Infrastructure under stress

Last night I watched the excellent History special "The Crumbling of America". This documentary raised several areas of concern for every American. They detailed several classes of infrastructure that are degrading quickly:

Bridges

Dams - Some states, such as Alabama, do not even have a dam inspector.

Levees - Surprisingly, the state most in danger is California, particularly Sacamento.

Roads

Sewers

Water Mains - Montgomery Co. MD, a rich suburb of DC, was singled out in this segment.

For anyone who has drived around the Rust Belt (e.g. Detroit) this will not come as any surprise. As a country, we spent several decades and a lot of money building this infrastructure. But since the boom in the 50s and 60s the state and federal governments have not taken action to properly maintain these roads, generally because they were too busy spending money on other items, which they deemed more important.

At this point, it will likely cost several trillion dollars to repair our infrastructure. Some of this will be done with the recent stimulus package. While republicans may balk at this figure and claim that it is the responsibility of the states, the states simply do not have the money to undertake this project. Once the tap water shuts off for weeks due to major water main breaks, or a bridge near your house fails and you need to drive an extra 50 miles to work each day, I think this issue would hit home with any American.

This is going to cost a lot to fix. This is also not a partisan issue. Today in Detroit, the democratic city council voted against an increase in the sewer/water tax. Sure, people in Detroit may have trouble affording an increased water bill; but if the infrastructure which delivers and cleans the water fails, they will be paying a lot more.

The recession is nearly over

You heard it here first. You may still think the economy is garbage, but 4 months into the new administration, things are going well.

General Motors declared bankruptcy today, something that generations of Americans would think was never possible. You know what happened after that? The market rallied.

Houses are being bought so quickly that mortgate rates are going up.

Ford* is going after market share and increasing production, while others shut planes. Yes, Ford will probably be the largest automaker in the US very soon.

*I'm long F-S

I'm waiting to buy

Currently, any first time homebuyer (the exact definition is that you have not owned a house in the past 3 years) has access to an interest free, 15 year loan from the federal government for $7,500.  That may be changing soon.

An amendment to the stimulus package currently making its way through the Senate would up that credit to $15,000 and eliminate the interest free loan portion of it, so you would not need to pay it back.

Keep in mind, the true tax benefit would be 10% of the purchase price, or $15,000, whichever is less.  In my case, you can't find anything around here for under 200k so that doesn't matter.

At this time, I'm looking for a house but there's no way I'll buy until the bill with this amendment either passes or fails.  I am not going to leave $15,000 sitting on the table.

Another F-bomb on NBC

Charles Gasparino says "fuck" while on CNBC.  He was talking about how stupid it is for Wall Street firms to pay bonuses in the current economic conditions.

The Buy American Clause

The stimulus bill that is currently moving through congress includes a provision that requires that infrastructure projects use only American iron and steel.  Some complain that this will harm American jobs that work in the import/export business.

I disagree that this is unfair.  I think that in this case, it is not a tariff against foreign goods since the federal government is paying the bill.  If they are paying the bill, it should be up to them what materials are used.

3 million new jobs

If you want to know what the next year will look like, take a look at President-Elect Obama's weekly radio address below.  Expect a push on renewable energy, infrastructure repair, and modernization of healthcare systems, which is hopefully the first step towards universal healthcare.

The Spending We Need

Soon to be President Obama plans to spend between 500 and 700 billion dollars on public works projects.

While this figure approaches all of the money spent on economic bailouts of financial institutions, I believe it is a debt we must incur.  If you take a look at many roads and bridges within America, particularly in areas that are not economically prosperous, things are bad.  Whether it is a pothole or a structurally unsound bridge, the public's safety is at risk.  

The last time we spent such a large amount of money on infrastructure was likely in the 50's when Ike created our Interstate System.  Since then, time has taken a toll on our roads.  We aren't building any new ones but desperately need to maintain those that we have.  It is inconceivable for a non-government entity to fix all these roads, unless we created a private toll road system that would rival any government bureaucracy.

The good news is that these are construction jobs that will not be outsourced and that the extra work may be able to help a good amount of the unemployed construction workers (who lost their jobs after the housing bust) get back to work.

This is a win-win for all.

C's bailout and the market's next week

Everyone is applauding the job the Fed has done bailing out Citigroup. C is up over 50% today. Jim Cramer is especially happy. Stocks in general are up.

After witnessing Lehman and Bear crumble and AIG get a bunch of cash with nothing to show, Citigroup may actually survive. They agreed to take a hit on several dozen billion in exchange for the government taking on 90% of the fall afteward. The government will get partial ownership in Citigroup should it absorb this mess - which it will. Homeowners whose mortgages are owned by Citigroup will likely have more leverage renogiating as this was one of the conditions the Fed imposed, as was executive pay. The dividend is also gone. Oh well. I should have bought some shares last Friday, but how was I supposed to know?

