What's good for the country....

What are the differences between General Motors and the country (US)? Is what’s good for the US still good for GM and vice-versa? Let's take a closer look.

GM and the US are identifiable around the world. They are brands that represent a certain image, a certain connotation, a certain meaning to a varied audience. They conjure up images of largeness, the 800 pound gorilla in the room and a global presence. The image is one of success and excess. Affluence and yet a certain misguided direction; trying to be what they were but never having quite the right outfit on, no longer working quite as effectively as their image, never living up to their advertising and press releases.

Many people depend on GM and the country both within the US borders and outside. The numbers are in the millions for GM and the hundreds of millions for the US. The idea of failure is not readily comprehensible. It bespeaks an unknown and uncertain possibility. What would happen if….?

They both produce products and services but the products and services, when measured against other products and services available elsewhere, don’t measure up in many ways. It may be appearance and styling. It may be fundamentals; under the hood type specifics. Where the world once awaited both of their moves for advancement and benefit it now looks elsewhere for change and enhancement. In GM’s case there are better alternatives. Not so in the case of the US. Both are dominated by bad management decisions and both are overwhelmed with labor unions that care little about “what’s good for either the country or GM.” The unions care only about their benefits, their perquisites, their pensions and their future. Both have senior management (congress for the US and the board for GM) that seem to look inward for answers rather than question and examine. Self introspection is lacking; the fundamentals are lacking. They have lost their way.

There is however one very significant difference between the US and GM in this regard. No one has to buy GM products. There are many good alternatives. What is the good alternative to the US? What happens if the US ceases to offer hope, liberty, future, benefit and reward for hard work, the place where an individual human being can respect the rights of others and still advance to their own drumbeat, where they can teach their children their values, their beliefs, their fundamentals? Where would one go to hear a leader say, “Ask not what your country can do for you, ask what you can do for your country.” “I regret that I have only one life to give to my country.” “We only ask that you give us a few acres of ground to bury our dead.”

There is one other significant difference between GM and the US. The US can borrow and borrow and borrow and when the borrowing sources dry up it can print money and pretend that it is still a strong force. The US is doing just that now. GM is all borrowed up. It has turned to the country for it sustenance and the country has offered a large but old teat. The unions want one or two more drops. GM has returned to the cradle and is fetally curled up, grasping at the teat. The teat is dry. GM needs to be reborn. The country and GM are very similar.

Leadership

· Leadership is based on self sacrifice. It is the act of doing something or giving up something for the greater good. The best example of this leadership characteristic is in military combat where one person sacrifices them self for other(s).
· Leadership is based on setting by example. The banker in Florida, Leonard Abess Jr., who voluntarily shared the proceeds of the sale of his business with the employees who helped build the business, illustrates this characteristic as well as generosity. Leaders look out for others.
· Leadership is based on the recognition that fame, wealth and power is fleeting and that it only lasts as long as it serves others. Mr. Abess sought no fame or publicity for his sharing.
· Leaders do not “jack” the system for personal benefit. They are selfless; not selfish.
· Leadership is adherence to fundamental values. Fundamental values are honesty, frugality, charity, humility and self sacrifice.
· Leadership is rejection of destructive traits. Destructive traits are gluttony, greed, hubris, promiscuity, debt and sloth.
· Leadership is the pursuit of the difficult path. The difficult path is always based on fundamental values, sound principles and time tested processes and the rejection of destructive traits.
· Leadership does not require consensus building or poll taking to determine success.
· Leadership is knowing oneself. It means knowing one’s own strengths and weaknesses. It means knowing what you know and knowing what you don’t know. Pretension behavior is the antithesis of leadership. Polling is the antithesis of leadership. Appearing on TV shows, talking too much, pretending to be an entertainer, writing books, giving speeches and sending out talking points are all signs of weakness. Let others analyze your acts and entertain.
· Leadership is exiting before your time. Leaders do not need term limits or mandatory retirement ages.
· Leaders develop successors. Leaders surround themselves with capable people. Leaders accept responsibility. Leaders acknowledge their mistakes and give others the opportunity to lead.
· Leadership is paying your own way. Leaders do not surround themselves with trappings of royalty in the form of perquisites, security, pensions and other benefits provided by others.

These are the characteristics of a leader. Can you name any?

Mr. Obama's Day

In the Emperor’s New Clothes the clever fools around the emperor talk him into parading around naked by telling him how wonderful he looks in his new outfit. The narcissistic emperor, of course, believes it and shows the world his shortcomings. Mr. Obama do you want to be a leader or do you want to be a fool?

The people around you are leading you down their destructive path and it does not lead to either change, transparency or accountability. You, Mr. Obama, are the all too willing follower. You are playing the fool. Today is your day.

Why would you send your Secretary of State to China to beg for money and then travel to London with a retinue that would shame an Arabian sheikh? Does it really take 200 secret service people running around London, whispering in their sleeves and hundreds of more bureaucrats to key an eye on you? Do you really need your own chef and kitchen staff? Who is paying for all your gang? The Chinese? Your country has no money. You and your predecessors have spent it all. Perhaps you should stay home, save money and do some more video or internet conferences. It’s easier to read from the teleprompter.

