Real Per Capita GDP Falls 1.2%

October 31, 2008
The Bureau of Economic Analysis reported Thursday that 3rd quarter real GDP* fell at an annual rate of 0.3%. But GDP is a meaningless figure if it’s not related to the size of our population. Since the U.S. population is steadily rising at an annual rate of about 1%, then the GDP pie has to be sliced into more pieces. If the pie isn’t growing faster than the population, then everyone gets a smaller piece. In other words, the effect on individual Americans is even more pronounced than raw GDP data would lead us to believe. In the 3rd quarter of 2008, real per capita GDP fell by 1.2% to $38,438 per person (adjusted for inflation and expressed in 2000 dollars). That’s a decline four times as bad as the government’s raw GDP data.

This is the third quarterly decline in real per capita GDP in the last four quarters. Only the second quarter of 2008 had a small gain of 1.8%, thanks to the fiscal stimulus package. Real per capita GDP is actually lower than it was in the 3rd quarter of 2007. And all experts agree that the 4th quarter of 2008 will be even worse.

The trade deficit continues to be a huge drag on real per capita GDP. Were it not for the trade deficit, 3rd quarter real per capita GDP would have been 6.0% greater at $40,733 per person. (Imports are a subtraction from GDP in the BEA’s calculation.) If the next president is looking for a way to turn the economy around, the trade deficit would be a great place to start.

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* – Annualized 3rd Quarter Actual GDP, expressed in current dollars, was $14.429 trillion, compared to $14.295 trillion in the 2nd quarter.  However, “real” GDP, which is adjusted for inflation and expressed in 2000 dollars, was $11.720 trillion, compared to $11.727 trillion in the 2nd quarter. 

 


Taxpayer Money Used to Eliminate American Jobs?!?!

October 30, 2008

http://www.time.com/time/business/article/0,8599,1855185,00.html?xid=feed-rss-netzero

It’s being reported today that the details of the GM-Chrysler merger have been settled between GM and Cerberus Capital Management, owner of Chrysler, and that the deal may be done by Tuesday. Just one small detail stands in the way – financing. GM doesn’t have the money to pull it off. That’s where the federal government comes in. The governors of six states have signed a letter to Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke, imploring them to quickly provide federal assistance, without which it is feared that all domestic automakers will go bankrupt, with catastrophic consequences for the entire American economy.

Although GM is selling this merger to the government as the best way to salvage jobs in the domestic auto industry, claiming that both companies will go under without it (which may very well be true if nothing is done), its real interest (beyond mere survival) is in eliminating a competitor while increasing sales and cutting costs.

Projections are that, if this merger takes place, approximately 35,000 Chrysler jobs will be eliminated and that nearly five times that many jobs will be lost in total when parts suppliers and other ancillary companies are included in the impact – a total loss of about 165,000 jobs. Yes, GM will improve its sales volume slightly by the elimination of this competitor, but the vast majority of Chrysler’s sales volume will be lost to foreign competition. What this means is that, if the federal government provides the funding for this merger, billions of American taxpayer dollars will be used to facilitate the elimination and outsourcing of 165,000 American jobs! Then, billions more will be spent on unemployment payments and billions more will be added to the national debt when the income taxes collected from those 165,000 workers falls to zero.  So far, I’ve heard no discussion of this snake-eating-its-tail scenario, where taxpayer money is used to eliminate taxpayers’ jobs.  This should be a pitchforks-in-the-street moment!  Where is the outrage? 

GM is pushing frantically for this deal to be done by Tuesday. Why Tuesday? What’s so magical about that day? The election. If Obama is elected, as appears likely, GM fears that it will then have to deal with an administration that will take a dim view of using taxpayer money to destroy so many American jobs. An Obama administration will still do a deal to salvage the domestic automakers, but will be far less likely to do a deal that eliminates Chrysler as a separate entity. GM would much rather close the deal with the Bush administration, Henry Paulson and Ben Bernanke – people who don’t give a rat’s behind about American jobs.

There are much better ways to save all of the domestic auto industry. Loan GM the money it needs to survive a bit longer and take a stake in Chrysler, perhaps even all of it. Couple that with some new protections of the domestic auto industry, like tariffs on imports, and within a couple of years we’d have an explosion in domestic sales. The government would soon be able to sell Chrysler at a handsome profit for taxpayers. The time is past for timid steps. Without the protection afforded by tariffs, the domestic auto industry will be doomed regardless of what other measures the government or the carmakers may take.


