Wednesday, October 1, 2008

I Failed Economics 101

The first time that I enrolled in Economics I failed because first of all, I wasn’t interested in economics, and secondly; I didn’t think that it applied to me. I actually didn’t know then what I know now – it does apply to me. Trying to make ends meet in your household requires that you get involved with economics, or you will not be living in your own house much longer. Knowing just the basics is enough to tell me that Congress is the last place that I would go to looking for help if I were in trouble financially.

In my house I pay the mortgage, the light bill, the telephone bill… you know the drill. I also have incidentals that I must pay – stuff that comes up suddenly. In a given month, after paying what I must pay, I try to save a few dollars for that emergency that comes up. Emergencies are – the water heater failing, the muffler fell off the car, or I had to have an operation. You have to have a few bucks saved to carry you through until you are better. When you are living from paycheck to paycheck you can’t respond favorably to a crisis, in fact, situations just as I have described are what take most of us out of our comfort zone.

The government is in the same situation and you have but to look under that rug to see that I am not wrong. All of the telltale signs are there. They can’t balance the budget because they are spending a gross amount of money fighting two wars. The tax base is shrinking every month as more and more workers are losing their jobs, so they don’t have any money. China and the Arabs own us because we have borrowed so much money to finance the war and all the other things that emerge as a result of those wars. If you don’t believe me, ask your Congressman to give you a list of all the programs that are being shorted support in the National Budget. Check with the GAO… they are the people that keep track of where we are spending the money.

Borrowing seventy billion dollars is not bad if you have a plan to get yourself out of debt with the money. Ideally, you want to pay off your debts and have a little left over so that you don’t go back in the hole. Is that the case with the bailout… oops buyout? No! It is not the case. I tell you that the real problem with our economy is that we don’t have cash flow. Others are telling you that we have a problem because we don’t have liquidity. What is the difference between liquidity and cash flow?

Liquidity, in economic terms, is: capable of covering current liabilities quickly with current assets. That would be the savings thingy… okay. If you don’t have cash, you can’t do anything without having to put everything else in a strain. The recovery strategy must take into consideration how to maintain cash flow. In the bailout/buyout scheme we are led to believe that if we give the cash to the people that flubbed the cash flow thing to begin with everything will be alright. In other words, the bank will have more money to loan to the people who will in turn default on the loan because they and their neighbors are losing their jobs and there is no cash flow.

Get my drift? You can’t absorb all of the delinquent loans by giving the banks more money and taking away the bad debt. That is not how you solve the liquidity problem.
Cash Flow – 1: a measure of an organization's liquidity that usually consists of net income after taxes plus noncash charges against income. 2: a flow of cash; especially: one that provides solvency

In this economy, it now works from the bottom up. ‘Joe Six Pack’ gets paid on Friday. He buys a case of beer from the liquor store, dip and potato chips from the 711, fills up his gas tank and heads home. His buddies got paid and they stop by the Meat Market for hamburger, the cleaners for their dry cleaning and what have you before continuing on over to have a cookout with their friends.

That ladies and gentlemen was a small example of cash flow. It is miniscule, but represents my point. Cash flow originates with ‘Joe Six Pack’ getting paid on Friday. He pays his mortgage – the bank gets cash! He pays his car note – the bank gets cash! He buys a case of beer – the retailer gets cash! The name of the game is ‘trickle up’ economics because the money is no longer flowing down as it did before big business out-sourced all of the jobs. Take a good look at the ISM Index and you will know without a doubt that we are in deep, er!!! you know what I mean!

The ISM Index is, for those of us that have never heard of it, the government’s pulse indicator for gauging the output of our manufacturers – the goods they are producing/manufacturing. It is also a good indicator as to whether the manufacturing community will be hiring. It does not lie! I am sorry, but I have to tell you that it is about to flat line. Yeah! We are not producing a darn thing that will make a difference when it comes to generating enough jobs to support the economy. You see, all of those fifty to sixty thousand dollar jobs went overseas to people willing to work for a fraction of that amount. You know - the sweat factories in places like in Myanmar.

I wish that I was wrong about this one, but I don’t think so! I jumped through hoops trying to tell everybody to say no to the 'big tax cut’. Everybody laughed at me as they went to the bank. Some of those same people have moved on to smaller, less pretentious dwellings because they don’t have that fat income tax refund anymore, nor do they have a job.

1 comment:

  1. My father-in-law's former boss says of the bailout: "It has to be invested from the bottom up."

    Invest the money in small biz, people struggling with mortgages or healthcare costs. Or to those sending kids to college.

    But, what do I know about economics?