to blame oil industry conspiracies for the wild ride of oil pricing. Reality is that stakeholders directly or indirectly connected to the industry are simply doing what is necessary to extract as much money as possible out of their respective positions. Each is being human. Expectations of high returns currently includes “hoarding.” At least this is the prevailing clairvoyance of astute speculative bets. Keep that one in mind.

To shatter more assumptions and agitate matters further, hoarding has exacerbated the impact of refinery output reduction. Refiners had curtailed operations, contemplating drops in demand. The resulting confusion ignited volatility in prices to frenetic levels. Such volatility is not constructive to the overall long-term health of the exploration and refining sectors of the industry. Uncertainty in oil prices is also not therapeutic to an ailing economy.

Crude reserves are bursting the capacities to contain them onshore to the point where storage availability has become scarce, and oil filled tankers are sitting afloat offshore, awaiting a more favorable price day. This is a calculated measure to apply pressure on the outcome of pricing speculation. This strategy expects a global economic recovery. Should that not occur, the tactic hopes that a depletion in refined oil might eventually bring back prices of $60 or even $70 per barrel. These are the price levels that many oil resource dependent economies require if they are to escape overwhelming deficits. How can a Middle East monarch possibly retain power over a semi-suppliant population, building palaces, ordering 400-foot yachts, and over-fitting Airbus A380s on $35 oil? Can’t do it. Something or someone has to give.

Here we are in the middle of a cold winter, yet consumer demand for oil continues to drop. Diligence with home thermostat settings has had a direct impact on consumption. “Travel” reduction has also cut a deep gouge into supplier assumptions. Overall reduction in consumption of all goods affects the price of oil negatively, and consumers should remain vigilant. We should all maintain our current frugal attitudes toward accumulation of all things not grown in soil. The speculative bets made against the consumer, may turn to bite the hands that placed them.

The OPEC cartel and other oil producing nations will continue to be conflicted. They are each competing for a piece of the consumer’s oil dollar. Since each barrel of oil finds its own independent path to market, the Saudi barrel will always seek a position on the delivery system ahead of the Venezuelan barrel, which will itself attempt end-runs on the Nigerian barrel coming across the ocean. Current prices have also macerated attitudes like those of Venezuelan Strongman and part-time Latin American hero Hugo Chavez, who is now soliciting help (read begging) from the major oil companies he not so long ago demonized and seized assets from. Evidently there is no persuasive Spanish translation of the adage about “burning bridges” he is familiar with.

The outlook on oil prices may be uncertain, however, there is one enduring certainty world markets can rely on, … the consumer will persist as the arbiter of good taste on conscientious consumption. The consumer will continue to command oil price trend direction. Should current tendencies persevere, and consumers stay the course, chance will be infinitely more accommodating to the reality of an economic recovery within the next eighteen months.

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• A New And Different Shattering Of Assumptions

You have done your share. You work exhausting hours, sometimes at two jobs, and you have succeeded by any definition in fashioning a good life for yourself and your family. You accepted that while you were taking care of your part, others, some perhaps with more knowledge, power, influence and wealth, were taking care of theirs. Good for you, and well, … not so much.

Assumptions are a foundation of society’s functioning processes. As you travel at 55 miles an hour down a busy highway, you assume. You assume your automobile’s wheels will not suddenly part ways and decide to retire in a roadside ditch. You assume others driving in the opposite direction will continue enjoyment of life long enough to pass by your left window at a relative 110 miles an hour, with no sudden change of heart that might cause your abrupt transition into a hood ornament.

You assume that those you have elected to office will ardently carry their impassioned campaign trail promises to Washington or The White House. You assume that all knowing sages who have been given the keys to the National Safe will be diligent in the management of its contents. You assume that the Harvard educated captains of industry will manage the corporate world in testament to their prodigious capacities. You assume that others must have special insights far exceeding your own on the big picture.

We all assume. We have to. The faculties of human endeavor expect it. Without assumptions, the evolving ritual dances of the social, political and other conventions would disjunct into paralysis. Our behavior holds certain expectations of its ambience. In the event that those expectations are violated, we have enacted laws that will impose a collective retribution.

Current economic, political, corporate and social events are shattering our assumptions with impudent and invasive intrusion into the core of our lives. Our centers of gravity are undergoing some dislocation somewhat similar to that experienced three generations back during the Great Depression. The global interconnection and interdependence allows for a more pervasive impact on the earth’s population by the current version of high anxiety.