What's next in this market? I think that black Friday will not be very black this year, causing retails to tank. Look for TGT to get a bargain on Monday afternoon.

Should we let GM fail?

General Motors is now teetering on the edge of bankruptcy. It currently has about $16B in available cash but its burn rate is close to $2B per month. When you add to this the fact that the majority of Americans will not buy a car that is made by a struggling company due to potential warranty and service issues, you create a negative feedback loop that will likely bring GM down.

This is nothing new. I wrote about GM's problems over three years ago. All auto companies, including the venerable Toyota, are hurting now. But American companies are even worse off. Why? Because of the union contracts they've had for the past half century, including the socialist JOBS BANK, which pays workers to sit in a room and not work. GM complacency during boom times gave the union these types of benefits that are practically unheard of in any industry.

It is not so simple to just allow GM to fail. If GM goes under, parts suppliers will probably have to close as well, which has the potential to hurt the other automakers. Furthermore, close to 10% of US jobs are in someway connected to the auto industry, when you include dealership personnel, parts manufacturers, and the entire dealership industry.

What they want is a couple dozen billion dollars to continue operating, but I'm not sure that would do any good. I think that a bankruptcy may be their best chance at survival, as that would allow them to renegotiate a lot of their contracts, likely including their UAW contracts.

I don't have any quick term solutions to propose and neither does our current president. Our next president favors a bailout, since you don't want to start your term presiding over a meltdown just as bad as the financial crisis.

Obama's bailout conditions

Today, Barack Obama outline 5 conditions for any economic bailout plan, and urged John McCain to support him in this bipartisan initiative.  This comes after McCain and Obama issued a joint statement.  

If McCain is smart, he will indeed endorse the points below.  Whether you are a democrat or a republican, you will agree that what Sen. Obama outlines below is necessary.

First, there must be oversight. We should not hand over a blank check to the discretion of one man. We support an independent, bipartisan board to ensure accountability and complete transparency.

Second, we need to protect taxpayers. There should be a path for taxpayers to recover their money, and to turn a profit if Wall Street prospers.

Third, no Wall Street executive should profit from taxpayer dollars. This plan cannot be a welfare program for CEOs whose greed and irresponsibility has contributed to this crisis.

Fourth, we must help families who are struggling to stay in their homes. We cannot bail out Wall Street without helping millions of families facing foreclosure on Main Street.

Fifth, we both agree that this financial rescue package should move on its own without any earmarks or other measures. We have different views about the need for other action, but this must be a clean bill.

Another defender of the constitution

John Bush... I mean John McCain, said today that if he was president he would fire the chairman of the Securities and Exchange Commission for our current economic conditions.  Unfortunately for him, that is unconstitutional...

McCain: Worse than Bush?

Hopefully we will never know the answer to the title of this post, but in order to inform the undecided, we need to visit this issue.  Would a McCain presidency be worse than Bush?  

When George W. Bush was first elected president in 2000, we were at the peak of the internet boom.  The business cycles has since been on a downward spin, most likely because we have not had a positive technological shock since the dot.com boom of the late 90's.  Whether we will have another such shock in the next 8 years is anyone's guess, but it is likely as these cycles run over 15-20 years.  

No matter if Bush or Gore was elected president, we would likely have faced a minor recession sometime over the past 8 years.  What would not have been predicted, however, is the massive cost of the Iraq War, which has been a major factor in the spike in oil prices, the fall of the dollar, and the loss of our rights to privacy, jury, and other freedoms.  

How would John McCain or Barack Obama confront such issues?

When it comes to the Iraq War, currently McCain is more gung-ho about it than even George Bush.  While the White House has recently flirted with the idea of setting a vague timetable for withdrawal, McCain remains steadfast that we should maintain permanent bases in Iraq, against the wishes of the Iraqis and more than 50% of Americans.  McCain's wishes would likely lead to at least a $1,000,000,000 level of spending over his presidency, from this issue alone.  

When it comes to oil prices, McCain favors "offshore drilling" and not much else.  Offshore drilling was already allowed, oil companies did not choose to partake in it.  All Bush just did was open up some more areas.  That point is moot, since we do not have enough refineries to keep up with this, so even if we did strike oil (this would take 5-10 years), we would have to have it made into gasoline by another country and then re-import it.  Even conservative oil-man T Boone Pickens does not see oil as the future.  Instead, he proposes we use a combination of wind power and natural gas.  I also think that geothermal power, nuclear power, and solar power have to be added to the first two to be our new backbone of electricity, which could power a new generation of vehicles.  McCain talks about alternative energies, but seems to be continuing Bush's legacy of paying lip service to alternatives while just drilling for more oil to further fuck up our planet.

McCain worse than Bush?  Maybe, but hopefully we will never know the answer.

Shrinking Products - Who Cares?

