The Adventures of Charlie Champion

On Friday August 21st in a speech in Jackson Hole Wyoming, Federal Reserve chief Ben Bernanke declared” We have saved the World from disaster.

He continued, ” As severe as the economic impact has been, it could have been decidedly worse.”

Hallelujah! Praise the lord!.

Despite jobless claims increasing, and real unemployment exceeding 20%.

Despite the dollar being diluted as fast as the printing presses can print.

Despite small businesses being squeezed out of existence,

and despite a projected shortfall of $ 9 trillion over the next 8 years

Chairman Bernanke in lock step with President Obama and the socialist regime he leads, can state with a straight face that”  we have saved the economy from disaster.”

………So Far……..Maybe……..Or maybe not!!!

The government persists in putting a very one sided spin on the economic numbers, and the lap dog press spews the diluted pap that they are fed.

Their  ignorance of the dangerous times and potential disasters that they are perpetrating shows gross incompetence, and disregard for the survival of our country and our economy.

By “cooking the books” they are leaving the American public with misinformation and a lack of  knowledge necessary to survive hard times.

But they will have their social agenda.  Just no functioning society to support that agenda.

The real economic numbers are still falling, and misinforming the public is setting them up for another even harder fall.

We thought that the President could walk on water, now we find that the Fed chairman does the water walk bit too.

Competition or self deception?

Everything is getting better.

The recession is over, and there never was a threat of a depression.

Last week 53 economists polled by Bloomberg, said the recession was over in the 3rd quarter of 09( this is the 3rd quarter) and we can expect renewed growth over the next 4 quarters of 1 1/2 - 2%.

Cool! Groovy! I wish I could be a professional economist so that

 I could make up neat fantasy stories.

It’s nice to know that the stimulus was a success.

Where did I put all of those credit cards that I swore I would no longer use?

Let the good times roll…or not…

Our economic prognosticators have overlooked a few facts, which casts a partisan pall on their judgment.

Foreclosures were up 7% in July over last year.

Housing prices are still falling.

Unemployment is still going up, and has exceeded 20% in real terms.

Consumer price index is falling. The sign of a deflationary response to shrinking demand.

Business profits are falling in real terms( more on this in a moment)

Consumer spending is down and savings are up from a negative 2% to a positive 7% + over last year.

Today’s lead article in the Wall Street Journal headlines ” Reluctant Shoppers Hold Back Recovery”

The article goes on to state that major retailers reported thet American consumers continue to hunker down, casting a cloud over the durability of the US recovery.

Retailers transcending  discount to luxury are providing foreboding results.From discount Target stores with a 6,2% drop in same store sales to luxury store Saks with a drop of 15.5%, retailers are forecasting slowing sales through the end of the year, and a “hoped for” recovery by the middle of 2010.

The Obama administration and the Democratic controlled Congress desperately need a recovering economy to maintain the justification for excessive spending. If the Stimulus spending and various other “changes to the economy” has worked then they stay in power and get to change and spend some more.

The 4th quarter numbers will reflect a healthy growth in Gross Domestic Production(GDP)

Don’t be deceived, The “healthy growth ” is compared to the 4th quarter of 2008, a period of  economic disaster.

Of course the numbers are healthy compared to the end of last year. Especially when most profit margins are being maintained by shrinking overhead, namely payroll.

Don’t be surprised by a rally in stocks in the fall and early winter, but be careful when the recession/Depression roars back with a vengeance  next year.

You can only cook the books so long. At some point reality will force its unwanted truth and the markets will have a serious correction.

Dear Friends.

PLEASE BE CAREFUL

The small and medium business community has been largely ignored by Congress and the Obama administration.

Perhaps as individual entities, they don’t have the clout of an AIG or G M , or Chrysler, but as an aggregate, they are an extremely vital component of American economic health.

A large number of smaller, independent and usually well educated business entrepreneurs are difficult to control and are usually resistant to government intervention,

Hence, in this left wing socialist leaning environment, their eradication  through inaction is a political statement that has been largely ignored by public discussion.

The lack of stimulus funding is a deafening silence in the current “bail out” economy.

CIT Financial a funding company whose primary customers are smaller businesses, was allowed to fend for themselves when credit support became critical.

The misinformation and deliberate misinterpretation of statistics is an attempt to talk away the recession, or at least hold the terrible reality at bay until the Health Care, and Cap and Trade bills are passed.

The government appears to be more interested in an agenda, than in bringing real relief and helpful stimulus to the small businessman.

As a small business CEO, the reality is becoming more painful every day.The American economy and government pundits are pushing for quick passage of their agendas before the harsh reality of the Holiday season shows the depth of our problems.

