economics

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Why Democrats Will Lose the House and Senate


Ever since 1932 when Franklin D. Roosevelt took on Herbert Hoover for the Presidency, first in the mind of voters has been economics, with the exception of 1944, a war year. Roosevelt’s campaign built on the failures of the Hoover administrations failures in the banking community, something Hoover, trained as an engineer, had little clue on a cure to the nation’s ills. In most elections the cry of “it’s the economy stupid!” has taken center stage. This election cycle is no different!

For about two months following the US Supreme Court’s decision to overturn Roe v. Wade, the Democrats made hay. But since then, starting in early August, inflation and supply chain shortages have been front and center in the national consciousness. Democrats have stubbornly stuck to their abortion issue.

The year between presidential elections, the party not in power has historically made gains and frequently taken control of the house and senate. That, all by itself, should have put the Democrat Party on alert. But add to it, inflation and the declining purchasing power of the dollar, Americans, as history shows, will vote with their pocketbooks!

Nancy Pelosi has a compelling long-term outlook for our nation’s future. But that, unfortunately, is not how the American public at large votes. Democrats needed to keep such issues among elected officials and then educate the American public in non-national voting years, the importance of such issues. But even more, and along those lines, Democrats have shown little action in showing America why Republicans have no better chance of changing the economic climate than do they. They have not shown that what is being experienced in the US is in fact a global issue in economics. By simply making Americans look beyond America’s borders would at least give Americans pause to reconsider political campaign claims.

The Democrat’s war cry should have been “What is the Republican plan to change our economic ills?” Republicans do not have a plan, just a war cry. Leading Democrats needed to admit that they, any more than Republicans, can do precious little to cure what is actually a global issue. About 23.5% of Americans have a college degree, however, most of them have no education in economics. In a country where education should be of primary concern, few politicians, from any party, take the time to actually educate their electorate. I suspect that is because to do so would cause that electorate to actually question their political claims.

Democrats resistance towards addressing the top 5 issues on Americans’ mind, none being abortion, will not only lead to their losing both the house and senate, but in my estimation, the Senate will break 53 – 47 in the Senate and about 235 – 200 in the house, both in favor of Republicans.

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Who Is to Blame For America’s Present Economonic Malaise?


If you listen to the Mitt Romney political ads it is entirely Barack Obama’s fault that we have not already seen a complete recovery.  And if you listen to Barack Obama political ads it is the failed policies of the Bush-era that are to blame.  Personally, I think there is more than enough blame to go around that neither party is any more guilty than the other.

But first, let’s look at the world economy.  To look only at the American economy is a mistake because we do not operate in a vacuum.  Independent of what has been happening in America, Europe has gone through its own economic travails chiefly on the shortcoming of the Euro and the countries who use it as their sole currency.  In particular, Greece, Italy, and Spain have had it the worst.  Right now, Spain is reporting an unemployment rate of 25% which is similar to the U.S. great depression of 1929 – 1934.  That the Greek government has not gone bankrupt is largely due to the banks of Germany insuring Greek debt.  But northern Europe is hardly exempt from this as the Bank of Scotland is on particularly shaky ground at this point.

What does all this have to do with the U.S. economy?  The Bank of Scotland owns Citizen’s Bank which is headquartered in Providence Rhode Island.  Similarly, U.S. corporations have investments in every country in Europe and are therefore affected by that economy.  If a large U.S. conglomerate, say Ford Motor, is experiencing the European downturn, as it is, then that necessary reflects upon its overall corporate earnings.  And, as we saw in the Wall Street melt-down of 2009, corporations like AIG have considerable overseas accounts where they are insuring debt and investments.  If Europeans companies are defaulting or failing to make payments on their debt, that too necessarily affects U.S. corporations.

President Obama’s $750 billion stimulus plan has been roundly criticised by the Republican party.  They are suggesting that it did not work.  If it had not worked unemployment would have continued to rise and that just did not happen.  It did not, unfortunately, have the hoped-for effect but that does not mean it was a failure.  Every single dollar of that money, at least initially, went into the U.S. economy.  There is no where else it could have gone.  Was it as effectively used at it could have been? No, and that is where Obama failed.

