Similar to when the stress tests were done for US Banks, you hear a lot of analysts taking the position that since most European banks "passes" their stress tests that the tests were "too easy". Of course that logic assumes that the banks have real problems and that there is a conspiracy to cover it up.
Honestly, the problems facing Europe and the United States are by no means insurmountable. During prosperous times, generous commitments to social programs were made that in reduce economic conditions look unsustainable. However, the basic output for these countries and their ability to sustain themselves hasn't really changed.
Ultimately the prosperity of a nation is based on how much it produces versus how much it consumes. The distribution is not in and of itself an issue. What may be an issue that is related is the fact that those receiving the benefits are no longer producing and therefore impact the actual equation.
The real equation is produced vs consumed. This is true at all levels and ultimately, at the global level. However, if an individual, a local government, a state government, a federal government or the world as a whole consumes more than it produces, it will get poorer. The only way to consume more is to use accumulated wealth or to borrow against future wealth.
There are many other factors that influence the perception of wealth. However, the value of the goods produced versus the value of the goods consumed is the ultimate determinant.
Monday, July 26, 2010
Tuesday, July 20, 2010
Dismal Science
If you read just a little economic news, you should be quite depressed. We have the potential for a double dip, the American consumer is not spending, industry is not hiring, real estate is falling again, and any bit of good news that does get out is immediately explained away by the dark linings around it. So your profit is up, but what about total sales? Can you maintain it if the economy falters? What if the dollar gets stronger, will exports suffer or if it gets weaker will energy prices overwhelm us.
The dismal science indeed. Like most news, there is much upside to being a Pollyanna. If you accept good news at face value, you suffer from credibility problems. Generally, you want to hedge your news with some gloom. The unemployment rate is down, but only because so many job seekers have despaired.
Then, the pundits are shocked that consumer sentiment is down. Further, real estate sentiment is down too!!
There are real problems in our economy, but company after company has found ways to make money. This profitability will lead to jobs, although we have to accept that productivity improvements are not going to be simply thrown away.
Real job growth has to come from the growth of domestic and renewable energy including the retrofitting of many structures and a reform of our tax system to make sure everyone doing business in this country is on an equal footing.
The dismal science indeed. Like most news, there is much upside to being a Pollyanna. If you accept good news at face value, you suffer from credibility problems. Generally, you want to hedge your news with some gloom. The unemployment rate is down, but only because so many job seekers have despaired.
Then, the pundits are shocked that consumer sentiment is down. Further, real estate sentiment is down too!!
There are real problems in our economy, but company after company has found ways to make money. This profitability will lead to jobs, although we have to accept that productivity improvements are not going to be simply thrown away.
Real job growth has to come from the growth of domestic and renewable energy including the retrofitting of many structures and a reform of our tax system to make sure everyone doing business in this country is on an equal footing.
Wednesday, July 14, 2010
Time to get going
We are continuing to see the development of an economy where many of the past excesses are going away. The recent crisis will have a sobering effect on many people for at least some time. Further, some of the access to easy money and easy equity loans is just not there anymore.
The good news is that the future economy will be built on a sounder footing. The bad news is that many of the jobs and other sources of income will be more difficult to come by.
A return to some frugality is a good thing but it reduces demand and businesses are not going to expand past the point where they have a high level of confidence. Further, as we see expanding technological communications, the need to visit certain establishments will continue to diminish. I haven't needed to visit my bank, except to use an ATM, for quite a while. It saves on gas but reduces the need for tellers.
The new type of online stores and services will continue to garner greater and greater acceptance. We need to build our jobs in two ways. As I've been saying for quite a while, we need to reduce our use of foreign energy and use domestic and renewable sources. In addition to keeping wealth inside the country, it will also create jobs that can't be exported or eliminated. I'm starting to see some movement in that area and it simply has to happen.
