Warren Buffett is at it again. He has now declared that Standard and Poor was "wrong" to lower America's debt rating from AAA to AA+ and that it should be AAAA. This bizzare statement was offered to Bloomberg in an interview yesterday.
Buffett has famously urged Congress to raise tax rates, knowing full well that he will never pay them. Buffett, like other rich folks, can shift his assets around to avoid the tax man, so he could care less what the tax rates are.
Buffett wants everyone to see him as a modest, unassuming man who did well. That, of course, is nonsense. The son of a well-to-do Nebraska Senator (Republican, at that), Buffett has always had it pretty easy. He is definitely a smart guy, but he lives like a potentate, flying around is his private jet, hobnobbing with the wealthy and the far left as he issues absurd statements like his "AAAA" statement today.
No amount of obfuscation by Buffett hides the cold hard facts. The rating agencies are right on. US debt is in deep trouble. The US has $ 66 Trillion in unfunded liabilities in its entitlement programs. Buffett thinks that is okay and merits a "AAAA" rating. S&P doesn't agree. S&P is right.
Sunday, August 7, 2011
Shoot the Messenger
Listen to the outcry! The politicians have now decided that Standard and Poor is to blame for the near term financial chaos. Those evil folks at S&P should not have downgraded US debt (or not used the "process" that they used to downgrade US debt).
These are the same politicians who complained when the rating agencies were late to the party in the 2007-2008 crisis. Many of of these politicians blamed the rating agencies as contributors to that crisis, when they failed to downgrade weak debt.
So....damned if you do, damned if you don't. What does this tell you? It tells you that politicians (and central bankers) are looking for someone to blame for their own mistakes.
In both cases, the same facts prevail. Government created the current crisis just as surely as government created the 2007-2008 crisis. Politicians, who are mainly to blame, look for others to blame.
This "shoot the messenger" strategy is followed by both US and European politicians and central bankers alike. That strategy, they hope, will keep the public from the real truth -- the US and Europe are drowning in sovereign debt and have taken no steps to deal with the problem.
So, here they go again....blame the rating agencies.
These are the same politicians who complained when the rating agencies were late to the party in the 2007-2008 crisis. Many of of these politicians blamed the rating agencies as contributors to that crisis, when they failed to downgrade weak debt.
So....damned if you do, damned if you don't. What does this tell you? It tells you that politicians (and central bankers) are looking for someone to blame for their own mistakes.
In both cases, the same facts prevail. Government created the current crisis just as surely as government created the 2007-2008 crisis. Politicians, who are mainly to blame, look for others to blame.
This "shoot the messenger" strategy is followed by both US and European politicians and central bankers alike. That strategy, they hope, will keep the public from the real truth -- the US and Europe are drowning in sovereign debt and have taken no steps to deal with the problem.
So, here they go again....blame the rating agencies.
Saturday, August 6, 2011
Only Geithner is Surprised
The S&P downgrade of US debt from AAA to AA+ comes as no surprise to anyone but Treasury Secretary Geithner who, as recently as a week ago, declared that there was "no chance" of a downgrade. Has he been living in a cave? Did he listen to the rating agency executives' testimony to Congress two weeks ago? Geithner has no credibility if he is surprised by the downgrade. He is either an idiot or he is uninformed (perhaps both).
The markets were certainly aware that this outcome was on the way. S&P had said, weeks ago, that unless $ 4 Trillion of credible debt reduction was accomplished and soon, the downgrade was highly likely. So, you have to wonder what the deal is with Geithner? Is this the guy advising the President and setting Administration policy.
It's one thing to have crackpot views, which seems rampant in this Administration. It is quite another thing to be uninformed and incompetent.
Geithner should step down and let someone who, at the very least keeps themselves informed of what is going on, come in to advise this apparently hopelessly befuddled President.
