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Ross Perot on the Economy, Auto Bailout, and More
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Former presidential candidate and businessman Ross Perot is answering questions over at the Freakonomics blog.
Check out some of the interesting points:
Do you consider all deficit spending misguided? Surely there are some times when it is called for.
Classical economic theory calls for deficit spending by government when faced with prospects of recession and depression. The challenge, of course, is to spend money in a manner that will create the most benefit for the economy. This will prove to be an incredibly complex assignment and the subject of much debate.
Of course, wartime often requires deficit spending. World War II required huge amounts of deficit spending, for example. The difference between then and now, however, is that we ran budget surpluses after the war and paid off the debt.
I remember when you were running for president, they showed you driving around in your old Volvo. What are you driving now? And what would you do about the U.S. automakers’ woes?
Actually, I was driving a 1986 Oldsmobile. I have always driven American-made automobiles, and I currently drive a Ford product.
Clearly, General Motors meets the definition of too big to fail, as do Ford and Chrysler. General Motors happens to be closer to running out of cash at this moment. The question is whether domestic automaker sales are slumping as a result of the short-term liquidity credit crunch or more basic reasons such as their business models. I suspect both are to blame, but the proportions are difficult to determine. An analytical approach would favor a prepackaged bankruptcy, but the situation is well beyond that stage. It’s now in the hands of the politicians who are almost certain to craft some type of bailout or bridge-financing feature to keep G.M. out of liquidation.
Check out the full Q&A here.
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Are Lower Prices Encouraging People to Spend?
It is time for savers to pay more attention to prices. That assumes savers are still interested in saving, but frustrated with ever lower interest rates.
In a depressed economy like we have in the United States, low interest rates should increase borrowing, spending and then jobs.
It should, but it may not. For example, low interest rates may encourage existing home owners to refinance at lower interest rates rather than encouraging those who are renting to buy a new house. In the case of refinancing, there will be few jobs created; in the case of a new house there will be construction jobs.
Those who refinance and save with lower monthly payments have more money to spend which might add to new spending. I say might because lower interest rates mean lower earnings for savers, which will cut their income and discourage spending as well as saving.
Right now, lower interest rates are not generating much spending, just lots of talking and proposing.
Low interest rates need to finance borrowing where something actually happens like building a new factory or a new house. Lending transactions that generates more schemes to buy low and sell high will not generate jobs.
Low interest rates are only one potential change that can help revive spending. Lower prices on goods and services can do that as well.
Just as lower interest rates can put people to work, lower prices get people to buy more, which means more work, more production of goods and services, followed by more jobs and more income.
Lower prices also translate into personal savings. Low gas prices help us save as individuals, but also generate mass savings that supports spending in other sectors.
There is other regular and discretionary buying that has potential for savings. Try the grocery store where savings on week-in and week-out buying can easily translate into four figure savings over a year. I never buy cereal, chips, crackers, or most prepared food unless it's on sale.
Yesterday, the local grocery had an end of aisle display announcing chips at 2 for $7. Chips on sale are supposed to be 2 for $5, but worse I took a bag down to check the size and found 10.5 ounces instead of 11.5.
I walked away, which we all realize is a tiny gesture in a mass market, but I still have my $7 bucks. In a computer age, the wholesalers back at the warehouse know exactly what the larger market thinks of their new price.
If others pay more attention to pricing and show more resistance, it will translate into price cuts and personal savings. We can also realistically hope it will work to revive our declining economy.
Fred Siegmund covers America's jobs as part of work doing labor market analysis and projections for a client base of recruiters, trainers and counselors. Visit him at www.americanjobmarket.blogspot.com
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Deploying Consumer Credit Isn't the Answer
A recent headline from the Washington Post reads "U.S. Moves to Revive Consumer Lending."
The first line of the article tells readers "The government said yesterday that it will deploy up to $800 billion to make it cheaper for Americans to get a home mortgage, take out a car loan or borrow money through a credit card…"
The word "deploy" has never been a financial term in my memory. Troops get deployed, but money is typically saved or spent. Dollars need to be spent rather than deployed to revive the economy.
The article's use of the word deploy tells us the government knows Americans are short of more solid sources of money to spend: wages, salaries and savings. Instead they apparently hope consumers will return to their usual excess and borrow.
