The reeling US economy is the result of a large and ongoing reset of US residential real estate prices. What happened is that for 20+ years, the US government did everything possible to keep inflating the prices of US residential real estate. The congress supported lending to anyone with a pulse and financed much of it through two entities – FNMA and FHLMC with the implicit understanding that the credit of the US would backup their direct borrowings and their securitized packaged mortgage loans.
Everyone loved it. Builders, bankers, Wall Street, retailers and, most of all, taxing authorities at local, state and national levels. It was the garden party of all time bought and paid for by the US government. So, when the bubble burst the USTreasury and the Federal Reserve who both stood by silently as the bubble built (actually the Fed did its part by recently keeping interest rates so low that in effect a borrower was being paid to borrow versus the fundamental of having to pay for borrowing) stepped in with cash, more borrowings, printed currency and electronic currency to stand behind all the bad assets created in the process and even the so-called derivatives based on the bad assets. They had no choice. This debacle was made in the US of A and the fingerprints of several white house(s), congress(es) and so-called regulatory agencies were all over it. Everyone knows it. And the people with the bad paper now know that the US of A is quite capable of managing its economy with the same promiscuity that 3rd world countries (aka banana republics) have done for years.
That is why the US taxpayer is on the hook for all the bailouts. Your country created the mess and must fix it or it will be a long time a coming before anyone offers your country any more credit. That, folks, is what happens when politicians have access to the paper money machine of any country. Locate one politician, besides Ron Paul, who grasps much less will take responsibility for the mess.
So, what is happening now? The residential real estate bubble has burst. Things are getting better by the day. Right? Wrong. The US congress and its active enablers at the Federal Reserve and the USTreasury are supporting massive bubbles in health care services, government services and education services in the 50 states. These bubbles are ongoing inflation schemes that are every bit as attractive to the politicians and special interests as was the residential real estate bubble. The thinking now is that if the US government can keep the cash machine printing and the borrowing machine borrowing that these bubbles can be sustained. The hope is that this ongoing inflation scheme will settle down while other countries inflation machines will gradually catch up and then the US will not be hung out to dry again. Good luck. Just take another look at the recently displayed (see TheFundamentals, September 24, 2009) massively higher health care costs per capita in the US versus all the other developed countries. This is a bubble. What happens to bubbles?
This is the game being played. The stakes are very high. The politicians and special interests would not like to go through an adjustment period similar to the deflation of the residential real estate market. Can you imagine what happens if health care workers, education workers and government employees have to look for real jobs in wealth creating ventures? Inflation addiction. Where is the twelve step program for this ailment?
You live in a country addicted to the need for ever rising prices and tax revenues. Substitute “prices” for “account balances” and “tax revenues” for “investor’s cash” and it reminds one of BMadoff’s scheme. His scheme lasted for 20+ years too. His scheme failed when the flow of incoming money slowed and the requests for redemptions rose. Doesn’t take twelve steps in the real world; just two.
Thursday, October 1, 2009
Tuesday, September 29, 2009
By the Numbers - Lawyers, Income, Prices and Births
Some facts. Parenthetical and trailing comments provided by TheFundamentals.
Attorneys per capita (higher is better):
US of A 265
Brazil 326
New Zealand 391
Spain 395
Italy 488
United Kingdom 401
Germany 593
France 1,403
Who says we can’t learn from the Frenchies?
Source: wiki.answers.com
2008 US of A Household Income (by gov’t category):
Asians $65,637
Whites 55,530
Blacks 34,218
Why don’t we elect more Americans of Asian background to political leadership positions? Why doesn’t the public policy of the US of A adopt certain cultural standards, values and fundamentals of Asian Americans? Americans are big on results, right? Why not emulate the top group?
Source: http://www.census.gov/prod/2009pubs/p60-236.pdf
Consumer Price Index (lower is better unless you're a politician):
1947 $ 37.50
1977 100.00
2008 316.20
Ask yourself why politicians don’t speak to the above numbers. If you paid $37.50 for it in 1947, you paid $316.20 for it last year. Deficits = Debt = Destruction. Borrowing/printing money costs Americans a lot. Price stability matters. Rising income numbers mean nothing when prices rise at these rates.
