Will the US Follow Greece’s Path?

Interesting article on the CNN web site regarding the troubling spot the Greek economy finds itself in. In the article, the author, William Antholis, managing director of the Brookings Institution and a senior fellow in Governance Studies, points out the difficulty the Greeks will have in implementing austerity measures, given that one in five workers is employed by the government – a full 20% of all employment is in the government!

But will the US suffer a similar fate? Let’s look at the numbers:

There are around 2 million people directly employed by the federal government, not including postal workers or military personnel. There are roughly 600,000 postal workers and about 1.4 million uniformed military personnel. There are about 146 million people in the workforce of the US. So that makes for 1.37% of all workers directly employed by the federal government. That rises to 2.74% if you include postal workers and the military (source: Bureau of Labor Statistics: http://www.bls.gov/oco/cg/cgs041.htm).

Employment by government at all levels is about 14% in the US (comparison: Russia: 0.59%; France: 3.5%; Greece: 20%), but varies substantially by state (top states are Alaska and Wyoming at over 20% of all workers). So about 1 in 7 workers in the US works for government (and have their salaries paid by the other 6 in 7). As of 2002, more people work for the government than manufacturing and construction combined (https://fabiusmaximus.wordpress.com/2009/01/20/milestone/).

This means that the US will likely face a similar level of protest, discontent and economic pain in enacting any meaningful cuts to government spending. For example, if the US governments at all levels chose to cut 10% of their workforces, roughly 2,044,000 workers would be out of a job. At current unemployment levels (about 9.5%), this would mean an increase in the unemployment rate of about 1.08 points (or an 11.4% increase in the unemployment rate).

The question isn’t whether governments at all levels in the US need to make serious, significant cuts. The real question is whether any politicians are willing to accept such a dramatic increase in the unemployment rate. And a 10% cut to government employment at all levels really isn’t enough to make a significant dent in America’s government payrolls, deficits, debt and pension obligations. Add in the crisis in Social Security (when it was founded, for every retiree, there were 30 workers paying that retiree’s pension; currently that ratio is three employees paying for each retiree and it’s closing in on two) and the outlook doesn’t look very rosy for the US returning to fiscal health.

How long will six in seven workers remain content paying for the salaries of the one in seven government employees? That remains to be seen. However history seems to indicate the status quo will remain until changes are inevitable, and then those changes will be difficult, painful and dramatic, rather than measured, pro-active and responsible.

$1 Million/Day for 2,295 Years: Senate Bailout Plan…

The US Senate is set to pass a so-called “bailout bill” that amounts to $838 billion. To give that some sort of perspective, you’d have to spend a million dollars a day for two thousand, two hundred and ninety-five years to spend an equivalent amount. Of course, that doesn’t include the interest which will accrue on that staggering debt.

How will this gigantic tab be paid? It’ll by paid by the US taxpayer: $6,2,36 per taxpayer, to be precise. That, of course, is on top of the $13,500 each taxpayer is already on the hook for via the original TARP money, the bailout of AIG, Lehman, et al. New total: $19,736 for each and every taxpayer, on average, plus interest.

There’s an additional downside: money invested in the government bonds to subsidize this massive spending is, of course, money which will not be otherwise invested in the economy for such things as actually spurring economic growth: for every dollar invested in a government bond, there’s one less dollar available for private companies looking to grow and expand.

The total amount borrowed for “bailout” spending to date? $2,651,797,108,408.

An Open Letter to Obama – Bailout Request #459…

Dear President-Elect Obama and your fellow Democratic lawmakers,

I run a rather large company. We are currently on the threshold of bankruptcy due to the “credit crisis”. This bankruptcy would cause numerous job losses, so as you can imagine, we need help.

Here’s a bit of background on our operations:

We produce a product the general public doesn’t much care for. They can find a better product from our competitors, often at a much better price.

We also pay our employees considerably more than the competition does; about 80% more, in fact.

