Monday, January 24, 2011

Frank View of the Big Picture

The following is from friend, NYU Stern School of Economics Economist, Price Waterhouse Accountant, Fortune 500 Co. Comptroller, entrepreneur, and now retired, Frank Fischer. This is his response to an ongoing email exchange concerning the future of America.

Hi Mel...

I think you already know some/most of my big picture suggested spending cuts to the Federal budget. Getting rid of entire agencies and departments, like the Dept of Education, EPA, Dept of Energy, Dept of Commerce and as big a hawk as I am, big cuts in the military/Pentagon. I'm sure there are others that could be eliminated. All other departments and agencies should take a 25% budget hit, bar none except veterans programs. I also believe the Feds should cut 25-40% of all Federal employees and implement wage, bonus and COLA pay increase freezes until the budget is balanced. I also believe it's an opportune time to get a balaced budget amendment passed.

Also, no more defined benefit pensions. Stop them all right now and immediately switch all Federal employees to defined contribution plans like 401ks. No more Cadillac health care programs either. Stick them all into Obamacare insurance pools, if Obamacare doesn't get repealed. Congress and Federal employees are exempt from Obamacare. WTF!!

I also believe we need term limits for all Congressmen/women (3 years) and Senators (6 years). Cut the hell out of their pay, or don't pay them at all, like it used to be. Or pay them something similar to what the military pays for a low-ranking officer. Same for their staff. Give them some frugal expense reimbursement plan. No pensions, no health care they take with them. No more per diem, that they just pocket for personal use. Build a decent barracks-type residence for all reps, or just convert one of the many unused buildings in DC to a residence hall type thing for when Congress is in session. Staff are on their own like the rest of us. Eliminate perks like paying off their school loans for them too. 

Get rid of all the BS money-draining subsidy programs like Ethanol and money sucking things like Amtrak and the Post Office. Privatize these things with no subsidies from the taxpayers. If they fail, they fail. If prices go up, tough shit. Pay the going rate or use something else.

That would reduce federal taxes for the folks which would help our 70% consumer spending based economy and set an example for frugality for state and local government. State and local gov'ts need to cut the fat and get rid of all of the money sucking union pensions, health care and big paychecks. The lower taxes that would result will also help the 70% consumer based economy. Privatizing a lot of what state and local govt's do will cut costs and make things much more efficient. Case in point - NYC Sanitation Dept. Why have a city run sanitation dept? Sub-contract the work out, including snow removal. There certainly wouldn't have been any slow-down in snow removal with that last storm that hit NYCWaste Management does a great job. They've been picking up my trash for years at a very low cost and I don't know if they provide pensions or health care to their employees. Frankly, I don't care.

We need a national energy plan and as you know, I recommend CNG, nuclear and clean coal. Plus we need to drill for more domestic oil in the meantime and send these OPEC and other dictatorial financial rapists back to the stone age. This would probably be the biggest contributor to putting money into consumers pockets, thus helping the 70% consumer spending based economy.

Those are some of my "big picture" actions I'd like to see take place. I don't consider them small or insignificant.

As far as all of the smaller things I, and you, become aware of and bitch about all the time, a $ billion or two here, a few $ billion more all adds up to tens or hundreds of $ billions. It's just like eliminating earmarks. Sure, they don't add up too much in the big picture scheme, but taken as a cumulative whole with everything else, they add up to a ton of money. Plus, it helps eliminate corruption. Corruption always starts small and grows from there as politicians become bolder and bolder and steal/waste more and more of our money. Case in point is the ethanol scam and the proposed cap & trade fraud.

As far as our economy goes, I still believe we're in the midst of our fist lost decade. And it may continue to another decade, not unlike Japan. Obama and Congress aren't going to get us out of this mess. Only the private sector can do this. Regretfully, I don't see any clear way out. I don't see any clear way to reduce unemployment, other than through attrition as folks fall off the unemployment roles. But then they're on welfare, food stamps, etc. The housing market has crushed us. The US economy has been riding on fictitious, non-existent wealth in the form of bogus home equity for the past 10 years.

For years, folks have been pulling this bogus equity out of their homes to buy cars, big screen TVs, take vacations, remodel their homes, buy 2nd homes, etc, etc, etc. Then there were the house flippers taking quick profits of bogus equity. It was all BS. Look at what happened when the bubble burst. IMO this is the main cause of unemployment in this country. All of the lost jobs including contractors/builders, sub-contractors, building suppliers, realtors, mortgage brokers, bankers, title companies, etc, etc, etc, plus all of the government related jobs, like those in building depts, inspectors, etc. Then the effect it had on the rest of the economy. Severely reduced auto/trucks sales, mall closings, restaurants closings, retail shops out of business.... you name it, it's gone. Then the foreclosures....well over a million, maybe 2 million and an estimated 3 million more coming. This has touched every part of our economy.

So the big question is: in what sector of the economy will jobs be created? I have no idea. Neither does anyone else, including Obama and Congress. The truth is I don't believe a significant number of jobs will, or can be created in any sector. Hence my forecast of 2 lost decades. Until such time as all of the millions of baby boomers (1946-1964) are finally out of the work force, we'll continue with 9-10% or higher unemployment. It's the norm now and may get worse. We need to create 140K jobs a month just to keep up with normal growth. Where are all the kids graduating high school and college getting jobs? They're not. They're moving back in with their parents or other family members. Folks that have lost their job and their houses are moving in with friends and relatives. It's a mess. All of this causing a lack of contribution to our 70% consumer spending based economy.Yet the population continues to grow.....with illegal aliens and babies from single parent mothers living in projects and ghettos. All needing entitlement support, further stressing out the financial situation in the country.

Sure, the stock market is doing better, but it's all BS. Most companies are recording increases in their bottom line profits, but little to no growth in their top line, revenues. This is all because they cut the hell out of expenses, mainly with headcount reductions. Productivity is way up. Wall St banks are making a killing since they're able to borrow money from the Fed at zero % interest and turn quick, daily profits by lending it to other banks on short terms. Business and consumer credit is still tight and tough to get. All of this Wall St and stock market crappola does nothing for our 70% consumer spending based economy. Consumers that do have an income aren't spending. Those that don't, can't. Many are terrified and either saving or paying down debt. Many are helping to support other family members, just to help them get by with the basic needs to survive. Bankruptcies are at a record high. Foreclosures the same. Huge numbers of unsold homes are out there and the numbers are growing. Home values are dropping like a rock and continue to do so.

That is the big picture. We're screwed. The truth is guys like you and me DO get it. It's the rest of them that don't.


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