A default by Greece would trigger a number of unpleasant consequences, to say the least. European banks and institutions are presently in a weakened financial state. Those which hold Greek debt instruments may be threatened by bankruptcy or be pushed past the point of insolvency.

There is a real estate bubble in China that will eventually bust. And that time does appear to be getting closer. There are so many imbalances in their economy, and they will manifest themselves as the global slowdown exacerbates weakening positions.

Japan has serious problems from the nuclear contamination that will not go away!

In all this mess of uncertainty, the USA looks more like a safe harbor in a storm. But that is all relative. Just wait until congress has another tantrum! And inexorably, each and every day, our country sinks more deeply into catastrophic debt levels. We are continuing to bleed, and at an ever increasing rate. The extremely low artificial interest rates mask the problem.

I just have this sense of impending economic danger. The whole world situation has me feeling uneasy. Just recently I heard American Airlines may be in trouble and what about that American icon for over 100 years - KODAK! I used to live in the Rochester area and could not imagine the day would come, when I hear that KODAK my file for bankruptcy!

We have been in an economic morass for years, and we are not headed in the right direction. Our ominous national debt may soon be leaving orbit and going out of control! Banks and financial institutions are threatened with survival in the event of a Greek default, and this will just be the first domino; after that, the Invisible Hand will be ruthless. If we loose control, a panic may ensue.

Unfortunately, this is no good outcome.

But then again, nobody asked me.

~ Malcolm

December 17, 2010

Good grief! I have been so busy with business that I did not have time to get up on my soap box. Now things have slowed down.

The Democrats have told President Obama "NO" on the tentative deal with the Republicans. I think that President Obama should just let the Bush tax cuts expire as scheduled. They were misguided when Bush proposed them anyhow! The budget deficit is out of control and will be a killer to us and out future .. and the future is just around the corner! We must raise taxes and cut spending. There is a proposal to freeze federal employees' wages for two years. Some cynical Congressman says that will only save about $2,000,000,000.00 a year; a mere drop in the bucket! But this elected dummy does not understand that every little bit counts. There is an old saying in business, that if you watch your nickels and dimes, the dollars will take care of themselves.

Gasoline prices are going up on world demand. Yup, there are now other people who can afford cars and gasoline and that increases demand. I reckon that the price will easily surpass $3.50 by early Spring.

Did anyone notice that interest rates have risen on the US government ten year bonds? Can you imagine what the interest expense on the national debt would be if interest rates were a few percentage points higher? It is called an economic disaster, and it is less than two years away.

We have reached a point where it is impossible to theoretically pay off the national debt ... and that is with low interest rates.

If foreign governments and Americans lose faith in the dollar, there will be a rapid and dramatic currency collapse. Gold and silver could soar, along of course with a host of other commodities.

My firm belief is that we are presently in an unfolding economic emergency greater than the magnitude of the worst of the Great Depression.

Unfortunately, there is no good outcome.

... but then again, nobody asked me.

~ Malcolm


August 14, 2010

Well it sure has been some time since my last rambling, so let me get right into it.

The economy is not on the right track, and the politicians from both parties do not have a clue or the political will for drastic changes. My opinion is that we are in a dire economic emergency and we need swift painful changes to right our country. This and past administrations are spending money they do not have, at unprecedented rates, without any acknowledgement of the economic danger. In short, the federal, state, and municipal governments are going broke! Red ink is hemorrhaging and there is no recognition that this situation is an emergency.

The housing market is key to a strong American economy, and the housing market is in terrible shape. My prediction is that the housing market is in such bad shape that it will stay weak for a generation. Interest rates are now at historic lows and the housing market is on life support. What would happen if the mortgage interest rates increased two or three percent? It would be a disaster. Without a strong housing market unemployment will stay weak for quite some time.

On top of all this, we appear to be sinking into a dangerous deflationary period. It is all the more dangerous as the government is so deep in debt. Deflation makes it more difficult to pay debts. There is no good ending to this mess. We must depend on our politicians to work together and behave in a responsible manner, This is virtually no chance of that.

And what of us? The so called "normal people."

Half of all wage earners pay no federal taxes. The politicians just gave away another $26,000,000,000.00 to "save teachers, police and firemen." What about saving everyone else? Is it a wonder that the federal government is sinking in debt? Plus give a look at the entitlements such as Section Eight housing and Food Stamps. They have become an ingrained way of life for some. We have had these giveaways for over forty years and it does not fix the problem. It just creates more of the problem. Typical idiotic government program.