The other thing we need to do is level the playing field so that it is not automatically better to export many jobs. Our current tax system and health insurance system are problematic and penalize companies that make product in this country. If we switched to a more neutral tax system, tax consumption not production, and used that money to fund health insurance for all, we would reduce much of the motivation to export jobs. Yes, some jobs would still be more efficiently performed outside the country, but many other jobs would become location neutral and remain here.
Lets get smart and get going.
The good news is that the future economy will be built on a sounder footing. The bad news is that many of the jobs and other sources of income will be more difficult to come by.
A return to some frugality is a good thing but it reduces demand and businesses are not going to expand past the point where they have a high level of confidence. Further, as we see expanding technological communications, the need to visit certain establishments will continue to diminish. I haven't needed to visit my bank, except to use an ATM, for quite a while. It saves on gas but reduces the need for tellers.
The new type of online stores and services will continue to garner greater and greater acceptance. We need to build our jobs in two ways. As I've been saying for quite a while, we need to reduce our use of foreign energy and use domestic and renewable sources. In addition to keeping wealth inside the country, it will also create jobs that can't be exported or eliminated. I'm starting to see some movement in that area and it simply has to happen.
The other thing we need to do is level the playing field so that it is not automatically better to export many jobs. Our current tax system and health insurance system are problematic and penalize companies that make product in this country. If we switched to a more neutral tax system, tax consumption not production, and used that money to fund health insurance for all, we would reduce much of the motivation to export jobs. Yes, some jobs would still be more efficiently performed outside the country, but many other jobs would become location neutral and remain here.
Lets get smart and get going.
Monday, July 12, 2010
Transitions
I haven't posted in a while since I was in the process of changing jobs and moved my base of operations from DC to NY. I'm still getting settled in and it will take a bit longer to get fully operational, but I've worked out most of the major issues and will be able to increase my productivity on the new position.
Going through a transition is always somewhat stressful and since I maintain the economy is doing just that, the country as a whole is undergoing stress. This is not the first time a society has had to adjust to changing circumstances and generally, the stress results in all sort of dire predictions.
What is true is that those who recognize and adapt to the change will do better than those who don't.
Going into earnings season again we will see if American companies can maintain their profitability as the recovery continues to sputter along. There will come a time at some future point when the recovery will speed up but before that point there is still issues that need to be resolved as we finalize our transition from a manufacturing based society to a technological service economy.
That is quite a simplification of what is happening but I think it is reasonable accurate. I'm also quite sure that companies will continue to be profitable as the inventory, store and employee reduction cost savings will allow them to make money on reduced volume. Americans have less to spend and will have for the foreseeable future. Successful companies have recognized this and adjusted their business models accordingly.
I'm not sure if Wall Street has accepted this changed reality and I expect to hear how companies are still disappointing with gloomy forecasts and missed sales goals while becoming ever more profitable. However, profitability is what increases the value of a company. I'm a big fan of it.
Going through a transition is always somewhat stressful and since I maintain the economy is doing just that, the country as a whole is undergoing stress. This is not the first time a society has had to adjust to changing circumstances and generally, the stress results in all sort of dire predictions.
What is true is that those who recognize and adapt to the change will do better than those who don't.
Going into earnings season again we will see if American companies can maintain their profitability as the recovery continues to sputter along. There will come a time at some future point when the recovery will speed up but before that point there is still issues that need to be resolved as we finalize our transition from a manufacturing based society to a technological service economy.
That is quite a simplification of what is happening but I think it is reasonable accurate. I'm also quite sure that companies will continue to be profitable as the inventory, store and employee reduction cost savings will allow them to make money on reduced volume. Americans have less to spend and will have for the foreseeable future. Successful companies have recognized this and adjusted their business models accordingly.
I'm not sure if Wall Street has accepted this changed reality and I expect to hear how companies are still disappointing with gloomy forecasts and missed sales goals while becoming ever more profitable. However, profitability is what increases the value of a company. I'm a big fan of it.
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