Do you remember the day when that parent you thought archaic told you, “Things are rarely as they seem?” This assertion pertained to perceptions. You were convinced that government bailouts were foreign concepts too far down the politically impossible spectrum to warrant serious thought. Now you listen to unwavering shouts from experts telling you that bailing out banks and financial institutions is not only good for you, it is mandatory for your future well-being and peace of mind.

Will the best-connected voices, the CEOs cap-in-hand, be the most rewarded in the bailout line-up? The taxpayer will continue to borrow trillions of dollars to enable these bailouts of Wall Street, and it will be left to our children and grandchildren to figure out how these debts will be repaid. Can’t we just assume that they will? That would be easier. The dogmatic nudging of our perceptions is disquieting. We are perhaps observing, and financing, the dawning of a new capitalistic system and a metamorphosis of the corporate entity.

Surely somebody knows what he or she is doing. The assumptions return. This new Obama administration with its dozens of experts must know something we don’t. It will make things better with a stimulus package on top of the bailout packages. This stimulus package will be the biggest in history, setting new incomprehensible levels of national debt. Shall we assume once again that for that singular reason, this package will work?

The cycles of our presence on this Earth are not all within our control, and these times are an experience along our journey for which our spirits will draw a learning. New assumptions will advance on our percepts, reframing our outlooks and expectations, and your parent was right, things will rarely ever be quite as they seem.

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• Bernanke And The Perpetuating Credit Card Swindle

Banks, and whomever else we blissfully accepted a credit card from, have been charging us, all of us, grossly usurious fees. Even those diligent observers faithfully sending off payments before they were due, have long been abused by capricious credit card issuers.

When the Head of The Fed, Ben Bernanke, gets involved because Congress has been asleep, you know the pressure of discontent from tens of millions of Americans is building beyond a sustainable level of annoyance. Ben Bernanke's comment that the rules, “will establish a new baseline for fairness,” is so fraught with meaning one doesn’t know where to begin its appreciation, … well almost.

This is what he might be saying, “We have been exhorting so much out of your pockets for so long through slight of hand, guilt, ... no, make that fear, that we are led to enact a few rules that will do nothing for you. If we present these new rules with enough jaw-dropping appearance of boldness and empathy for your well-being, you will remain oblivious to the vulgarity with which you have been and will continue to be fouled.

“Don’t get yourselves in a knot over this one-half-of-one-percent-rate thing on the sub-slime, I mean sub-prime interest rate the Fed charges its friends, and quit wondering why you can’t get in on that good stuff. It doesn’t concern you, and has nothing to do with you. Never has, never will. That rate has no correlation to the 14% to 36% interest you pay on your credit cards. Such rates are because you are all really terrible at keeping your books in order, and making all your debt payments on time. If you knew what you were doing, you’d never agree to pay such insane rates. You are so oblivious, you could be getting better rates on your street corner. Idiots. Oh, sorry. I didn’t mean that, although, why are there almost three quarters of a trillion credits cards holding a trillion dollars in debt when there are only 300 million men, women and children in this wonderful country of ours? And, NO, I will not go into an explanation of why our friends, the banks, get almost no interest charged on money we lend them, while their credit stinks, and you have to bail them out. It is much too Byzantine a system to be explained. Even my bosses have no clue.

“Ladies and gentlemen the rules regulating credit are complex, though a little feudal. You’ve understood all along that we, umm, I mean the banks and credit card issuers, could set interest rates and fees at whatever levels they wished. Why so much surprise? We are nevertheless pleased to announce that we will reduce re-pricing, a little, well, we won’t reduce it but we want you to be notified when it will happen. Will we check if lenders tell you ahead of time? No. Will you? Not much, no. We are absolutely certain most of you never pay attention to notices or fine print. How many of you can tell me, right now, how much interest you pay on those ubiquitous and so colorful pieces of plastic? … Clueless.

"Let me make something perfectly clear. We do not owe you debt. Debt is not your right. It is a privilege. You should be grateful we even allow you to borrow from us to lever your lavish lifestyles against your future incomes. Right now we’re not so comfortable with your prospects for continuing those incomes, so we are simply making some adjustments. Tweaking the system a little. We also don’t need to see any demonstration parades coming down Avenue of The Americas whining about how you’re hard-done-by, or chanting ‘ban the fed’ or shaking signs with ‘help we’re broke.’

