MONEY 97 - ECONOMICS

THIS IS MY 97^TH BLOG ON UNDERSTANDING MONEY TOOLS

My mind is telling me it is time to write another blog on a couple diverse subjects. 

First, I want to mention a computer “experience” I recently had in hopes that it might prevent you from going through the same and wasting money like I did. I guess that falls under “Understanding Money”.  I am not a techie!  My hard copy files are quite organized, my files in my computer lack organization because of my non-techie knowledge.  A couple of weeks ago my Dropbox files and photos were a mess, I decided to do something about it. Several files and photos were duplicated all over the place.  As I attempted to delete duplicate copies I couldn’t and a box popped up at the top in red, stating that the procedure could not occur and something was wrong. I went to Google, typed in Dropbox to get a phone number and several Dropbox items appeared.  I took one of the first 800 or 877 numbers and called.  Of course, I was connected to a man in India. I trusted the person thinking he was from Dropbox; then he wanted control of my computer to see if there was a virus.  Yes, he indicated a Cerbrus virus that I had from an email from California.  Did I know someone there?  Of course I do.

The next thing I asked was could he correct the problem, and the answer was an immediate yes, and the cost would be $150.  Then, as he didn’t mention the “company” could correct the problem I became suspicious and declined the offer. I took the computer to my normal computer repair place, they checked it out and there were no viruses, and the number I had dialed was most likely bogus.  Well, another $100 spent but some reassurance and lessons taught. One, when you go to Google and put in Microsoft, Dropbox, Apple or a company you want it may not be the intended company you want, but a scammer.  The safest is not request a phone number, go to the company’s website and there should be something in the site for “contact”.  Apparently, even if you get the correct phone number there are now hackers out in the techie universe that can re-direct the connection and scam all they want.

With that out of the way, let’s get onto some of the economic news that floats by me that I believe to be more accurate than what most people receive off the evening news and media reports.

Let’s start out with something optimistic from me as many friends say I always look for the worst.  I really don’t, but I do like accuracy on numbers.  Well, the stock markets have done well, and I thought they would continue down several months ago as I see the general economy slipping away. The answers for this resiliency come from a few things.  One, a continued effect that $4.5 trillion quantitative easing money has had which greatly went to the markets from the wealthy and institutions.  Point two, trillions of dollars under institutionally and professionally managed money.  These money managers have parameters on how much of their portfolios can go to cash positions.  Point three, low interest rates near zero have forced elderly out of bank CD’s and bonds into higher risk securities. Point four, with the massive world turmoil in the Middle East and now grave economic problems in Venezuela, Brazil, and Argentina it has forced the wealthy to seek the safer haven of the USA and our markets.  Point five, there are tons of small “start-up” companies emerging with funding like “crowd funding” as banks don’t lend.

Now, that I have covered those positive reasons for the market values and general economy let’s again stress why it is abnormal and only an amount of time will produce a changed picture. 

-       Unemployment is already rising, and more companies are planning future layoffs.  Production and demand are both down-trending.

-       People have less money to buy things.  Our medium income, which is middle-class has not risen at all since 1999 (about $55,000/year for a family). 

-       Government inflation numbers have been proven wrong from 1995 to 2015, being off almost 1% per year. 1% doesn’t seem like a lot (30% higher than reported numbers), however compounded over a 20 year term it equates to about 80% change.  This would mean that our middle-class family making $55,000 in 1999 should be making about $85,000 today just to stay on par.  Americans understand this when they look only at essentials of food, housing, gas and medical.

-       There has been a significant change in structure between the upper, middle and lower income brackets just since 2008.  This comes from the PEW Research Center. The middle-income bracket has slid from 53% of our population to 44% since 2008.  Upper-income quartile has also slid from 21% to 15%, while the top 1%-2% has come out quite nicely.  The remarkable difference (all these adding up to 100%) is the lower-income group that has increased from 25% to 40%.

-       Manufacturing with our current laws and structure continues to migrate outside this country.

-       Our high corporate tax structure forces companies to domicile elsewhere in the world.

-       Even if we can encourage manufacturing to return to the USA, it will be under a robotic structure, rather than employee and union based.

-       The flood of immigrants coming into this country like in Europe need to be taken care of e.g. food, housing, education, and medical. This week (May 9, 2016) it was reported that the government is budgeting $17,500 for each immigrant.  Right now we already have the second highest debt per capita only to Japan of G-20 countries. I am not sure how we can pay for this!

-       There is an inverse relationship between debt and growth, so the next 10 years do not look promising as there is no rational way to get out of our significant debt. Also, there is a relationship between zero interest rates, or even negative interest rates, and growth.  People don’t have money to spend on goods and services.  Negative interest rates really do not encourage new business growth, but it has proven that large corporations will use cheap money to buyout existing companies, thus shrinking the number of companies, with the possibility of less “free market” pricing, and consolidation of employees.

-       Corporate bankruptcies are up 50% over the last fiscal year.

-       Even successful high tech companies are showing that markets can’t keep growing at an exponential pace, for example Apple.

-       PEG down. This means the Price to Earnings ratio to future Growth is down.

-       The non-farm productivity in the USA from 2008 to 2015 is down 60% from the period 2000-2007.

-       The US stock markets have never been so overpriced except for the years 1929 and 1999.

Enough of all of that. It would be nice to put the world back into a more normal situation, if there ever was one.  I hope our next president realizes that hegemony and imperialism financially breaks countries  and the spirit of national unity.  Our meddling in dictatorships like Iraq, Syria, Libya should never have occurred. We wouldn’t have the immigration problems here and in Europe if we left them be.  Some countries are just better left alone. We have no business intervening and trying to control these countries with our people only to control their assets.

Now that I have depressed you I can move on!