Are We There Yet?

Back to the economy.  Some thoughts that came up in conversations in recent weeks.  What to do?  When will this end?  Have we seen the bottom?  Are we there yet?

I think not.

• The last GM car I owned was an Oldsmobile Delta 88.  It was a 1980 diesel converted to gasoline junk car that I bought for $1,000.00 as a student in Long Island New York.  It was an old clunker, a gas guzzler and frankly a piece of junk.  The cars GM made in the following years were not as good.  Many people will be hurt if GM closes its gates.  Many people will be hurt if it doesn’t.  In all honesty, the correct business decision would be to let it struggle and win or lose based on its chances to deliver good cars to its potential customers and not based on the broken backs of the American tax payers.
• Same goes for Ford and Chrysler although I must admit, with the exception of a 1973 Ford Escort my father owned a millennium ago, I never had an experience with these car makers.
• Speaking of tax payers.  Does it make sense to you that all those who didn’t party in the last decade, those who shopped in line with their means, those who bought took reasonable houses, took reasonable mortgages and actually paid them, will be the ones to bail out the ones who did the exact opposite?  What’s the message here?  Shop till you drop, the government will save your butt?
• I know I’m being very naive here, but how will the government pay for those bailout programs?
  The stock market made sense when people actually invested in an idea, a new technology, and were willing to wait years, sometimes decades, for the companies to grow, to succeed, so they can enjoy the fruits of their investments.  Now a day trader gets up in the morning, has a coffee, buys a stock, and sells it before lunch.  The stock market used to be a place where ideas meet money.  Now it’s a meeting place where greed meets stupidity.
• President Obama proposed to people to invest carefully, and with patience.  Like people used to do when they bought IBM stock when a new child was born, to fund his or her college education.  A plausible alternative would be to stop the trading and close the stock market altogether.
• In any case, if I had money on me, I’d put it anywhere between government bonds and cash in the mattress.  Stock market?  Not a chance.
• The drive of executives to show “double digit growth every quarter” must be eradicated.
• Risk analysis as a profession should be outlawed.  At least the analysts must pay out of pocket the losses that their customers suffered when their “analysis” proved wrong.
• I haven’t written about China in a very long time.  I see China as the most unfortunate nation in modern time.  China did all the right things.  It provided a platform for all the greedy on the planet to manufacture everything at a fraction of the cost they were used to pay at home.  Of course, the greedy did not roll the savings onto their customers, but simply made more profit.  A lot more.  China re-introduced itself to the world as a welcoming country, educated, and exotic.  The climax was last year, with the fantastic Olympic Games of Beijing 2008.  China was expecting to reap the benefit of its outstanding investment.  But as it seems to me, the global economy shut itself down at the same time the closing ceremony of the Olympic Games took place.
• Another observation about China, India and a few other countries, “the manufacturing capitals of the world”.  No doubt, all those countries were building wealth.  Quickly and significantly.  A very thin layer of very rich people developed.  The hopes were that a large middle class will be evolving alongside that layer of filthy rich.  A strong middle class could sustain a recession.  A strong middle class could generate enough internal consumption to survive the global sluggish economy.  But there was not enough time.  A middle class isn’t there yet, and with their main customers, Europe and the US, shot, these economies are in deep trouble.  Don’t judge by the statements coming out of the governments.  Judge by the actions taken.  China is investing the “mountain of dollars” in infrastructure.  Tens of millions of unemployed is not something Beijing would love to see.  I would expect military build-up, and a lot more trains in Asia and South America.
• So the bottom line for the developing countries: your customers disappeared, they are about to reclaim their manufacturing capabilities, and you didn’t have enough time to build up a middle class.  Bleek.  I found this fascinating article about East Asia.  Read more.
• And don’t forget Russia.  Russia is nearing bankruptcy.  Ukraine, Island, Hungary and a few other countries are almost there already.  Ireland, one of the finest economies in the world in the last decade, is in deep trouble.
• How do we get out of this?  I don’t know.  But I do know one thing.  We’re not going back to where we were before.  Growth is good.  Growth is great.  But the growth must be legal, reasonable, conservative, sustainable.  It must reflect the growth in the population.  Maybe a little more than that, bit not a lot.  Otherwise, bubbles are created.  I would pass a global law.  Executives delivering cancerous growth will be prosecuted to the fullest extent of the law.