Source: http://www.census.gov/prod/2009pubs/p60-236.pdf
2006 Birth Rates to Unmarried Women (you figure out which is better; note the Asians)
Whites 33.3%
Blacks 70.2
Asians 16.5
Hispanics 49.9
Source: Health, United States, 2008 – National Center for Health Statistics
Attorneys per capita (higher is better):
US of A 265
Brazil 326
New Zealand 391
Spain 395
Italy 488
United Kingdom 401
Germany 593
France 1,403
Who says we can’t learn from the Frenchies?
Source: wiki.answers.com
2008 US of A Household Income (by gov’t category):
Asians $65,637
Whites 55,530
Blacks 34,218
Why don’t we elect more Americans of Asian background to political leadership positions? Why doesn’t the public policy of the US of A adopt certain cultural standards, values and fundamentals of Asian Americans? Americans are big on results, right? Why not emulate the top group?
Source: http://www.census.gov/prod/2009pubs/p60-236.pdf
Consumer Price Index (lower is better unless you're a politician):
1947 $ 37.50
1977 100.00
2008 316.20
Ask yourself why politicians don’t speak to the above numbers. If you paid $37.50 for it in 1947, you paid $316.20 for it last year. Deficits = Debt = Destruction. Borrowing/printing money costs Americans a lot. Price stability matters. Rising income numbers mean nothing when prices rise at these rates.
Source: http://www.census.gov/prod/2009pubs/p60-236.pdf
2006 Birth Rates to Unmarried Women (you figure out which is better; note the Asians)
Whites 33.3%
Blacks 70.2
Asians 16.5
Hispanics 49.9
Source: Health, United States, 2008 – National Center for Health Statistics
Friday, September 25, 2009
Health Care Cost Analysis
The previous posting displayed the cost per capita of health care spending in major developed countries and the life expectancy in these countries. Most countries fell into a tight range of spending and there was a pattern of relationship between spending levels and life expectancy. There was one very significant exception – the US of A. US expenditures were much higher per capita and life expectancy was lower. Why is that?
We don't know. There is really only one way to answer that question and that is to do a cost analysis of the expenditure components and compare them with other countries. Costs can be analyzed in several ways. Two of the most common ways are to define them by their function or by their category. So, in dealing with health care expenditures, functional costs would include the costs associated with doctors, hospitals, pharmaceuticals, insurance companies, legal components, tests, treatment programs and other forms of therapies. Categories of costs would look at the actual forms of expenditure such as wages, benefits and other personnel costs, equipment costs, buildings and facilities, lawyers and insurance and overhead expenditures for all forms of support activities. In a good analysis, the functional costs would also be broken down according to the cost categories and this analysis could be compared to other countries where the costs are lower, sometimes much lower. In this manner it is possible to determine areas of either functional expenditures or categories of expenditures that are much higher in the US than other countries. This analysis would move the debate along with actual facts. Facts are important in determining the proper corrective action.
What would this analysis show? We don’t know. We do know that health care is a personnel intense business. Lots of people are engaged at all levels in the health care business. So, we can safely assume that the analysis will show some areas in the US where personnel costs are considerably higher than elsewhere. It could be a staffing issue (more staff to do the same activity in the US than elsewhere) or it could be a cost issue (more wages/benefits and other personnel costs to do the same activity in the US than elsewhere) or it could be a combination of both. It could be that drug costs are much higher in the US than elsewhere. Maybe we have many more doctors per capita than elsewhere or maybe we pay the doctors much more. We know that the US has many more lawyers per capita than any other country. Could this be part of the huge cost discrepancy? Could we have many more people in the insurance business than elsewhere? Insurance profits? Perhaps we do more tests than other countries? But why would that be the case if the life expectancy is lower in the US than elsewhere? There would be no payoff for the tests; would there? Without the analysis and a thorough, transparent understanding of the reasons for the much higher cost of health care in the US, how can we even begin to address the real problems? We don’t know what the real problems are? Without a good cost analysis this health care problem will not be corrected. It will go on and will continue to burden the US economy and business competitiveness.
This approach of acting without information and analysis may make political sense to someone but it sure doesn’t make common sense to anyone. Why does it cost so much more to provide health care in the US?
