avoiding the obvious: April 2009

President Obama is asking for the country to move swiftly to a system of high-speed rail travel.It is believed that it would relieve congestion, help clean the air and save on energy.

human interest story

THE biggest change that is facing Americans today is that the American Economy has died. There is no American economy; there's a world economy. There are several ways that people react to this kind of dramatic change.MOST Americans don't understand where the rest of the world is. We like to think that we're a sophisticated, worldly nation. But we're not. There are 240 million of us; less than 30 million have passports. And we remember a world that isn't there. How should we react to our large trade deficit?THE United States' trade deficit is to economics what a black hole is to physics. The farther you get into it, the harder it is to get out of. And if you get into it, all of the normal rules don't apply.That's why, as the dollar drops in value, the trade deficit doesn't diminish. When the dollar went up, U.S. manufacturers were perfectly happy to abandon foreign markets. Those markets were peripheral to their survival.LAST year, one out of every four dollars lent in America was lent by foreign institutions. Now the $160 billion trade deficit represents a four-percent addition to the American standard of living. We consumed four percent more last year, and we borrowed the money to pay for it. And we're more dependent on the foreign markets than just for that four percent. Foreign banks have violated the first law of a Swiss banker, which is: never loan money to someone who is borrowing to pay interest on another loan. There's something that today is a technical economics term, but tomorrow will be on the front pages of your newspaper: adverse shift in terms of trade. If you have to balance your balance of payments by lowering the value of your currency, then for everything you sell you get less and for everything you buy you pay more. So to make a four-percent improvement in your balance of payments, you have to cut imports by more than four percent or raise exports by more than four. We know this can't continue forever. What we don't know is how long it will last. We are on new financial ice. The richest nation in the world has never been the largest debtor before. In all history, this has never happened.

I did an interview with Trevor Aarons who is the supevisor of Bank of New York. I feel like he is effected about my blog's theme. We talked about the economy's issues,my first question was:
Gasser-Is anyone prospering in this economy?

Trevor-I believe in this economy you just have to be wise, and cut out on the impulse buys. I think we all do a good job on wasting money. In this economy there will be alot more entertaining at home, to save money. Everytime you leave the house you spend, spend, spend.

Gasser-I was just wondering is anyone doing good economically. Everyone I talk to is really struggling. From the high cost of gas, to food, to daily soap and tissue everyone seems to be pinced. What do you guys think? Is it really that bad? Is the Middle-Class becoming the working poor?

Trevor-The economy is still growing, al ittle bit slowly, contrary to what the mainstream media tries to tell you.However, it's not growing at the exuberant rate that it once was, so everyone is having to learn to live within their current means.The Middle-Class has been cut out of a lot of advantages. The poorest of the poor in this nation still lives better than 80% of the world.

Gasser-Where is the difference? Why is it more complex than our personal economy?

Trevor-Frankly I think a lot of the economists want to make it more complicated than it really is. I mean, the fact of the matter is that the federal government is spending more money than it takes in. It's charging the national credit card. It's building debt in compounded interest and it's expecting future generations to pay it off. And, you know, our problem is not the current deficits. The deficits we're running now are manageable. Our current debt levels that we have now are manageable. The problem is that even though the deficits have come down for three years in a row, our unfunded promises for Social Security and Medicare have risen dramatically.

Gasser-It's my understanding when people say tax the rich, they need to pay more, it is my understanding that you could take all of the income, income, not income tax, all of the income generated in this country and still not afford what we have coming.

Trevor-You're not going to grow your way out of this problem. You are not going to do it by con training spending. You are going to have to do a combination of things and the biggest thing is going to be entitlement reform, Social Security and Medicare, healthcare being a much greater challenge. And we need to start soon because time's working against us. That $53 trillion number is going up $2 to $3 trillion a year by doing nothing.

Gasser-what happens if we don't address this problem in the next four years? What does it look like in four years from now, you know, ten years or 20 years from now?

Trevor-I believe we have a narrowing window of opportunity to get our fiscal house in order. I believe we have five to ten years maximum in order to be able to demonstrate to the capital markets and to our foreign lenders that we will take this seriously. If we're not able to do that, then I think it's only a matter of time before those who have been borrowing our debt -- buying our debt, which is increasingly foreign players, 75%-plus of our debt bought by foreign players, will lose their appetite for our debt and that's when interest rates go up. And when interest rates go up, then believe me, we can have something a lot worse than a recession.

Thursday, April 16, 2009

Obama calls for high-speed rail

avoiding the obvious

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