There's a big fuss right now about product sizes.  I noticed the other day that the Edy's container looked a bit smaller than normal, but the price was still $2.50.  The old container was 1.75 quarts and it is now 1.5 quarts.  Many companies have started this type of downsizing to compensate for higher fuel costs without making consumers pay more.  

Why do I not care about this?  I usually do not use all of a product I buy, be it milk, eggs, or cheese.  It usually expires before I've eaten all of it.  We as Americans are used to these huge product sizes, and it shows, since we are likely the fattest society in the history of the world.  I think that reducing product size may actually be a positive thing.  

Several years ago, Morgan Spurlock single handedly got McDonald's to get rid of the Supersize with his movie, Supersize Me.  Now companies are getting rid of the Supersize for their own bottom line.  Regardless of the reason, less can be more.

John McCain's not the only idiot on the economy

Several months ago, John McCain famously said that he "doesn't really understand economics."  

At least he was open to getting some good advisors.

Today, Hillary Clinton was asked if her "gas tax holiday" proposal had the support of any economists.  She could not name a single one.  

This is the same gas tax that McCain has proposed in the past, but he's not pushing it quite so hard these days, probably because it has already failed to pass in the senate, and he's leaving it up to the dems to fight it out.

Economists have pointed out the same things that I have:

Consumers will likely drive more if the tax isn't there, due to psychological reasons, which will make prices go back up, likely higher than they were before.  So the tax would likely raise gas prices.

Answers

Why is our economy in the toilet?

www.nationalpriorities.org/costofwar_home

Market Swings, Oil, and Foreclosures

The markets were up an average of close to 4% today, one of the biggest gains in a decade.  Why did this happen and why is this a bad thing?

The gains today were due to the Federal Reserve promising to dump $200 billion into our money supply to loan to banks that are dealing with the subprime loan fallout, thereby diluting the currency in your pocket.  Imagine you have a martini, and someone says that they will turn it into 2 martinis.  You agree, so they put half of yours into another glass and fill both up with water.  This is what happened today.

Another trend to look at is the price of oil reaching a new record.  While oil is reaching a new record in dollars, this is mostly due to the dollar dropping in value to its lowest point ever against the Euro.  Why are our greenbacks worthless?  For the same reason as above, and also because of our $3 trillion war, and most recently the fed's interest rate cuts.  When the government lowers interest rates, other countries pull out of the dollar (since it pays less interest) and put it into things that they think will increase in value such as gold and oil.  

There is no oil shortage and there is no manipulation by the oil companies either.  It is simply economics at work, it is a market that has been beat up so badly by our government that it is swinging wildly to correct itself.  The only way to let it do that properly is to leave it alone.

Let people get foreclosed.

Let some banks go under.

Why should I be punished with a worthless currency because several million people bought houses they couldn't afford?  I don't own a house, and as of yet I didn't have enough money to and I understand that it would be foolish to take on an interest only loan or similar product.  Yet we are all paying for people that do.  

Leave the market alone Bernanke!

A band-aid solution

My prediction of a 5-7% drop today was wrong.  Why?  More government meddling.  Early this morning before the market opened, the Federal Reserve voted to drop the federal funds rate by .75%.  While this does not seem like too much, this is almost unprecedented.  The last drop of this magnitude was over 20 years ago!  

How will this affect our economy?  The dollar will grow even weaker, since it will not offer competitive interest rates to the Euro.  Some people with mortgages will see a slight break in July when their rates reset, but it will likely be too late for most.  

Worse, instead of having a one day or one week major crash, the market will likely crash over the next several months to 1 year, so recovery will take that much longer.

Subprime Fallout: Who is to blame?

Unless you have been tuning out all media, by now you know that the fallout from the housing bubble is massive.  Dot.bomb massive.  As world markets crashed Monday, the US had a holiday, MLK Day, so the markets were not open.

Look for a big decline today in the US indices; 5-7% is my guess based on the futures.  

What caused this problem?  As with any massive fallout there are several groups that can be blamed.  

1. Many people simply bought more house than they could afford.  Instead of buying a house with a traditional 15 or 30 year fixed interest rate, they opted to obtain a low rate that would reset to the market rate in 3 or 5 years.  Some people were dumb enough to take out a loan in which they would only have to pay interest for the first 3 years and then start paying big; this is similar to, but worse than paying only the minimum balance on a credit card.  It does not take a genius, or even a high school diploma to understand these concepts.  Once the rates reset, people found out that they could no longer pay their mortgage.
2. Several of the less reputable mortgage companies may have misled the buyers into getting one of the loans referred to above.
3. Alan Greenspan and the Federal Reserve.  A supposed "free market" central banker (an oxymoron) decided that to combat the internet bubble bursting he would lower interest rates to artificially low rates and leave them there for a long time.  These low rates are what led to the attractive interest-only loans.  These low rates are also what led to the dollar sinking to record lows against the Euro and Canadian dollar, as people were reluctant to convert their money into a currency in which they could not obtain a good interest rate.