Monday, December 2, 2013

Is this really happening?

This past summer I visited a friend in Colorado. He told me that his seamless gutter business was doing OK, but that he had a new and difficult problem. He now has to order parts from so far away that the freight cost vastly exceeds the parts cost. This is not surprising since Barron’s Business and Financial Weekly recently reported that “…nonresidential fixed investment as a percent of gross domestic product shrank to a 50 year low.” Yet many, including those in government, say that the economy is improving and point to the reviving housing market. But many of the newly sold homes are purchased for cash by Real Estate Investment Trusts (REITs), hedge funds and Sovereign Wealth Funds from “friendly” foreign countries such as Abu Dhabi and rented out. California alone has added 500,000 renters and lost 233,000 homeowners since 2007. But this increased demand, partly due to the investments just cited, has raised the price of the median California home from $274,000 in May, 2012 to $352,000 in May, 2013, a 28.4% increase. To make home ownership more affordable the Federal Reserve is trying to stimulate the economy (under its price stability mandate?) to 2% inflation. This means that prices will quintuple during an average lifetime.

Real economic growth is being stifled at every turn. The Bristol Bay/Pebble Bay project in Alaska, mentioned in a prior commentary with its 42,000 jobs, has been abandoned due to strictly ideological regulation. Almost 300 coal fired power plants are being shut down. President Obama has threatened to veto a House bill that would open the outer continental shelf to drilling with the potential for 1.2 million full time jobs over 30 years. At the same time the Washington regulators seem afraid of foreign powers like China that steal our trade secrets and intellectual property. The National Security Agency estimates the loss at $300 billion which some equate to about one million jobs.

While the capital that is entering the United States is buying assets like our homes our domestic capital is fleeing. Covanta Holdings processes about 5% of our garbage. They recycle the metals with a new, more efficient method and burn the rest to produce energy. But because a waste to energy facility has not been approved since the 1990’s, they are building their new plants in foreign countries. A recent Indonesian government auction received as many as five bids for one bond. This is a county where burning down churches is a popular pastime.

Talk of change continues to eminent from Washington, usually in the form of increased regulation. Recent rules governing initial public offerings (IPO’S) of stock haven proven so costly that middle market companies have been unable to finance themselves. IPO financing has created 92% of all job growth at public companies since the 1970’s. In a likewise manner, the new rules governing speculative trading in commodities contain loopholes for the mega corporations. These mega corporations, or crony capitalists, in turn do Washington’s bidding. They have driven down the price of gold so that China can exchange the depreciating dollars they receive for something of real value. Almost 50% of the world’s annual gold output now lies within China’s borders. Schemes such as this are necessary to finance our increasing deficits since foreign buying of US Treasuries has decreased to $104 billion from $503 billion a year earlier. This slack has been picked up by the Federal Reserve which now holds about $2.1 trillion in US treasuries and about $1.4 trillion in mortgage backed securities. If, or when, interest rates rise the Fed becomes insolvent. Nothing in the world can bail out the Federal Reserve Bank.

But the clever people in Washington, to whom some Americans still trust their well being, have an answer. Instead of the current definition of wholesaler or wholesale trader for an American company like Apple that makes all of its products aboard, the government will now classify them as manufacturers because their product design and production oversight occurs in the US. This definitional change would have added up to two million “American” manufacturing jobs in the study year of 2007.

The picture doesn’t look as bleak now, does it? If this reminds anyone of the torture/finger counting scene in 1984 you are probably not alone. Our situation is called an “enormous doomsday machine” by former budget director David Stockman.

While I have no magic solution, I do know that we have some power locally and that we must exercise it. It is essential to support the Newman Ridge project and the expansion of gold mining. We must assume jurisdiction over our national forests and begin productive ventures. Potential developments such as the portable slaughter house for cattle and a Pioneer biomass plant must be explored. Do we have any choice if we wish to survive?

Copyright 2013, Mark L. Bennett

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