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Monday, September 29, 2008

SIMPLE SOLUTION FOR OUR FISCAL MESS

In my two books I had SIMPLE SOLUTIONS for virtually everything: energy, environment, crime, war…name it, I had it. Except for the economy! Today I rectify that omission.

You might ask, what credentials do I have to even comment on the subject? Well, not much, but more than I had in crime, religion and assorted other subjects which made the publications cut list.

Anyway, my simple solution for the bailout is to do nothing. This is in keeping with my samurai philosophy: act swiftly and decisively when you must, but sometimes, no decision is best.

Here is what our congressional representatives are thinking: only 40% of Republican voters, 30% of Democrats and 10% of independents are for the bailout plan proposed by President Bush and Treasury Secretary Paulson. In an Associated Press poll, only 30% of Americans said that they supported the Bush package. Yes, adjustments were made in Congress over the weekend, with a sprinkling of clever main street facades, but what is a Congressperson to do: vote for Wall Street and get kicked out of office on November 4? House Republicans, especially, kept to their principles (free market, not socialism…plus get re-elected) and the legislation was defeated 228 to 206.

Did you see what was happening to the stock market a minute before the debacle and for the rest of the day? The Dow Jones Industrials had already dropped more than 200 points, then suddenly, in a matter of a minute or two, plummeted another 500 points to minus 734 when it looked like the vote looked hopeless, then, within minutes after the voting was supposedly closed (see Lawrence Berra’s quote later about it not being over), when there came a reassurance that the House would re-consider and try to twist arms over the next couple of days over the Rosh Hashanah Jewish Holiday (first of ten repentance observances, culminating with Yom Kippur on October 9 this year), a gradual rise back to the minus 300s. The DJI then dropped again, largely in the minus five hundred range, and was at -580 seconds before the trading deadline today, when through a breathtaking few minutes after the bell (yes, Yogi’s “It ain’t over till it’s over” wisdom prevailed again), the market free fell to 10,365, minus 778 for the day, the greatest one day drop in history. A decline of about 200 points AFTER the bell. My HuffPost of last week on the metastable state of our economy is coming all too true.

So what will happen next? The White House will propose another package, the House will act by the weekend, a month before the General Election, and the Senate might need to hang in there until next week. Is this bad for getting re-elected? Actually, no, for most campaigns are run on TV and sound bites. Incumbents can be made to look good with their home news channels reporting on the great job they are doing to save the country for their constituents. Plus, they won’t need to pay for these self-promoting ads. What a windfall. Looks like our elected national representatives have found another workable ploy. The longer they stay in D.C., the more they will have to gain.

So returning to the DO NOTHING solution. Let’s say our Congressional members cannot get their act together and leave town about mid-October, all the while blaming President Bush (who does not need to run this year) and the other party. There is enough to go around. Many banks close, but the feds take over, and most of the bank run is covered by the FDIC, anyway. Only the really rich lose bucks, but they caused all this, so no harm there. Certainly, gold will surge past $1000 / troy ounce, but no big deal here, because that also happened on January 21, 1980 (the Second Energy Crisis), and, in 2008 dollars, that’s worth almost $2500/oz. Crude oil drops to $75/barrel because demand declines. OPEC countries squabble among themselves to reduce production. Then the price plateaus at $50/bbl, just enough to discourage the financial sector to cancel most large renewable projects. OPEC will love this. You can count on oil rising past $150/bbl in a couple of years. Then what?

It doesn't matter if the stock market crashes or not, for it will recover to the 8,000-10,000 level by the end of the year when investors learn that those who had their mortgage foreclosed were given a reprieve on a case by case basis to stabilize the economy. No $700 billion bailout package, but our existing financial system does have flexibility to continue to provide small business loans and assist consumer purchases of cars, homes and whatever. What was the emergency, again?

No way John McCain will get elected in this scenario, but Barack Obama will have a mess on his hands come January 20. On the other hand, change comes best in time of crisis, and like FDR had Herbert Hoover, Obama will be able to thank George Bush.
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Crude plummeted to $96/bbl today, something to do with declining demand caused by the world economic recession.
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Kyle is gone, but a subtropical storm named Laura at 58 MPH popped up in an unusual place, the mid-north Atlantic, about on parallel with Washington, D.C., but far, far out in the Atlantic. It will move north and disappear.
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Tropical Cyclone Jangmi, at 40 MPH, suddenly moved northward, and is now hitting north Taiwan with rain and some winds. The projected path is northwest, missing China, but heading for south Kyushu. Tropical Cyclone Mekkhala at 58 MPH
formed south of Hainan and should crash into Vietnam tomorrow.
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