Mob Obama

Be really careful with what you ask for! You want the large banks to pay for there activities that caused the current recession. OK just make sure that you do not end up paying more right along with them. The facts are that the Federal Government took the risk with these firms to keep our economy from going into a depression. The Companies that took TARP money have borrowed it. There is $10 of Billons that were forgiven by the courts through bankruptcy and takeovers. Chrysler, GM, Fannie and Freddy have been forgiven many of there depts., some of it TARP money. Those that paid off TARP paid interest and principle plus the warrants demanded by the government to the tune of $54 billion interest and warrants to date. Now because the banks made great profits, the Godfather wants a bigger cut. This is exactly the same as you borrowing money from a bank to buy a car and when you pay off the loan the banker wants more money because your current income is more then he expected. Only the Mob does business like this.
Now Obama is coming after the common people. First it became obvious that the supposed tax cuts last year was just a reduction of the amount deducted from our paychecks. When filing your 1040, you will find out that the same amount of tax will be due the Federal Government as in 2008 and now in 2010. Second the healthcare bill is being negotiated to exempt unions but everyone else gets to pay 40% on there “Cadillac” plan. Remember Obama saying that no one will have there taxes go up if you make less then $250,000? My wife and I make a nice income for Montana but no where near half of the $250,000 minimum. So it is great that Godfather Obama may force the two of us to pay up to $11,000 total $5,500 each in tax on our health plans. I am retired management so I can not join a union and my wife is a non-union State worker. Right now my plan pays for my MS medications but many of the normal plans do not. I guess we will see if the Death Panel will allow me to continue treatments (Yes they are Death Panels). How does this equate to equal treatment under the law? It will be a terrible day for all of us if this bill becomes law.
Finally there are the Bush tax cuts that expire this year. Based on Obama’s actions so far he will let all of the law expire that gave a tax break to all over $28,000. Less then that was not paying taxes at that time. So guess what, between the “Cadillac” plan and tax cut expiring I will see my Federal Taxes go up more then 5 times. I am not unique is this, so all of you out there that think this will not happen better brace themselves. Obama thinks he can do anything he wants. November will not come fast enough.

Micro Economics on Housing

All that say “housing is local” are exactly right. The thing is that until the local economy has grown enough in the right kind of jobs for home owners, housing will not recover. During the last downturns of the 1980’s, housing in Denver, CO, Missoula and Butte, MT had fallen apart because of economic downturns but the recoveries were totally different in each city.
Denver, CO was flying high with the oil prices high and drilling activity higher then it had been in decades. Like the past, Denver was the city that financed the oil and gas industry for the northwestern region. Oil Markets crashed and the exploration firms went broke. Many of the S&L firms not only had loaned to the Oil industry but also had speculated on the expansion of housing. The influx of people started to slow and then the large spec houses did not sell as fast as they used to. Finally, large S&L’s like Silverado folded. House prices continued to fall for about three years and it was another 5 or 6 years before the housing market could be considered fully recovered. What made housing recover was a growing economy. Housing will not recover unless there is growing demand for the homes. Pricing is the last item to recover fully because most peaks are in a bubble and normal growth takes years to catch up with the peak.
Missoula, MT is a city that has the Timber Industry and U of M for major industries. The Timber industry expanded until the late 1980’s then started to shrink because of lack of raw materials to process. Some of this was natural and some was ecological. The last closure was the Milltown mills east of Missoula. Now the industry is a small fraction of what it once was. U of M has maintained its economic influence on the area while an influx of retirees and small businesses have helped to keep the economy moving. The attraction of Ravalli County (south of Missoula) to people like Charles Schwab has been a bright spot of bringing in economic activity. Growth has been slow in recent years and housing is based on demand.
Butte, MT is a different story from the other two. Butte is and always was a mining town. The Anaconda Company closed in the early 1980,s because of the demands of the unions. 2,300 workers lost there jobs permanently. The federal government provided one year of wages over two years so these workers could retrain for other local jobs. During these two years, the Butte economy actually grew. After the funding started to run out the workers that still needed a job had to move and the economy started to shrink. The average age of the miner was 56 so a lot of them could retire after the other income stopped. Some 360 families moved for Butte over the next 3 years. Then the shrinkage slowed to about the death rate. Butte was becoming a ghost town with large areas of town having vacant houses. It was 10 years later that Dennis Washington bought the mines and opened them as a non-union operation. Without the union work rules 375 workers produced the same as the 2,300 did under the rules. Not the support to the local economy that it once was but much betters then anything at all. The pay was two fold, 28,000 base on average and 50% of the profits over the first 10%. Most years the bonus was more then the base pay. In recent years Butte has grown because of the largest wafer plant in the US being build west of town. Some of the “student exports” of 20 and 30 years ago have now moved home and opened businesses. Many of these are in the high tech world such as specialized software. With these other businesses Butte will survive.
Denver and Los Vegas have some similarities. The drivers of the two economies are totally different but both are attractive to companies that are trying to move away form high taxation. Los Vegas is attractive to any business in California and even some areas of Arizona. This is less true today in Denver then it once was but compared to California Colorado is an oasis.
Missoula and places such as Bend, OR are similar and will recover slowly. Ecological considerations sometimes overtake economic ones in both these places.
These three examples have other counterparts in the nation. Detroit will probably be like Butte for a long time. The Auto industry will not show recovery until the union work rules are removed. I think all three will continue to have problems.
Just a few thoughts from a 25 year veteran of Micro Economics!