Bush Urges Support for Free Trade Principles. Need I say more?

October 26, 2008

http://www.reuters.com/article/politicsNews/idUSTRE49O2DH20081026

The following excerpt is taken from the end of this linked Reuters article:

Bush warned against taking a protectionist turn in response to the current financial turbulence, saying free markets and free trade were fundamental to long-term economic growth.

“These policies have shown themselves time and time again to be the surest path to creating jobs, increasing commerce, and fostering progress,” Bush said. “And this moment of global economic uncertainty would be precisely the wrong time to reject such proven methods for creating prosperity and hope.”

Yeah, right.  The world is just awash in prosperity and hope right now, isn’t it?  Can there be any greater indictment of our free trade policies than the fact that Bush clings to them so desperately?  It’s like a drowning man crying out, “Water!  Water!” instead of shouting, “Help!”

There can be no doubt that our free trade policies have created jobs, increased commerce and fostered progress around the world – all at the expense of the United States.  Of course!  Pumping $700 billion into the rest of the world, year-in and year-out, will do wonders for the economies of nations like China, Japan, Korea and Germany.  But all it did for us is drive us into bankruptcy.  

Trade is a wonderful thing.  Really!  But the word “trade” implies some mutually beneficial exchange.  By definition, to be mutually beneficial, it has to be balanced.  It’s simply impossible for either side to sustain a large deficit indefinitely without eventually destroying their economy, and there’s nothing beneficial about that.  While trade is a wonderful thing, misguided trade policies like unfettered “free” trade skew the process and offer a slow but steady path to economic ruin.  

It’s time for a return to sensible trade policies that maximize the benefit of trade for the U.S. while maintaining a balance.


Oil and Gas Industry Commercial: Less Than Reassuring

October 20, 2008

I’m sure you’ve all seen the commercials that have been running frequently in prime time for the last few months, the ones with the lady striding confidently across a chart of America as she proudly boasts that “we have enough oil and gas right here in America to heat 160 million homes and power 60 million cars for the next 60 years!”  Is it just me, or do you also find this to be less than reassuring?  We already have 160 million homes, and it’s growing by two million homes per year.  And we have about 150 million cars hitting the road every day, not 60 million.  So now that oil and gas will only last maybe 30 years, not 60.  Then what?  It’s not like other global reserves aren’t being gobbled up at the same rate. 

This country needs to get serious real fast about planning our energy future, and no plan can possibly succeed if it doesn’t begin with stabilizing and then reducing our population. 

Thank you, oil and gas industry, for making it crystal clear just how dire our situation is.  By the way, you’ll soon need to change the figure in your commercial to “… we have enough to last 59 years.”


Global Economic Crisis Costs 20 Million Jobs

October 20, 2008

http://www.reuters.com/article/newsOne/idUSTRE49J4VZ20081020?sp=true

This linked article reports that the U.N. is predicting that, by the end of next year, the economic crisis will result in 20 million people losing their jobs world-wide.  But what I found particularly interesting is the following excerpt:

It was alarming that global unemployment had stayed at the same levels despite the strong economic growth seen between 2002 and 2007, said Somavia (Director-General of the International Labour Organisation), who files (sp) to New York this week for talks with the heads of all U.N. agencies, chaired by U.N. Secretary-General Ban Ki-moon.

I find this excerpt interesting because it is a frank admission that globalization has done nothing to create jobs globally.  It has merely shifted jobs from countries like the U.S. to the developing world.  The article goes on to say that global unemployment is expected to rise from 190 million people to 210 million, the first time in history that it will top 200 million.

But more than that, I find this quote interesting because it comes as no surprise to me at all.  It’s exactly what the theory I’ve advanced in Five Short Blasts predicts – that continued population growth beyond an optimum level inevitably yields rising unemployment and poverty.  When people are forced to crowd together, per capita consumption must decline due simply to a lack of space for using and storing products.  And it is impossible for per capita consumption to decline without a corresponding reduction in employment.  With the world’s population growing at a rate sufficient to populate a new medium-sized city every day, this process of crowding together and eroding employment is happening at an alarming rate.  These effects upon unemployment and poverty are absolutely inescapable, with one exception:  the effects can be reversed by stabilizing the population and then reducing it to an optimum, sustainable level.