People love to look at two journalistic publications and quote them as being authoritative on economic, and other, topics, the conservative Wall St. Journal, and the liberal New York Times.  That fact is, neither is quite so authoritative as they would have to believe.  The WSJ has more weight in the field of finances because that is its entire focus.  Even so, the people who write such articles are journalists who have a vested interest in reporting in a manner pleasing to their readership.  Simply put, such articles are biased towards conservatives which means they will emphasise data that supports conservative ideals and give less weight to data that supports more liberal ideas.  The New York Times, of course, does exactly the same thing.

The real question that should be asked in this presidential elections is, how much effect can the government, and even more so, any single person, even the president, have in the nation’s economic affairs?  The government is, by definition, the guardian of the public trust.  In deriving its power from the people, it is supposed to act in the best interest of all people without favoring any single person or group of people.  In the late 19th Century and early 20th Century, people like Rockefeller, Vanderbilt, Carnegie, and a few others, were in virtual control of the U.S. economy.  Because of that, the Chicago fire of 1872 helped precipitate the economic crisis of 1873.  Wall Street and corporate America was entirely unregulated and did as it pleased.  Corporate trusts and monopolies were accepted practices.  The titans of business and finance had themselves so well insulated from all civil and criminal prosecution that they were able to act with impunity.  But then during the Populist era, McKinley, Roosevelt, Taft, and Wilson, laws like the Sherman Anti-trust Act were put in place to curb these excesses.  The public demanded that the government regulate and pass laws to reign in these men of great power and influence.  Corporate America was reigned in by 1920, and then after the collapse of Wall Street in 1929, the U.S. financial concerns were also reigned in.  In both cases the method of reigning in was the use of regulation and oversight.

Contrary to concerns raised by industrial giants and financial gurus of those early days, America boomed until 1974 when America was hit by an artificial oil shortage, the inception of the oil cartel, also known as OPEC.  Democrats, largely in power at the time, responded slowly and poorly.  But when Reagan took office in 1981 he decided, and sold a rather naive American public, on the idea that heavy government regulation was holding back the expansion of corporate America.  Had anyone at the time been versed in history they would have instantly known that nothing could have been further from the truth.  The truth was, corporate America, particularly in heavy industry, had not bothered to retool after World War II and were still using 1940 technology while rising industrial giants like Germany and Japan had entirely retooled and were on a firm footing to sell in a global economy.

The 1950s and 1960s American domination of the electronics market, for example, quickly gave way to the Japanese, and in time to Taiwan, Malaysia and other Asian countries.  America was importing cheaper steel from Germany, and then cheaper, and better made, Japanese cars.  It was not until the bailout of the American auto industry in 2009 that it became apparent to all that Detroit’s decision the all the status quo had been an abysmal failure, and only a government infusion of cash would save it.

When Reagan brought about the deregulation of corporate America he was effectively saying, “We trust that corporate America will behave itself and always work in the best interest of America.”  You would have to be a fool to believe such things.  Corporations, by their very nature, always and only serve in their own best interest.  And that is exactly as it should be!  They are not required hold sacred the public trust, that is the government’s role.  Good business practices dictate that you will always buy from the least expensive source.  If that source happens to be China then that is where you buy.  It is unreasonable to expect American businesses to act otherwise.

As to what the U.S. owes foreign governments the Romney’s campaign that Obama has borrow money from China is foolish!  Does the U.S. government owe China money?  Absolutely!  But that comes as a result of international commerce.  In an attempt to gain a foothold in mainland China, a number of large U.S. corporations have invested heavily in China.  In doing so they necessarily us U.S. dollars.  And what is a dollar but the federal government promising to pay.  It is a debt that says the federal government guarantees payment on each and every dollar proffered.  When China gets those dollars it can then put a demand for payment to our government.  One form of payment, of course, is gold.  But whatever form that payment takes it is always between governments and not individuals.