The markets were certainly aware that this outcome was on the way. S&P had said, weeks ago, that unless $ 4 Trillion of credible debt reduction was accomplished and soon, the downgrade was highly likely. So, you have to wonder what the deal is with Geithner? Is this the guy advising the President and setting Administration policy.
It's one thing to have crackpot views, which seems rampant in this Administration. It is quite another thing to be uninformed and incompetent.
Geithner should step down and let someone who, at the very least keeps themselves informed of what is going on, come in to advise this apparently hopelessly befuddled President.
Friday, August 5, 2011
A Better Employment Number
Today's employment report is marginally better than the market anticipated, showing 150,000 plus additional private sector jobs for the month of July. That number would be anemic, historically, for an economic recovery number. You need nearly 250,000 a month to put a dent into unemployment. The fall in the rate from 9.2 to 9.1 occurred only because so many folks gave up looking for a job and thus are no longer counted among the unemployed. But, that said, this morning's number was not disastrous, just merely discouraging.
Unfortunately, this is as good as it gets. That's the sad state of affairs for the US economy. We now face stagnation for a generation (or possibly generations) until economic policy does an about face (which it might not do).
Unfortunately, this is as good as it gets. That's the sad state of affairs for the US economy. We now face stagnation for a generation (or possibly generations) until economic policy does an about face (which it might not do).
Governments Not Helpful
We are now reduced to bemoaning the obvious fact that governments are powerless to do anything about the current economic trauma. Why do we think this way? Governments have never had any real power to spur economic growth. Mostly, governments just get in the way.
But, over the years, a largely ignorant media has trumpeted the idea that governments are the solution to economic problems and much of the public now looks to government to solve their economic problems. Gradually, it is sinking in that government may be the problem, not the solution.
It is appealing to look to government to solve all problems -- provisions for old age, health care, education, whatever. But, government solutions to these problems sap the vitality of the economic system and the energy of its citizenry. Folks stop saving; students quit taking education seriously, citizens overeat...why not? We are all victims. It's not our fault, says the media. Let the government rescue us from ourselves!
Only individual effort, in the long run, makes any real difference. That's what the Asian economies know. Look at the effort that Asian students put in to their educational pursuits. The top students at practically every American university have Asian last names. Why? Because these kids know that they must make that effort themselves. Government is not going to do it for them. But, Americans and Europeans don't see it that way. They are convinced that they have already done their heavy lifting and now they look to government to solve their problems and provide for them.
The President's almost childish faith in the role of the big government belies the reality that his policies have turned the most powerful economy the world has ever known into a pathetic shell of its former self. Admittedly, he has had a lot of help from his Republican colleagues. They too think the government can solve our problems. It was the Bush Administration that proposed the prescription drug bill, no child left behind, the TARP and many other counter-productive policies. So, you can't blame all of this on President Obama. He's just one of the crowd.
It's time to take a second look at why our culture has lost its punch. Too much government. Too much class warfare. Not enough making people responsible for themselves and their families. The Asians see this clearly and the future is theirs. We are witnessing an historic shift in power. Ironically, a county emerging from communism is pointing the way to individual initiative, while a country born in a commitment to the individual is surrendering itself to the clutches of the collective.
But, over the years, a largely ignorant media has trumpeted the idea that governments are the solution to economic problems and much of the public now looks to government to solve their economic problems. Gradually, it is sinking in that government may be the problem, not the solution.
It is appealing to look to government to solve all problems -- provisions for old age, health care, education, whatever. But, government solutions to these problems sap the vitality of the economic system and the energy of its citizenry. Folks stop saving; students quit taking education seriously, citizens overeat...why not? We are all victims. It's not our fault, says the media. Let the government rescue us from ourselves!
Only individual effort, in the long run, makes any real difference. That's what the Asian economies know. Look at the effort that Asian students put in to their educational pursuits. The top students at practically every American university have Asian last names. Why? Because these kids know that they must make that effort themselves. Government is not going to do it for them. But, Americans and Europeans don't see it that way. They are convinced that they have already done their heavy lifting and now they look to government to solve their problems and provide for them.
