When the party is over, who will bail out the American Socialists?

When the party is over, who will bail out the American Socialists?

http://en.wikipedia.org/wiki/Winter_of_Discontent

In the late ‘70s, when the money was all gone. The Labour Govt had to go begging to IMF for a loan to stabilize their country. As has Greece recently had to do. And what happens when Uncle Sam has spent himself into chaos and needs to hit someone for a few bucks?!

Look Back at the Socialist Ignomious Shame of History’s Largest Empire:

Production ceded to better and more diligent competitors in Germany, Japan and Taiwan. Everything from schooling to health was virtually free, all in addition to the huge dole bill. The unions who put the UK socialists into power were asking double digit pay increases. When their govt required pay restraints to curb inflation of 26% they continually went on strike in an annual worsening cycle of implosion.

The rich were paying 75% on their last tax slice of income.

The industry was paying hyper inflation wages in lieu of re-capitalisation. Many large industries failed under the strain and were nationalised.

Well it led to a Conservative backlash when Maggie Thatcher came in and managed to set things right. But this was not until after the previous govt had gone to the IMF begging for a few billion to stabilize their inflation and crisis (Callaghan’s What Crisis?).

Who can America borrow a few trillion from when it all goes south?

Next Time Around Economics: Labour Day:- Obama's $50bn Infrastructure Stimulus...

Next Time Around Economics: Labour Day:- Obama's $50bn Infrastructure Stimulus...: "President Barack Obama has just announced the injection of $50bn into developing infrastructure in the USA in order to jumpstart the America..."

Labour Day:- Obama's $50bn Infrastructure Stimulus

President Barack Obama has just announced the injection of $50bn into developing infrastructure in the USA in order to jumpstart the American economy.

The infrastructure is old and needs renewing, which is an excellent idea. The creation of infrastructure lasts generations and justifies the deficit spending that requires borrowing from the next generation.

The areas they are targeting for investment are well placed for easing transport and improving trade within America. They also present a traditionally sound platform to gear cash flow through knock on spending. “The plan will invest about $50bn (£32.5bn) in roads, railways and airports as well as high-speed rail and the creation of an infrastructure bank”. That $50bn can be used to easily generate $200bn in cashflow and a further $25bn in wealth. Debt will be eased.

This is part of the mix I have been punting for since Bush was still in office. So there some welcome news on Labour day to offset the doom and gloom.

Not really:

This was something that should have been done when Obama came into office, as part of his overall package.

It should be directly linked to easing of credit access so that the money earned and generated does not go directly into paying off debts but rather is allowed to maintain spending momentum.

$50bn spending on infrastructure is over what time period? Infrastructure takes time to put together and we are talking years, not months. Over 5 years that amounts to $10bn per year. Even over 3 years it is @ $15bn per year.

Who is going to get access to the money and how are they going to best use it has not been clearly outlined.

The real crunch comes to faith. Most monetary systems rely on faith, including faith that the USA Federal Reserve is going to maintain value in that paper called the US Dollar. Much of the world relies on that faith, often directly trading in USA paper money. Faith is lacking domestically and internationally. This is a small, welcome, step in the right direction after over a year of Presidential floundering around and a worsening situation. People lack faith in the President’s ability to make the economy work. The vast majority of people are bruised and need faith that this is the real start to the renewing of confidence so they can start spending and expanding the economy

Summary:

What we see is that this is a juicy bone to tempt voters. The reality is that this bone lacks real meat and whether it can be made to work well is anyone’s guess. It will partly work but Obama is trying to create voter faith when the foundation faith needs changing. The foundation faith of those who will be involved and be expected to make it work is unlikely to be changed with a result that the monies being spent by Government, being used to pay off debt rather than circulated to stimulate the economy.

Poor gearing over several years is not going to generate much real further wealth.

Illegal Immigrants: The problem comes down to the longer it is left the worse it gets.

Southern Africa has an immense problem with illegal immigrants from all over the region converging on the more affluent nations. The biggest problem is of the millions of Zimbabweans.

There are many parallels with the Mexico and America immigration crisis.

There are really only two options, getting the unstable neighbour to stabilise or put up a really good fence. The third option of allowing the illegal immigrants to flow in imports your neighbour’s full basket of problems, there is overwhelming evidence that this is overburdens social structures. Even if the neighbouring country fixes their problems, the majority of illegal immigrants will not want to go back as they have created a new life where they were and will have to start over, again, when the get back home. Those problems need dealing with at source.

These Zimbabweans have fled violence, corruption and economic instability. The ideal solution would be for them to have something stable to go home to. But as many are ensconced in other countries with jobs and utilising the social networks the problems of their home countries have been merely exported to where they now reside. Much like that of Mexico and America.

South Africa, some years back under Mbeki, had a very real chance to make a big difference to the region by dealing with the reality that it boils down to Mugabe and his henchmen being the problem. Having witnessed the incompetence, violence and outright corruption of the past 10 years culminating in a rigged election, who in their right mind could believe that this situation could really change with Mugabe still at the helm? A negotiated Unity Government was riddled with flaws and levered the opposition into accepting it. The GNU is bumping along, lessened violence, so the proponents are congratulating themselves.