Look at the debt numbers to the left. Look at the horrific level of spending you are undertaking to “save the banks and the financial system.” Recognize these wasteful acts for what they are – the continued balloon blowing of a bloated, obese government that is so afraid of its own shadow that it engages in Cecil B. DeMille style productions to masquerade its insolvency.

Will you pass the hat at the conference? Ask for more money from others who see right through the Madoff like schemes you and your associates have foisted on the voters and the press? Do you really think the Germans would like to assist you in running the printing presses and distributing dollars to your faithful followers (Axelrod calls them voters.) They might have longer memories of such foolishness.

Why don’t you show them your budget deficit projections? Trillions of dollars to prop up public sector unions that serve the union and not the public. Trillions of dollars for silly education programs that prop up the NEA and AFT when the only solution is either school choice or privatization. Heaven forbid that teachers should either teach or be fired. Heaven forbid that they should work twelve months each year. Oh no. Run the presses. Big pensions for all. Inflate, inflate, inflate.

The old joke was the unemployed could always get a job where they either ask, “Would you like fries with that?” or “Paper or plastic?”

Here’s what frugal people all over the world want to know: “Borrow or Print?”

Which is it Mr. Obama? Borrow or Print?

Have a nice day. This one is named for you.

The Bubble Machine - Part III

The US of A is in the midst of a market based correction of too many years of excessive spending, excessive credit availability and massive deficits which have accumulated into destructive levels of US dollar denominated debt. TheFundamentals refers to this destructive behavior as The Bubble Machine. The last opportunity the US had to engage in a market based correction of this unsustainable pattern of economics was after the dot.com stock market bubble burst in 2001. The appropriate market based corrective measures would have been a combination of sensible tax policy and spending limitations to avoid massive deficit spending coupled with sensible interest rate policy to restrain excessive credit lending activity. Instead we got unnecessary tax reductions, dramatic increases in government spending and ridiculously low levels of interest rates that could be characterized as leaving the bank vault doors open 24/7. The result was a feeding frenzy of bad lending practices, bad regulation by those paid to oversee and prevent bad lending and a general sense from the President, the Congress and the Federal Reserve that everything was go and everything was A-OK. Deficits and debts skyrocketed to unimagined levels.
Here are some observations from that time period when the country had an excellent opportunity to take a bit of corrective and preventative medicine.

“We must do all we can to keep the days of deficits in the past. Budget deficits
force the Government to borrow money in the private capital markets. That
borrowing competes with (1) borrowing by businesses that want to build
factories and machines that make workers more productive and raise
incomes, and (2) borrowing by families who hope to buy new homes, cars,
and other goods. The competition for funds tends to produce higher interest
rates.”

“Deficits increase the Federal debt and, with it, the Government’s obligation
to pay interest. The more it must pay in interest, the less it has available to
spend on education, law enforcement, and other important services, or the
more it must collect in taxes forever after.”

Source: Budget of the United States Government Fiscal Year 2001. Yes folks that was your government speaking then. Before Bush and his disastrous policies followed now by the junta of Obama, Reid, Pelosi, Geithner and Bernanke. The junta should follow the advice of their fiscally responsible predecessors. Their wasteful spending, based on scare tactics of threatened financial doom, will extend the bubbles in government services, health care, education, state deficits and excessive pension plans and result in a continuation of reduced private sector employment in real wealth producing entities. Pension plans, health care, public sector unions, education and government bureaucracies are wealth destroyers. They must be limited in an environment that promotes and rewards wealth creation. The current debt based expansion of the balance sheet of the United States will come to be known as “The Mother of all Bubbles.” Watch the junta run for cover when this bubble bursts.