Spending our way to prosperity was the policy of Franklin Roosevelt in the 1930's and every president since, but a policy that deploys dollars for consumer loans differs from previous expansionary policies.
Will it work? As a saver, I believe there are many other savers like me who have matched percentage payments into defined contribution pension plans and 401(k) plans as well as other purchases of CD's, stocks and bonds. This fall's stock market and interest rate drops have caused a massive decline in purchasing power for this group.
As savers in a good economy, we were the least likely to use consumer loans or abuse consumer credit. In a bad economy, it is hard to think savers will be the ones most likely to resort to consumer borrowing. We are the group more able to postpone discretionary purchases like cars, clothes, electronics and vacations.
For the many others who defaulted on sub-prime loans and continue to struggle to pay credit card balances, it is hard to believe the government's plan will find them ready and able to borrow more and spend us out of recession.
When our government stops talking about consumer loans and starts discussing tax policy and the Federal Budget, there will be good reason for hope. If all they want to do is "deploy" consumer credit, expect another quarter of decline.
Fred Siegmund covers America's jobs as part of work doing labor market analysis and projections for a client base of recruiters, trainers and counselors. Visit him at www.americanjobmarket.blogspot.com
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The Violent Demise of the U.S. Dollar
"Your premium brand had better be delivering something special, or it's not going to get the business." — Warren Buffett
The U.S. Dollar is the premium brand of currency in the world. It's the standard against which all other currencies are measured and it's where the money goes when people want rock-solid security.
This has been true for decades, but in the last 35 years, the U.S. has gone from the largest creditor nation to the largest debtor. Our twin deficits combined with artificially low interest rates have left us with a $10 trillion national debt — $50 trillion if entitlement programs are included, as they should be.
We haven't been spending the money on factories or production. Instead we've been buying houses, cars, HDTV's, playing world cop, and dramatically overpaying for health care.
To put it bluntly, we are broke, both as a nation and as a set of individuals. The dirty secret is that our lifestyle of the last 20 years is unsustainable.
Why Saving, Not Spending is the Key
To fix this mess we've made, we need to tighten our belts and start saving money rather than borrowing to spend. That goes both for individuals and the government. In addition, we need to focus on producing goods that can be exported to other nations so that we can get money flowing back into this country rather than out of it.
Unfortunately, the government is determined to sustain consumption epidemic. Certainly consumption brings short-term pain relief, but it just makes the long-term imbalance worse, similar to giving a crack addict more crack to avoid withdrawal.
People keep saying the the bailouts will be paid for by our children, but the truth is that we'll have to pay the price ourselves. If the government continues its spending spree, which is even more likely now that we'll have a unified government of Democrats, inflation risk is very real.
Standard & Poor has already stated that the U.S. is at risk of losing its AAA bond rating.
If the dollar devaluation prediction comes true, the new financial capital of the world will be Asia. Asian countries have been effectively taxing themselves to subsidize U.S. consumption by buying and holding our bonds and thereby keeping our currency valuable.
If the U.S. economy collapses, Asia will decouple and begin to flourish on its own. They will be in excellent position with industrialized production, steady growth, and plenty of reserve savings.
What Happens if the Dollar Falls Apart?
If the U.S. dollar declined to 1/2, 1/4 or even 1/10th of its current value, chaos would ensue and a great number of people would be in deep trouble, especially retirees.
Are you prepared for such a contingency? Any bonds you hold would decline in value significantly, as would any cash.
According to the government numbers, inflation was around 4% this year, which means that any cash you had in a high-interest savings account has actually been declining in value at 1% rather than increasing by 3%.
If we're headed for dollar deflation, as some say, then it's a good idea to keep your cash. If you believe the inflation scenario, then you should buy some commodities such as gold. Or of course you could hedge your position and buy some gold while also keeping some cash on hand.
If you do decide to buy gold, it's a good idea to avoid futures and stick with real, physical gold or a fund that holds physical gold to avoid counterparty risk of the futures not being delivered.
If you want to take more risk and attempt to profit off the possibility of a falling dollar rather than simply maintaining your wealth, buy mining companies rather than physical gold, but still don't buy futures.
As for equities, Asia is a solid long-term investment but it will suffer in the short term along with the rest of the world.
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It's Time to Fix the Fair Labor Standards Act
The superintendent in my local school district has announced plans for upcoming layoffs to save money caused by a budget shortfall. He plans to layoff one member of the office staff and one of the janitorial staff at each school. They expect to enlarge class size to cut back on teachers.
