Thursday, February 25, 2010

Mt Fuji rises above the flat earth

Initial jobless claim jumped again this week and the corporate media acts as if there is some mystery on why this is happening. It’s not rocket science. Take Whirlpool; after taking a 19 million dollar grant from the Dept. of Energy under the Economic Recovery Act; they will be sending another 1100 union jobs to Mexico.

Besides eliminating these jobs, the jobs of all sorts of people in the area will also disappear. Parts manufactures, machine shops and companies that provide a variety of industrial services will have to cut back if not close. This then ripples through the community closing everything from the local accountant to barber shop to the lawyer; anybody the Wal-Mart hasn’t put out of business already. Even Wal-mart will lose business but they can just fire some people; all they need is a stock boy, a door greeter and checker. Give the old guy at the door some roller skates and he can do all three jobs.

Then of course the city and county lose out too. You can bet they gave tax incentives to get the plant and will get to keep the infrastructure costs but not the jobs. Normally a economic hit like this would create more government jobs like social services, police and prisons; but there is no money for that anymore so that will be cut too despite the increased need.

This goes on every day all across America and all we hear about is Tiger Woods losing his corporate sponsors (they have much too high of morals to put up with him). The corporate media did let us hear Mr. Toyoda apologize for building cars with defects. No US executive would ever apologize before Congress. No mention though of why he is closing a large plant in California. It didn’t even occur to any Congressmen to ask him about it.

Toyota will build more cars in Japan because you see Japan has a government that doesn’t accept that the earth is flat. Too bad we can’t get one of those here.

Wednesday, February 24, 2010

Home is where you keep your canned goods

The number of new home sales dropped again in January to number not seen in more than 50 years. The population today is 2/3 bigger than 1960 and much older since families are smaller. It’s true a bigger percentage of families do own their homes today but that is a trend that is rapidly reversing.

The millennium generation (turning 18 since 1999) has been hit harder by unemployment than any other group and 20 percent have moved back home with their parents. The good news is they are the only demographic in which the majority describes themselves as liberal and there are more Democrats in this group than their elders.

Home sales were actually up in the western half of the Midwest and unemployment is relatively low. This is portrayed by the press as the conservative values of these states and their not having participated in the real-estate bubble. The reality is that these states have lost their manufacturing jobs too, but have more raw materials and food products to export to China. There are few new jobs outside of oil and gas drilling that pay a living wage. Most are the type that don’t require a verifiable green card.

Home foreclosures continue to climb as provisions written into the bank bailout by the Bush Crime Family give huge incentives to banks to foreclose as they are compensated by the government at a higher rate than if the loan were paid off. Walk away’s are becoming so common that in many markets it doesn’t affect the consumer’s credit rating that much. Rental units advertise openly to these people and many home owners are “trading up” for a better house for less money by turning in the keys and taking over a foreclosed loan. Do not attempt this without legal advise, in some states the lender can come back years later and extract the deficiency from you, which can be most of the home's value.

Trading one loan for another cheaper one may seem like a shrewd move but in a year or two things will likely be even worse. It doesn’t do the economy any good to operate on that assumption, but you need to look out for yourself. A plan that avoids debt entirely is always the best way to weather bad times and we haven’t seen the really bad times yet.

Monday, February 22, 2010

Starting over

The FDIC cleaned up another failed bank chain and three smaller banks on Friday at an “estimated” cost of 1.1 billion. It’s an estimated amount since the Feds needed to guarantee billions of commercial loans that remain on the books as the assets transfer to the new owners. The watchdog agency created by Congress to monitor the banks estimates that nearly half of all commercial loans are currently under water. These are the “good” loans, not the ones that have already failed but unlike home mortgages these loans must be renewed every five years or so and if they are underwater at renewal time, they default.

The spreading defaults create more unemployment of course and it is becoming a way of life for many who find their jobs are gone forever. By April some 2.7 million will lose unemployment if Congress doesn’t approve yet another extension. As the economy continues to spiral down, the states continue to have revenues fall short of projections, lower and lower projections.

As it appears that stimulus money will not be continued, the governors of the states are getting panicking. The cuts they’ve already made are hurting their local economies and less people working means less sales and income tax. Lower incomes translates into falling real-estate prices and less tax revenue and draconian cuts in local government. Then you get another round of cuts from the state and it feeds back again.

The Tea Baggers want no government as long as their benefits aren’t cut. They say government doesn’t create jobs, private business does, but how will that happen with all the jobs going to India and China. The service sector can’t sell service to people whose jobs are gone. The only thing keeping the service sector going is selling to the government or its employees. The retail sector is selling Chinese goods to people who are either working for the government or getting unemployment from the government.

Without China providing goods on credit and the government printing the money to buy them with, the economy would grind to a halt. This is a bubble that cannot last. Past bubbles were single sector bubbles. Savings and Loan, Dot com, Enron, real-estate, stock market or credit defaults, as these bubbles popped, it all consolidated into one big bubble.

China could revalue their currency at anytime and it would be the end of the US economy as we know it. Starting over with no manufacturing base, crumbling infrastructure and a worthless currency is a challenge that not insurmountable, but it will be a rough ride for a generation at least.