Municipal Meltdown

As state after state continues to take in less tax revenue than is required to float its operating costs, the need for a potential third bailout by the Federal government becomes more imminent than ever, and all taxpayers are justified in asking where does it all end?. The situational thinkers in Washington seem content in continuing with a borrow and spend strategy, and the passing on of the generational buck to future taxpayers. A destabilized foundation is being laid at an alarming rate for our children and grandchildren and it seems that poor and middle class Americans can due little to avert a financial disaster. Thomas Friedman said it well in a recent interview, that America has become as dumb as it wants to be. And in his opinion the only way out of this is to invent our way out, by allowing a thousand cutting edge companies to attract highly innovative talent from around the globe to create the kind of products that other countries demand. This is what made us great in the past and will work again in the future. In my opinion the next twenty four months will be even more pivotal than the last twenty four in deciding our continued direction as a world leader, or a new role as a third world follower.

Ponzimerica

Our government has conducted one of the greatest ponzi schemes for six decades straight, by taking ever larger resources from the young and giving them to the old while promising the young their turn at passing the generational buck. In 1835 Alexis De Tocqueville warned of a time like this in his book entitled Democracy in America when he stated that the American republic will endure until the day when Congress discovers that it can bribe the American people with its own money. Who are we trying to fool when we borrow money from China in the form of U.S. TREASURY'S at a high interest rate and use these funds as bailout money all at the expense of the U.S. taxpayer. Nothing good can come from this inept fiscal policy position. As the Fed described its latest strategy as quantitative easing which we all know is code for printing money and crediting its own account, it will effectively open the floodgates of monetary velocity and the result will be a crushed U.S. dollar. When will the American people realize that an elite class of less than one percent of individuals will benefit from such activities.

Deflationary Spiral

Today's revelation from the Federal Reserve that a continued cooling of economic indicators is to be expected in the near future, and we now have to consider deflation as an equal if not greater threat than inflation. The prospect of falling prices on goods and services, and an unwilling lending environment is not what an already fatigued small business sector needs to hear in this fragile recovery of ours. Negative dialog from the powers that be can only ad volatility to markets that could easily take a turn for the worse and relinquish hard earned and unexpected gains. One meeting they say that economic green shoots are growing everywhere, followed by an austerity like quantitative easing type strategy at today's meeting. This is like following a squirrel down the road not knowing which way its headed. A comprehensive game plan with structure is needed as opposed to lets try this and if it doesn't work we can try that. The only sure thing is that when this whole thing blows over this nation will have one hell of an increase in the national debt. Why not use Japan as a template as what not to do? as they are the most recent example of a recession with these type of conditions, and develop a model accordingly.

Social Insecurity

For the first time in 30 years more Social Security benefits are being paid out than taxes coming in. And an oversight committee has projected that in 2015 the fund could quite possibly be permanently in the red. This is not good news for the estimated two thirds of Americans that will need these benefits to just survive. Currently fifty percent of all baby boomer's are receiving early retirement benefits at the age of sixty two instead of full benefits at the age of sixty six. A whopping fifty three million Americans received benefits last year while only one hundred fifty six million paid into the system. This disparity will increase dramatically as the lions share of boomer's will take retirement income in the near future. The current withholding rate is 12.4% and half is paid by workers and the other half by employers. The Social Security trust fund which is currently 2.5 Trillion will be completely depleted by 2037. Medicare is estimated to fare better because of the recent health care reform legislation recently passed, but this issue should dwarf many of the most pressing issues this century.

Decisive Phase

As Nato-led troops make strides to secure the city of Kandahar a Taliban stronghold and a key piece in the mission to gain an upper hand on the War On Terror. Political support back in the U.S. continues to erode. With U.S. death tolls at 60 in June and 66 in July many Americans are now calling for troop withdrawal and the war is now in a decisive phase. Our original goal of destroying Al-Qaeda now seems to be a distant memory as we are faced with the prospect of either power in the hands of the Taliban, or a corrupt Hamid Karzai led government. The pentagon has been warning of higher casualties this summer as troop strength approaches 100,000 and we are faced with yet another monumental decision as to whether we continue our military presence and for how long.

Frozen Legacy

According to the National Oceanic and Atmospheric Administration a study has just been completed by 300 scientists from 48 countries on global rising temperatures, and the conclusion is the last decade is the hottest on record. In addition 10 major indicators all reflected major and accelerated decline in areas that help mitigate rising surface temperatures. All involved in the study agree that global warming is now undeniable, what ever happened to the theory of majority rules on issues of major importance. NOW not LATER is the time to discount the naysayers as the subversive wackjobs that they are, bought and paid for by corrupt politicians and big oil. The net result of a 6 degree rise in temperature is a full blown ice age, is this fact really something we believe we can ignore or put off until we see the full force of mother natures wrath. The fist step in making progress is not letting those individuals that claim that this is all a cyclical act of nature have a credible platform to spread there ignorance. The world revolves on principles of math and science and the numbers do not lie, we have put natural global warming on steroids. We can mitigate these effects by embracing the energy technology sector with the same passion we embraced the information technology sector and the advent of the Internet. This can only be achieved through higher education and the new generation of young innovators it develops.