Layoffs put people into the job market, adding to job seekers and making it easier for employers to offer lower wages. We might call that the obvious effect, but savings from layoffs have another effect: an increase in uncompensated work.
Teachers have never been hourly rated employees. Phrasing in teacher contracts assures long work hours. "Teacher shall perform such duties as deemed necessary, shall attend all assigned meetings, shall be present at school during school hours, shall be present at school or other location outside school hours as directed in connection with school events or activities."
With a contract clause like that, school officials can save money giving teachers more students and more work, like suggesting they may need to empty a few wastebaskets and fill out or file a few extra forms; work formally done by those laid off janitors and office staff.
Overtime pay rules in the Federal Fair Labor Standards Act, however, require time and a half pay for hourly rated employees working more than 40 hours a week. But, over the last 8 years many new exemptions and amendments were made to overtime work rules. Executive, administrative, professional and outside sales employees paid on a salary basis can be exempted from over time pay. The new rules can be found on the U.S. Department of Labor website.
The 40-hour work week has been the standard full time work week for more than eighty years, but pressuring people to work additional hours makes it easier to turn layoffs into a permanent loss of jobs.
The worst abuses are apparently in the managerial ranks, where the Bureau of Labor Statistics reports a decline of 2 million managerial jobs at establishments since 1999. Managerial jobs for 1999 are reported at 8,063,410; managerial jobs for 2007 are reported at 6,003,930. Three people working 40 hours a week is the same as two people working 60 hours a week but with a one-third savings in labor costs.
My superintendent's cost cutting plan comes right as the Congress debates billions of dollars in bailouts for defaulting homeowners, bankrupting car companies and failing banks. Maybe they could pass of few million along to my school district, but it will not matter much unless they get to the real problem: wages and employment.
They could start with the Fair Labor Standards Act and fix those destructive overtime rules.
Fred Siegmund covers America's jobs as part of work doing labor market analysis and projections for a client base of recruiters, trainers and counselors. Visit him at www.americanjobmarket.blogspot.com
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How Circuit City Failed in its Saving Efforts
Circuit City is back in the news with plans to close 155 stores and layoff thousands in bankruptcy reorganization.
I say back in the news because there was an article about Circuit City in the Washington Post back on March 29, 2007 titled Circuit City Cuts 3,400 'Overpaid' Workers.
The cuts came out of 40,000 in-store jobs; 9 percent of the company's in-store workforce. The firings were not related to job performance, but came as part of an effort to cut costs and improve the bottom line.
They were going to save on labor costs by firing their "overpaid" staff and rehiring new sales people at lower wages. That may sound like a way to save money, but now, 18 months later, there is good reason to doubt they saved any money.
Circuit City is part of retail trade in a sector called Electronics and Appliance Stores where salesmanship is important. Circuit City buyers may need to learn about complicated electronics products and how they work before they make up their mind.
Retail Salespersons do selling, which means explaining and demonstrating products, answering questions, knowing warranty terms or other product information.
In other retail sectors like gasoline stations and grocery stores, selling and salesmanship are not as important. People know if their gas tank is empty and they buy their pasta and potatoes from a cashier, not a salesperson.
Explaining and selling takes time, skill and experience and so more and better paid retail sales jobs are needed at electronic and appliance stores than gasoline stations or grocery stores.
The need for salesmanship is partly reflected in staffing where retail salespersons and their supervisors make up more than 40 percent of retail jobs. Staffing at gasoline stations contrasts with electronics and appliance stores where more than 60 percent of jobs are cashier, but virtually none are retail salespersons.
The Washington Post article informed readers that Circuit City dismissed their sales staff earning wages over of $15.50 an hour, or their most experienced and longest tenured sales staff.
We can be sure Circuit City management saved on wages, but wage savings are not cost savings unless they lower costs per dollar of sales. Ignoring productivity tells us that Circuit City management did not know the meaning of overpaid, or even how to save.
True, the economy is doing poorly now, which is probably part of Circuit City problems, but as the saying goes, "They were penny wise and pound foolish."
Fred Siegmund covers America's jobs as part of work doing labor market analysis and projections for a client base of recruiters, trainers and counselors. Visit him at www.americanjobmarket.blogspot.com
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How Today's CEOs Are Like Yesterday's Karl Marx
There's a comment on my 1929 and 2008 post from Mickey Blue Eyes that deserves a reply.