One thing every American needs to be aware of.  About every 25 years or so America goes through an economic downturn, some worse than others.  This is one of those.  Most such events happen as a result of what is called a “market correction.”  When stocks do not properly reflect their value of the company they represent, this overvaluation brings a downturn.  This time is was the real estate market that was way overvalued.  Part of it was over-investment, but another part, and more important, was a lacking in regulation and regulatory oversight that allowed speculators to reap huge profits where none should have existed.  This was the state of the “sub-prime” market.

American businesses resist regulation because they want as free a hand as possible in doing business.  But the truth is, regardless of the degree of regulation, they are going to continue to do business in a manner that reaps them the greatest profit possible.  And that is exactly as it should be.  But it is not, by any stretch of the imagination, the responsibility of the government to assure our economic success.  That is the responsibility of corporate American and there is one thing you can always be certain of, corporate America will bring about success regardless of anything and everything else.  That means that they were responsible for the malaise and they will be in line for the credit when things improve.

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Is Cutting Taxes Really a Good Idea?


Stockton California is filing for bankruptcy, the seventh U.S. city to do so this year.  The principle of bankruptcy is a very simple one: your debt load far exceeds your ability to pay it off in a timely manner at the very least but usually means your income goes to zero before you are able to pay the minimum of your debt service.  Such is the plight of Stockton and many other U.S. cities are on the brink.  By law, government has a single source of income, taxes.  The law also requires that they annually construct a budget, bring it before the town meeting or city council, and then vote on it.  If they have done their work properly, town and city leaders have done the homework properly in balancing their income against their outlays, and leave a little in reserve for emergencies.  States and the Federal Government must do the same thing but public discussion of those budgets is generally limited to elected officials and their appointees.  Still, government’s income at all levels is derived from the single source, taxes.   Stockton probably got into trouble, in part, from poor management of its debt load but had there been a tax reduction initiative earlier, this certainly would have happened all the same, just earlier.  Is this what we want for the United States in general?

Every level of government so has the ability to carry a certain level of debt.  Usually this debt arises from the issuance of bonds.  Bonds are usually issued to cover the cost of major construction programs, such as schools at the local level, and large transit projects at the state level.  These bonds can be found in the Moody’s Investment Guide and are rated according to the entity’s credit worthiness.

The Federal Government is a whole different story, however.  It too sells bonds on the U.S. market.  But it also sells its debt and that is usually to other governments of the world.  Right now, China is one of the largest holders of U.S. debt.  This worries a lot of people.  China could, for example, say, “We want all our money, now.”  It is a “demand” kind of debt.  But this is unlikely to happen simply because the adverse hit on the U.S. economy from such a move would have world implications what would, of course, affect China negatively.

The amount of debt the U.S. is carrying now is well over one-trillion dollars.  People worry about this, as they should.   The ways to reduce debt are to reduce spending or increase income.  In the case of governments you can reduce spending by reducing the government’s size.

Mitt Romney is running a campaign, as so many Republicans have before him, George W. Bush included, of tax reduction.  Their logic says that it will put more money in the pockets of the average American and therefor stimulate a sluggish economy.  They say this with great certainty, strongly enough that their message is “you should absolutely believe them.”  There is one problem with their hypothesis.  They are projecting into the unknown and this is what Americans with actually do with that extra dollar or two.  Personally, I’d pay down some of my own debt but I certainly would not be out on a spending spree, and  think that is the same thing many Americans would do.  This act is neutral with regards to the national economy, it neither grows nor shrinks the economy.

Now if you listen to Ron Paul, he will tell you that the way to deal with lowering taxes is reducing the size of the government.  And on that point he is exactly correct.  Government is expensive at all levels.  But government is also necessary at all levels.  If you take away the aspect of national defense from government and international relations, pretty much every other government entity exists, in some form, at every level.  All levels have police forces, fire fighters, lawyers, road maintenance people, tax collectors, land assessors, and so on.