Quantitative Easing

At this point in time the federal reserve must consider additional precautions in ensuring continued progress with this recession. Currently the U.S. is so laden with debt and interest rates have been so low for so long that the next bullet in the Feds arsenal will undoubtedly be quantitative easing. This is a form of monetary policy used by the central banking system to artificially increase the money supply by crediting its own bank account with money it has created out of nothing. It then purchases bonds and other assets and this process is also coined as printing money. The trick is to not flood the economy with to much money to fast, this is called monetary velocity, and the risk is hyperinflation. Ben Bernanke recently stated that the outlook for this economy is unusually uncertain and is prepared to take additional steps if needed, what those steps are will remain to be seen.

Artificial Market Suppression

A new sheriff has taken dominion over the U.S. Stock Market, these individuals are faster, smarter, and more market savvy than most seasoned veterans of Wall Street could ever dream of being. They are known within this select community as ATQS or Algorithmic Trading Quant. Most were hired by the financial services industry between 2004-2007 fresh out of MIT. They were asked to design everything from mortgage mechanisms to ultra low latency packages used for speedy trades within the market, the bottom line is they have immobilized markets world wide with there high frequency trading ability's. Crushing markets by shorting everything with a pulse, and treating those with a long trading mindset as just collateral damage. A comfortable range between 9500-10,500 on the dow seems to be the target zone for massive trading exchanges. Only regulation can reestablish the wealth generating machine of the U.S. Stock Market now.

Lost Decade

As current economic indicators reflect an anemic recovery at best, we must now consider the fact that a deflationary spiral is not only possible but probable. This phenomena occurs when an economy spends more time in a recessionary mode as opposed to an expansion mode. Our best example of this is Japan where a whole decade of growth progress was lost in there last recession. Choked off by bad loans on banks balance sheets lending was stalled and resulted in a pullback in consumer spending, businesses cut back on inventory and laid off workers, prices fell as a result. A double dip recession is a better scenario because you can move forward and be done with it, as opposed to feeling the long lasting effects of a lost decade. Job creation is the key to reactivating the economic engine of long term growth, without it this country will continue to follow Japans precarious example by history repeating itself here in the United States.

Keynesian Endpoint

Those familiar with economic theory have at one time or another studied the Keynesian theory of economics, and the United States is embarking on a path of uncharted waters in relation to this theory, many experts refer to this as a Keynesian Endpoint. This occurs when overextended governments refuse to float each other due to the volatility within their own economy's and as a stabilization strategy greatly reduce or refuse to purchase the debt of another nation, usually in the form of treasury's. Currently the U.S. accumulates approximately 1.6 Trillion dollars a year in debt, and only saves 500 Billion a year. These levels are unsustainable and will unquestionably result in a negative feedback loop. China is experiencing an overheated economy and has stated that in the near future U.S. Treasury purchases will be greatly reduced in an attempt to cool inflationary pressures. Foreign governments currently hold 4-Trillion dollars in U.S. debt, and we will have to turn to our central banking system for relief. Printing money will apply inflationary pressures thus making most products to expensive to purchase and consume resulting in a blowout effect. History has shown that hyper inflationary damage is systemic in nature and has brought whole nations to its knees. A third world nation effect in the U.S. would be tragic in many regards, and this we cannot afford.

American Excess

Apparently many Americans have decided to side with there short term memories when it comes to being more responsible in curbing wild consumer spending habits. The latest data indicates that the good old days have returned in force, so grab up your wallet and head for home depot before your neighbor does. No worry the Chinese will bail us out in the form of unprecedented U.S. Treasury debt purchases. I got to see this in real time when a friend said you have to see the addition we are building on our home, its almost finished. He just happens to also be unemployed, so i quietly questioned his timing, and sanity. He showed me where the wet bar will be installed and boasted that it will have a solid marble counter top better than granite. The pool table and surround sound control room will be over there along with two large flat screen plasmas that will be mounted on the wall, he explained that way you can watch different sports at one time, i guess the two he has downstairs wont get it done. No wonder this country is broke, and over weight including myself we just continue on the same unsustainable path with no intention of change because the bottom line is we all believe that we deserve more stuff.

The Politics Of Energy

Today hearings began in Washington as to the cause of the explosion on the drilling rig Deep Water Horizon and the worst oil spill in U.S. history. Top executives from the five largest oil corporations in the world tried to deflect any impending damage to there industry. The message that all five sent was that if recent moratoriums on deep water drilling were to continue that an imbalance in the supply demand structure would cause the high prices that we saw at the pump in 2008 look like a cakewalk in comparison. After watching this circus of political posturing on C-Span i caught an interesting interview with the ex CEO of Shell Oil Corp on the Tavis Smiley show on PBS. John Hofmeister stated that no oil company in the world has a cookbook on how to drill safely at those depths and that all involved including the government are fully aware of the level of risk involved. Mr Smiley asked the question that if what your implying is true why wont the government allow near shore shallow drilling thus mitigating the level of risk?, Mr Hofmeister said that the answer is simple yet embarrassing. After the 1969 blowout on the rig in Santa Barbara laws were implemented to push drilling into deep water areas where unsightly drilling rigs could not be seen. He also stated that if stringent safety precautions were not followed in the drilling process at those depths that it could lead to the catastrophic results seen in the last few months. His most recent book entitled Why We Hate The Oil Companies should be an interesting read for Americans hoping for the truth as to who is truly to blame in this debacle.

