"The most significant threat to our national security is our debt," Admiral Michael Mullen, Chairman, Joint Chiefs of Staff, August 27, 2010

Tuesday, December 4, 2012

The Cliffs

We have identified three –

1.     The “hecho en chine” cliff

2.     The bond cliff

3.     The fiscal cliff

We will deal with them is reverse order which happens to also be their order of consequence.

The fiscal cliff.   A Hollywood media creation starring Washington DC politicians and bureaucrats.  The recent episode brought us the cameo appearance of little Timmy Geithner.    We learned why little Timmy seldom gets released to the public.  We did enjoy the contrast – little Timmy regurgitating up to three or four of the six talking points he was forced to memorize late last week, regardless of the question posed (e.g. question: where are you spending the holidays?  Little Timmy: making investments in America – building infrastructure – stimulating job growth.)  Hmmnn.  On the other hand, George Hamilton, er, we mean John Boehner showed up in the role of acting like an adult to little Timmy’s juvenile performance.  Three year old treasury secretary v. a fed up Midwestern congressman who just wants to go home and be around people who still work for a living and pay taxes.  Challenge for viewers – is this a real cliff or just a Hollywood set?   How do find out?  Simple – go over it and see what happens.  There is little downside and it will help our fiscal situation as well as help Mr. Obama with his coalition.

The bond cliff.  We doubt that you will hear much about this one – tad too “wall street” for the new Obama coalition – blacks, Latinos and white gals.  This one does require some education; some analysis; some basics or fundamentals.  Right now the Federal Reserve is buying up most of the bonds issued by the United States?  Why?  Several reasons but we think the number one reason is to avoid a bond vigilante attack in the middle of the night.  Nothing spells cliff catastrophe quite like a sudden spike in interest rates.  So if the fed buys the bonds the vigilantes can’t get at the interest rates.  What could still happen?  Attack the dollar.  It is happening as we write and it is called inflation but the vigilantes may have more in mind one of these days – as other currencies strengthen or, heaven forbid, a viable replacement arrives.  One sure thing about falling off this cliff – the number one cliff dweller in America, Ben Bernanke, will be getting his pension just before the tumble occurs.  How do we test this cliff?  Simple, we let the market buy up all the treasury bonds, bills and notes and all the securitized mortgage debt.  Just like we use to do, in the old era – five or six years ago.

The “hecho en chine” cliff.  This is the one no one wants to talk about.  This is the humpty – dumpty of cliff dwelling.  You see, we don’t make much of anything here anymore.  We don’t because we have made it so costly in so many different ways that anyone with the motivation to make something chooses “hecho en chine.”  En chine they tend to not have Lily Ledbetter laws – heck, they tend to not have any employment laws – come to think of it being an attorney “en chine” has about the same status as being a Penn State assistant coach.  What else is missing “en chine?”  Beside lawyers?  Unions.   Health care laws.  Environmental laws.  Volumes of rules, regulations and bureaucracies (presented bi-lingual of course) telling you what you cannot do; where you cannot do it and when you cannot do it.  How do we test this cliff?  After all this is the big cliff – the high cliff – the one that we all are living on.  How do we test it?  We suggest you ask the new era coalition for their answer – the white gals, blacks and Latinos.  See what they have to say about getting rid of “hecho en chine” and replacing it with “Made in US of A.”  Maybe they can get little Timmy to perform again.

1 comment:

NDDillon said...

None of today's post makes much sense.

How is John Boehner acting like an adult? He offers the same vague ideas that he offered in 2011. What would he like to cut? If he raises the age for people who enter Medicare, it will have a minimal effect on costs. People in the 65 to 66 year range tend to be healthier. The real costs in Medicare are end of life costs for people who are generally much older.

Similarly, what bold ideas has Boehner offered? He is not offering to cut home mortgage deductions, charitable deductions or the deductibility of health insurance premiums. These would be bold ideas. Whether voters would support them is another story, but it would show leadership. Some in the Republican party want to give Obama his tax increase on people making $250k or more and hold the debt ceiling extension as a form of sword over the President's head to get what they want. Why Boehner is not a part of that club makes no sense. He appears to be the one who is childish and a bit petulant.

Why is the Fed trying to keep bond rates low is bad thing? Aren't low interest rates, which translate into lower borrowing costs a good thing? Low rates are good for business growth.

As far as China, what is the value to the 300 million people who cannot move to China to talk about how the business owners in China (the Communist Party and its lackeys) have the ability to make enormous profits while most of the people live in poverty. Is that the American dream? Eventually China will fail just like the Japanese, who were so feared will fail. The Chinese failure will be much worse, since it is a command economy more akin to the Soviet model than anything else. Nations fail unless everyone shares in the prosperity. That is the lesson of the 1950's and 1960's in the US.

The post is reminiscent of the old Republican party, which is the one that lost badly in the last election. The Democrats even got more votes in the House, although gerrymandering hides that fact.

Watch Paul Ryan and Marco Rubio's speeches tonight at the Jack Kemp dinner to see the future of the Republican party. Today, we merely revisited the failed past.