Let us say, for example, that the city of “Big” one day declares that it can no longer pay for all the services is supplies.  The Mayor of Big, after long and arduous discussions decides his city has to cut back immediately on at least one of his city’s services.  He sees that maintaining the city’s streets is one of his biggest expenses so he declares that hence forth the people who own property along a street will be required to pay for its maintenance at the level required by state law.  The people of that street must pool their money and see to the street’s maintenance which includes its repair, snow removal, and resurfacing as called for.  He then dismantles the city’s highway department and not only is his budget in balance, but now he has extra cash on hand to pay down the city’s long festering debt.  He tells the voters that their property tax is immediately reduced by 5% because of this.

With this initial success under his belt, and people all over Big declaring him their savior, he announces that he can low property taxes by another 5% just by eliminating the fire department.  When asked how, he says it requires a simple principle that was actually used in the U.S. in the early 19th Century.  People would support a local privately owned fire department.  They pay their annual dues and their house or business would have a placard placed upon it saying the owner was a member in good standing of the local fire department and fires at that address will be attended to.  Even better, he announced, you are not required to buy into the program!  You can save even more money.  But, if your house does catch fire, then you are personally responsibility for putting out the fire, and are responsible if the fire spreads to other houses and businesses.

The people are so excited after a year, and paying hundreds of dollar less in taxes, that a man from West Big, suggests to the city council that all parks and recreation areas be maintained by the neighborhoods in which they exist!  The people of West Big, where most of the population exists, love this idea because most of those parks are located in East Big where the rich people live.  Their thinking is, why should they have to pay for something they don’t use very much, if ever.  The people of East Big like the idea because not only can they afford to pay for the parks but it gives them the right to say who can and who cannot enter into “their park.”  They have long groused that a “certain element” seems to come to their neighbor which they find unsavory.

Until this point the people in South Big haven’t had much to say about anything as they are all farmers who own large tracts of land and have been relatively unaffected by all the new smaller government ideas, and they of course have benefited greatly from the greatly reduced property tax.  But South Big is where the town’s lake exists and this is the summer escape for all the residents of Big.  But the few residents of South Big decided, in accordance with the latest law, to put up a fence around the lake and declare it closed.  They promise to maintain it, as required, but since they do not have the resources to run a public beach, nor to the desire to run the beach even if they did, they simply close it down.  Suddenly the city of Big is at odds with one-another.  The time-honored right to enjoy the summer on the shores of their lake has been taken away by four farmers who simply are not interested in keeping the tradition going.  People all over Big are asking each other how it happened that so much power fell into the hands of so few people.  The farmers replied to them that they were simply using the new laws, and besides, most of their families had lived in Big as long as anyone else, if not longer.  Weren’t they entitled as much as anyone to exercise their rights under the existing laws?

The basic tenant of government is to provide services to its constituents that cannot be reasonably, or equitably, provided by private organizations.  There was a time in its early history that the United States was a morass of private highways and bridges.  To leave Boston, for example, you had to pay a toll to cross one of the few bridges over the Charles River.  Towns and private citizens set up toll booths along public and private ways to collect monies for their upkeep and for the right to use them.  Philadelphia is renowned for its private fire companies in the 19th century who actually had wars between companies over who would cover which houses.

The point is a simple one: if you want a continued level of service you now enjoy in your city or state, or at the national level, then you have to pay taxes because they simply are not free.  If you think government is inefficient then you must offer solutions in how to make it more efficient.  It is not enough to point at some government entity and declare that they are very inefficient.  You must provide both the proof of the inefficiency and the method of improving its efficiency.  In the mean time you must accept the level of funding just to maintain what you have.

My suggestion is that there needs to be a major revision in the tax code.  Although I never liked Ronald Reagan as a President, he did come up with the idea of a “minimum tax” that he thought everyone, particularly the rich, should pay.  Somehow that has fallen into disfavor by today’s Republicans.  Personally I think a national sales tax, together with the elimination of all personal income tax, would solve many tax problems and reduce the size of one portion of the government greatly.

