The Economy Guy

Gold appears to have broken out of its trading range, and is now heading higher.  Should be interesting to watch it go up, as it is going up as it did the last time it went straight up without stopping until it hit $1226/ounce.

Stocks rebounded after yesterday’s meltdown caused by the Greek meltdown.  Bonds appear to be having a lower interest rate rally as a flight to sqfety is happening.

In the news today…..

Greek Debt – was downgraded yesterday to JUNK status. Portuguese debt was also downgraded. That caused all stock markets around the world to crash yesterday.  The debt crisis is real, and Greece provides the tip of the spear for this issue.  The lesson for you in this action is: “Stock Markets crash when a nation’s debt is downgraded.”  I wonder what will happen if the US debt is ever downgraded?  Another consequence – a flight to safety.  The Dollar strengthened yesterday on the Greek news.   The Euro is in deep trouble right now.

Spanish Debt – was downgraded today by S&P from AA+ to AA.  This is a second shoe to drop over the European debt nations that have spent too much.  The Euro has gone down today again based on this Spanish news.  So, why all the nervousness about Spain?  Spain’s economy is contracting after a massive housing boom.  Spain’s economy is much bigger than Greece’s economy – and many think that Spain can NOT be bailed out like Greece because the EU couldn’t afford it.

Iran - Congress is moving quickly to force Obama into blocking gasoline sales to Iran over its nuclear ambitions. A US naval blockade is the only real way to enforce that. And from Iran’s point of view, that means war. It is important to keep your head firmly fixed on what might happen, and be prepared.  A history lesson is in order, I think.  When the US blockaded Japan’s oil when it invaded China – it lead to Pearl Harbor.  When the US blockaded Cuba over Russian missiles, it almost ended the world in nuclear war.  So, you can see that I take this very seriously.

Tonight’s Dinner Conversation….

Social Justice versus Free Market – this is the heart of the battle line being drawn up in today’s world.  It is Democrat versus Republican.  It is Tea Party versus Big Government.  It is High Tax versus Spending Cuts.  It is “tax the rich” versus “job growth in America.”  It is the Right to Government Benefits versus Individual Freedom.  It is the partisan fight being waged in Congress and the Senate today, and probably a much bigger fight after the next election in November.

What is causing all the stress right now?  It’s the economy – stupid!!!  Yes, it is.  When we have a booming economy, people are doing well economically and are able to buy all those things they want, go on the vacation they want, and live in the homes they want.  They are employed without the axe of layoff swinging over their head – as it is today.  Jobs are fairly easy to come by and the unemployment rate is 4% to 5%.  We can afford that “small” tax increase.

But today, people are feeling the economic pinch.  Fear is rampant.  It you have a job, you fear losing it.  It you are unemployed, you are having a very tough time finding that job that you are qualified for, and would love to contribute to.  You see your neighbor losing their home to foreclosure or short sale.  You hear the economic bad news every evening on the TV.  You hear the Congress arguing about YOUR future.  You wonder why your net worth has so dramatically reduced – and you wonder if anyone is to blame (yes, they are.)

Bad economic times bring stress to the balance of “Social Justice versus Free Market.”  

In good economic times, we can afford to be generous with our extra money, and we don’t object to its being spent by government on “good intentions.”  We are lazy in our due diligence of what is “good” and what is “wasteful.”  We become a bloated society from this lack of due diligence.  Can we blame the politicians who are spending our money?  Yes, but only up to a point.   Politicians want to be re-elected, and love the power that comes with their office.  Politicians provide outstanding reasons why the increase in spending will “help” some sector of society in need.  We all know that there are many needy people out there, and we don’t mind helping them out.  We must take responsibility for our lack of due diligence also.  So, if you are looking for the person to blame for our society’s problems today – just go look in a mirror.   So, an ancillary question to ask yourself is “Where should the help that we all acknowledge is needed come from?  Should it come from government, or should it come from charity?”  

I contend that help from government is wasteful – in that it is not provided efficiently (it has too high an overhead attached to it), and it opens the door to cronyism, patronage, and corruption.  Charities are not free from those ills, but they have a much better record of providing efficient, non-corrupt help.  More importantly, you have a choice in the charity you sponsor.  I believe that Americans are charitable.  The only question I raise is the method of delivering that charity.  Or, is it charity??  The Social Justice side says it is an obligation and a “right” (in many cases) of the recipient to get that money from the government.  Where do you stand?

When I talk about government spending, I want to be clear that I am talking about government at all levels – national, state, county and city levels.  

Are you happy with your local school system?  If you are, you are in the minority.  Schools are a great example of a situation where both the “Social Justice” side and the “Free Market” side are in agreement.  The agreement? – that our schools need help.  The Social Justice side says that schools need more money and more money will solve all the problems.  Also, that we need to protect our teachers with more pay and stronger unions.  Also, we need to back up our teachers with a corps of Administrators to remove undue burdens from the teachers.  The center to their argument is that we are being unfair to our students.  The “Free Market” side says that pouring money into the school system has not raised the level of education.  So, they want to reduce spending on education.  They argue to have student testing to measure and to reward the level of education.  They want to provide a “pay for performance” measure for teachers.  They want to eliminate the corps of Administrators who they believe bloat the costs of education. They remember that administrators didn’t exist a couple of generations ago, and the level of education was just as good then.  They want to eliminate the teachers unions and remove the concept of “tenure” – that’s the inability to remove a non-performing teacher.  They want to try innovative methods of teaching.  The center of their argument is that we are failing our students, and consequently our future.

 The only reason we are having this argument is that local government can’t afford its education system today because of a lack of revenue.  If we had lots of money, we would be ignoring the problems of education, and probably passing more spending bills – as we have in the past.  Current economic conditions force us to ask why all government (including the school systems) can’t tighten their belts like a family must tighten.

I would like to close with a current event in New York City.  There is an Armory in the Bronx where a developer wants to convert it into a very large mall.  Mayor Bloomberg supports the development.  The City Council supports the development also, but has attached some “conditions” to its approval.  The City Council has stated that anyone working in the mall must earn a “minimum living wage” of $10/hour.  The result? The developer has dropped his plans for the mall.  The arguments are drawn right down the Social Justice versus Free Market line.  You can see that the argument is “rights” versus “economic freedom.”  Who wins with the current situation?  No one.  The empty Armory will continue to be a blight.  No new jobs will be created.  But, perhaps there is a silver lining here = no one will be trapped into a low paying job they might want either.  (Yes, I see my cynicism.)  

My reason for writing this piece is to create a discussion among you and your friends.  These are real problems that America face today.  Everyone needs to be involved in their solutions.  Do your due diligence before you approve a spending measure – whether you are voting yes or no – it doesn’t matter – you need to know the issues.  Do you due diligence before you vote for any candidate next time.  We are a representative democracy (a Republic) and you need to have politicians that represent your opinions.  You will only know what a candidate’s opinion really is if you do your due diligence.  An American society that is asleep with its comforts and privileges provides the roots of future discontent and destruction.  And lastly, vote in every election – it is the most important thing you can do.

Here are the last numbers for today:
Dow Jones 30 Industrial – 11,045 (up 53)
10 Year Treasury Bond – 3.77% (up 0.01%)
Euro – $1.3210
Gold – $1172 (up $10)
Oil – $83.35 (up $0.91)
Gasoline – $2.33  (up $0.01)