The Three Forks Montana Fly-in

This last weekend there was the annual Montana Antique Airplane Association (MAAA) fly-in at Three Forks, Montana. Many of the pilots and planes could not attend because of the economy and some bad weather. It was a great time for those that did attend. I took the 1946 Piper J3 Cub that is pictured at the top of this blog. Those that know me know that the Cub was restored by my father and since his passing has been my pleasure to take the Cub to show others what early flying was. The MAAA awarded me the Best Antique award for 2009. Thank you to the MAAA for honoring my father and me in such a way.

Is there a “W” in the Economy’s Future?

Some Economists think that the recovery will stall in the near future. Soon after a fall to or below prior lows will put us in a worse position then we were just a few months ago. Is this possible? The answer is yes and maybe even probable. It is going to depend on how much of this recovery is caused only by government spending. If the spending ends up being a catalyst to private sector recovery then the possibility of a “W” is small at best. The “W” occurs when government spending stops and private sector spending is no where to be found. This was what occurred in places like Butte, Montana because mining had closed to not reopen for nearly 10 years. The government support fell off within two years, thus the second downturn. It is hard to imagine the whole country going the same way as Butte. Diversity of our national economy should keep us from experiencing such a painful turn of events.

Finally Some Good News on the Economy

Last Friday’s Employment Report showed a slight decrees in the unemployment rate. It is true that some 200,000 more persons lost there jobs then found jobs and that the unemployment dropped because 400,000 people were dropped out of the Workforce (total people working plus unemployed seeking jobs). Some think the drop in workforce was caused by the people loosing unemployment benefits during the last week of July. The employment statistics for July were based mostly on statistics taken mid month that were run through a model. Adjustments to the model could be made to the model for this drop but I think other reasons should be considered.
For over two years all of the Macro Economists have been saying that the people that were planning retirement have put it off since the worth of there investments has fallen so much. Along with the Baby boomers entering retirement age other possibilities exist. There are plenty of the baby boomers that are planning to remain in there current homes and have substantially recovered 401k accounts to at least consider retirement. Others may have been looking for other work until there unemployment insurance ran out, then decided to retire because other conditions have improved enough to retire. Retirement removes you from the workforce. Another scenario is the person becomes self employed that does not immediately show up in the employment statistics. All three of these scenarios lower the Workforce numbers without being negative for the economy. The last possibility will not be added to the workforce again until taxes are filed. Economic studies are all about allocation of resources. If the resources are now there for some to retire, some will. The August Employment Report will be interesting to see if the unemployment rate continues to fall. It will be the loss of unemployment Insurance against the need for some to increase inventories. August could be the second month of good economic news.

Stop the Damn Lying Mister President

“The science is clear” Bull Shit!!!!! Since 2000 the world average temperature has dropped while the CO2 air content has continued to rise. 30 years ago I learned how to build and monitor statistical models and I have to tell you this one sucks. It tells me that CO2 is not causing climate change! If it was temps would continue to rise, not fall. Since I am not one of your ivy league (lower case on purpose) best and brightest, no response is expected. But hear this, I know of what I speak. Any one of my government officials that votes for this BS needs to be replaced. 2010 is not so far away to forget.

A short update on Global Warming (11/24/09).  The so called scientist supporting Global Warming got caught red handed last week!  Emails between them told how they changed to temperatures that showed global cooling over the past decade.  Gee I wander what is next?  Maybe cooling is actually warming!  What do you think?