The bottom line is, every American has to ask himself what level of service he expects from the government and at the same time, he must realize that it will cost him something.  He must also recognize and accept that everyone is going to have their own idea of how much government we need to have.  But in the end, regardless, we will have to pay taxes to pay for that government.  Highways, fire departments, police departments, national defense, airports, and so forth are things we all have to pay for.  They are not cheap.  If you want your highways to be as good as they are now, or better, then you must pay for that.  This is not the time to cut taxes.  It might be the time to reorganize government at all levels, but it is not the time, yet, to reduce taxes.

 

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America’s Next Recession Starts March 1


The Dow-Jones today topped the 13,000 mark for the first time since 2008.  That is a fact.   How, then, can I possibly be predicting a recession starting in a little over a week?  The stock market is one of the worst indicators of the future.  On March 9, 1929 the Dow Jones average was 381.70 but by the end of October in 1929 it had fallen to 198.69.  The market lost 48% of its total value, most of that happening in October 1929.  President Hoover looked at the economy he presided over in March 1929 and said that the warnings of upcoming trouble were worthless.

People are going to look at today’s stock closing optimistically.  But they need to look at a single indicator that directly feeds into imminent economic trouble.  Crude oil prices have risen over 30% since September 2011 and show no signs of retreating.  To the contrary, they show every sign of rising to historic levels.  The average person thinks of such a rise only with regard to what they pay for gasoline at the pump.  But all forms of transportation are equally affected.  This means the price of food, durable goods, clothing, and everything else goes up as well if only because they too have to be transported and that cost is reflected in the price of the item being sold.

But have you ever considered how much of everything in your life is petroleum-based?  Consider that everything that is made from plastic is petroleum-based.  That alone should give one pause to consider what rising crude prices mean.  Petroleum is also used in medicines, clothing, and construction.

I believe crude oil prices are going to keep going up because of the continued unrest in the middle east.  Lybia, Egypt, Syria, Iran, and Iraq are all in a more or less unstable condition.  And all are oil-producing countries.  Adding to this unrest are both Afghanistan and Pakistan, neither oil producers, but both home to radical Islamists who have every intention of continuing or raising the level of unrest in all the countries mentioned.

In today’s world economy energy drives those economies.  Whatever is happening to the price and distribution of oil affects all economies to one degree or another.  It is like throwing a rock in the middle of a calm pond.  The waves that rock creates moves outward in all directions, and the bigger the rock, the bigger the waves.  Right now we are feeling the waves of uncertainty in the market.  Consider that most countries in the world produce no oil at all, and two that do, the United States and China, both in the top 20 oil producers, export none of the oil they produce and import even more.  China will benefit from Iran’s decision to stop sending oil to England but of course England will suffer.  And so the rock Iran threw in England’s water will send its waves throughout Europe.

The unrest in the middle east is unlikely to settle down any time soon.  That means the market jitters are likely to continue as well.  That of course means oil prices will remain high with a high likelihood of their going ever higher.  I think it likely that the average price per gallon of gasoline will be at or close to $5 by summer’s end.  People will, of course, cut back on their purchases and with that the economy takes a hit, probably a big on.

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What the Year 2020 Will Look Like


Everyone likes to make predictions, and I am no different.  There was a time in my life that my job depended upon my knowing exactly where the cutting edge of technology was.  I was quite fortunate for having worked at M.I.T. in the mid-1980s on a computer development project.  We were working on networking computers, and describing what a computer work station should look like software wise.  It was a good education in the sorts of things to look for.

As far as computers are concerned the speed of the home computer will continue to increase but not at the rates that we have seen in the past ten years.  The top end of home computing speed right now is about 3.2 gigahertz.  By 2020 I expect that speed will be roughly 4.5 gigahertz.  What will hold down speed is the ability of chip makers to produce processors that have more and more transistors on them.  They have already introduced the idea of dual processors to mimic speed increase.  What is really happening is two processors doing the work that one used to but at the same relative speed.  The breakthrough will come when they develop processors that use light instead of electricity.

