What in the World is Going On?

Roger Schlesinger
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Posted: Jul 22, 2009 12:01 AM
What in the World is Going On?

The recession is either over, coming to an end, bottoming out or about to start anew. Take your pick and realize that if you study the proposition long enough, you will start having funny thoughts. One of those comes from a Townhall reader who compared and contrasted Bernie Madoff's operation to the government's handling of social security and came up with little difference, except for the outcome. Madoff is, of course, in jail. As for my thoughts on the government, call me!

I want to take a moment and review what is happening in this economy that lends itself to the above plethora of choices. The earnings season on Wall Street is in full swing for quarterly earnings of all the listed companies. The financial companies have done well and exceeded estimates, partially because of the TARP money they received. Low cost of materials (in this case money) tends to yield incredible profits, so nobody should be that shocked. The industrial companies were a different story. They also showed good earnings for the most part, but generally lower sales. The larger profits came from cost cutting and belt tightening, and thus their profit margin increased in an unsustainable way.

The government is still spending on everything imaginable and some things that nobody could imagine. The results from a dollar and (non) cents perspective: $1.086 trillion deficit for nine months ending June 30, 2009, versus a $438 billion deficit for all of fiscal 2008. Looking at it in another way, GDP is still negative, at last blush, and unemployment is rising. Does anyone remember the stimulus bill? These results would portend nirvana for a Marxist thinker. There are currently several large projects waiting for congressional approval, cap and trade and the revamping of the health industry, which can make current results look like a miracle recovery. That gets us squarely to a catch 22 predicament, a great book, but a terrible place to be in the middle of a recession.

Deficits must be financed and that becomes a major stumbling block in the recovery of the real estate market. Without a vibrant real estate market, you cannot have a successful economic recovery in this country. Real estate provides jobs directly and indirectly, for example contractors and tradesmen directly, and furniture manufacturers, flower and tree farms and satellite television companies, indirectly. Real estate provides property taxes for local governments and funds for schools around the nation, as well as wealth for the owners through amortization of their loans and appreciation of their holdings. Two-thirds of Americans own their own homes and a large percentage of these homeowners will rely on the equity in their houses for their own retirement.

Therefore, if you are a fan of these government programs, you can readily follow the bouncing ball to continued foreclosures in record numbers in the real estate industry, less money for the states, which are already in trouble from the unpaid property tax from homeowners in a distressed situation, and unemployment continues to rise. New homes will not be built and we will probably see increased layoffs in the collateral industries that service real estate and the homeowners. If those who make the laws could understand the results of their handiwork, they might finally realize they are "pouring water on a drowning man." Instead, they are apparently concentrating on a more modern song, "If I ruled the world".

How can we get through to this group to make them understand what they are crafting for the unsuspecting (and rather gullible) populous: people who have to be assured there is a Santa Claus, but who have to also realize there isn't a "free lunch." In California, where the state is somewhere from going bankrupt to slipping into the sea, the Governor and the legislators are busy balancing the budget by taking the redevelopment money from the cities (which could be unconstitutional), the property tax which is allowed once every ten years, and any other monies that they can find, prior to the cities spending these sums. I am sure you have heard of trickle down economics. Well, this is the new craze: reverse retribution. The government screwed it up so we have to pay for it. It's like playing black jack in Las Vegas and every time the dealer busts, you lose your ante.

I am left to try and make everything fit into a simple and succinct statement that all can understand. Unfortunately, with what I know and what I hear about our nation's actions and our nation's financial condition, I am unable to put it all together. I can't be sure that all that is being done is for the good of the people. Instead, it may just be a real positive for the government, regardless of how it works out for the citizenry. What sticks in my mind is the stimulus, which was supposed to have been spent to bring immediate jobs and help end the recession. Instead, the vast majority of the money will go out next year around, coincidentally, the congressional elections. I will leave it here as "food for thought" because it is really something to think about and your analysis of this situation is just as important as mine.