Wednesday, August 31, 2005
OUR ECONOMIC CRISIS
Our current so-called recovery is over-rated and fragile. It is cited as improving based on employment figures, real estate prices and the stock market. Let me address each lie.
First the stock market actually is not a reflection of real value. Why should the market cap of Google be greater than GM? Because investors think that stock will do well. And in the short run, they are probably right. Of course dot-bomb can repeat itself very quickly. Still, break down the companies. What real value do they have if you sold off all their stuff? Google has perhaps some buildings with computer equipment in them. That's it. GM has acres and acres of land. Building after building. Factories that actually make something. Based on P/E, the market is grossly overvalued.
Employment figures. First the figures don't count those who have given up and/or been getting unemployment too long. Then many of these jobs are less pay, part-time and without benefits. And then we have those seasonal and other modifications to further distort. Let me add that real wages are flat as well.
Real estate. Talk about grossly overvalued. Is your huse truly twice as valuable as it was five years ago? It's the same house, only older. If you sold it, a similiar one in the same area would cost just as much. People have overpayed and taken dangerous loan terms like no-interest, variable rates and even more than the home value. Foreclosures are at all-time high. The economic recovery has been based on all the activity in real estate such as building, sales and lending. Consumers have spent by borrowing against their home.
You may have noticed inflation on the move. The federal figures are again manipulated. They don't count energy or food. OK if you don't eat or drive. Inflation is under control? Look at the gas pump, college tuition, homes or college tuition.
Leading the charge to serfdom is the federal government. Running an official deficit of half a trillion dollars. This is grossly irresponsible. And then the truth is that the real deficit when the accounting manipulations are removed is actually twice that high, one trillion dollars. And that's just one year. This is unsustainable. Given these problems, I cannot cut taxes. Yet. But I will eventually. In fact, I will re-create the tax code.
To get the government budget under better control, I will do three things. First, some of the tax cuts and deductions will need to be discontinued. This is a minor step and will be slowly implemented. The big movements will be in spending. And I mean huge. Third, I have some ideas on raising revenue without taxes.
So put on your seatbelts!
First the stock market actually is not a reflection of real value. Why should the market cap of Google be greater than GM? Because investors think that stock will do well. And in the short run, they are probably right. Of course dot-bomb can repeat itself very quickly. Still, break down the companies. What real value do they have if you sold off all their stuff? Google has perhaps some buildings with computer equipment in them. That's it. GM has acres and acres of land. Building after building. Factories that actually make something. Based on P/E, the market is grossly overvalued.
Employment figures. First the figures don't count those who have given up and/or been getting unemployment too long. Then many of these jobs are less pay, part-time and without benefits. And then we have those seasonal and other modifications to further distort. Let me add that real wages are flat as well.
Real estate. Talk about grossly overvalued. Is your huse truly twice as valuable as it was five years ago? It's the same house, only older. If you sold it, a similiar one in the same area would cost just as much. People have overpayed and taken dangerous loan terms like no-interest, variable rates and even more than the home value. Foreclosures are at all-time high. The economic recovery has been based on all the activity in real estate such as building, sales and lending. Consumers have spent by borrowing against their home.
You may have noticed inflation on the move. The federal figures are again manipulated. They don't count energy or food. OK if you don't eat or drive. Inflation is under control? Look at the gas pump, college tuition, homes or college tuition.
Leading the charge to serfdom is the federal government. Running an official deficit of half a trillion dollars. This is grossly irresponsible. And then the truth is that the real deficit when the accounting manipulations are removed is actually twice that high, one trillion dollars. And that's just one year. This is unsustainable. Given these problems, I cannot cut taxes. Yet. But I will eventually. In fact, I will re-create the tax code.
To get the government budget under better control, I will do three things. First, some of the tax cuts and deductions will need to be discontinued. This is a minor step and will be slowly implemented. The big movements will be in spending. And I mean huge. Third, I have some ideas on raising revenue without taxes.
So put on your seatbelts!
