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Sunday, July 31, 2011
Saturday, July 30, 2011
White House Says Treasury Will Be "Running On Fumes" Shortly
Contrary to calculations performed by Barclays and other analysts (including Stone McCarthy first presented on Zero Hedge), which speculated that the Treasury would have enough cash to last it through August 15th due to an increase in tax receipt, the White House's press secretary Jay Carney said that the Treasury will be "running on fumes" if the debt ceiling is not raised by August 2, naturally adding the traditional doomsday phrase that it is a "crisis situation." He had also added previously that tax revenues are not coming at an accelerated pace and that the cash will not last longer than Tim Geithner's original forecast of August 2. As the chart below shows the Treasury had $75 billion in cash as of last night, and will raise another $55 billion in net cash over upon settlement of this week's auctions. In other words, Geithner now predicts that the pro forma cash of $130 billion will last the US just one week. Well, at least we can see what the source of all the problems is.
From Reuters:
White House press secretary Jay Carney said that at midnight on August 2 the country will lose its authority to borrow for the first time, meaning there is no alternative for Democrats and Republicans other than to compromise over a deal to reduce the deficit and lift the debt ceiling.
"People keep paying their taxes. Revenue comes in. Money comes in. The problem is there is not enough money because we can no longer borrow money to pay all our bills. You're basically running on fumes," Carney told reporters. "It is a crisis situation."
Rating agencies warn they could downgrade the top-notch U.S. AAA credit rating if the United States misses debt payments or if it fails to take significant steps toward controlling the long-term budget deficit.
Carney said that if there is no deal by August 2, the failure of Congress to have acted would send shock waves through financial markets. "There will be assessments made by investors around the globe about what the heck is happening in Washington," he said.
We will present an updated cash burn analysts from Stone McCarthy as soon as one is available, probably in the next 2 hours.
Spending Safely
By Lynn O'Shaughnessy![C:\Program]()
Alison Seiffer
If you're getting ready to retire, you may already be familiar with "the 4% solution."
For more than a decade, financial advisers have warned retirees that draining over 4% of their nest eggs in their inaugural retirement year could ultimately lead to financial ruin.
The 4% mantra started with Bill Bengen, 60, a soft- spoken investment adviser in El Cajon, Calif., who has written a series of landmark research papers since 1994 on safe withdrawal rates. What most people don't realize, though, is that Bengen no longer recommends the 4% rate. "The figure is stuck in the corner of people's minds, and I don't know how to get it out," he laments.
Bengen now suggests that the 4% figure—actually 4.1% for a 60/40 portfolio of large caps and bonds and 4.5% if you toss in small caps—merely seems impressive when plugged into Excel (MSFT) spreadsheets. In practice, the strategy, which Bengen stopped using with his own clients about three years ago, is inflexible and unrealistic he says—and the formula is too stingy.
Bengen and other financial wonks now advocate less rigid approaches to the tricky challenge of sustaining a nest egg. "We know a lot more about [safe withdrawal rates] than we did 15 years ago," says Jonathan Guyton, a principal at Cornerstone Wealth Advisors in Edina, Minn., who has written extensively on withdrawal issues. "What we are seeing in a relatively short period of time is quite an evolution."
The 4% approach initially seemed to make sense. Under the plan, a retiree with a $1 million portfolio withdraws $40,000 (4%) in the first year. In subsequent years she withdraws the previous year's amount, adjusted by the rate of inflation. So 12 months later, if inflation is 3%, she could pull out $41,200 ($40,000 x .03). If retirees followed this rule, advisers liked to say, there should be almost no chance of a portfolio being depleted within 30 years.
One expert now questioning this conventional wisdom is Michael Kitces, 30, director of financial planning for Pinnacle Advisory Group in Columbia, Md. Kitces was frustrated that the 4% rule can result in overly conservative withdrawal rates during certain market conditions and that the market's mood at the time of the initial withdrawal could greatly affect how much money retirees can drain from their accounts for the rest of their lives.