The problem with promoting an even distribution of wealth is that it is a euphemism for Marxist "from everyone according to their ability, to everyone according to their need."
Doing a quick Google search, I could not find a global per capita income, but the per capita income for the U.S. in 2006 is $44,970. That's less than what I'm making now, and I'm not in evil top 2% of income earners.
Assuming everyone continues to be as productive (or unproductive, as the case may be) as they are now, everyone will receive a paycheck for $44K per year. That might be great to some high school dropout living off of welfare, but do we really expect productive people who studied in school and work hard for their >$44K/yr job to continue working that hard?
If the most you can earn is $44K/yr, are you going to work more than you absolutely have to to get your $44K paycheck?
Distribution of wealth, especially when forced by the government; e.g., USSR, N. Korea, Cuba, Maoist China, et al.; is a sure recipe for disaster.
It appears to argue that it is wrong to have social policies that reduce the inequality of income. It calls such a policy Marxian.
Marx was a 19th century guy who looked at the poverty and gross inequality of income he saw during the industrialization period in England. He could have said it is unfair, but instead he wrote a long boring book trying to convince people there is a natural and scientific reason that makes income inequality a bad thing.
Now we have free enterprisers that look at corporate CEOs who help themselves to millions of dollars of corporate funds. They could just say it is fair, but instead they write long boring books trying to convince people there is a natural and scientific reason that makes income inequality a good thing.
Truth is they are all posers and bluffers. Today’s free enterprisers are doing exactly what Marx did, only with the opposite conclusion.
If you think income inequality is a good thing you will have to convince people the current inequality is fair and should not be changed. Good luck, but my vote is no.
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Why Alan Greenspan is Wrong on Economic Regulation
The headline in the Washington Post reads "Greenspan Says He Was Wrong on Regulation."
The former Federal Reserve Board Chairman told Congressional Committee members the "… crisis has shaken his very understanding of how markets work, and agreed that certain financial derivatives should be regulated – an idea he long resisted."
After his opening comments to the committee, Mr. Greenspan argues against regulation and warns Congress that regulation is a threat to economic growth, despite the collapse of derivatives markets this fall.
Greenspan worships free markets so much he forgets that free markets and regulation work together all the time. Take physicians. Physicians are regulated because they have to go to medical school and get a license before they practice medicine.
Across America, biology students dissect frogs, but without that licensing regulation any one of them could decide they know anatomy so well they can be surgeons, ready to do surgery on you and me.
Regulating doctors lets us be confident they are competent to be physicians; without regulation many would suffer before word got out and free markets acted to eliminate incompetent physicians.
Free markets need equal opportunity and they operate best when we know what we are getting. Regulations requiring equal opportunity, disclosure, honesty and integrity aide and promote the smooth operation of financial markets just as they do in physicians markets.
Remember, banks and all financial intermediaries operate with one purpose: to attract the funds of net savers so the savings can be returned to the spending stream by loans to net borrowers. For many years savings accounts, certificates of deposit, stocks, bonds and mutual funds have served the millions in America who save.
Unless Mr. Greenspan will explain what unregulated derivatives can do for America's economy, which are beyond the established and regulated methods of saving and investing, then we can feel justified that he is arguing against disclosure, honesty, and integrity essential in financial markets.
After the collapse of derivatives markets, and then financial markets, further opposition to regulatory standards gets close to defending secrecy and deception. We would like to think better of Mr. Greenspan, but given his testimony he is making it hard.
Fred Siegmund covers America's jobs as part of work doing labor market analysis and projections for a client base of recruiters, trainers and counselors. Visit him at www.americanjobmarket.blogspot.com
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ING's Arkadi Kuhlmann Addresses the Economy
ING Direct CEO Arkadi Kuhlmann isn't shy about addressing the bank's customers on a regular occasion.
In October, he put forth The Declaration of Financial Independence, and today, he's addressing the country's current economic situation.
Economic Situation- A letter to our Customers from the CEO of Savings, Arkadi Kuhlmann
As we enter the final few months of 2008 I want to thank you for your continued confidence in ING DIRECT. Over 700,000 new Savers have joined us so far this year strengthening the bank and their own financial footing through our savings, home mortgage and ShareBuilder investment accounts. Despite a challenging economic climate our Customer base is 7 million strong and growing.