What will continue to move forward in leaps and bounds is the ability of computers to deal with graphical data.  The time it takes a computer to find a piece of data and display it is the heart and soul of computing.  But right now one of our great limitations is the ability of the Internet to pass data along.  There is a little thing called “bandwidth” that dictates how much data can be sent at any particular moment in time.  That bandwidth is the same as the size of a pipe dictating how much water can be pushed through it.  Therefor, the two most important parts of the Internet are the computers that hold the data and their ability to retrieve the data, and, the ability of the transmission lines to carry that data.  Both those things are going to increase dramatically.  There will be a dramatic shift from the copper wire carrying data towards fibre-optics carrying data.  That alone will increase both bandwidth and data speed.

Here is a hurtful prediction.  Expect the price of gasoline to be around $10 a gallon.  With that the death of the SUV and the American full size car will have happened.  Also, the death of Chrysler Corporation along with the possible deaths of Ford and GM.  Why?  They still have not gotten it.  That it is simply the types of cars offered by Toyota, Nissan, and Honda.  Toyota’s largest sedan is about the size of American mid-sized cars while the rest of their fleets are the size of or smaller than American small cars.  What can save GM and Ford will be their ability to supply small fuel-efficient cars, more so than they do now.  But also, they need to make more readily available their hybrid cars.  Case in point, I tried to buy a Ford Fusion hybrid this past summer.  I was told that the waiting time for such cars was 90 to 120 days.  I was not willing to wait.  I could have bought a Prius however without a wait.  That means American automobile manufacturers are not being fully competitive with the Japanese.  That will be their downfall.

There is one type of automobile, not now available anywhere, that could become popular with the fast rising prices of crude oil.  That type is the liquid natural gas car.  The only thing that need be put in place for that to be viable is a distribution system for automobiles.  There is actually a good distribution of this fuel for buses and trucks.  Furthermore, the fuel is far more ecologically friendly and is in abundance in North America.  What could push this fuel into the forefront is the stability of the middle east.  If it destabilizes greatly, which it could, that would quickly push up the price of crude quickly.

By 2020 I expect China will begrudgingly abandon the Communist Party as its population moves towards 1.5 billion.  This will be in large part due to the increased difficulty of importing oil and other resources not natural to China.  As the Chinese economy increasingly relies upon capitalism to fill its needs, and the older party leadership dies, it will find itself migrating away from Communism.

Expect by 2020 the Euro to be a memory as more and more countries abandon it in favor of its own currency.  While European economic unity continues to be a good idea, its single currency will be found to be an impediment to the economic stability of individual countries, and therefore abandoned.

One of the strange results of the coming oil shortage will be the decreased unemployment.  Americans are going to find it more economical to buy local, or buy American.  The price of transportation long distances will increase much faster than markets can bear.  That will mean imported goods will increase enough in price that Americans will look for lesser expensive domestic products.  This, of course, will in turn put a lot of American to work.  But it will also make American goods more desirable in foreign markets.

Environmentalists will be unhappy with this because there will be a huge push for production of electricity from coal.  It will also lead to the beginning of a new series of nuclear power plants.  But because of the time it takes to build a plant they will not start coming on-line until the very end of the decade or later.  Still, that will mean our becoming more independent of foreign oil.

George Clooney will get married.

So will JaLo, yet again.

The number of cable channels will more than double if not triple.  The 998 channels now available will not be enough to handle the demand.  Expect big increases in the number of religiously based networks and sports networks.  Cable television will become much more specialized in those areas along with news networks that will start offering news programs based in foreign countries.

Manned space flight will not return but there will be an increase in unmanned space activities in the world of science.  Along with that will be the increased use of satellite telephones.  Companies now offering cell phone use will soon switch to satellite cell phones simply because the need for earth based physical plants will decrease dramatically with their increase.

Satellite radio will increase dramatically and decrease the number of broadcast radio stations greatly.  Satellite radio and GPS systems will be standard equipment in cars.