Foreign enemies are not our biggest danger. This country is rotting away from the inside. We have become a nation of handouts and bailouts. Whatever happened to self reliance? Last year more Americans gave up their citizenship than at any other time in our history. Most of them are people of means, thats are moving out of the country.

Maybe next time I'll tackle some social issues ... that's a hot button for sure!

But then again, nobody asked me.

~ Malcolm

April 14, 2010

A I have written prior, that an economic calamity will befall the USA at some in the future. It is my opinion that the future is here.

In 1917 the USA received the highest international investment grade of AAA. Previous to this time, we were a debtor nation, with an expanding economy and a voracious appetite for capital. Domestic sources of capital could not supply the fast growing economy. Our industries borrowed heavily from the finance centers of Europe. Interestingly, many of the bonds that were sold to foreigners were denominated in British Pounds Sterling, German Marks, and French Francs.

This all changed with the guns of August 1914, as Europe slid into devastating trench warfare. By the time the killing stopped, on the eleventh hour of the eleventh day of the eleventh month, the USA had accumulated 2/3 of the floating supply of gold. And this at the height of the international monetary agreement known as the Gold Standard. The USA had become the center of world finance. Fast forward to today and our crippled economy; no wonder our AAA credit rating may be lowered.

Anyway you slice it - this country is headed in the wrong direction.

Our debt burden is a rope around our neck. Since and including Reagan, the politicians of both parties have borrowed and spent us into catastrophic debt. Make no mistake, this financial irresponsibility extends to both parties, plus the Greenspan Fed.

Here are my observations:

About 45 of the states are in severe financial stress, and it will get worse. Commercial real estate is experiencing difficulty refinancing, and it will get worse. New home sales keep declining to levels lower than ever recorded, and it will get worse. The employment situation is most difficult, and it will get worse.

Anyway you slice it - this country is headed in the wrong direction.

Also if oil prices should increase, so that the price of gasoline rises above $3.50 per gallon, I believe this will be enough to tip the economy back into recession, and this is an anemic recovery at best. Jobs and money are tight. I have absolutely no doubt that there will not be a truly robust recovery until the three pillars of the American economy are expanding. Those three pillars are housing, housing, housing! And housing is a basket case!

But then again, nobody asked me.

~ Malcolm

January 13, 2010

A new year has just started and I wish most of everyone a nice year ... although there are some who I would hope, would have a somewhat different outcome ... hhhhmmmmmmmm.

Alright now, let's get down to business. This economy is really in a difficult situation. Try and find a decent job and you can experience the job market. I personally know people that have lost their jobs and are on unemployment. In the last two months I have met two dentists that have lost their personal practice. One is just giving up and the other is working for another dental practice. Restaurants are under severe stress as dining out has experienced an 18% decline year over year. The car business is just limping along and the housing market just took a nasty 16% decline in pending sales (signed contracts). Gee whiz, housing and autos are the traditional backbone to our economy.

Most the new jobs created in this country are done so by small businesses. If President Obama wants to help create jobs, and save jobs, then he must concentrate to specifically help small businesses.

As to my outlook for the economy in general I think that we will have another bout with a banking/financial/economic crisis. Anyone who thinks this past crisis is over is only deluding themselves. The economy is on life support from the Fed and the government. We are experiencing the worst recession since the Great Depression. This is a serious situation and I personally do not believe the worst has passed.

The economy continues to loose jobs. Certainly much less than the rate last year, but nevertheless, still on a negative path. Public and private debt is now 360% of GDP. At the onset of the Great Depression it was 160%. Way too much debt is a killer, especially when the economy slows. Wages are stagnant at best.

The nail in the coffin is the disastrous financial condition of the individual states. Most all are facing another year of declining revenues. They will be forced to cut spending, raise taxes and increase fees. This will ripple through the states quite negatively.

Things will not get better very quickly. Fasten your seat belt, it will be rough going.

But then again, nobody asked me.

~ Malcolm

October 28th, 2009

Well gold certainly has had a nice run lately. Hard to believe the precious metal is over $1,000 and hanging steady, with a slight upward basis.

Some people buy gold for investment and others as a financial insurance policy. I think the chances are elevated for another financial crisis, sooner rather than later. We can all have different opinions why the price has risen, but I do believe we can all agree that it is the law of supply and demand that ultimately determines the price.

What troubles me most is the outlook for the general future of America. The politicians from both sides of the aisle are to be blamed for screwing up the general tranquility of our wonderful country, for political gain. They have been reckless in spending more money than our government has or can reasonably borrow. The politicians have made financial commitments to many Americans that can bankrupt the country. It is shameful and embarrassing that we must depend on foreign countries to finance our obese deficit.

