Saturday, September 27, 2008

Inexhaustable Wealth -- The Ultimate Delusion

On 9/27/08, michael odle wrote:hey dad haven't heard from you in a while.. i guess i have been using the old expression "no news is good news" , but i thought that i should check in and see. Specifically how you are, how julie is.. and a general curiosity about some reflections you probably have about the current financial market. Julie said she was going in for a biopsy? when i talked to her last. I thought perhaps the results might be in by now. our area has had some problems getting gas. they say that it is because of some supply issues that are directly linked to our area, but it isn't clear to anyone that i talked to what is really going on. none of us really think about it unless we can't get it all of a sudden. I saw lines fifty cars long waiting at a gas station, and people looking quite lost and confused trying to figure out what was up. we have been up on the mountain all week, and luckily there is plenty of food right now being grown around us that i just go shopping at my neighbors. i think it will be over soon. i just hope this isn't some test plot to see how people react to gas rations. seems like whether it is intentional or not it would be good to take a look at how people are doing around here with this type of constraint. i imagine you are busy like us. hope it is all manageable and that you are able to stay healthy. hope to hear from you soon


Mike, I think the gas shortages you describe are from the damage done to the refineries in the south (Houston area) from the hurricane. However, it under scores the fact that we are very tight on refinery capacity. And why don't the oil companies build more refineries, because the world is tight on oil capacity. And, we are short on energy in general.

The current financial problems have been a long time coming and they point to some severe problems in our economy. We are in debt both as individuals and as a country. We have a lot of money and move it around a lot in schemes to make more money. But, a lot of the apparent wealth was built on selling more to the American consumer than he could actually afford. Our government has built a military force on money borrowed from foreign governments (almost 10 trillion dollars); about one trillion from China. The whole economy the last ten years or so has been built on debt. The stress of the energy crisis is now washing that foundation out from under our feet.

The bailout being planned by Congress to save our financial system, or some of it, is a popular move but it actually adds a trillion dollars to the debt we already have and already can not afford. There is a group of conservative, old school, republicans who are for now trying to stop the insanity. For capitalism to work, it must be able to punish those that do stupid things. In this case, there are a lot of guilty parties to punish and a lot of innocent people in the path of the potential destruction. The bailout attempts to spread the pain to everyone instead of completely wiping out a few institutions and its employees and shareholders, etc. Julie's dad gave us a few thousand dollars about ten years ago in Washington Mutual, a firm near bankruptcy that the Feds allowed to be swallowed up by Bank of America without the usual review process. What happens to our money, I don't know. Multiply that by hundreds of thousands of people equals a lot of pain.

Constellation Energy, where my friend Al works, just got bought up by Warren Buffett for almost nothing. Why, they got caught in a credit crunch. They didn't have enough money to run their business on a day to day basis because they could not borrow cash from banks paralyzed with fear. Warren Buffett believes they are a fundamentally sound company who just did not manage their cash well, and/or depended on too much on one bank, who through no fault of Constellation, was in trouble.

Hey, the housing market is what made the mountain crumble, but it is just a part, a big part, of debt our country could not afford. We are under the illusion that we are a rich nation, richer than we actually are. Until that fundamental illusion is shattered the problem can not be fixed. We can not afford the path we are on. Another example, we can not afford our military and/or Iraq. We can afford SUV's, and driving all over the place at a whim. We can afford our big houses and big heating bills, etc. Our illusion of us having great wealth is shared, up to now, by the world. And, we still have a lot of wealth, just not as much as we think we have, hence debt.

How do I think it will come out. Well, I think it has to get worse before we wake up and get rid of the illusions. The private sector is already making adjustments as fast as it can with the resources it has. Hundreds of billions are being spent in Texas on wind farms. Investment in solar power companies is through the roof. Car companies are scrambling to apply and develop technology to improve gas mileage and convert to electric cars. Applications for nuclear power plants are off the chart, 15 applications are currently under review, ten times that many wait in the background. Research on making ethanol from grasses and other feedstock less valuable than corn are being developed. Private industry can not address other issues like mass transit on its own, that needs some government direction. It can not address our screwed up medical system on its own, that requires some government recognition of the the problem and some rule changes.

The only sector that is not on board to address energy and debt problems is the federal government and most state governments. Their general plan at the moment is to give more money back to the consumer / taxpayers, tax business more (the same ones we need to solve the energy and other problems), and spend money like there is no consequences of spending money they don't have. Both Republicans and Democrats are guilty and sadly, they may reflect the will of the people who share the mass delusion of great and inexhaustible wealth.

The delusion has to die before we can allocate our resources better to solve social, energy, and infrastructure challenges in our country. We are still rich enough and resourceful enough to pull ourselves out of the quagmire, as quantified by our debt, but we have to get rid of the delusion first. We need a Perot-like person on the scene. Ron Paul is the closest one I've found to the positions expressed above, and more that I hold, but he is not wise enough to keep his more radical views to himself and concentrate on what can be done, instead of what the ultimate solution would be in his mind. ( I think I am going to put this in my blog, with your questions as lead in. Too much good stuff to waste it.)

Thanks, I needed that .... I love to write my thoughts down ...


Dad

Thursday, September 18, 2008

Debt and More Debt

I just pulled a beer out of the freezer and opened it and then immediately took a swallow.  It entered my mouth as a liquid and then turned to solid ice.  Now, that is a cold beer.  All beer lovers would be jealous.  I can explain this from nucleation theory, but who cares.  It was a cool, once in a life time experience, I suspect.

Well, what is happening in our financial markets is not so mysterious.  Why is "what's gone wrong with our economy" such a great mystery that needs a lot of explanation.  We are nearly 10 trillion dollars in debt in this country.  We are spending a half trillion dollars a year that we don't have in Iraq.  Our social security system is near bust.  GM owes more money to retirement funds than it has.  Our energy bill is going through the roof.   As a country, we are near bankruptcy, not financially yet, but bankruptcy of the spirit.  As a country and as individuals we are seriously in debt, but we are not at the end of our rope.  Our country owes about one year of its income (GNP) in debt.  High, but not undoable.  But, the problem comes in that we do not recognize the economic realities.

First, as individuals we bought more than we could afford.  The Fed passed out cheap money and we bought homes we could not afford.  Not very profound.  Ok, go punish the guilty, but that won't solve the problem.  We have to suffer through the pain, but we will get through it, lower house prices and all.  They will go back to the normal 10 to 12% a year increase.  Usual stuff, they will return to the least square line increase, etc.

We can not afford the war in Iraq.  Period.  Don't worry about what will happen to Iraq if we pull out too soon.  Worry about what will happen to us if we don't do it soon, very soon.

Energy.  Wake up, America.  Energy costs are pulling us down like a concrete weight around the leg of a man thrown overboard by the mob.  Conservation, nuclear, alternative, free market, etc. nothing profound required here, just let the American entreprenuer be free.  Get rid of tarriffs on ethanol, don't penalize oil companies for making a profit, expedite environmental permits for new plants, fund clean coal incentives, raise cafe (car mileage requirements) limits, improve the grid (for wind power), and reward efficiencies improvements.  More on these later, tonight is a very simple run down of the basics.  Too much debt is bad.

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