From many discussions with my customers and my fellow CEO’s in various industries, this upcoming holiday season will be the worst in a very long time.

Gift giving and joy to children is part of the  American psyche, but this year has changed the spend and credit card mentality of the past 30 years.

Gifts will tend to be more practical and less ostentatious.

Employee bonus’s  will be modest if they exist at all.

Once the reality of our economic depression becomes apparent, the push to pass big new social engineering bills will become a  huge drag on the popularity of the Democratic party, and while Obama’s popularity and approval ratings continue to dive, the practical world of US politics will see Blue Dog Democrats strike a more moderate and fiscally conservative stance.

Sadly this will be a case of too little too late.

The damage to our economy has already been perpetrated, and our children and grandchildren will be paying the price for decades to come.

The life line of public bail outs is having  the effect of delaying the inevitable rather that curing the problem.

We need to finish our rebooting of the economy so new can begin to grow.

Last week, The Wall Street Journal had a headline ” recovery likely in 2nd half”.

Goldman Sachs has reported obscene profits for the 2nd quarter, and has declared for a major stock market rally similar in intensity to the ” Jimmy Carter is gone” rally of the early 1980’s.

Is it really that easy? Is the worst over?

Should we all get out our cut up credit cards and glue them back together, so we can ” shop till we drop”?

I don’t think so, unless you have a hidden money tree growing in your basement. If you do, don’t forget your friend Charlie.

The recession is officially 19 months long as of July 09. This represents the longest recession since the early 1930’s, which evolved into the Great Depression.

Are the Journal and Goldman right ? Has the government porkbarrell stimulus fiasco really saved the day?

Is Joe Bidenright ” we have to spend money to keep from going broke?” What ever that means!!!

No! No! and Double No!

What I have been telling you for almost 2 years now, is “we broke the machine”. This is not a simple case of throwing money at the problem to create a new bubble, The system has derailed and you can only fix  a broken system by letting it die, and creating a new and stronger one.

The fabric and structure of our society is realigning. Society’s priorities are changing, and fundamental change takes a long time.

This protracted change is what they call a Depression, and clearing a depression takes time.

Time to heal and recover, Time to use up inventory and develop new demand where it no longer exists. A basic change in the format and the foundation that society builds upon.

Debt reduction.

New industry.

New demands.

The death of old habits and a return to basics.

Something major has occurred, and stimulating it won’t work. Over stimulation is what caused it  to break.

The shakeout is just beginning, The cure is a bitter pill to swallow, and includes, bankruptcies, business liquidations, deflation, defaults, and eventually a possible hyper inflation.

Stimulating a depressed economy is having the effect of delaying the inevitable.  A new auto industry based upon reduced labor costs and new innovative designs would have been the best of free enterprise born out of a G M  chapter 11. It would have allowed for the elimination of oppressive union contracts and make American ingenuity competitive with the World once again.

Instead a government bailout will result in a micro managed mis managed auto company kept alive by government funding to save the unions.

In a 12 month whirlwind of corporate and  social extremism, we have witnessed  a cacophony echo of partisan changes and bailouts unprecedented in the history of the United States.

Insidiously, many of the moves have been motivated by an agenda of punishment and reward for political affiliations rather than for the good of our beautiful America as a nation and unified people.

At a watershed time in history, the near collapse of our economic system has seen bailouts in the $ hundreds of billions, to pay off the labor unions (see UAW, Teachers, et al) , the cronies at Wall Street Banking firms (namely Goldman Sacks) where most of our treasury and finance leaders have  apprenticed, and various insurance and banking entities.

The $Trillions that have been spent to prop up and stimulate appeared to be very focused towards  ideologically friendly companies.

Fannie and Freddie got into trouble by lending to subprime minority borrowers. The have been bailed.

The Car dealerships forced out of business while the Auto manufacturers were being nationalized, were predominantly Republican contributors.

The money has flowed and continues to flow as quickly as the printing presses can churn out the paper, but the recipients have been suspiciously partisan.

This is why it is so troubling that the Obama administration has taken such a tough stance directed towards CIT Group.

The White House has chosen this struggling lending Institution as the focus test “line in the sand”. Cutting off the lifeline offered to so many others.

This primary lender to small and medium sized businesses, is being left to fend for itself as it struggles to stay afloat, while the Administration has continued to catered to the banks that service major corporations and investors have been bailed out.

Letting them fail is a major blow to small businesses that depend upon CIT to fund their inventory and weekly payrolls.

The administration has also squashed a bipartisan effort to rescue come of the car dealerships set adrift by the GM and Chrysler bailouts. 