Inflection Point

We have definitely reached one of the most important moments in time in our nations brief history, the choice we make today will most probably either lead us on the sustainable path of not only mitigating the damage to our economy, eco systems, fossil fuel dependence, and threat to our reputation as the world leader in Education and Innovation, the other option will lead to the decline of our society as we know it. We have run out of time and good fortune, and its time to pay the piper as they say. Those that adopt a position of business as usual should be seen as a National Security Threat. As Thomas Friedman stated in his most recent New York Times article (a crisis is a terrible thing to waste). The ball is now in this administrations court as the instrument of change, for it was change that Democratic strategists utilized as the winning platform and most certainly will define success or failure for this Presidency.

Intended Consequences

After two years of studying the cause and effects of what is now labeled the great recession, one of the most frequently used terms dealing with the damage inflicted on investors and our economy is unintended consequences. I find this terminology a form of hypocrisy for the mere fact that one would have to assume that those individuals in control of making the decision that resulted in the negative consequence were oblivious to its potential damage. I would contend that they are not only fully aware of the situation, but deliberately choose these moves because the perceived short term reward out ways the long term risk. In one of the books i am currently reading the crash of 2008 and what it means by George Soros, he refers to this aspect as the theory of reflexivity, where a battle between the cognitive and manipulative mind occurs and investors usually side with the more speculative and risky position therefore exposing themselves to the downside. They are in constant pursuit of what he calls perfect knowledge which few achieve. I think this same theory applies to not only the stock markets worldwide, but is currently at the root of many of the worldwide dilemmas we are witnessing today. For example our government seems quite content with bolstering our debt load to offset the effects of this recession, BP looked away when it was fully aware of the potential catastrophe looming in the Gulf, and this administration as well as others in the past have deregulated our markets so that the derivatives market worldwide is left to spread its systemic damage. But as Thomas Friedman states in his book Hot, Flat, and Crowded that the real game-changer will be Mother Nature herself by imposing such harsh restrictions upon the worlds inhabitants, as the result of our repeated rejection of embracing the renewable energy market today with the same passion as we did with the information technology sector in the past.

Debt Debacle

As the stock market continues on its volatile path reoccurring themes are played out daily as contributing factors to its impotence in maintaining an upward run. One of the most popular of late is the sovereign debt crisis in the European block countries. The civil unrest is understandable as citizens hear the cry for Austerity policy implementation by these governments. The IMF or International Monetary Fund has called for the reduction of government spending on subsidies and other public spending programs as an equalization strategy in an effort to stem the continued devaluation of the Euro. I believe that this crisis is a sort of economic petri-dish experiment for the United State's inept fiscal spending policy's our administration has adopted, yes i am implying that it could happen here as well. Now that our National Debt has surpassed our annual GDP at fourteen TRILLION dollars, the writing is on the wall. There is in my opinion an even bigger destabilizing force in wall street and that is the derivative market which is now a forty five trillion dollar market worldwide. Just to give you some perspective on its size the U.S. stock market is estimated to be around fifteen trillion dollars, and all U.S. mortgages wrapped together only equal seven trillion dollars. As long as we enable speculators to bet against government, corporate, or private interests with the unregulated abandon we have all witnessed of late we will see continued unprecedented wealth evaporation worldwide.

Moral Hazard

With this weeks revelation that we now have the ability to grow computerized synthetic cells the question can now be asked, have we as a nation passed the threshold of moral hazard?. We seem to be on an accelerated path that is unsustainable in so many ways. I believe our unadulterated greed and desire for short term gain is the underlying problem in making the poor decisions we see by our government, and contributing to the decline of our economy, environment, educational system and society as a whole . As World leaders other countries have mimicked these shortcomings and are now feeling the effects of systemic damage just as we are. Our leaders have looked away as an elite group of speculators known as Quants have used a system of high frequency trading to wreak havoc on our markets and the result has fostered an environment of bubble creationism and wealth evaporation at unprecedented levels. We have deregulated our system so that petro-dictators are able to pollute our shores, illegal immigrants are able to pilfer our resources and come and go as they please. This type of situational thinking must somehow be changed and be replaced by a sustainable mindset if we are to correct the negative inflection point we are at today. Would it be such a bad thing to return to the roots of common sense that our fathers and their fathers taught us. Just as our World War Two Veterans will undoubtedly go down in history as the generation that saved the World, let us go down as the generation that changed it for the better. We can begin by mitigating our current problems and embracing the renewable energy market as a World leader in Education and innovation again by exporting our sustainable ideas for a brighter future for our children and their children.