The Supremes Vs Chicago

Justice Ginsberg showed that even a very liberal justice has limits. The Chicago gang in the Administration may have met their match by puting the UAW above investors in the Chrysler bankruptcy. It is one thing to push for the change in the law and get the legislature to change it but quite another just to ignore the law when you think it is better to support one group over another. In working towards expanding the dependant class, President Obama has built a team that is choosing the winners and losers based on “fairness’ to the common guy. The problem is the common guy in this case has to be a UAW member. Other unions that had invested in bonds from the auto makers are less important and will have to take their losses. The financial markets and bankruptcy law require the bond holders will be put in the position of owning the company when it comes out.
Obama and team understand the negotiations union style (Godfather) that has been prevalent since the 1950’s. There was a time when the union and companies truly negotiated a reasonable contract for the good of all involved. For more then 5 decades the union would pick a firm to strike, get a contract and then base the other’s contracts on the first. This gives the union undue power over the process. All they do is put a contract in front of management and wait for a signature. If no signature the union just waits for the firm to lose enough money that investors force a settlement. Meanwhile, the rest of the firms continue to operate taking all the sales. Now the UAW wants to own 55% of Chrysler.
Some wonder why so many of the Chrysler bond holders agreed to the deal. Well it goes back to the way the Chicago politicians (Godfathers) negotiate. Most that approved the deal were also TARP recipients. Maybe this is like the BofA takeover of Merrill Lynch – ordered to do the deal even though Merrill Lynch had cooked the books for some $14 billion. Once again a deal was made that could not be refused. A string of activities by this administration is really starting to smell like 3 day old fish.

Update on the Auto Industry

It is Sunday afternoon (6/7/09) and no response from the Supreme Court yet. Why is it important for the Chrysler so called agreement to be reviewed? Because I spent most of my career forecasting the Montana economy, it amazes me that anyone would put the union needs above the needs of a nation. The Miners union killed the Anaconda Company in the 1980’s. There were no negotiations from the union just dictates of what the company had to do to get its workers back into the mines. The union went so far as to tell the workers that the strike had to continue to “make an example of the company” so other negotiations would be easier. After a long strike the company closed the mines and all 2,200 workers were terminated.
About 10 years later the mines were purchased by Dennis Washington of Washington Construction. It took almost another year to have a non-union organization that would be profitable and accepted by the Butte, Montana workers. The deal was the miners would make an average of $28,000.00 base pay and share 50/50 with the owner on any profits over 10%. Bonuses were paid out at the Christmas party each year. After 5 years of operation the union tried to resign the miners to a contract. The 375 miners rejected the proposal at an overwhelming percentage. Notice the employee count. The amount of ore produced did not change.
Now to the auto maker’s plight. Because of work rules, what the workers are paid is secondary. Both mining and auto makers have seen unbelievable productivity changes in production. In both cases the unions have worked tirelessly to maintain employment. Tactics has been similar too – either you sign or we will make an example of you. So it is not so hard to believe the UAW has not negotiated through any of this process. Getting more in the proposed settlement then the secure bond holders is evidence of mafia type tactics instead of true negotiations. So now it is up to the Supreme Court to step in and force the bankruptcy court to do its job. Commerce is a Constitutional issue that is being turned upside down by Obama and the UAW.

Health Care Obama Style

With the President wanting to pass Health Care reform quickly, I wonder why the rush. One reason may be that time is running out before the American public so gets tired of the Chicago style politics. Health care will not pass after the public wakes up. Before we change our economy more to the socialist side, maybe we should spend the time seeing if current changes are actually working. 2008 data shows that the private system costs actually fell by 14% while Medicare costs went up by 22%. Oh, let’s redo a 17% of our economy with a new system that will make it 30 to 35% of our economy.

Raise The Gas Tax!!!!!!

I have been silent long enough! This is the most stupid action out of DC yet. The transportation fund will run out of money by September, 2009. Oh really, learn your history people! The same crooks that took the transportation funds out for other purposes now want more tax money to replenish the fund. The answer is NO! So how did this happen? First was the Johnson administration that changed the fund so that surplus moneys could be removed and used for other purposes, then because there were still surpluses, the fund was expanded to include other modes of transportation such as Light Rail. And finally because surpluses still persisted, some of the tax paid at the pump was diverted to fund other than roads. Before the American public has to pay higher taxes put all of the tax paid at the pump all back to roads. The gas tax should only be for road projects period. Then make the program funded again so the funds have to stay for transportation not to leave when there is a surplus. Only after these changes should the tax payer be looked at for more revenue.
Originally there were two funded programs in the Federal system, Social Security and the Transportation Fund. Both had surpluses for decades and are grossly underfunded today. Yes it is 2009 and we are idiots if we accept that our taxes have to go up to pay for roads. What has happened is there was a large surplus that Congress could not let go untapped. Now it is time to replace the money that has been taken out of the fund. Yes other projects will suffer. So what! They were funded improperly in the first place. It is time for the politicians to be called to account for the mess they have created.