"We are gleefully aware of your lack of familiarity with the term, Saving. It is a term in the English language that refers to economizing or conserving money for the future. Who do you think keeps count? I do. Why? Because tracking details of your habits with microscopic attention enables us to accurately time adjustments in the system. I don’t mean adjustment in prime rates, I mean the establishment of regulations that will instill in your minds an impression of our all-knowing prescriptions for everything financial that ails you.

"This is why we will allow companies to raise interest rates only on new cards and purchases, not on existing balances. I know that you think the interest on the old stuff’s already been jacked through the roof, so what difference can this possibly make? True, but when you add to this the restriction on allocation of payments to account balances with lower interest rates, and reducing cross-card-credit-contamination, now we’re talking vast implications on the credit system. Huge. This is big for you guys. Really. Well, maybe. Hey, we’re doing the best we can here at the Fed, and things are tough everywhere. No one wants to give an inch. That is why we won’t be putting caps on interest rate levels charged by card issuers. Sorry. Oh, and by the way, because we just cannot upset our friends, these new rules will not go into effect for at least a year and half. You know how things are. Congress is so laborious. Each one of those crapulous crackpots wants a piece of the pie before agreeing to anything. They think pork-barreling is their right, … things like that.

“In conclusion, I know deep down in my heart that all of you feel a very strong and emotional commitment to repaying your obligations. We are thrilled to know that you will be making your payments on time and that you will atone for your sins, … umm, that you will extinguish your debt, the principal and the interest. Every penny. Particularly the interest. Yes, make sure you repay the interest. Perhaps I shouldn’t harp on the principal so much.

“We will lend you more as you need it, and the presses, the paper, the ink are churning 24/7 to keep up. Now I must go have lunch with your new leader and explain what I’m doing, again. I wish these guys would just leave me alone, their eyes just glaze over when I talk to them. Merry Christmas, and happy spending. It’s good for the economy.”

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• Obama - The Second Tell

As follow-up to a November 21, ’08 article on this post regarding signs that may reveal the direction that an Obama Presidency might take, the following presents another “tell.” This one is less innocuous, but may prove to be more expensive to America.

Perceptions inside the current White House, when Bush and Cheney took office, were that incurring debt was its right and was its political capital to spend with Cheney supposedly claiming “deficits don’t matter.” Hindsight was temporarily kind to them with support from William Niskanen, a member of Reagan’s Council of Economic Advisors also claiming, “The lesson we should have learned is that deficits have little or no short-term economic impacts.”

Through the early years of this decade, everyone accepted the premise that debt was a normal, perhaps integral conveyance of a modern society, possibly even an applauded one. From economists to taxpayers on assembly lines, everyone dwelled in the comfort that deficits and borrowing could bring unfathomable respect from acquisition of material possessions. Second mortgages were objects of desire and their procurements were cause for boasting. And didn’t second cars and gigantic cinema sized TV screens provide jobs for people in foreign lands anyway? Who could possibly argue with success?

Debt administered through spinal shunts delivered energy into the U.S. economy. The amphetamine rush sent economic experts into undiluted delusions of grandeur, and the exploiters into creative overdrive on derivative concoctions too complex for their corruption and decomposition to be diagnosed. Somewhere along the delivery track, the drug magically transformed into analgesic and the rest of society, including government, slid into either acceptance or compliance. Some sectors of government abdicated responsibility, when their persuasion to appear oblivious was finessed with financial seduction.

Debt is seductive. Its power is evidently overpowering. America is anxious to move on beyond the current administration and is anticipating a new President with promises of change. We listen for signs of that impending change, and so here is the Second Tell. During this past weekend President Elect Obama, while making promises of unprecedented public works projects, stated, “We've got to provide a blood infusion. And that means we can't worry short-term about the deficit." At least Obama’s delivery of attitude toward economic probity was less arrogant than Bush and Cheney’s, but identical in its bearing. He seems more genuine, even if misguided. The legal debt ceiling has already been increased to $11.3 trillion and more increases will be requested.

Evidently not so much has changed or will change, and deficits be damned, full steam ahead with borrowing and government intervention. An additionally disconcerting sense is felt when accepting the reality of the notion that even bigger government may not be just an enigmatic abstraction over the coming four years.