Well, that is it for now.  I expect there will be a part 2 to this as I consider the subject some more.

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The Coming Financial Crisis


I fear the coming year is going to be a particularly bad one for all of us.  I really believe that we are on the brink of an economic disaster because of forces in the world of finance that remain unchecked.  What scares me is that those who run the financial world are allowed to act with impunity.  They do not have to worry about bad acts of faith, to worry about even possible illegal acts, because they know no one is going to go after them.  Consider this, to be a person who makes financial transactions on Wall Street you have to pass a series of grueling tests, be certified, be bonded, be investigated, and be bound to a long list of ethics.  To be in a managerial position of such people there is no requirement for any other this as long as you do not participate in actual financial transactions.  A corporate CEO could actually be a convicted felon.

In 2008 we experienced a downturn like none we had experience since 1929.  We are gong to experience basically the same thing again for many of the same reasons.  In 1929 many companies were way over-valued and not well-financed.  People bought stock “on margin,” which you cannot do today, which mean they paid as little as 10% of the face value of a company’s stock.  We those people were pressed to pay their debt they were unable to pay.  That started a stock sell-off which in turn lowered the trading value of the stock until it was worthless.  A major US company is experiencing a similar problem right now.  AMR stock, the parent company of American Airlines, is selling today for 35 cents.  The New York Stock Exchange has suspended trading of this stock.  Earlier this year the stock was selling at $8.89.  While I do not believe that AMR will be liquidated, I think it is a precursor of what many, maybe thousands, of other stocks could have happen in the upcoming year.

Our first warning of such troubles came in December 2, 2001 when ENRON filed for bankruptcy.  ENRON was guilty of improper accounting procedures among other things.  AMR is not likely guilty of this but its debt load which came about as the result of trying to replace an aging fleet and high fuel prices as well as expensive labor.

When FDR took office in 1933 he put in place many regulations to stabilize the financial community along with creating the FDIC, SEC, and many other oversight organizations.  Starting in 1981, Ronald Reagan and then George W. Bush did everything they could to reverse what FDR had started.  What they were unable to end, they reduced in size so as to render the organization virtually ineffective.  The result was the almost 40% decline in the stock market in 2008.

The $780 billion infusion of cash into the financial industry only forestalled the inevitable without the introduction of much-needed financial oversight, regulation, and enforcement.  There is virtually none of this right now.  It is unchanged since before federal funding was authorized.  That leaves the question, what is to say we won’t go through the same thing we did in 2008 all over again?  Nothing!  And this year we may well see a second financial melt-down.

Of the $780 billion the government fully expects it will never see at least $150 billion.

To be clear, it is not the national debt that will influence such a meltdown.  Actually, in the short-term, it is probably better we neither add to nor reduce that debt.  The debt that is worrisome is private debt.  The first signs of that problem was the mortgage crisis which actually is continuing today.  The answer to the mortgage crisis was not an infusion of government money, but a much more pragmatic approach.  The banks and other lenders needed to find who had means to pay some sort of a mortgage and who did not.  Instead, they took everyone in default and almost universally foreclosed on them, with even the smallest amount of research.  Many of those properties continued to lose value and were unsellable even at auction.  Some banks chose to simple abandon the properties and write them off.  All banks and lending institutions took loses, as we all saw.

The solution to at least half of those loses was a simple restructuring, refinance, and small lending loss.  First the banks needed to go to those mortgagees and offer to forgive all debt above the market value of the house.  Then they needed to reissue the mortgage with terms the mortgagee could afford.  In time, banks and lending institutions could have recovered most of their initial loses through interest.

Even more importantly, the mortgage crisis, as it was, would have been far less and the effect on our economy in general would have been much less far-reaching.  My fear is that in the coming year we will be seeing another major economic downturn.

As long as Americans allow their Congress in Washington to keep the financial community as deregulated and unaccountable as it is now, Americans should expect a very long period of lean times.  We could actually fall into another worldwide depression.