We don't know. There is really only one way to answer that question and that is to do a cost analysis of the expenditure components and compare them with other countries. Costs can be analyzed in several ways. Two of the most common ways are to define them by their function or by their category. So, in dealing with health care expenditures, functional costs would include the costs associated with doctors, hospitals, pharmaceuticals, insurance companies, legal components, tests, treatment programs and other forms of therapies. Categories of costs would look at the actual forms of expenditure such as wages, benefits and other personnel costs, equipment costs, buildings and facilities, lawyers and insurance and overhead expenditures for all forms of support activities. In a good analysis, the functional costs would also be broken down according to the cost categories and this analysis could be compared to other countries where the costs are lower, sometimes much lower. In this manner it is possible to determine areas of either functional expenditures or categories of expenditures that are much higher in the US than other countries. This analysis would move the debate along with actual facts. Facts are important in determining the proper corrective action.
What would this analysis show? We don’t know. We do know that health care is a personnel intense business. Lots of people are engaged at all levels in the health care business. So, we can safely assume that the analysis will show some areas in the US where personnel costs are considerably higher than elsewhere. It could be a staffing issue (more staff to do the same activity in the US than elsewhere) or it could be a cost issue (more wages/benefits and other personnel costs to do the same activity in the US than elsewhere) or it could be a combination of both. It could be that drug costs are much higher in the US than elsewhere. Maybe we have many more doctors per capita than elsewhere or maybe we pay the doctors much more. We know that the US has many more lawyers per capita than any other country. Could this be part of the huge cost discrepancy? Could we have many more people in the insurance business than elsewhere? Insurance profits? Perhaps we do more tests than other countries? But why would that be the case if the life expectancy is lower in the US than elsewhere? There would be no payoff for the tests; would there? Without the analysis and a thorough, transparent understanding of the reasons for the much higher cost of health care in the US, how can we even begin to address the real problems? We don’t know what the real problems are? Without a good cost analysis this health care problem will not be corrected. It will go on and will continue to burden the US economy and business competitiveness.
This approach of acting without information and analysis may make political sense to someone but it sure doesn’t make common sense to anyone. Why does it cost so much more to provide health care in the US?
Thursday, September 24, 2009
Health Care Costs in the US and Other Countries
TheFundamentals found this chart at the website: http://www.wolafen.wordpress.com/
We were shocked at the obvious discrepancy. The cost per citizen in the US is double most other countries and, in a few cases, even greater. Yet, the US ranks fairly low in results which are defined as life expectancy. What gives? Are the numbers behind the chart just wrong? Well, we were able to find another chart at http://www.infoplease.com/ipa/A0934556.html that confirms the overall relationship of American health care spending per capita to other developed countries. In other words, there are at least two sources that compile the same overall total costs producing the staggering diffential in expenditures and results in the US versus other developed countries. The US is paying much more for less. What could possibly explain; what factors could be behind this large discrepancy?
We are being told by the health care reform promoters that it is a combination of factors - waste, fraud, insurance profits and other components. We are not being given an accurate, detailed and reliable analysis to support those claims. Why not? Should we enter into "reform" without a credible and detailed analysis of the problem? TheFundamentals says "no." To do otherwise is to implement a change that may not be responsive to the real problem(s). Tomorrow we will address the particulars of a credible and detailed cost analysis.
Tuesday, September 22, 2009
Mr. Borat Obama
A few years ago a wannabe comedian (Borat) made a movie about visiting the United States under the guise of being a newsperson/visitor from a third world country. In this role Borat interviewed US citizens and celebrities and politicians and, using this phony shtick, tries to either embarrass or catch the interview subjects in foolish statements and acts. Of course, much of his behavior was sophomoric and relied upon both sexual or scatological themes and acts. This was supposed to be funny because of the dumb questions and dumb answers and just general dumb behavior. The movie probably was a financial success.
Mr. Obama did a bunch of interviews this past weekend. Doing his best Borat imitation, he turned the tables on the interviewers. The interviewers, so pleased to be invited into the game, did not get it. They were played for fools just as Borat played his American subjects for fools. Anyone watching the actions of Mr. Obama, jumping around from topic to topic, not being challenged on any of these topics, had to wonder what has become of our values, our fundamentals and the press that was so critical of Obama’s predecessor. These interviewers are not capable of asking serious questions, much less probing and following up and creating an uncomfortable scene. Mr. Borat Obama played the media as the visitor from middle Asia played the silly politicians and others. Mr. Borat Obama has quite the shtick going. How long it will play Americans for fools is difficult to say. How much and how deep the damage will be is difficult to predict. Any additional damage after GWBush is quite the serious matter. Particularly in the area of financial promiscuity and military adventures. Mr. Obama has made health care America's number one problem. It simply is not. And no one is getting it.