The Bubble Machine - Part II

Here are some more bubbles that have failed to find a solution. The US Government and its willing partners in various state capitols has been running a spectacular Ponzi scheme designed to make sure that the American taxpayer keeps funneling a good portion of their income into government sponsored entities (GSE’s) that dwarf the lending and compensation plans at FNMA and FHLMC, or AIG for that matter. These GSE’s include some household names such as American Federation of Teachers (AFT), National Education Association (NEA), Service Employees International Union (SEIU), American Federation of State, County and Municipal Employees (AFSCME) and countless police and fire fighters unions. Look at the result below:
Bubble: US Education Costs
Problem: US Education Cost Index reaches an all time high of 187.256 in Feb 2009 (Dec 1997 = 100)
Solution: NONE. US Education Cost Index has risen steadily over the last 10 years
Bubble: US Medical Costs
Problem: US Medical Cost Index reaches an all-time high of 372.405 in Feb 2009 (1982-84 = 100)
Solution: NONE. US Medical Cost Index has risen steadily over the last 10 years
Bubble: US Government Spending
Problem: US Government budget reaches an all-time high of $3.6 trillion for the fiscal year 2010
Solution: NONE. Government spending, deficits and debts rise almost geometrically!
Bubble: Unfunded Government Pension Costs
Problem: State and Local Government Unfunded Pension Costs are estimated to exceed $1 trillion
Solution: NONE. Until and unless these pensions are changed to defined contribution plans the unfunded pension costs will be a huge real and contingent liability to all taxpayers.
Bubble: State and local government debt
Problem: Debt totals $1.18 trillion in 1999
Solution: NONE – debt has grown to $2.2 trillion in 2008
Bubble: US Sovereign Debt
Problem: US Debt outstanding reached an all-time high of $11,042,553,971,450.47 on 03/17/2009
Solution: NONE. US Debt continues to rise each hour of each day thereafter
The cost of these bubbles is spectacular; way beyond the cost of AIG and subprime lending. On Tuesday, TheFundamentals detailed bubbles that corrected under market forces. Government has replaced market forces in the above bubbles. Governments sustain these bubbles for many reasons but mostly for self interest. Consequently these bubbles are not solved. They expand and are paid for by taxpayers current and future. The stimulus and bailout spending plans and other efforts masquerading as ploys to save the system are solely designed to save these self interest groups. Where are the sacrifices made by these interest groups? Where are the layoffs in the bubbles in education, health care and bureaucracies at all levels of government? Where are the forces to correct these bubbles? When will these price/cost/spending/deficits/debt bubbles burst and decline as in the case of the bubbles subject to market forces?

The Bubble Machine - Part I

Bubbles and Solutions
Here is a quick recap/overview of some recent price/cost bubbles and solutions:
Bubble: Dot.com Stock Prices
Problem: NASDAQ reaches a frothy 5132.52 on 03/10/2000 (1971 = 100.00)
Solution: NASDAQ reaches a low of 1108.49 on 10/10/2002 (current = 1457.27)
Bubble: US Residential Real Estate Prices
Problem: S&P/Case-Shiller Index reaches a high of 189.93 in Q2 2006 (Q1 2000 = 100.0)
Solution: S&P/Case-Shiller Index falls to 139.14 in Q4 2008 (appears to be still dropping)
Bubble: US Stock Prices
Problem: Dow Jones Industrial Ave reaches all time high of 14164.53 on 10/09/2007
Solution: Dow Jones Industrial Ave closes at 7278.38 on 03/20/2009
Bubble: Crude Oil Prices
Problem: Barrel Price of Crude reaches an all time high of over $145.00 in July 2008
Solution: Barrel Price of Crude closes at $52.07 on March 20, 2009
Please note that these indexes are market based. In other words, there is a fairly unregulated, government free market at work determining price levels, with the exception of the oil cartel’s attempts to control supply. In many cases, the market influence is global. The prices and the costs reflect market factors such as speculation, manipulation, politicians yapping, bureaucrats fretting and supply and demand. Usually the time period to adjust speculative bubbles is measured in months. It pretty much works.
On Thursday, March 26, TheFundamentals will look at some other price and cost indexes where factors other than market influences impact price movements and the resulting impact upon price/cost bubble adjustment.

Banana Republic

The Federal Reserve Bank is buying US government bonds and mortgage backed securities.
What does this mean?
Usually the Fed adjusts interest rates and buys/sells short maturity securities. In this way it disrupts the market in its futile efforts to manage the economy to price stability and full employment. Remember when Bernanke’s predecessor, AGreenspan, lowered interest rates to result in a negative real cost of borrowing? The result was massive credit extensions and ultimately led to the collapse of many of our large banking entities. That “maestro” move was also for price stability and full employment.
Back to the present. The US Department of Treasury funds the government’s stimulus/bribe voters wasteful spending programs through the issuance and sale of US Treasury securities. The Fed is responsible for the nation’s money supply. When the Fed buys the US Treasury securities we can attribute that action to several possibilities. One, no other buyers are interested in the securities at the rates being offered. Two, the Fed is seeking to dilute the value of the dollar by printing and distributing dollars without an economic event occurring (see 3/16/2009 essay on Wealth creation.)
Is this Brazil? Is this Argentina? Is this Iceland? Is this Botswana?
What about inflation? What about the total politicization of the Fed. AGreenspan sure started it, Bernanke just plain does it as SOP. PVolcker, what the heck are you doing while the Fed is supporting Obama’s promiscuity? Who voted the Fed the power to print money under the canard of price stability? Where are the people’s representatives when government bureaucrats are acting like banana republic fools?
In the opinion of TheFundamentals, THE ONLY REASON THE FED BUYS US TREASURY SECURITIES AND US MORTGAGE BACKED SECURITIES IS THAT NO ONE ELSE WILL BUY AT THESE COUPON RATES. Stated another way, the risk is too high given the reward.
Citizens and taxpayers, we must remove these banana republic fools (congressmen, senators and bureaucrats) from office ASAP!!! They are destroying our wonderful country.