A preceding article on this post discussed the need of the 44th President to urgently obtain an intensive and thorough education on inflation. With the coming boom in currency creation, not doing so would be tantamount to an abdication of responsibility.

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• CAPITALISM – A POLITICAL PUNCHING BAG

Capitalism is the heart of the American economic engine, and really the core the whole of American society, but capitalism regularly gets pummeled as a provenance of the nation’s moral disintegration. There are, of course, ample specimens selfishly pursuing purposes to the exclusion of other more lofty ideals, however, such are not the majority of individuals and businesses, which provide the sweat that builds a country. The elements in a society that blame the profit motive are those who leach from its successes directly or indirectly, either out of incapacity, laziness or from jealousy. Going after abusers of responsibility, including CEOs whose incomes vastly overreach their real value, or elected politicians who take bribes such as those who took cash from Fannie Mae, is necessary, just like jail terms are necessary for any criminal behavior in a society that seeks some level of security.

Capitalism and the business culture of all societies, it seems, are easy targets for the venting of frustrations that surface during financial crises, such as the current unstable state of affairs. It is abundantly obvious the general media has done its best to fuel these fires, while leaving the legislators to continue along their paths, unscathed, unrepentant, and unpunished. Defaming the business environment and disparaging corporate America may serve the campaign trail to the White House with moral bait for votes. It won’t serve the future well-being of American society, and its systems if such sentiments find their way through the legislative process stifling trade and asphyxiating the entrepreneurial spirit.

At stake is the freedom that was promised upon the founding of America. With all of its strength, America remains a fragile social experiment that requires, and will always require, care, attention and nurturing. While the current administration curtailed some of the assumed freedoms, the nation should not allow the political pendulum to swing so far in the other direction that a greater degradation of freedoms is instituted in plain sight while attention is being diverted to the “straw man” of corruption, the businessman or businesswoman, being pilloried.

Laws provide a country with ample guidelines that pertain to accepted behavior. Today we find ourselves with countries around the world rushing to seek new convoluted systems of “oversight and regulation” in efforts to reign-in capitalism. Some are even proposing the creation of international regulations and ruling bodies. Such efforts should instead focus on setting legal parameters establishing acceptable rules of conduct within America. Doing so, and setting severe punitive retribution for breaking the laws, as well as providing the courts with real teeth will minimize future abuse and corruption. Specific laws emanating from this economic debacle will retain the freedom required for a flourishing capitalistic system while protecting individual rights to pursue personal and corporate financial objectives. Global problem solving is impossible if your own house is not in order.

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• LEADERSHIP MISSING IN ACTION, DON’T BLAME THE PLAYERS

The unfathomable complexity of the current financial crisis has political campaigns pointing fingers of accusations. Not a finger in sight is pointing to a path out of the toxic mess. Neither of the Presidential candidates has a clue, and Congress is busy with the business of creating a new perception – that of smoking out culpability. They will do nothing, since the controlling side of Congress was on the receiving end of much financial support distributed by individuals and organizations Congressmen should have been conducting oversight on. Congress will be pained to dispense any punishment or censure onto anyone in any way affiliated with its own benefactors.

We expect supposed experts or leaders to engineer a path out of the confusion and panic. They have none. Adding to the long-term borrowing that will squarely fit on the backs of present and future taxpayers is not an answer, and is absurd. The members of the financial community that remain standing and who went along with the abuse of the system which was fuelled by Federal demands for easy money, should be required to bear half the burden rather than be able to pick-off the bargains. Unfortunately the lender of last resort is being forced by Congress to bear the whole load, fully subsidizing irresponsible institutions, no matter what is pretended.

In the face of the current international financial crisis, any Presidential candidate pretending that middle class taxes will be reduced is purchasing votes with empty promises. It is surprising that few in the media are questioning such obvious but very fallacious pandering. It also underscores a disturbing dearth of understanding. Not only will the government not be able to lower taxes, it will have to raise them.

Although very few predicted this crisis, all are surprised at the speed with which the unraveling has occurred. Accelerating the printing of dollars will be necessary to provide amongst other things, enough liquidity for banks to prevent collapses on Main Street, and such liquidity will also have to be provided to other financial institutions, and might even have to be extended to businesses. This will unfortunately impact the value of the dollar, and therefore will require a magician’s hands to find balance on the levels of intervention.

