Newton’s Law of Motion says that “every action has an equal and opposite reaction”. There is also the common understanding that with every decision there IS a consequence and most often an unexpected one at that.
The various News Outlets have been caught in the stir of predictions regarding the likelihood of the Big “R” word, yes, I mean Recession. The fact of the matter is, in what I call Demand Based Economy’s, the cycle of expansion and contraction are seemingly inevitable components. Demand, for any product or service, does not remain consistent over time, consistently stable, consistently expanding or consistently contracting. The only consistent component is that these attributes will demonstrate their persistence.
Curious to the equation/practice of Economic/Financial prognostication is the nature, frequently, that it occurs! Usually projections develop from current events that might indicate an evolving trend and of course another approach is the confirmation (type) of a trend once it has already developed. Sometime known as “hind sight” or “20/20 Vision”.
Understanding an Economic trend is a complex endeavor however it can be made easy with pertinent information gathered from a variety of relevant sources. In the case, for example, of Ford Motor Company circa 1950’s. Ford had “vertical” penetration in the market. The Company clearly made automobiles but they also made the steel for those vehicles as well the engines, wiring harnesses etc. It would be quite easy to identify the Economic Trend (i.e., the demand) for Iron Ore by simply looking at Dealer orders (demand) for automobiles. Convenient and predictable. Yes I know, a very simply (and deliberately so) example but I needed to create a clearly defined example so as to be able to create an equally clear contrasting issue. Additional components to the dialogue are required though!
Stick with me here! It would not be a fair conclusion to say that there is a certain demand for Steel (in the Ford example) because of an increase demand for paper plates? After all, Folks use paper plates on picnics and they do this by placing paper plates in picnic baskets and of course everyone knows picnic baskets are transported to picnics in the trunk of automobiles and, well, Ford makes automobiles with trunks, right? Using this approach, we’ve now established that there is a direct correlation to paper plate demand and automobile production! Fabulous. I think it’s fair to say that this type of prognostication, though quite creative, clearly is Missing The Mark!
What’s the point one might ask? Well, here’s my version of it! There’s been and will continue to be a fair amount of airtime expended on/to the relationship of the Credit Crunch (caused by the Mortgage , no “Sub Prime”, Crisis) and the corresponding consequence which is the coming Recession. Add to this another component that I see being thrown around and that is the Unemployment Rate that is, apparently thrown its hat into the ring as well! My opinion is simply this: They’re Missing the Mark! The possible threat of a Recession is not fueled by the Mortgage Crisis no more than paper plate production levels are consequent to the production of automobiles or vis versa! Employment Rates are a different, albeit slightly, issue to be addressed in short order.
As discussed in a previous article, let us all be very clear about something, with the exception of Farm Production and Military related manufacturing (and this area is becoming suspect with the sell off to Foreign Interests of high value tech/industries and that which is now gone Off Shore) this Nations Economy is largely Service Based. Anyone that has had to create their own income in this type of Economy, which pretty much excludes Folks on the “Legislated Dole” (Politicians, Taxpayer Funded Employees etc.), and by the way – one of the employment areas with the largest growth rate, I might add – then you know that your income potential is entirely related to DEMAND! And, that Demand is consequent to two fundamental components; (1.) Disposable Income. And (2.) Available Credit. End of Story!
Does anyone with any degree of intellect really believe that the flood of Containers in our Nations Ports are there because of our ability to PRODUCE? Well, I’m AFRAID NOT! Those containers are their because of this Nations ability to SPEND, SPEND, SPEND, MONEY THAT IF IT DOESN’T HAVE FROM INCOME, IT BORROWS!
Credit Crunch? Are you kidding me!! If there is such a massive concern over this illustrious Credit Crunch then why is Wall Street looking to the FED to lower rates? I’ll tell you why! It’s cheaper to USE FED RESERVE MONEY than to go to the credit markets (Foreign Banks/Investors) who are now suspicious of Wall Streets “Hoods”. Heck, even U.S. Politicians are secretly funneling Dollars off shore to protect their money against further devaluation!
I see no indication that the idea suggesting that Technological Innovation will produce and/or perpetuate Economic Re-Evolution. I simply can’t get my hands around the logic of this one. If the next wiz-bang “widget” is created here in this Country from the ether of intellect THEN shipped off-shore to produce it from labor and materials sourced from/in/at some FOREIGN shore, THEN shipped back here were the value (your money) is extracted to PAY for the Product….? Nope, still don’t get it. It’s a one way revenue transaction,…your money going out! Sorry, no matter how I spin it, it still goes round and round!
TOP DOWN money flow is a canard proffered by the erudite who has no fundamental (real world) foundation from which to support this flawed concept. Marxism, Fascism, Communism fail under the weight of this Top-Dow centralized planning concept. IT DOESN’T WORK!
Cut to the chase! The risk of Recession is related to lack of Wealth Creation Potential in this Country! Not the Phantom Mortgage Crisis and most certainly not the lack of Job Creation (which, by the way, simply creates more service based jobs – a.k.a., hamburger flippers!!) END OF STORY!
What Politicians, Bankers and Bureaucrats don’t (or do and are deliberate about it) understand (or grasp) is that Wealth and Related Economic Health is created by Productivity of appreciable value, not depreciable value! Economic History has proven this point time and time again! The consequence will be no different in this Nations recorded History! A Once Great Nation that Ignored the Proven Lessons of the Past and became nothing more than an overfead Lap-Dog!
Economic vitality is not something that is subsidized with Government Programs (handouts) or the much herald Stimulus Package(s). These are simply “redistribution” programs that create NOTHING! They’re pablum for the masses!
Politicians of today are nothing more than 30 second sound-bites queued to feed the public what they want to here so as to keep them in the positions of power/influence. I only find two Presidential Candidates that have any grasp of the true nature of Economics and Capitalism, one is at risk of being marginalized by the process and the other is simply laughed at by the media and the political machinery! The others, both Democrat and/or Republican have made their careers at/by being on the public dole or raping the system with errant malpractice claims adjudicated by an increasingly exhausted Legal System! Tragic!
A President must be required to lead from in front and have the foundation from which to draw from. I believe to be a Presidential Candidate, to be considered, at the minimum one must not have had prior legislative experience (Governors excepted) and can not have been a practicing Attorney for 10 of the immediate preceding years. I believe all elected officials should be barred from Government Lobbying for a period of 10 years post there last Elected Office term. If they violate this requirement, they loose their Pension and all related benefits in addition to a visit to the “Pen”.
More to come, but for now, a beginning, perhaps, at being closer to “hitting the mark”!
Curtis C. Greco, Founder