The South African Government is now under new management, having enjoyed the use of Zimbabwean labour the honeymoon of the World Cup is over. South Africa is facing the realities of the horrendous recession and Xenophobia. One of the solutions, noted in today's BBC, is to ship the Zimbabweans back, all some 2million of them. This opens new jobs up for the local population and diffuses a very volatile xenophobic situation. Since Zimbabwe is nominally stable it makes good sense, to all but those being shipped back because they are viewed as a national and election threat in Zimbabwe by Mugabe and there is an election coming up. 2011 Zimbabwe election is going to get very nasty.

So having faced the issue of supporting them for nearly a decade they are returned. They are increasing the magnification of the problem in Zimbabwe since the Zimbabwean crisis has not been sorted out. This explodes and the effect will be a torrent of refugees into South Africa escalating things there in a volatile situation.

Employment levels and the Science of Rocketry

Yahoo Finance has an article on the issue of the anticipated unemployment figures set to rise marginally amongst sluggish hiring.


Arguments as to why, when companies are becoming stronger, the hiring is not increasing are presented with various theories.

Sidestepping intellectual theory let us walk in the shoes of the owner/manager of a small to medium business. In other words, from the perspective of some of the guys doing the hiring.

During a slump much energy is diverted to reducing debt exposure. This includes paying off debt, laying off non essential labour and improving the productivity of those who remain. In addition capex is reduced to essential asset replacement creating the scenario of many companies consuming their wealth. What gets these companies moving is better sales. Better put would be better confidence in sales. So whilst many companies have had improving sales they are still in a survival mindset. They will first try to meet production with what they have and only spend on assets and labour that are deemed necessary for those sales. The marginal cost of getting labour to work overtime is less than the marginal cost of hiring and firing.

When the sales are consistently up and firm then will the capex be extended and further labour hired.

What we see is that the economy is still in the toilet and there is no real optimism so long as there remains central interference. Although some companies are improving tax rate hikes are likely and there is still a risk of sales collapsing.

Until companies are able to see where they are and are not likely be hiring then firing they will stick with a reduced labour force and reduced liability.

Next Time Around Economics: Combi - Analogy of The Socialist Economic Revival

Next Time Around Economics: Combi - Analogy of The Socialist Economic Revival: "Economic cycles are part of the economy. It allows for clearing of deadwood and renewal of purpose. A bust, a depression, is not normal. A b..."

Combi - Analogy of The Socialist Economic Revival

Economic cycles are part of the economy. It allows for clearing of deadwood and renewal of purpose. A bust, a depression, is not normal. A blip for capitalism it reflects overheating, over revving, overloading and burnout. Capitalism will recover, however many people have been ruined.


Looking at a pothole analogy. Africa has many, but even in the best of counties a road will eventually have a pot hole. But using a combi that has a normal load at a decent speed under control will barely notice the pot hole. Given that it is a big pot hole a wheel change may be needed in a slow down.

Why the burn out? The controls failed whilst carrying excess. They failed big time. Like a Combi carrying too many people, too fast and poor controls, just needed one pothole and wipe out.

What is needed is a vehicle repair and off loading of excess until the strength can be rebuilt.

What I see is that the controls that failed are now trying to do the driving as well, keeping the excess load and putting on more passengers for payment for services of getting the thing going again.

The problem still is there so the economy is going to, at best, accelerate slowly, at worst wipe out on the next bend.

Over Optimistic Employment & Housing Stats

The heralding of the end of the recession is/was optimism at it's highest.


We have seen the stats of jobless rates dropping. I was not very optimistic as many people I know who have lost jobs have taken up lesser jobs. Technically they are no longer unemployed, but they are underemployed.

House prices, a long and faithful friend of economic indicators, has show occasional rises but these are more in the fluctuations of finding a new level.

There are huge amounts of people paying off debt, easing the banking sector's strain. The monies put into kick-starting the economy in USA (in particular) was utterly wasted as it wasn't geared through the right channels. With poor interest rates savings have diminished and these stimulus packages have gone to pay off debt. Why have people been paying off instead of spending? This is because interest is low and is very likely to go up so in order to keep solvent, pay your debts now and hope tomorrow brings in further income.

The gold standard was a good means of maintaining sobriety, but simply adhering to the fiscal rules of savings/lending ratios would have reduced a lot of heartache. Too much credit and no real value in saving meant for need to borrow to accrue yet financial institutions had to increase the savings/loan ratios.

With the implosion of credit demand and a semblance of returning to sanity there is going to be an increase in the cost of borrowing so that banks can keep earning.

House prices are going to go down during the second phase of the double dip in the economy. This is likely unless there is a miracle.

Negative equity is really not a happy situation. However that will not be for that long and will only be if people sell properties now and realise the loss. But for now, the indicators are back to painting a depressing picture.