The truth about the markets, the economy and unemployment

The financial markets are not as good as people think.  Yes the Dow is  over 10,000 and stocks may look strong but the market doesn’t reflect reality.  The economy is poor with unemployment around twenty percent (those not looking, unemployed for one to two years, underemployed and on no one’s radar.)

Last year after the market lows–the market came back, but the economy did not.  Right now there isn’t much upside in the market, recent number are encouraging but not sustainable.

Government actions aren’t helping.  With the rising deficit, increase in impending taxes and with less regulatory certainty on health care, energy and financial reform it makes the markets too uncertain for business to invest or hire.

The truth about unemployment – it is conceivable we may be looking at of 8-9% unemployment for the next five years.

Relative to financial regulations, the government will probably extend greater regulations on hedge funds, private equity and prop trading desks.  The government needs to let the financial institutions fail so it doesn’t spread.   The too big to fail is a fallacy.  Let them break up.

With regulatory uncertainty in the financial industry, health care and energy it strangles business decisions—investing and hiring.

The White House is more afraid of voters than they are of Wall Street; however,  our current conundrum is  government is both government and big business simultaneously. That’s a problem.

Financial reform will make the markets worse, recovery far more difficult.  Unfortunately, Obama isn’t helping and for some reason no one in the White House seems to understand business.  Maybe they could hire some small business people–they know how the economy works.

How the financial and economic crisis are related to health care (part 5/final)

We have had eight recessions since 1960 and  survived them all without government take over of industry.  In 1993 IBM cut 60,000 jobs–yet we survived.

We have added $3 trillion dollars of debt in the last two years, President Obama has borrowed another $1.5 trillion.

I would love to have a monopoly in my industry. I cannot imagine what it would be like in terms of price fixing, price gouging, and guaranteed business.  What other industry enjoys a monopoly other than health care insurance?

So why aren’t we starting with anti-trust reform? Instead of just replacing the leaky windows in your house, your blow up your house. Now how much sense does that make?  Insurance companies are exempt from antitrust laws.

Instead of overhauling an entire industry, why don’t we start with:

1. Eliminate underwriting which would require insurance companies to accept everyone irrelevant of pre-existing conditions.
2. Eliminate antitrust regulation for health insurance companies which would require the industry to compete fairly like every other business in America, open up fair practices and compete across state lines.
3. Include medical tort reform as studies place the direct and indirect costs of malpractice between 5% and 10% of total U.S. medical costs.  How can you address health care reform without including tort reform unless the objective wasn’t really to reform health care.

As we have experienced this last year, government officials rarely accept responsibility for the current economic climate.

When the United States is in economic peril as a result of unsustainable debt, remember this series.  We couldn’t afford to take on the expense of a legacy that debases our currency that cripples our country.

Or maybe the objective was to increase our debt to such prodigious proportions for other reasons. Why would someone so bright ramp up so much debt so quickly with a tin ear to eighty percent of the country?

The purpose of this entire series serves as a warning; especially since one of the problems with the financial crisis was the lack of foresight and perspective.

One of the greatest benefits of capitalism is the opportunity to fail.  And how do you fail in a capitalistic society?  Through bankruptcy.  When government interferes with that process it lengthens the process.

Our government has become less tolerant of economic failure for the chosen few, for the large firms that have special lobbyists—yet the backbone of our country, small businessmen without  lobbyists are left to fail.

Throughout the world we are envied for our optimism, our entrepreneurial spirit, and our pursuit of capitalism.    This is our competitive edge and has been since our forefathers landed on the shores of  Plymouth in 1620.

We can adapt to new challenges, learn the lessons of excess, grow from our mistakes and rebuild.  In this great nation of the United States of America, we will rise again like the phoenix.

How the financial and economic crisis are related to health care (part 4)

The over-riding concern is that spending by the US Government for health care will eventually cause hyper-inflation—a huge economic crisis.  Look at other government’s that have experienced hyper-inflation:

Austria

In 1922, inflation in Austria reached 1426%.

Brazil

In 1994 inflation reached a record 2075.8%.

Chile

In 1973 hyper-inflation reached 1,200%, food became scarce and overpriced which resulted in a coup d’état and installed a military government.

Russian Federation

Between 1921 and 1922 inflation in Soviet Russia reached 213%.  In 1992, the first year of post-Soviet economic reform, hyper-inflation was 2,520%.

Highest Monthly Inflation Rates in History
Country	Month with highest inflation rate	Highest monthly inflation rate	Equivalent daily inflation rate	Time required for prices to double
Hungary	July 1946	1.30 x 1016%	195%	15.6 hours
Zimbabwe	Mid-November 2008 (latest measurable)	79,600,000,000%	98.0%	24.7 hours
Yugoslavia	January 1994	313,000,000%	64.6%	1.4 days
Germany	October 1923	29,500%	20.9%	3.7 days
Greece	November 1944	11,300%	17.1%	4.5 days
China	May 1949	4,210%	13.4%	5.6 days

Germany was devastated after World War I for a number of reasons.   Under the Versailles Treaty, they had to pay reparations to France and Great Britain. Their recovery plan was through social programs like transportation, modernization of power plants and gas works.

When World War I broke out the German Central Bank stopped redeeming its notes in gold and started printing money which is how Germany paid for the war.   They chose not to tax their citizens which meant by the end of the World War I, the amount of money in circulation had quadrupled and the consumer price index rose by 140%.

By May, 1921 inflation started and by July, 1922 prices rose 700%; yet the German central bank kept printing money.

Wholesale Price Index

July 1914	1.0
Jan 1919	2.6
July 1919	3.4
Jan 1920	12.6
Jan 1921	14.4
July 1921	14.3
Jan 1922	36.7
July 1922	100.6
Jan 1923	2,785.0
July 1923	194,000.0
Nov 1923	726,000,000,000.0

Hyperinflation!

From Mid-1922 to November, 1923 hyperinflation raged. By the end of 1923, 300 paper mills, 150 printing companies had 2000 presses going 24 hours a day churning out money.  To be continued…

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