The result is an economic and financial future filled with uncertainty.

I don't profess to have all the answers, in fact, I don't know if I have any! But I believe that it is better to live below your means, than the alternative of going into debt. I live that way and truly believe it is good advice for people and governments.

but then again, nobody asked me.

~ Malcolm

August 6, 2009

It's been some time since my last comments and so much has occurred, so let's get right to the point.

This recession is the first ever in the USA in which collapsing house prices was the catalyst that caused the economy to contract. Usually the economy shrinks, unemployment rises and house prices eventually dip. Clearly, the swift decline of the housing market bubble and all the associated financial derivative securities, was the cause of what has now become the longest post World War recession. Unemployment looks as if it is headed to over 10% even with all the government finagling to the contrary to lower the rate. Plainly, it is difficult to find work. The recent college graduates are facing one of the most difficult job markets in recent memory.

But what does the future hold? After consulting my crystal ball I have all the answers ... the only problem is that they may not be accurate!

Most troubling is the contraction in the amount of credit. Banks are returning to more sane lending criteria, and the public is gun shy to borrow with such reckless abandon. All recessions / depressions are characterized by credit contractions.

Bank failures are accelerating in both number of banks and values of deposits.

Citibank, in my opinion, is insolvent. They were also illiquid until the government injected huge amounts of money into the bank. And there must be others.

Bernanke says he did what he did, so as not to preside over the Fed during a second Great Depression. But it is possible that he just might.

But here now is the most worrisome situation ... this is the first recession since the USA recently became a debtor nation. We were a debtor nation before World War I. After the war Europe was in disarray, and we ended up with half of the world's gold reserves and became a creditor nation. Presently we have an acute and dangerous debt bubble, with no relief in sight. Fasten your seat belts. Pay off your debt and live more simply.

but then again, no one asked me.

~ Malcolm

June 9, 2009

Well, well, well, General Motors has entered bankruptcy. The government pumped in another 30 billion dollars and now owns a majority stake. The Obama administration hails this as the only credible solution. They claim this will now enable a "New General Motors" to operate profitably. Has everyone in Washington gone nuts?!

In my humble opinion, their plan is doomed to failure. This will be a colossal water of our (taxpayer) money. The reason being that the main causes of the accumulated difficulties have not been addressed. Plainly stated, these are, an incompetent management, and ridiculously overpaid union workers. If the new company were to not deal with the union and instead put a notice that they will by $25 per hour, 40 hours a week, there would be a line stretching for miles around every factory. The obvious economic reality is that the union workers are paid much more than a free market would dictate.

For any chance for the reconstituted company to become profitable, it is absolutely necessary to get rid of the present management and the entire union. In this regard the Obama administration will ultimately fail. They just don't understand that the marketplace is the best judge. Government support and subsidies are not the answer.

In the short term a new company will emerge and Obama will hail this as a new era of cooperation, blah, blah, blah. I give it another two years for the final collapse.

But then again, who am I?

And then again, nobody asked me...

~ Malcolm


May 4, 2009

So now the government is running the show at GM. I am so relieved. The government is a model of precision and efficiency and with their control there will be no waste, fraud or abuse! You can be sure of that. But all the government is really doing is only prolonging the inevitable demise of General Motors. I do not see any alternative to a company that can not compete. Their problem has been developing for quite a number or years. A combination of mismanagement and misguided unions. Besides a change in executive leadership, the unions heads should also be replaced. But that is impossible. A General Motors bankruptcy will have far reaching repercussions, and some will be unintended and unanticipated. Just remember, what is good for GM is good the country.

The unemployment number just came in at 8.5%. Some economists are calling for the rate to peak at 10%. If GM goes bankrupt, and I believe they will, say goodbye to 10% unemployment and be ready for real difficult economic times. The recession will worsen, certainly gather momentum, and can turn into a depression! Can you imagine? Already six or seven states have double digit unemployment. The biggest state, California, is at a whopping 11.2%. And the state is broke, big time. They are issuing vouchers instead of checks. If the economy continues to worsen, California by next year will be in a depression, and as goes California, so goes the country.

But don't worry, the government knows best what to do about this situation.

But then again, nobody asked me.