Kitces looked at two hypothetical couples nearing retirement with $1million portfolios. Couple No. 1 retires and withdraws 4.5% of their assets ($45,000). During the next year, stocks plunge by 15%. Despite the market implosion, couple No. 1 gets to increase their next withdrawal by the inflation rate—in this example, 3%. So in the second year they pull out $46,350.
That all seems fine, Kitces says, until you examine the fate of couple No. 2. They retire one year later than Couple No. 1, but their portfolio drops with the market and is now worth $850,000. Using the same 4.5% withdrawal rate, they are limited to a $38,250 withdrawal, which is 21% lower than the other couple's. "How can we account for a safe spending approach that produces such disparities, given identical circumstances, where the only thing that changes is the timing of the withdrawal starting point?" he asks.
Would it be possible, he wondered, to predict the market environments in which it would be prudent to boost the initial withdrawal rate? After studying historical data, Kitces concluded that a higher withdrawal rate is safe in most situations as long as adjustments are made if the stock market becomes overvalued during the first 15 years of a person's retirement. He judges the stock market's valuation by looking at its current 10-year price-earnings ratio. During a period when the 10-year p-e ratio has been high (over 20), a new retiree would want to play it safe with an initial withdrawal rate of 4.4% (with a portfolio split 60/40 between stocks and bonds) because it's likely that prices of overvalued stocks will drop in coming years or appreciate at a much slower rate than the long-term average.
Friday, July 29, 2011
Should You Lease or Buy Your Computers?
by Larry Armstrong ![C:\Program]()
Stephen Webster
With the economy on the rocks, many companies are wondering if they should lease (or finance) their computers, telephone switches, and office equipment rather than buy them. This year, the decision is a bit more complicated: The Economic Stimulus Act, best known for its $600 rebate checks, holds some powerful tax incentives to get small businesses to purchase new equipment. If you're clever, you might be able to get the tax break on a leasing deal as well. But you don't have much time left to take advantage of it.
Leasing relatively high-ticket items such as computers has always been a way to fix costs and spread them over a longer time. A survey last year by the Equipment Leasing & Finance Foundation found that 59% of computer equipment and 32% of software used by businesses is leased or financed. Leasing lets you maintain cash flow and preserve capital and credit lines in a dicey economy.
In addition to eliminating up-front costs and allowing you to pay a predictable monthly fee, leasing usually lets you bundle any extras you might need—installation, software, maintenance, and even training for your employees—into the lease. It also can protect you from technological obsolescence, because the leasing company is stuck with what could be outdated technology at the end of the contract. If you had leased that pbx system instead of buying it a couple of years back, you'd be able to swap it for a cost-saving voice-over-ip model when the lease was up.
The downside of leasing is that it's almost always more expensive than buying. Say you want to replace 10 desktop computers with new Dell laptops and docking stations at $2,000 each. You can pay Dell $20,000 now, or pay $703 a month for the next three years, or $25,308. That's assuming you have a good credit rating and return the gear at the end of the lease.
The most obvious advantage of buying equipment is that you own it forever. (Some leases will let you buy the equipment for a fixed price or "fair market value" when the term is up.) But there are also special tax savings for purchased, but not leased, equipment. Congress sweetened those so-called Section 179 deductions considerably in its economic stimulus package, but only for equipment bought and installed by the end of the year and only up to the amount of taxable income your business does this year. For this year only, the law doubles the amount you can write off as an expense, to $250,000, instead of having to depreciate the purchase over several years. Nearly all tangible property used by your company qualifies, including computers, software, office equipment, and even furniture. If you go over $250,000, the package includes a temporary depreciation bonus that lets you write off up to 50% of the purchase in the first year, on top of the normal depreciation allowance.
I'm no tax expert (you should have a chat with yours), but deductions of this size certainly get my attention. If you need to upgrade your technology this year but don't have the cash to do it, try negotiating with your leasing company or technology vendor. Leases can be structured so that you, instead of the vendor, hold title to the equipment and therefore get the tax break. And many finance companies, such as IBM Global Finance, are offering lower monthly payments on new leases, passing along some of the benefits they receive under the new law.