About a third of all our sales are to our own employees, at heavily discounted prices. Since they’re paying considerably less than the general public, their decision to purchase our products distorts the competitive pressures which would normally exist and which would force us to produce products that the general public would buy.

We’ve faced substantial competition for many years now – decades, actually. But we believe in a consistent business model, to the exclusion of profitability, agile adaptibility and long-term success and viability.

We’re not exactly at the forefront of innovation, but we promise to get there. Maybe. We’ll see.

Our competitors – evil, foreign-based companies – have been moving their plants to the United States. We have countered this invasion by moving our jobs to foreign countries. There, we can overpay our workers too.

Our success is critical to the US economy. After all, just look to history and you’ll see America once had a booming horse and buggy industry. They were allowed to fail when superior competition emerged. The economy has clearly never been the same since.

We need taxpayer money, and lots of it – at the current rate we’re burning through our cash, we’ll be broke soon. We need to be able to burn through taxpayer cash too. And, frankly, if the taxpayers won’t buy our products, we think we should nonetheless take their money. I’m sure you’ll agree that’s reasonable.

As you can see from the points I’ve outlined above, there is clearly nothing wrong with our business model – the robust way in which we do business should not be measured by profitability or long-term viability; nor should the fact no lending institution or investors will lend us money to continue our business as it currently is run be taken to reflect poorly on our management decision and overall strategy. It’s just this “credit-crisis” thing that’s causing us a whole lot of grief. Without that thorn in our side, we’d no doubt be a viable, healthy company.

If you give us the money we are seeking, we’re sure it’ll all turn around – the staggering loss of market share we’ve experienced over the course of the past couple of decades is quite obviously an anomoly which will blow over in due course. Hopefully soon. Hopefully very soon.

Thank you in advance for this bailout. You’ve made the difference between all our workers being laid off and most of our workers being laid off.

Sincerely,

One of Three

Stocks Recovering from ‘Obama Effect’…

Since the day Barack Obama was elected President of the United States, the Dow Jones Industrial Average (DJIA) has been on a deep slide. The Dow closed election day at 9,625.28, then began a nearly daily descent, until it reached 7,552.29 at the closing bell on November 20. That’s a decline of 21.54% in just twelve days, and represents trillions of dollars taken out of the capital markets.

No big surprise there, given that President-elect Obama has promised to increase the Capital Gains tax by 33% (that’s just to start; his stated ultimate goal is a roughly 87% increase in the tax on your investment gains), move the US to a protectionist trade policy and increase regulation.

The 'Obama Effect'

The markets, however, appear to be starting to shake off the “Obama Effect”: beginning November 21 and continuing for the next five consecutive days, the DJIA has been making up ground, closing November 28 at 8,829.04. That’s more than halfway back to pre-Obama levels.

Could President-elect Obama’s recent comments that he is reconsidering his tax hikes and even contemplating allowing the Bush tax cuts to continue be responsible for some capital returning to the market?

Credit Crisis Fictional? A Look at the Numbers…

Among all the drama on TV and in newspapers about credit “disappearing”, all in support of a taxpayer financed bailout, here’s a look at some of the actual numbers, courtesy forbes.com:

U.S. Bank Loans (Billions of Dollars)

Week Ending Wednesday	Business (Commercial & Industrial)	Real Estate	Consumer	Interbank (Other Than Fed Funds)
Aug. 13	1,514.5	3,639.4	841.6	77.6
Aug. 20	1,509.1	3,653.3	845.6	75.3
Aug. 27	1,515.1	3,650.6	848.0	76.3
Sept. 3	1,514.8	3,631.3	846.8	77.2
Sept. 10	1,512.0	3,630.3	850.5	74.0
Sept. 17	1,531.2	3,625.2	847.1	72.3
Year Ago:
Aug. 2007	1,311.1	3,498.4	774.0	82.7

As you can see, consumer lending is still going strong, business lending actually increased and even real estate lending is significantly up over last year.

While it makes for good ratings and sells newspapers and serves as a convenient excuse for the growth of governmental economic interventionism, in reality the numbers don’t show any crisis.

You can see the source article here.