The President's almost childish faith in the role of the big government belies the reality that his policies have turned the most powerful economy the world has ever known into a pathetic shell of its former self. Admittedly, he has had a lot of help from his Republican colleagues. They too think the government can solve our problems. It was the Bush Administration that proposed the prescription drug bill, no child left behind, the TARP and many other counter-productive policies. So, you can't blame all of this on President Obama. He's just one of the crowd.
It's time to take a second look at why our culture has lost its punch. Too much government. Too much class warfare. Not enough making people responsible for themselves and their families. The Asians see this clearly and the future is theirs. We are witnessing an historic shift in power. Ironically, a county emerging from communism is pointing the way to individual initiative, while a country born in a commitment to the individual is surrendering itself to the clutches of the collective.
Wednesday, August 3, 2011
Reality Sets In
It is surprising that anyone is surprised. There has been a dramatic cultural shift in the western economies toward the view that businesses are little more than vehicles for exploitation. Go to the movies. How are businesses portrayed? Read a John Grisham novel. Is there ever a portrayal of a businessman or woman, who isn't essentially a purveyor of evil?
We have been inundated with the cultural view that we all need to be activists to support various causes. Only greedy companies, like "big oil" and other fatcats stand in the way of progress. The end goal? Everyone now has "economic" rights -- health care, food, housing, retirement, higher education, etc., etc. There is no end to what we are all entitled to. This is the consistent message of our media and our modern culture. Who pays for all of this? That, of course, is the question that never gets asked.
Now, reality is setting in. There is no one out there to foot the bill. Rich folks? Is that it? The bankruptcy of this silly notion is now apparent for all to see.
The reality is that only businesses can create the jobs that a vibrant economy needs. The government can only create stagnation and that is precisely what has happened.
We need a cultural paradigm shift. Otherwise, this is the new reality.
We have been inundated with the cultural view that we all need to be activists to support various causes. Only greedy companies, like "big oil" and other fatcats stand in the way of progress. The end goal? Everyone now has "economic" rights -- health care, food, housing, retirement, higher education, etc., etc. There is no end to what we are all entitled to. This is the consistent message of our media and our modern culture. Who pays for all of this? That, of course, is the question that never gets asked.
Now, reality is setting in. There is no one out there to foot the bill. Rich folks? Is that it? The bankruptcy of this silly notion is now apparent for all to see.
The reality is that only businesses can create the jobs that a vibrant economy needs. The government can only create stagnation and that is precisely what has happened.
We need a cultural paradigm shift. Otherwise, this is the new reality.
Tuesday, August 2, 2011
It's Micro Not Macro
There is no doubt that Keynesian policies work sometimes. Tax cuts and federal spending, in some circumstances, can be intelligent policy. The problem we face as a country is that this is not one of those times. Our current economic malaise is driven by micro-economic considerations, not macro-economic considerations. The failure to understand the source of our problems is a failure common to politicians of all stripes.
The problem is too much government interference in the everyday operation of small business. Over the years, the Congress and virtually every President have piled legislative mandate upon mandate on the backs of small businesses who would like, if they could, to expand their businesses and hire more employees. But, how do you do that if the cost of an employee is a multiple of what you actually pay that employee? That is the heart of our current problem.
Our competitors in the global economy, excepting Europe and Japan, do not face the same obstacles in their countries that small businesses face in the United States. There are two broad problems.
One problem is the litigation environment. In the name of fairness, we have enabled employees to sue their companies for all manner of evils -- some real, some imagined. Plaintiff lawyers love this. On the flimsiest of reasons, a small business can be put out of business by a lawsuit based upon things that are, often as not, beyond their control. An example is one employee making an unfriendly remark to another. That is grounds for a lawsuit. Businesses factor the fear of lawsuits into their costs and such potential litigation means that adding employees can be prohibitive regardless of what you pay them.