Abraham Lincoln said, “You can fool some of the people all the time and all of the people some of the time but you can not fool all of the people all of the time.” We’ll see.
Mr. Obama did a bunch of interviews this past weekend. Doing his best Borat imitation, he turned the tables on the interviewers. The interviewers, so pleased to be invited into the game, did not get it. They were played for fools just as Borat played his American subjects for fools. Anyone watching the actions of Mr. Obama, jumping around from topic to topic, not being challenged on any of these topics, had to wonder what has become of our values, our fundamentals and the press that was so critical of Obama’s predecessor. These interviewers are not capable of asking serious questions, much less probing and following up and creating an uncomfortable scene. Mr. Borat Obama played the media as the visitor from middle Asia played the silly politicians and others. Mr. Borat Obama has quite the shtick going. How long it will play Americans for fools is difficult to say. How much and how deep the damage will be is difficult to predict. Any additional damage after GWBush is quite the serious matter. Particularly in the area of financial promiscuity and military adventures. Mr. Obama has made health care America's number one problem. It simply is not. And no one is getting it.
Abraham Lincoln said, “You can fool some of the people all the time and all of the people some of the time but you can not fool all of the people all of the time.” We’ll see.
Thursday, September 17, 2009
American Military Adventures
TheFundamentals is disappointed that there is limited discussion about the overseas deployment of US military personnel. We publish the following information about deployment which is sourced from Wikipedia and is dated as of March 31, 2008. We intend to update this information as soon as we are able to identify a reliable source with more current data:
Iraq 142,000
Europe 84,500
East Asia/Pacific 70,700
300,000+ US Military personnel are located in 39 separate countries around the globe.
How many China military personnel are stationed in foreign countries? India? Europe? These are the three most populous countries/regions in the world. The US is fourth followed by Indonesia, Brazil, Pakistan, Bangladesh, Nigeria, Russia, Japan and Mexico. The US has more troops (double) stationed overseas than all the other nations combined. Why? Does this make sense? Where do Indians and Chinese send their troops? Russia and Japan? How about Mexico? Does Nigeria send its military personnel to other countries?
American is a democracy. The people rule through their elected representatives and senators. Do the representatives and senators reflect the electorate in no debating/questioning/discussing this use of these resources? Are we just willing to let bureaucracies do what they tell us needs to be done? Why don’t we constantly question their activities? Does it make sense to have 300,000+ Marines, Army, Navy and Air Force personnel in 39 countries? Why do we do this? Why is this cost/deployment/tactical use of American taxpayer resources not debated constantly? What are we doing? We have no money. Every time we do something we borrow or print money to do it? Are we just the world’s most paranoid people? Do we talk superpower but not really believe it? Are we terrified of the NKoreans and the Iranians and anyone else the bureaucrats spook us about? What are we doing?
In 2009 the US spent almost $1 trillion on military/defense activities. We borrowed every cent of it!
Iraq 142,000
Europe 84,500
East Asia/Pacific 70,700
300,000+ US Military personnel are located in 39 separate countries around the globe.
How many China military personnel are stationed in foreign countries? India? Europe? These are the three most populous countries/regions in the world. The US is fourth followed by Indonesia, Brazil, Pakistan, Bangladesh, Nigeria, Russia, Japan and Mexico. The US has more troops (double) stationed overseas than all the other nations combined. Why? Does this make sense? Where do Indians and Chinese send their troops? Russia and Japan? How about Mexico? Does Nigeria send its military personnel to other countries?
American is a democracy. The people rule through their elected representatives and senators. Do the representatives and senators reflect the electorate in no debating/questioning/discussing this use of these resources? Are we just willing to let bureaucracies do what they tell us needs to be done? Why don’t we constantly question their activities? Does it make sense to have 300,000+ Marines, Army, Navy and Air Force personnel in 39 countries? Why do we do this? Why is this cost/deployment/tactical use of American taxpayer resources not debated constantly? What are we doing? We have no money. Every time we do something we borrow or print money to do it? Are we just the world’s most paranoid people? Do we talk superpower but not really believe it? Are we terrified of the NKoreans and the Iranians and anyone else the bureaucrats spook us about? What are we doing?
In 2009 the US spent almost $1 trillion on military/defense activities. We borrowed every cent of it!
Tuesday, September 15, 2009
Solvency - a primer
What is solvency? Answer: Ability to meet your obligations. Assets equal to or greater than liabilities. Positive cash flow – more coming in than going out.