Back to BWSmallBiz August/September 2008 Table of Contents
Armstrong writes about personal technology for BusinessWeek SmallBiz.Thursday, July 28, 2011
Guest Post: In The Land Of Self-Interested Pygmies, No One Advocates For The Nation
Submitted by Charles Hugh Smith from Of Two Minds
In the Land of Self-Interested Pygmies, No One Advocates for the Nation
Does slavishly pursuing narrow self-interest benefit the nation? Clearly, the answer is no; a nation of self-interested pygmies leaves no one to advocate for the national interest.
The great cold lie at the heart of present-day America is that the nation will magically benefit if we each single-mindedly pursue our self-interest to the exclusion of all else. The idea has a sleek quasi-free-market sheen, as it borrows the market's "invisible hand" and applies it to social, fiscal and environmental policies.
That is a magical-thinking fantasy. If I pursued only my own self-interest, I would dump the toxic effluent from my factory right into the river ( a la China's very laissez faire economy) while I lived far away in an exclusive community far from the stench and poisons. Why pay for costly remediation when the "free" river beckons? After all, it all works out wonderfully if we each pursue our own self-interest with methodical, nay maniacal, single-mindedness. (Recall that rivers in America caught fire in the 1960s, before environmental regulations limited corporate self-interest.)
"The good of the nation" is now a code-phrase for "good for me, and to heck with the country at large." Every self-serving fiefdom, every self-serving cartel and every self-serving constituency (a.k.a. special interest) claims that its pathetically obvious self-serving lobbying "serves the national interest." It's all lies, blatant emotional manipulation of the vilest, crassest sort. Yet we as a nation have sunk so low that the entire notion of a national interest which doesn't benefit a powerful lobby or constituency has been lost.
We are now a nation of self-interested pygmies, blind to any national interest that isn't devoted to enriching us personally. If we ask cui bono-- to whose benefit? (the first question in the Survival+ critique), then the answer is always self-evident: some lobby, cartel, corporation, special interest or class of citizens who hope to stripmine the assets of the less-protected citizenry to line their own pockets with swag.
We are a nation slavishly devoted to feeding our herd of fattened sacred cows by any means necessary. The National Security State, a profit machine of Federal contractors stretching all the way back to LBJ contributors Brown & Root, who built bases in Vietnam for hefty profits? Untouchable: "we're fighting the global war on Terror." I guess that's why it's always an average citizen onboard who actually stops the bad guy.
The military industrial complex, which takes ten years to start building anything, by which time it's so costly we can't afford it? Untouchable: "we're keeping our military strong." More like weakening it to the breaking point by stripmining all the resources in bloated weapons programs.
Social Security, a.k.a. generational wealth transfer? Untouchable: "I paid in, there's this lockbox with my money in it...." It was always "pay as you go," not a "lockbox." Demographically, it's broken. It worked when there were 10 workers for every retiree, and even with 5 workers for every retiree; now with millions drawing disability benefits from the SSA (and hiring specialists to help them qualify for it--good ole self-interest at its best) and only 2.5 workers for every retiree--soon to be 2-to-1--the system is unsustainable.
Medicare, the Savior State arm of the sickcare cartel complex? Untouchable: "we have the best healthcare in the world." Yeah, if you're one of the select few who have gold-plated coverage. How is it in the national interest that we devote 17% of our vast GDP to sickcare and yet 40 million people aren't even covered, millions more have simulacra coverage (nothing is covered except 80% of catastrophic care, and the remaining 20% will bankrupt all but the wealthy), and other developed nations provide better care for all their citizens for half the cost per capita?
And of course there's the "too big to fail" banks and Wall Street: Untouchable: "if you mess with us we'll bring the country to its knees!" What a nice bunch of pygmies. They have nothing but self-interest, so they must be serving the national interest.
The core problem with President Obama and the political class in Washington is that they think governance boils down to placating the most powerful self-interested pygmies. To the Demopublicans, politics is not about the national interest-- whatever that is, since the concept has lost all meaning--it's about carving up the swag so all the powerful self-interests don't upset the Status Quo apple cart.
