May 2, 2010
The U.S. Economy: It’s beginning to look a lot like Europe
By a Guest writer, Jura Sarcastica and his financial advisor, O. Oh Owe
The Obama Administration should be applauded for carrying out its campaign promise to change the nation in a radical way. Our economy looks more like the former Soviet satellites every day. Our financial system is rapidly eclipsing those of the European Union such as Greece and Portugal. While it had a super majority, the Democrat-controlled Congress was behaving more like a one party system every day that passed. Even the word czar has become acceptable in the U.S. although the term has yet to make its official comeback in Mother Russia. Perhaps Congress should make it official and call them Commissars. Why all the criticism about the Beltway politics? The election was legal; as legal as most others. Even many of the Tea Party-goers who once voted for Mr. Obama and his fellow travelers, apparently oblivious to what change they actually stood for, are now voicing their concerns – much to the dismay and disgust of the latter.
We are now ever closer to Europe, in terms of duration of unemployment and unemployment levels. The goal of eternal unemployment compensation benefits is now a reality. This is not the change that is in keeping with the proud tradition of the independent and hard-working American populace.
Lafayette – we have arrived…yet again
Social Security and Medicare – a further drag on the economy
http://www.ssa.gov/OACT/TRSUM/index.html
Social Security’s annual surpluses of tax income over expenditures are expected to fall sharply this year and to stay about constant in 2010 because of the economic recession, and to rise only briefly before declining and turning to cash flow deficits beginning in 2016 that grow as the baby boom generation retires. The deficits will be made up by redeeming trust fund assets until reserves are exhausted in 2037, at which point tax income would be sufficient to pay about three fourths of scheduled benefits through 2083. Medicare’s financial status is much worse. As was true in 2008, Medicare’s Hospital Insurance (HI) Trust Fund is expected to pay out more in hospital benefits and other expenditures this year than it receives in taxes and other dedicated revenues. The difference will be made up by redeeming trust fund assets. Growing annual deficits are projected to exhaust HI reserves in 2017…
FYI – Social Security actually moves into deficit territory (benefits exceed contributions) in 2010. This is at least five years earlier than previously anticipated, due to the economic downturn; five hundred-thousand more people opted into social security in 2009
March 31, 2010 (CBO Director’s Blog)
CBO projects that revenues from payroll taxes credited to the trust funds will be $12 billion lower in 2010 than in 2009, while benefit payments will be $37 billion higher. This year, for the first time since the Social Security reforms of the early 1980s, benefit payments from the trust funds will exceed the trust funds’ receipts from the public (which consist mostly of revenues from payroll taxes and exclude interest on Treasury securities held by the trust funds).
Why wasn’t this big news?
This all spells increased deficits and or higher taxes…unsustainable options per Fed Chairman Ben Bernanke
http://www.federalreserve.gov/newsevents/speech/bernanke20100427a.htm
Here come the Feds: from manufacturing, to mortgages, to banking, and to insurance
Will the U.S. Government ever sell its equity interest in General Motors or will it simply rename it, Government Motors? The same goes for Chrysler and for the financial industry. This is not the change most Americans can get behind.
Credit creation for small business is virtually non existent. Regulators are behaving like the old KGB in respect to the too-small-to-count banks. While the giants are free to go back to their old habits, hundreds of too small to count lenders are closed or forced to virtually shut down their lending to small business. Why is it a surprise that we are experiencing a jobless recovery?
Say what you will…the logic of cause and effect has not been repealed nor has ignorance as to how the economy and people behave been repealed: both are thriving.
While the Federal Reserve System was willing to buy enormous sums of toxic assets from banks and other financial institutions too-big-to-fail, or swap Treasury securities for billions of illiquid mortgage backed securities, lenders too small business were apparently too small to count to be eligible for TARP funds. We have always been a nation suspicious of big government and big business.
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What share of net new jobs do small businesses create?
http://web.sba.gov/faqs/faqIndexAll.cfm?areaid=24
Firms with fewer than 500 employees accounted for 64 percent (or 14.5 million) of the 22.5 million net new jobs (gains minus losses) between 1993 and the third quarter of 2008.
Continuing firms accounted for 68 percent of net new jobs, and the other 32 percent reflect net new jobs from firm births minus those lost in firm closures (1993 to 2007).
Source: U.S. Dept. of Labor, Bureau of Labor Statistics, Business Employment Dynamics. Note that the methodology used for the figures above counts job gains or losses in the actual class size where they occurred
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Why hasn’t the Obama Administration told its Federal Trade Commission and Anti-Trust Division of the Justice Department to go after the American oil industry, which was benefiting from prices in the range of $80-85 per barrel (make that $86 per barrel on May 1, 2010)? That would have been a worthy change.
The American oil industry was allowed to re-cartelize in the early 1990s to the very early 2000s with virtual impunity.
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Excerpted from Economic Newsletter (2005)
(The Energy Challenge: U.S. Oil Industry (Merger-Mania) and the FED Conundrum Continues)
http://byrned.faculty.udmercy.edu/2005%20Volume,%20Issue%202/2005%20Volume%20Issue%202.htm
Notable US oil mergers of the last ten years
1997 Ashland Oil combines most assets with Marathon Oil
1998 British Petroleum (BP) acquires Amoco
1998 Pennzoil merges with Quaker State Oil
1999 Exxon and Mobil join to form Exxon Mobil
2000 British Petroleum (BP) acquires ARCO (Atlantic Richfield)
2001 Chevron acquires Texaco to form Chevron Texaco
2002 Conoco merges with Phillips
2002 Royal Dutch Shell acquires Pennzoil-Quaker State
More on the Recartelization of the American Oil Industry
From 1991 through 2000, there were over 2,600 mergers in the petroleum industry. The largest of these mergers included Mobil and Exxon, the two biggest domestic oil companies at the time. As noted previously, the top three firms went from having about 20% market share to 30% market share. To put this in perspective, in the U.S. auto industry, the Big Three had over 90% of the domestic market share after WWII. Today, that same three have between 50 and 60%.*
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*note: the share of the Big Three fell to around 30% in 2010
What are all those lawyers doing at the FTC doing anyway? Perhaps they have learned from the SEC staffers how to enjoy the internet.
Yes, we look more like Europe every passing day. In this respect, we must give the Obama Administration a grade of A+++.
(Opinions expressed on this web page are those of a faculty member or employee and do not necessarily reflect the position of University of Detroit Mercy)