Partisan politics is understandable, but not at the expense of the innocent American public.

Despite our government intelligentsia insisting that we are in a recession, they are wrong. We are at the beginning of one whopper of a Depression.

In a recession, the economy gets a nose bleed, and possibly a mild fever.

Traditionally Dr Fed will tell us to take a few aspirins, get a good night’s sleep, and get back to business as usual , in the morning.

In a Depression, the economy is in the process of dropping dead, with a cure beyond the miracles of modern economic medicine.

Businesses have failed, with hundreds of thousands still in a death throe.

People have lost their savings, their jobs, and their homes.

New waves of loan defaults are on the way:

1. Prime Adjustable Rate Mortgages(PARM’s) Credit worth people who bought bigger and more expensive than necessary, by using the leverage of clever mortgages, which ballooned in 5 or 6 years(2010-2012) so they could refinance their much move valuable homes, or sell them at a profit prior to the adjusting.

2.Commercial Real Estate mortgages. A. The flood of retail store closings and mall bankrupcies has just begun as consumer spending continues to shrink.

                                                                            B. There are hundreds of thousands of small and medium commercial companies in construction supply, or commercial maintenance or manufacturing or any other commercial industry, who are literally holding on by their finger nails. I see it every day, and I hear it in the frightened voices of my customers and suppliers.Many of them are failing, and will take the commercial/ industrial real estate market down with them.

3. Home equity loans- Their time is due. Too many people pulled equity out of their homes and now there is less and less collateral in their homes to cover their loans.

4. Credit Card defaults.The banks are squeezing the card holders with shrinking limits and rising interest and penalties. To many who lost their jobs and their savings, credit cards represented a very expensive way to keep afloat. But not for long.

The final death of our economy is being delayed by the misguided attemps by the government to prop up  the “old economy” by pumping $ trillions into the dying economy to keep business functioning at artificial OLD levels.

All of this money is not creating anything new except for a massive government funded bubble. And we sadly know what inevitably  happens to bubbles. Coupled with the oncoming depression, the bubble burst is appalling to imagine. 

Prop up the banks, even though their mismanagement and duplicity helped cause this final mess(We should have let the weak ones fail)

Bail out the auto industry. They are too important and their labor unions deliver a lot of votes.(The unions were the yolk that made US auto makers non competitive. Let them go chapter 11, reorganize, and get rid of the grandfathered union benefits)

Now its insurance companies, then health care companies and widget manufacturers and energy producers. The government will run everything, and bankrupt us all, meanwhile new resources are diverted from new entrepreneurs to prop up the old dinosaurs.

Have I bummed you out yet?

I need a break.

Much more later.

The U S gross domestic production contracted by 5.7% in the first quarter of 09

The World economy is forecast to contract by 3% for all of 09.

In a world of steady population increases, and a standard of living which has been improving worldwide for the better part of 20 years, a contracting economy is dramatic and dangerous.

In the U S , real estate values have been the savings account, which gave people the freedom to borrow and spend. Home equity was alway an easy loan in a market that increased steadily .

Retirement funds have been traditionally  augmented by the cushion that our home equity provided.

The crashing real estate market has been a severe blow to our psyche.When the steep decline in Wall Street wiped out our retirement savings, we could no longer look to our home equity as an alternative  hidden cushion.

Defaulting loans and home foreclosures has left many parts of the country looking like ghost towns, and the ripple effect has affected all aspects of our economy.

Every reported slight increase in pending home sales is examined  with wishful optimism, but the sad truth is , any glimmer of optimism is fueled by short sales and foreclosures sold by the mortgage companies; most  at a loss.

The economic recovery can not begin until home prices stabilize and begin to recover.

With the inventory glut of available homes equal to almost a full years supply, values are still falling.

Property values can’t begin to recover with the economy stuck in a cycle of higher savings and lower spending.

The stagflation which we have talked about many times, is getting a stranglehold on any recovery.

World wide, factories have a glut of excess capacity, built for the bubble economy, which is now deceased.

With the Democrats agenda of big spending and massive stimulation, the Treasury Department is running the printing presses on a 24/7 basis.

This excessive growth in the money supply has only just begun to trickle into the general economy.

This trickle will soon become a torrent, as the Fed hopes to pay back the   $ trillions  in borrowed funds with inflated dollars. The potential for this unprecedented money expansion to trigger a hyper inflation recalls visions of modern day Zimbabwe, and post WW I Germany. Both resulted in scenarios of wheel barrow loads of paper currency to purchase a loaf of bread.

If you depend upon a fixed income to survive, be very cautious.

More later