Drowning

If you are drowning and can no longer swim, it does not matter if the water is ten feet or a thousand feet deep.

Today the worry of the financial pundits is devaluation of products and services. In other words, the price becoming cheaper to attract buyers. The financial pundits claim there is no need at this point to fear “inflation” in the economy.

This is another misnomer. If the price of butter goes from $3.25 a pound to $2.00 dollars a pound, it sounds good for you as a consumer. But if at the same time your net spending power drops 40% you are actually experiencing a normalized 2% inflation. If all things remain equal, you are actually paying more on a percentage basis relative to your income despite the price drop.

This situation is occurring and having a dramatic effect on 80% of Americans. They know something financially is amiss. But they have failed to put their finger on the source of the problem. Why is their buying power falling? Business and industry is rushing to protect their profits. Commodity items are increasing in price (Nestle articulated this business strategy last week). The increases include food stuffs, utilities, insurance and entertainment. At the same time premium and luxury items are being reduced in price.

The premium and luxury stuff is drowning in thousand foot water. The commodities is drowning in ten foot water. In both cases you are just as dead.

The definitive way to tell if we are in a Depression

The definitive way to tell if we are in a Depression is relatively simple. The unequivocal indicator is when the top Fortune 500 companies, like GE, announce “No Dividend”. The CEOs and board of Directors of top companies would sell their first born, followed by the rest of their children and spouse before allowing this to happen. A “No Dividend” announcement is saying the company is “dead man walking” (moving toward the final terminal execution). This also means the company is beyond a bankruptcy or merger/acquisition salvation.

A “No Dividend” situation warns Investors they have money tied up that is not making a “ROI” (Return On Investment) or no profits. Investors need access to their non-performing money back “in-play” (investments generating profits) to survive. This is especially true with the loan market frozen as a source of temporary funds. The Investors will “short” the stock of these companies (sell it immediately despite tax liability) to unlock their money.

So far the only major publicly traded company to announce “No Dividend” is the New York Times Company. They technically call it a suspension. If a trend of “No Dividend” starts and cascades throughout the Fortune 500 companies, the “D” word becomes a fact that you can not “spin” away.

The Faith in the Phoenix

In the year 2008 of our lord, Capitalism slipped into the netherworld with Communism. Outside its pantheon nations now shovel stimulus money, while acolytes march round in a circle chanting, “this will pass, our wealth will flow”.

A prophet is without honor in his own land. An obscured voice competes to be heard over the chant saying, “…what if it doesn’t?”. The daemon has spoken and they rally to excise the thought. They place a pole made of rolled balance sheets in a clear space. They tie him to the pole with ropes of devalued currency. They gather up the combustibles of regulation legislation and pile it at his feet. They light the pyre with a match of taxes. The flame of profits flickers to life.

The stock market continues to fall, the earth shakes and the stones of the pantheon tumble. The acolytes flee screaming from the falling ruble. The fire of the pyre is extinguished as the torrent of failed business plans rain from the sky. There is desolation and ashes everywhere. The acolytes stumble about as in a trace. They fall on their knees and wail. Not enough stimulus money to go around and there are strings attached. Shotgun marriages of mergers and acquisitions are made and Darwinism reigns.

There will be no phoenix. A new economic epoch approaches.

The Goose

I wrote the essence of this back in 2004 for Cartoon 510.

Most people see the snap shots on the news of our military in action and draw comfort that we have the most powerful military in the world. Yet that is not the source of American power, it is an attribute. The real power behind America is financial. Therefore, if America is to fall, it will have to stumble financially.

American financial power lies in its mass market. America has the largest mass market. America has used the granting of access to its market as leverage in the world. The free trade agreements represent conquest by other means. Globalization has been its umbrella for world government.

In more than the last half century suicide has been performed through government policies. The Government has actively killed the goose that laid the Golden Egg. This is the mass consumer market. The American mass market is based on a middle class with disposable income. The policies have evaporated the middle class and increased the economic disparity. The illusion of a mass middle class market was maintained by cheap ubiquitous consumer credit. The reality is that the government policies have invested 90% of the wealth in 10% of the population.

The last major middle class employer is the Federal Government. Even this bastion is under attack. Gone from the middle class economic compensation ranks are large industries that used to provide middle class employment; such as the auto, steel, and utility industries. They have all largely slipped to the lower wage and benefit ranks. Today, the largest private employer is Wal-Mart. Certainly no one would call Wal-Mart a middle class employer.

In destroying the mass market, you destroy America’s real power in the world. The lack of American market opportunity is resulting in American influence waning. American demands will increasingly fall on deaf ears. Even the hawks are now waking up to the realization of this real foundation of American power.

There is an old saying, “you don’t miss your water till the well is dry”.