Beware of Warren Buffett’s Advice

October 18, 2008

http://www.reuters.com/article/ousiv/idUSTRE49G5Z620081017

Warren Buffett issued a letter on Friday morning advising investors to start buying American stocks.  Like many others, Buffett believes that this is just a cycle and everything will soon return to normal.  His motto is “be greedy when everyone else is fearful, and fearful when everyone else is greedy.”  He’s made tons of money with this philosophy which I’ve generally tried to follow myself, until recently.

Many people who offer financial advice seem to feel the same way.  They believe this is just another market cycle.  “We’ve seen this all before,” they say.  Maybe they’re right.  Is it correct to assume that the stock market will rebound because it always has before?  Personally, I see a lot of reason for caution.  I could buy into that philosophy if business conditions were normal.  But they’re not.  Consider the following backdrop for the current economic crisis, and then consider whether the market will simply behave as it always does:

  1. The world has never been more overpopulated and, indeed, more and more experts agree that, not only is the world overpopulated, but that the current population far exceeds the earth’s carrying capacity for supporting humans at a western-style standard of living.  And the world’s population grows by enough people to fill a new, medium-sized city every day. 
  2. In spite of the challenges of providing energy resources while cutting carbon emissions, and in spite of the growing burden of unemployment, America’s population continues growing by enough people to fill a new city the size of Chicago every year. 
  3. Our national debt per capita is at a record level, 50% higher than it was at the end of World War II, and soaring fast.  Never in our history has the per capita share of the national debt exceeded our median net worth.
  4. Our cumulative trade deficit since 1975, the year of our last trade surplus, now stands at $9.1 trillion and rises by $0.7 trillion per year.  Consequently, never has a greater percentage of American assets been under foreign ownership and control. 
  5. U.S. savings rates are at a record low level.
  6. Per capita consumer credit (or debt) is at a record high level. 
  7. In spite of reducing lending standards so low that “standards” no longer existed, providing a huge boost to the housing sector of the economy until the bubble burst last year, the U.S. was barely able to maintain a normal rate of GDP growth.  With the manufacturing sector of the economy already in ruins, now the housing sector is in complete collapse too.
  8. Never has the U.S. been closer to bankruptcy.

Perhaps the experts are right.  Maybe it is a good time to buy stocks.  But are you willing to bet your entire future that the market can behave normally considering the above headwinds that it faces?  Be very careful!


Chrysler’s Demise Only Days Away

October 17, 2008

http://www.reuters.com/article/newsOne/idUSTRE49G20220081017?sp=true

In November of last year (see my 2008 Predictions), I wrote the following:

Long Shot Prediction:  Either Chrysler will be broken up and sold off (and thus cease to exist) to raise capital for Cerberus or Ford will declare bankruptcy. 

Believe me, I take no delight in taking credit for yet another accurate prediction.  It’s this very kind of thing I was warning of when I wrote Five Short Blasts.  But it seems that the demise of Chrysler is now only days away.  The link above is an article reporting on “merger” talks Chrysler is having with Renault and GM.  What’s not reported in this article are details that are covered by the local media here in the Detroit area:

  1. GM is pushing to close this deal by the end of the month.  So too is JP Morgan Chase, one of GM’s financial backers.
  2. This really won’t be a merger.  Cerberus wants to dump Chrysler at any cost.  GM wants the Jeep brand and will maybe keep a couple of other models, like their mini-vans.  Other than that, GM plans to completely shut down Chrysler and eliminate all those jobs.  Basically, they see it as an opportunity to eliminate a competitor and enhance their own sales in the process. 

So we’re looking at the loss of at least 100,000 jobs and the elimination of what was once one of the biggest, proudest, premier companies in our nation’s history.  It’s the end of the line for an iconic brand and a long line of historic vehicles that were often on the forefront of automotive innovation.  The day that the merger happens will be a sad, sad day for American manufacturing and the American economy – one more big step in America’s downward spiral.

I was hoping this day would never come, that they could hold off just long enough for our nation to wake up from its globalization delusion.  But it appears that, if that day ever comes, it will be too late for Chrysler and, unfortunately, it may come too late for Ford and GM as well.  In the words of Don McLean, “bye, bye Miss American Pie.”