The second problem is the direct burden of payroll taxes, health care mandates, occupation and safety regulations, the increasing threat of unionization (even if your employees don't want a union), such things as "family leave" legislation, and a blithering array of mandates from all levels of government. All of these things make employees far, far more expensive than simply the wage that you pay them. Most of these things don't exist in the economic environment of our competitors. You can condemn our competitors all you want because they don't adopt our social and union policies, but the fact is the rest of the world wants to grow not stagnate and all of these "labor-friendly" policies are very, very costly to business. They know that, but apparently we don't.
You constantly hear that demand-creating macro-economic policies are what we need. If you want to see the poster child for this view, read Paul Krugman in the New York Times. He pushes that theme constantly. But the reality is that any aggregate demand increase in the US is likely to translate into business for our competitors, not for US businesses. Only if you outlaw imports can you avoid the fact that the rest of the world can undercut us because their businesses are not laden down with our social policies.
These social policies were not always a feature of American business life. Even things like social security were fairly moderate until the last twenty years and medicare is only fifty years old. Demographics have made these problems a huge, huge burden for our economy and for our businesses and have savaged the US private savings rate. The overburdensome regulation and the litigation environment is almost unique to the US. We are simply not competitive any more in the labor market and that is not going to change.
So the discussion about macro policy is misplaced. No amount of tax cuts or federal spending makes American labor competitive, given all of this. We priced our workers out of the market, even though their wages don't reflect it.
The problem is too much government interference in the everyday operation of small business. Over the years, the Congress and virtually every President have piled legislative mandate upon mandate on the backs of small businesses who would like, if they could, to expand their businesses and hire more employees. But, how do you do that if the cost of an employee is a multiple of what you actually pay that employee? That is the heart of our current problem.
Our competitors in the global economy, excepting Europe and Japan, do not face the same obstacles in their countries that small businesses face in the United States. There are two broad problems.
One problem is the litigation environment. In the name of fairness, we have enabled employees to sue their companies for all manner of evils -- some real, some imagined. Plaintiff lawyers love this. On the flimsiest of reasons, a small business can be put out of business by a lawsuit based upon things that are, often as not, beyond their control. An example is one employee making an unfriendly remark to another. That is grounds for a lawsuit. Businesses factor the fear of lawsuits into their costs and such potential litigation means that adding employees can be prohibitive regardless of what you pay them.
The second problem is the direct burden of payroll taxes, health care mandates, occupation and safety regulations, the increasing threat of unionization (even if your employees don't want a union), such things as "family leave" legislation, and a blithering array of mandates from all levels of government. All of these things make employees far, far more expensive than simply the wage that you pay them. Most of these things don't exist in the economic environment of our competitors. You can condemn our competitors all you want because they don't adopt our social and union policies, but the fact is the rest of the world wants to grow not stagnate and all of these "labor-friendly" policies are very, very costly to business. They know that, but apparently we don't.
You constantly hear that demand-creating macro-economic policies are what we need. If you want to see the poster child for this view, read Paul Krugman in the New York Times. He pushes that theme constantly. But the reality is that any aggregate demand increase in the US is likely to translate into business for our competitors, not for US businesses. Only if you outlaw imports can you avoid the fact that the rest of the world can undercut us because their businesses are not laden down with our social policies.
These social policies were not always a feature of American business life. Even things like social security were fairly moderate until the last twenty years and medicare is only fifty years old. Demographics have made these problems a huge, huge burden for our economy and for our businesses and have savaged the US private savings rate. The overburdensome regulation and the litigation environment is almost unique to the US. We are simply not competitive any more in the labor market and that is not going to change.
So the discussion about macro policy is misplaced. No amount of tax cuts or federal spending makes American labor competitive, given all of this. We priced our workers out of the market, even though their wages don't reflect it.
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