Responsibility for the evolution of the volatile liquidity crisis lies with a coalition of disparate participants, mortals and organizations. From the White House of the late ‘90s, to Congress, banks, non-bank lenders, brokers, money market funds and borrowers, the abuse spread through all levels of society. Although we may relish witnessing the spectacle of some of the most egregiously offensive abusers parading in front of Congress, we should remember that trillions of dollars were made, spent or put away throughout the period of the bubble’s creation. Whether such dollars found their way to political campaigns, oceanfront mansions in the Hamptons, or Senators’ homes purchased with favorable mortgage rates, or to Toshiba for wide screen TVs, all who participated ate from the feast. That some ate more, much more than others, is basic common human nature where egos often serve the self first and best.

Human nature also being what it is, the creativity tapped for structuring the complex financial instruments that provided energy to the economic boom, and extended its life, will in time find similarly innovative answers to solve the wreckage that it has wrought.

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• THE ROAD TO PANIC – GET OFF

Ten days traveling up and down the West Coast proved to me that the intent of those controlling the Wall Street joystick, with help of many ever-so-willing media pundits, failed to instill Panic and Fear in minds of most Americans. Concerns? Yes. Panic? Not so much.

Taxpayers have been hit with a hurricane of bad news, and have even been threatened with promises that if trillion dollar bailouts were not implemented overnight, the whole financial system of the U.S. and possibly the world, might collapse. The American economy is not failing, and unemployment is at a rate most other countries are envious of.

Since the real problem rests with lenders or repackagers of home loans that can’t be repaid, is anyone telling America’s taxpayers how much these losses really represent in total? No. Is it really almost a trillion dollars, or is it really much, much less? Is anyone asking where all this money went? When a house sold, affordable or not, someone cashed that check. Why are taxpayers told that Treasury Secretary Hank Paulson needs to be given a blank check because only he will be able to do what is right, and he will know what backstops will be needed to provide a soft landing to this calamitous financial unraveling? Did he do what was right when he was head of Goldman Sacks for six years? Is it that he should be respected because he made almost a billion dollars as CEO of Goldman Sacks? His power and dominance continue their trajectory, and if he is given a carte blanche on access to taxpayer’s money, we can expect more abuse. Providing even more latitude to the likes of Goldman Sacks to become banks, is simply a knee-jerk reactive agreement to further consolidation of power.

Congress is not stepping up to the plate and neither are the two Presidential Candidates who are too busy flailing on the stump. If this is really the calamity we are all being led to fear, then all should be in Washington, coming up with immediate solutions. Bailouts are not solutions, just like band-aids are not a cure.

Don’t believe the panic-button pushers. Panic misleads, and it blinds those led to panic from seeing reality, or discerning appropriate action. Panic also leads to extreme swinging of pendulums that create new problems rather than resolve old ones.

It remains that America is a country that billions of people wish they could live in. America is the country that people have confidence in and whose environments they wish could be replicated. Its environment stimulates the entrepreneurial spirit that is further fueled by its creativity. It is also the only country that all capital gravitates toward when it is seeking security. The economic fluctuations, even those such as the ones we are currently witnessing or getting hurt by, caused by abuse or bad management, or even from errors in judgment, are risks accepted by those whose cash is seeking safe harbor. Transparency is one aspect favoring foreign investments in America, however, it is not the principal one. The overriding element is America’s power and international presence.

Whether you are a dictator in Africa, or an oil monarch pillaging your country’s wealth, or a foreign government fund, you will always place a significant portion of your cash where it is safe. America will print more dollars because it can, and it will have a market for them. The doomsayers all make money somehow, somewhere in the game, or just repeat nonsense they’re been fed. There are also those who feint left, then go right. Remember Goldman Sachs’ forecast that oil was heading to $200 a barrel when it was kissing $150? The price immediately caved in following their announcement. Were they looking for fish onto which to dispose of positions? This is no time to panic. Tighten up the belt a little, and save a few dollars. Middle America will ride this out in spite of its Wall Street leaders. However, American taxpayers should make sure their representatives in Washington take action on oversight, and implement some visible house cleaning, punishment on those responsible for the outlandish abuse.