What is insolvency? Answer: Opposite of above.
What happens with insolvency? Answer: Some form of collapse and/or restructuring. Could be receivership, one of the forms of bankruptcy, and, if there is a going forward plan, a restructuring.
Why did so many entities such as FNMA, FHLMC, AIG, Bear Stearns, GM, Chrysler, Lehmann, Citibank and others fail? Answer: One of more of the above forms of insolvency.
What saved the situation? Well, let’s assume the situation was saved because there is absolutely no proof or evidence that the situation has been saved. Answer: What saved the situation was the entry of the US government with its checkbook. Think of it as the cavalry arriving as in a western movie. Only no armed militia on horses; just bureaucrats armed with the government checkbook and, as a consequence, avoidance of collapse and/or restructuring.
Is this a good thing? Answer: Usually not. The bankruptcy/restructuring process permits a resolution and moving forward process to occur which includes losses to the involved parties. With the cavalry/government involvement, the bad assets and money losing entities are being propped up with government funding. If the asset values increase and cash flows improve, some of these companies may survive. The problem is that the financial assets were grossly overvalued. Further, the car companies have been losing business to the competition for years, including years of high sales volume.
What could happen? Answer: There could be a substantial decline in the value of the US dollar. The US government has no money. It can only borrow from others and, when that is no longer available, print money. It is doing both now. These acts could lead to a substantial decline in the value of the US currency. US leverage has now been substituted for private leverage. Leverage is just a fancy term for rising borrowing and debt when asset values and cash flow (tax revenues to government entities) are declining. The only remaining source of funding, if it is even available, is to sell assets. That would mean the US would need to sell its assets such as government buildings, land, parks and equipment.
Well, at least we could fall back on asset sales if necessary, huh? Answer: Some states and cities are already doing exactly that. It is, at best, a very short term gap filling answer because virtually all government entities in this country have large future, growing obligations and limited assets to meet those obligations and declining revenues. Government entities in the US are massively leveraged. The combination of large and growing obligations (pensions, entitlement payments, huge payrolls and other commitments), limited and declining asset values and declining revenues means we have not attained solvency. Solvency will prevail. Either we attain it through frugality and sacrifice or external forces will impose it.
What is insolvency? Answer: Opposite of above.
What happens with insolvency? Answer: Some form of collapse and/or restructuring. Could be receivership, one of the forms of bankruptcy, and, if there is a going forward plan, a restructuring.
Why did so many entities such as FNMA, FHLMC, AIG, Bear Stearns, GM, Chrysler, Lehmann, Citibank and others fail? Answer: One of more of the above forms of insolvency.
What saved the situation? Well, let’s assume the situation was saved because there is absolutely no proof or evidence that the situation has been saved. Answer: What saved the situation was the entry of the US government with its checkbook. Think of it as the cavalry arriving as in a western movie. Only no armed militia on horses; just bureaucrats armed with the government checkbook and, as a consequence, avoidance of collapse and/or restructuring.
Is this a good thing? Answer: Usually not. The bankruptcy/restructuring process permits a resolution and moving forward process to occur which includes losses to the involved parties. With the cavalry/government involvement, the bad assets and money losing entities are being propped up with government funding. If the asset values increase and cash flows improve, some of these companies may survive. The problem is that the financial assets were grossly overvalued. Further, the car companies have been losing business to the competition for years, including years of high sales volume.
What could happen? Answer: There could be a substantial decline in the value of the US dollar. The US government has no money. It can only borrow from others and, when that is no longer available, print money. It is doing both now. These acts could lead to a substantial decline in the value of the US currency. US leverage has now been substituted for private leverage. Leverage is just a fancy term for rising borrowing and debt when asset values and cash flow (tax revenues to government entities) are declining. The only remaining source of funding, if it is even available, is to sell assets. That would mean the US would need to sell its assets such as government buildings, land, parks and equipment.
Well, at least we could fall back on asset sales if necessary, huh? Answer: Some states and cities are already doing exactly that. It is, at best, a very short term gap filling answer because virtually all government entities in this country have large future, growing obligations and limited assets to meet those obligations and declining revenues. Government entities in the US are massively leveraged. The combination of large and growing obligations (pensions, entitlement payments, huge payrolls and other commitments), limited and declining asset values and declining revenues means we have not attained solvency. Solvency will prevail. Either we attain it through frugality and sacrifice or external forces will impose it.
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