~ Malcolm

March 18, 2009

Today on the radio, I heard that the projected Federal budget deficit for the fiscal year 2010, which begins October of this year, may exceed $1,300,000,000,000.00! One trillion, three hundred billion dollars. However written, that is a lot of money the Federal government must borrow. Of course Congress is doing such a good job they will receive an automatic increase in salary! Some are quite convinced that this will create. But I am not so sure. If the money allocated for the stimulus was instead refunded to every working person, it would work out to approximately $6,500 each. I am convinced that would be inflationary. But, this money will be replacing money which has just been destroyed and will not be excess dollars chasing goods.

As to the TARP money, my understanding is that the funds will be used to replace worthless debt. For instance, let's say the bank has $1,000,000 in assets. Of this amount $200,000 is in the form of worthless paper assets. The government by lending the bank $200,000, in effect, buys this paper at $200,000. The assets of the bank remain unchanged at $1,000,000. Thus, a net change of zero!! Thus, no extra pressure for inflation.

The gold market has been driven by speculation of future inflation and the anxiety surrounding the soundness of the entire financial system. There are monumental problems for sure. In fact, the financial system of the world can be overwhelmed due to the gargantuan amount of leveraging. Usually this will end in depression.

We are truly living in historic times.

~ Malcolm

January 26, 2009

We finally have our new president. Mr. Obama, who is a skilled orator, gave a truly inspirational speech. Perhaps after all this we will all feel good and even more optimistic. But unfortunately the realities our our economic situation will have to be addressed in some way. By all estimates, we are facing unprecedented deficits to both Federal and State government budgets. And unfortunately there is no easy way out of our perilous situation.

The way I see things, the issues are immense and numerous. The automobile companies bailout has not yet played out. That could be a land mine. The commercial real estate collapse has just begun and is exasperated by the credit issues. Unfortunately, much of the real estate financing was with short term loans. Now the banks are reluctant to extend long term loans. Thus some of the real estate owners cannot refinance and are in peril of losing their properties. State governments are in a similar bind where they cannot refinance, or rollover, their municipal bonds. This is a classic credit crisis.

And to add fuel to the fire, the price of gasoline has risen a little in the last week. If there is a rebound in gasoline prices, at a time when the American family is under tight finances, this could be the nail in the coffin. Keep an eye on gasoline prices, and hope that they do not increase.

So what is the strategy to follow? The so called experts are clueless. Last year at this time said to buy stocks ... and the market fell 35% - 50%. Now they offer the same advice. My advice is to pay off any debt, including any mortgage. Then have a cash cushion of about one year and then take it from there.

There is an old Chinese saying that goes "May you live in interesting times." We certainly do today.

~ Malcolm


October 1st, 2008

The last few weeks have been quite tumultuous in the financial markets. Some old venerable firms have ceased to exist. Some have been forced to the precipice. The government has spent and pledged hundreds of billions of dollars and now wants an additional

------------------------------------------$700,000,000,000.00

Of course this is just a fraction of the national debt of

-----------------------------------------$10,000,000,000,000.00

Of course this does not compare to the world derivative market of

----------------------------------------$450,000,000,000,000.00

So if things just slightly double in some time, we could be figuring the amount at the apparently incredulous amount of

---------------------------------------$1,000,000,000,000,000.00

The only problem I wonder about is what do we call what comes after a trillion?

There is an old Chinese proverb that says
“May you live in interesting times”. Ladies and gentlemen, we are most certainly experiencing interesting times. Essentially we are experiencing the manifestation of a credit crunch. The ramifications are nothing short of momentous. And all this is occurring in the midst of an historic, hotly contested presidential contest, in which neither of the candidates is well versed in economics. But no make no mistake, the Invisible Hand has just begun to stir.

~ Malcolm


Sept 6, 2008

The last couple of weeks have seen the price of the precious metals decline rather dramatically. Some now argue that the commodity buble has burst. I'm not altogether convinced of that. Inflation has manifested itself and appears to have no end in sight. At the supermarket I was quite surprized to see the price of apples at $2.49 a pound. I first thought it was a mistake. Not too long ago the price fluctuated between $0.99 and $1.29 a pound. Canned sardines and kippers have also seen large increases in price. These are not 2 or 3% annual increases.

Additionally, inflation is on the rise worldwide. In the backdrop of various central banks raising their rates, it sure does seem to me that the Federal Researve rate of 2% just sounds too low.

One thing I do know, is that if the mortgage interest rate should increase, it would be terrible for the fragile housing market. The three pillars of our economy are, housing, housing, and housing! Get the point? In just about two months we will have an election which can certainly change the direction of government. This most certainly will be an important election.

As they say................. keep your powder dry.

~ Malcolm