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• OBAMA GIVES BERNANKE VOTE OF CONFIDENCE

In the reality of continuing negative economic news, American taxpayers are looking for signs of relief. With mortgages sliding under water, automobiles getting yanked out of garages and taken back to lenders, food costs becoming a sobering family burden, and with commuting to work becoming a deep breathing exercise as fuel gage movement becomes a source of anxiety, America is anxiously seeking leadership out of its mess. Obama’s thumbs-up on Bernanke is a depressing sign.

Bernanke has shown no capacity to forge a path different from the one Greenspan followed for a whole generation under four presidents. The restored economic health of the country is the principal concern of all voters. The Fed has implemented decisions, and has been supportive of economic policies that brought America its housing bubble, as well as unfathomable National and personal debt levels. Fed policy led a majority to view their homes as repositories of wealth. Homes became piggy banks, and to make things worse, the lack of regulations or restrictions on lenders turned trillions of dollars worth of real estate into a Wild West Show.

America not only yearns for, but badly needs new, knowledgeable and judicious leadership. The next President doesn’t have to be prescient, but should at least demonstrate some grasp of economics enough to pick the best of the brains around him or her. Obama directing a vote of confidence toward Bernanke disturbingly demonstrates a complete lack of familiarity with the complexities of the beast that America needs taming. His economic advisors should all be replaced, and he should close himself off in a room somewhere, and spend some serious time getting educated. It doesn’t matter that McCain isn’t any more economically literate since America isn’t looking to him for change or innovation. If Obama wants to inhabit the White House, he needs to brush up on the source of America’s most critical concern.

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• WHERE IS THE ECONOMIC LEADERSHIP?

Ben Bernanke delivered a bleak message to Congress today with the usual waffling and back door escapes on any firm statements related to the Nation’s economic future, even its near term prospects. Although, in fairness, we should note that with as much aplomb as he could magnetize from Greenspan’s past performances in front of Congress, he emphatically stated, “accurately assessing and appropriately balancing the risks to the outlook for growth and inflation is a significant challenge for monetary policy makers.” No kidding? How long did his staff stay up to come up with such vapid pronouncements?

How does someone with so little spine get to such position of power and influence? Even as a front man for back room boys he comes off badly. At least when Greenspan double-talked his way through the halls of Congress we could admire the extent of his obfuscating turn of phrase. He said nothing, but he said it with a nonchalance, even a sang-froid that made you smile in wonderment questioning if this guy was human.

America looks for leadership out of the mess it finds itself in, and the best the Fed Chief can do is warn Congress against doing anything about the futures markets, but he does tell lawmakers to tackle the uncertainty in the housing market. So now, Congress, as confused as ever, will head to the commissary for a free meal on the taxpayers, and mumble to itself over the perplexing state of affairs with no answers in sight, and no one to turn to for guidance.

Inflation continues to advance, although to what degree is unclear since it very much depends on what one measures, but the price index is expected to exceed 4%. The food staples are seeing much higher increases however, but since non-food finished goods and services are in the calculation mix, the numbers that have the most impact on the average family are distorted.

The millions of small businesses at the core of the economy are being affected by the credit crunch, but their plight is ignored while they watch major Wall Street firms getting bailed out. Have no fear though, the SEC is actively investigating the subprime meltdown, stock manipulations and short sales, as well as false rumors tainting brokerages and hedge funds. …And heads will roll. OK, well, maybe not. Effective scapegoating is an extremely difficult art to practice. Where is Eliot Spitzer when the Nation needs him?

The recent blame for the housing market deterioration placed on the hapless borrowers who indebted themselves beyond their capacities has not been very subtle. Policy makers’ only planned action is to set restrictions preventing borrowing by the great unwashed. Credit quality standards will be raised. Oh, joy. Is Congress asking the guys who ran those disasters called Fannie Mae and Freddie Mac into bailout territory to return their million dollar bonuses? Congress is mute. Is anyone on The Hill or the White House raising an eyebrow over the usurious interest rates being charged by banks and credit card companies to a majority of clients? Bernanke’s tarot cards predict a late fall interest rate increase to 2.25%, which is a number as foreign to most borrowing taxpayers as the number of stars in the sky.

We cannot expect superhuman talent to accurately read crystal balls, and obviously economics is not a science, but leadership imbued with some common sense is not too much to expect from Washington and its expensive hired help. Leadership, plus some effectively placed oversight.

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