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December 12, 2013

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HERE WE GO--why can't the FED just say we are shifting gears to a policy of low interest rates forever because this bond buying spree has not worked? Because as I write this Bernanke is giving his final press conference and rationalizing his policies and giving his unsubstantiated projections of a drop in unemployment to 5.5% by 2015. Last week it was announced that only the top 7% of the income earners have returned to their status of 2008. 93% remain below it. We also learn from Bill that family income has dropped from $55k to $51k during the Obama years. Today we heard from Fed Ex that their customers continue to look for cheap products and cheap shipping services indicating that we are experiencing a slow Christmas season. Ford gave poor forward guidance for 2014 noting that there is weakness in Europe. 70% of economists polled have said that Obamacare concerns as well as the added costs of buying insurance during the holiday season has hurt the consumer buying power and the economy.

Why is inflation nonexistent? America is transferring income to the developing countries. So is Europe. The wealth transfer of Obama's strategy is underway. America's buying power still drives world markets. And, America's buying power is diminishing with family income falling. Not only is it falling the labor participation rate continues to fall. It is a prime reason that the Fed can make the case that unemployment is down. Not really very much. Nonfarm job growth is about $180-200k a month. That barely keeps pace with the new entrants into the labor market. We are just watching the baby boomers retire. Retired people do not spend like working people. Not even close. Today it was announced that builders are encouraged at the demand for houses but at the same time mortgages went down as have refi's. How can that be? Easy the houses being bought are being bought for cash as investments (rental property) by investors. This is not consumer demand it is a flight from low interest rates in the bond markets by investment capital. If the world economy is really growing then why are the prices of the exhaustible resources such as minerals, oil, natural gas, etc. all declining? 40% of the growth of American industry in the past 10 years has come from the 4 biggest tech companies Apple, Google, Amazon and Facebook. How many of you have gotten those high tech jobs? I'm not a doomsday person and I am not saying the economy has not improved. It is just that 24 of the US states that are contributing to the improvement are in the oil and gas boom. That boom is the one thing that Obama promised he would end in favor of alternative energies and global warming. The rest of the states are slowly gaining some momentum from lower energy prices. But, at a very slow pace. Long ago I asked the administration to find a way to unlock the failure of banks to loan money to small businesses. Instead they issue more and more regulations for banks to strength their balance sheets which restricted lending. Until the power of the small businesses are unlocked 70% of the country will lag. And, American wealth will continue to drift overseas.

The problem of growing class income inequality has received much attention and is very complex. Bill's blog, and Bill M.'s comments, are on target with respect to important aspects of the problem.

George Will, in his December 12 column, deals with another aspect--the impact of lobbying that causes Congress and the Administration to direct resources to the privileged groups affluent enough to buy more "goodies" from Government. Unfortunately, the working poor and middle class do not have anyone lobbying for their interests. Nor do they have any Government agency (such as Dept of Labor or HHS)to advocate their interests. Thus, they become lost in the process of governing the country.

Let me propose a partial remedy: We should return to the era when budgets were the norm. The budget process caused the special interest groups to make their case in a more public manner, thus involving the media more critically in the process. Now,it seems that special interest groups are nursed and fed behind closed doors by politicians and bureaucrats anxious to please for their own reasons, with little reason to say "NO". There is no competition for resources (which drives up spending). If we returned to a budget, and eliminated earmarks, the country would be spending its resources more wisely and more thought would be given to those not falling within the top and bottom 10% of society, who are well represented by lobbyists and bureaucrats.

PROGRESS? Have we made any progress in 5 years? I guess we can say we have survived the financial crisis. I guess we have dodged another terrorist attack. That's about it. Healthcare planning which represents 20% of the US economy is in crisis adding to the low manager confidence level. Unemployment persists at very high levels due primarily to the cost cutting mentality of the Fortune 1000 trying to increase EPS with flat top line sales. Jobs are not created in this environment. Because jobs come primarily from small businesses. And, small businesses do not add jobs in a cost cutting environment. Employers both large and small are spending an inordinate amount of time trying to solve a maze of healthcare issues that include trying to decide what their employee strategy should be? Less hours? Temporary workers? Contract workers? Stratified employee classes that include less permanent full time workers? In the end all of this is not likely to uplift the wealth of the average American worker. Meanwhile, banks still hold back on small company loans. If you never address the problems of small business then you cannot really increase the income of the working class people.

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