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To: orkrious who wrote (236409)	4/19/2003 11:01:49 AM
From: mishedlo	Respond to of 436258

From Plunger on the Fool: Right now the US has a clear case of a small group of people extracting wealth and savings, ethically maybe in part but IMO largely unethically, from a large group, leaving them overindebted. The present is bleak for many J6Ps and the future no better. Logically politics should swing violently to the left as all these J6Ps realize they have been truly shafted by the avaricious capitalist system, aided and abetted by short term whorelike politicians. The trouble is that the problem - the overvaluation during the bubble - happened on the last Democratic watch. Plunger. Reply from Mish: For starters look at what the airline CEOs just did to preserve millions and millions of pension benefits for themselves while all the workers got shafted. That was simply unconscious IMO. Other than economic depression and bankruptcy wiping the slate clean how does a transfer of wealth happen to cure the problem? Look now at the laws passed to restrict bankruptcies. The credit card industry wanted a bill passed to protect them. If I am not mistaken this bill passed but I do not remember the details. It seems we are headed the opposite way of what is needed. Obviously this is compounded by the massive balance of trade issue as well as high levels of debt everywhere. This quote below sounds like it is straight from SI's Reaper. He uses a cost of capital method on companies deep in debt to see if they are headed to zero. freep.com "We found that the cost of capital exceeds the return on capital" in many sectors, David Rosenberg, chief North American economist at Merrill Lynch, said in a recent report. "So where is the incentive to embark on a capital investment spree right now -- or in the near future?" Without capital spending where are the jobs? How can there be capital spending at a time of overcapacity, deflation from China and others, exportation of jobs to India and China, and to top the entire mess off an overall environment where "the cost of capital exceeds the return on capital". Is the economic rebuild of Iraq going to save the US? Is that what we are banking on here. More contracts for HAL, Betchel, etc, etc. Isn't that a drop in the bucket compared to the overall economy? Will those jobs be local or in Iraq, or perhaps even China (where stuff is made)? Let’s look at taxes, how the h*ll are state budgets going to get balanced if taxes are not raised, services cut or both? If taxes are raised what taxes will they be: gasoline taxes (offsetting any drop IF and when oil prices drop), property taxes (already going up with the value of real estate)? If not those, what? How do state budgets get even close to back in balance? If not taxes, will there be more layoffs? What impact will either have on an incredibly weak economy? Can the federal government bail out the states? How? Some are calling for reduced federal taxes but will that be wiped out by increases in state and other taxes? Even if by some miracle state taxes do no go up, how is the government going to pay for increased military spending, the rebuilding of Iraq, homeland security, and bail out the states at the same time when tax revenues are falling like a rock? What about that budget deficit and debt ceiling? Just how high can it go? How high is too high? Right now the "rich" are about the only ones who can afford a tax increase yet the President's plan (elimination of double taxation on dividends) goes entirely to those who need it the least. This plan (now dead) shows you how Bush is thinking at least, and IMO it is down the wrong path. Everywhere you turn there are massive issues: A social security time bomb. A pension plan time bomb. A debt time bomb. A balance of trade time bomb. A state budget debt time bomb. A continued loss of jobs to India and China. A ton of bad loans to Brazil, Argentina, etc, that will never get paid. A bubble in the auto industry, and even with the bubble no profits. A housing time bomb. A terrorism time bomb (how long before more terrorist activity?) Obviously Greenspan intends to reflate us out of this mess but how does that help the poor guy who is out of a job? Won't that make it worse for him? How does reflation solve the overcapacity problem? Will it stop the flight of jobs to India and China? What can possibly stem the loss of high paying jobs? Right now, the stock market seems to be saying that reflation is working (if it is saying anything at all) but other than forcing interest rates to zero and every cent possible out of bonds into stocks, what happens at that point? Isn't an interest rate of zero and the notion of reflation contradictory in the first place? Finally, all reflation seems to be doing is forcing up the cost of raw goods, but doing little to or nothing for the price of finished goods. Where is the pricing power supposed to come from to keep the cost of finished goods high? Everywhere I turn I have far far more questions than I have answers. To me, consumer spending boils down to jobs and other than a small blip of possible IT spending, I do not see where these jobs are coming from. Obviously housing has gone further and lasted longer than many of us thought, but equally obviously it can not last forever. If housing is to stall for any reason soon, it is an immediate "good night nurse" to the economy. Even IF housing can continue in its current state, how and when are we going to address the other structural problems I mentioned? I am going to end this soapbox with the first question I raised: Other than economic depression and bankruptcy wiping the slate clean how does a transfer of wealth happen to cure all of the above problems?