Thursday, August 26, 2010

My View

Random thoughts from a warped and fevered mind...

One area of the economy that has been a bright spot through the years has been the technology sector. Technological advances improve productivity at work and in our personal lives. The technology sector continues to show gains in an otherwise dismal employment environment. Unfortunately for our country and for the people that work in that sector, this could soon be over. Intel CEO Paul Otellini, speaking at the Aspen Forum of the Technology Policy Institute offered a grim assessment of the future of this sector of the economy. Otellini said, "Not long ago, our research centers were without peer. No country was more attractive for start up capital (than the U.S.). We seemed a generation ahead of the rest of the world in information technology. That simply is no longer the case." Why is this? According to Otellini, the U.S. legal environment has become so hostile to business in general that there is likely to be "an inevitable erosion and shift of wealth, much like we are seeing in Europe- this is the bitter truth." He went on to state that the current economic policies coming out of Washington have created more uncertainty than have been faced in recent memory. "Every business in America has a list of more variables than I have ever seen in my career. I can tell you definitively that it costs $1 billion more per factory for me to build, equip, and operate a semiconductor facility in the United States." If Washington realizes the adverse effect of their myriad laws and regulations, and corrects the present course, then companies will invest in the United States. If not, we will continue to lose jobs and the economy will continue to suffer.

If you throw a cat out of your car window, does it become kitty litter?

Senator Bob Corker was in Franklin this past week to speak to one of the local Chambers of Commerce. His talk brought out some important points that we should consider as we try to understand the fiscal situation in which we find ourselves. Here are some salient points:

Government spending continues to substantially outpace the revenues that are received. Over the next ten years, government spending at the federal level will be $1.25 trillion more than revenue received if we change nothing.

For every dollar that the government spends, it borrows another .40. This is why spending and our debt is  growing so rapidly.

Here is an interesting comparison: in 1970, 7% of our revenue was spent on interest on the debt; 31% was spent on mandatory payments like social security; and 62% was spent on discretionary spending like defense, transportation, and education. Today, 6% is spent on interest (thanks to a very low interest rate environment); 56% is mandatory spending (reflecting the growth of social programs); and 38% is discretionary.

Since February, Washington has spent $266 billion (BILLION) that it did not have.

And here is the most interesting challenge: to balance the budget, we must cut $6.7 trillion (TRILLION) dollars over the next  10 years, or $670 billion dollars a year. And we must do this in the face of an aging population that will expect, and demand, their payments from social programs to which they have paid over the years.

One can see the dilemma and challenge that our leaders in Washington face.

What do people in China call their good plates?

Here is an example of the fiscal "bleeding" that is occurring in Washington. Mortgage giant Freddie Mac says that it will need another $1.8 billion from taxpayers just to survive. Since the government took over the failed mortgage lender two years ago, more than $64 billion has been pumped into Freddie Mac just to keep it alive. Along with its counterpart, Fannie Mae, a total of $150 billion in taxpayer dollars have been expended to keep these institutions afloat. This begs the question, "How much will taxpayers have to pay to keep these failed institutions in business?" How long before Washington decides, if ever, to pull the plug? Who knows, as Washington has shown no signs of fiscal restraint or the ability to make the hard decisions to finally put these institutions out of their- and our- misery.

If they squeeze olives to get olive oil, how do they get baby oil?

And that, my friends, is my view.

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