The consequences of the mortgage meltdown on financial institutions and individuals continue to erode many American dreams. We will continue to stress the right way to achieve home ownership – buy only as much house as you can afford and pay off your mortgage as fast as possible. In return for good credit and prioritizing home investment, ING DIRECT mortgage Customers are rewarded with exceptional rates and a transparent, direct administration process. Rather than selling your mortgage to another bank or investor the minute you get it, we keep your mortgage and service it here. Doing so gives us flexibility to find innovative solutions to help Customers keep their homes during unexpected financial downturns.
While we don’t have an Orange crystal ball we do expect the economy to remain fragile through 2009. The best course of action for our Customers is to be disciplined: avoid splurges; identify and cut out unnecessary expenses; save for what’s essential; and hedge against these tough times. We can all benefit by developing good spending habits: confront — and cut up — credit cards; use your home as a savings vehicle — not as an ATM; and establish and contribute regularly to an IRA or 401(k).
In this difficult financial environment, we work tirelessly to safeguard your deposits, mortgages and investments. Importantly, your deposits are FDIC-insured according to its limits and your investments are SIPC-protected. Our security processes are the best in the business and are in place to protect your money from those with bad intentions. While we are constantly vigilant, we need your help. Keep passwords to yourself. Never give personal information through an email. And always install both the latest antivirus and anti-malware software on your home computer.
Thank you for your continued trust in ING DIRECT. We will not waver in our promise to provide you with great value, service, security and convenience.
Arkadi
CEO of Savings
This is one of the reasons customers stick with ING Direct despite better rates from other banks. ING Direct seems to care about its customers and has their best interests in mind.
I've got multiple accounts with ING — an Electric Orange checking and an Orange Savings with two sub-accounts — and am going to be moving my emergency fund back from E-Loan.
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4 Tips for Shopping at Thrift Stores (Or How Not to Spend Like Sarah Palin)
The Washington Post ran an article on Vice Presidential candidate Sarah Palin titled After a $150,000 Makeover, Sarah Palin Has an Image Problem.
The article reports $75,000 bills at Neiman Marcus and $50,000 bills at Saks Fifth Avenue along with a $10,000 handbag among recent purchases, none of which goes well with her efforts to have an "Ah shucks," hockey mom image.
I think it's fair to assume savers on this blog share at least some of my annoyance, but I decided to curb that and let her excess be an opportunity to report a modest but pleasing savings I made just three days before on a pair of $175 Nunn-Bush shoes. I got them for $7.99 at a Goodwill thrift shop.
Better yet they were absolutely 100 percent new; not a scratch, not a scuff, on the tops, on the soles, anywhere.
Finding a brand new pair of shoes at Goodwill is lucky, but there is more to it than luck. Savings at thrift stores comes with strategy and patience. Never shop at a thrift store if you need something right away.
If it's Friday afternoon and you have to get new and respectable shoes for your sister's wedding, then it's not the time to go to Goodwill or any thrift.
Savings at thrift stores is a long-term process requiring regular, but short visits. At Goodwill stores and Salvation Army stores, especially in big metropolitan areas, the good stuff turns over very fast. That is important because infrequent visits mean lots of good stuff will come and go and you'll never see it.
- Frequent visits make it easier to spot the good stuff.
- Plan to stay twenty minutes to a half an hour, but never longer.
- Have a departmental route: pants, shirts, shoes, furniture, electronics, sporting goods, books and so on.
- Don't linger. If the bargain is there, you will see it. If you stay too long you'll get depressed looking at worn out stuff and begin thinking thrift shops are hopeless when they are not.
Thrift shops are a special preserve for those who like a challenge, but they pay off, especially when you find something you might not buy otherwise. The above mentioned shoes are only one of many fun buys.
Include new to nearly new Ralph Lauren, Tommy Hilfiger, Bill Blass and Brooks Brothers shirts, Jos. A Banks pants, 3 all leather belts, New & Lingwood sweaters, a Harris Tweed sports coat, all bought for a song. Take that Sarah Palin.
Fred Siegmund covers America's jobs as part of work doing labor market analysis and projections for a client base of recruiters, trainers and counselors. Visit him at www.americanjobmarket.blogspot.com
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