two letters from richard russell's web site tonight:
Richard, I read with interest, as I do every day, your comments today regarding the possibility of deflation.
You are correct on every count, as usual.
I have friends in the medical field who are doctors. While everyone seems to think all doctors are making more and more money, largely because medical costs are rising, it is not true. In fact, most doctors I know have accepted deep pay cuts due to several reasons. One is, of course, increased malpractice insurance premiums that have eaten at their profit margins. Some specialties pay as much as $500,000 per year premiums for their coverage, which is clearly not a sustainable sum. Another is reduced insurance reimbursements. It is not unusual for billed services to be negotiated downward by 66% by powerful health care networks. A group of family physicians whom I know were "forced" to accept reimbursements by Aetna to accept payments that resulted in their per patient income per visit actually being comparable to what most of us pay for a haircut. I say "forced" because they would have lost most of their patients had they not agreed to the terms offered. Of course, this all makes one wonder why health care premiums are increasing at many times the CPI when the actual providers are taking meaningful pay cuts. No one need to be told the extent of the expensive training received by skilled doctors and nurses, or the cost of medical equipment.
As far as airline employees taking pay cuts, I can attest. As a 30 year pilot (now retired) with a major airline, I have watched airline wages for all employee groups lose ground to inflation for many of those years. Most new employees are hired at what our industry calls "B-Scale," where employees hired after an arbitrary date work for 50 to 65% of the wages earned by those hired before that date. In addition, most "B-Scale" employees will never receive the retirement benefits of more senior employees.
Some examples are Ticket Agents starting under $7 per hour, skilled Aircraft Mechanics at under $13 per hour, and Flight Attendants earning well under $20,000 per year. Pilots still earn good wages, but nowhere close to what was earned in the 60's and 70's relative to inflation. The numbers I give are NOT for new nonunion "upstart" competitors, either. They are for one of the still top paying airlines with a 70 year history in the industry.
I heard Secretary Snow today saying that airlines had to get their wages in line with revenues, and to do that the employees and management will have to take large pay cuts to be in line with other industries. With our mechanics earning less than starting pay at my local Ford dealer for semiskilled "wrenches," and our ticket agents and flight attendants earning less than starting employees at In-and-Out burger ($7.95/hr. with benefits), I wonder where this is all heading. Certainly, it is no mean feat to take a $60 million jet filled with 6000 gallons of Jet A fuel at $1.00 per gallon and fly passengers paying $150.00 each to fly coast-to-coast and make a profit. Just how much cheaper can we expect our skilled employees to work for?
As far as manufacturing, it is obvious how many skilled manufacturing jobs have moved elsewhere. Aside for our auto industry (where the pain is evident), it seems most serious manufacturing has gone elsewhere. Those remaining stateside jobs are with companies who are on the edge because of pension plan deficits.
Even the service industry, which was heralded as the final stronghold of strength in the US, is seeing a serious outflow of jobs. It is now possible to route information and telephone calls overseas to facilities where workers are paid much less. I recently found out that some technical "help lines" I use are now answered by employees physically in India and Ireland, and that most insurance and financial documents are being processed overseas, where they are accomplished at a fraction of what US workers are paid.
Many of my "techie" friends who are software developers have already lost their jobs, or are very concerned about future cuts, with their work being done in India or Russia, or by immigrants from those countries hired to come here and work for lesser wages than US citizens will accept. In some cases, US housing is provided as a part of employment.
With phantom inflation pressing against residents in the form of increased costs for motor fuel, heating fuel, increasing property taxes (some people now pay as much in property tax as for their mortgage), and health care (including prescription drugs) , it is amazing that our citizens and economy are doing as well as they are.
I have been told that the last bastion of the economy is consumer spending, but from my daughter, who is a mortgage broker, I am told the consumer is in trouble. A majority of her prospective clients now looking to refinance have terrible credit compared to clients of only a year ago. She tells me there is what appears to be unlimited amounts of money available to refinance mortgages, but only a few can qualify even though credit standard have been reduced in an effort to use the available funds.
I cannot say where this all headed (though I fear I know), but it is troubling to see, especially when a majority of my acquaintances are well under water with their investments and personal retirement accounts. In life imitating "art" I actually have many friends who refuse not only to read outside financial advice, but who refuse even to open their monthly brokerage statements. One showed me her pile of almost two years unopened statements, saying that she cannot allow herself to think that the market will not come back before she and her husband must retire in two years.
Sad to say, but I have given up on offering reading materials and information to these people because they actively avoid it. They say that anything that shakes their faith in the "system" is just too frightening to consider.
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Richard,
I just wanted to pass this along to you. I have a small interest in a U.S. based private start-up that uses a manufacturer out of Kowloon, Hong Kong. Below is a note received on April 2nd from the agent over there (names removed to protect the innocent). Sort of scary, huh? Regards, TH
We are all OK, but the atmosphere is very tense and depressing here, the number of infected people keep increasing daily. All schools, including colleges and universities have been closed already. Nobody dares to go to China or anywhere right now. We are wearing face mask all times even in the office. We are supposing to have a large gifts and premiums show at the Convention Center at end April and also the Canton Fair in China. To my understanding, no U.S. customer/buyer is coming. It really hurts business and the whole economy. It is becoming a bigger issue than the War at Iraq. |