This explains Obama's blindness to the opportunity to break the grip of the "too big to fail" banks and Wall Street, and the current inability to actually cut any sacred-cow budgets. There literally is no national interest left in the land of self-interested pygmies; all those think tanks are just dumping out agitprop to serve one bloated, entrenched self-serving fiefdom or another behind a facile claim of "national interest." Oh, really? Cui Bono?
When politics has been debased to the point that it is all about placating self-serving monopolies and "interest groups," then there is no mind or heart left in the nation; it is a money-burning robot, blindly borrowing however much cash is needed to placate the piranhas and parasites.
I think the most apt metaphor for present-day America is the leaky lifeboat. All the single-mindedly self-interested pygmies are swimming over to the one lifeboat, pursuing their wondrously golden self-interest as the highest good. They all try to save themselves--it's only self-interest, and that will magically serve us all--and as a result of their frantic thrashing to preserve themselves, the lifeboat sinks and they all drown.
A nation of self-interested pygmies leaves no one to advocate for the national interest. The lifeboat is already taking on water, but everyone climbing on board is loudly announcing that they're "serving the national interest." The irony is rather rich: by sinking the entire Status Quo, then they truly will be serving the nation.
There is another shore nearby; it's called self-reliance and a personally disinterested national interest.
Average: Your rating: None Average: 3.6 (25 votes)The Man Who Invented Management
Little more than six months ago, I was sitting within a foot of Peter F. Drucker's right ear -- the one he could still hear from -- in the living room of his modest home in Claremont, Calif. Even that close, I had to shout my questions to him, often eliciting a "What?" rather than an answer. Yet when he absorbed my words, his mind remained vigorous even as his body was failing.
He had often said that at his age "one doesn't pray for a long life but for an easy death." Since then he had struggled through a series of ailments, from life-threatening abdominal cancer to a broken hip. Oversize hearing aids plugged into both ears, he had a pacemaker in his chest and needed a walker to get around his ranch home on Wellesley Drive. Over 20-plus years, I often met or spoke to Drucker in the course of reporting any number of business and management stories.
On that spring morning in April, in black cotton slippers and socks that barely covered his ankles, Drucker seemed unusually frail and tired -- not at all in a mood to ponder his legacy. "I'm not very introspective," he protested in his familiar guttural baritone, thick with the accent of his native Austria. "I don't know. What I would say is I helped a few good people be effective in doing the right things."
Let others now speak for Drucker, who died peacefully in his sleep at home on Nov. 11 at age 95, eight days shy of his 96th birthday:
"The world knows he was the greatest management thinker of the last century," Jack Welch, former chairman of General Electric Co. (GE ), said after Drucker's death.
"He was the creator and inventor of modern management," said management guru Tom Peters. "In the early 1950s, nobody had a tool kit to manage these incredibly complex organizations that had gone out of control. Drucker was the first person to give us a handbook for that."
Adds Intel Corp. (INTC ) co-founder Andrew S. Grove: "Like many philosophers, he spoke in plain language that resonated with ordinary managers. Consequently, simple statements from him have influenced untold numbers of daily actions; they did mine over decades."
The story of Peter Drucker is the story of management itself. It's the story of the rise of the modern corporation and the managers who organize work. Without his analysis it's almost impossible to imagine the rise of dispersed, globe-spanning corporations.
But it's also the story of Drucker's own rising disenchantment with capitalism in the late 20th century that seemed to reward greed as easily as it did performance. Drucker was sickened by the excessive riches awarded to mediocre executives even as they slashed the ranks of ordinary workers. And as he entered his 10th decade, there were some in corporations and academia who said his time had passed. Others said he grew sloppy with the facts. Meanwhile, new generations of management gurus and pundits, many of whom grew rich off books and speaking tours, superseded him. The doubt and disillusionment with business that Drucker expressed in his later years caused him to turn away from the corporation and instead offer his advice to the nonprofit sector. It seemed an acknowledgment that business and management had somehow failed him.
But Drucker's tale is not mere history. Whether it's recognized or not, the organization and practice of management today is derived largely from the thinking of Peter Drucker. His teachings form a blueprint for every thinking leader (page 106). In a world of quick fixes and glib explanations, a world of fads and simplistic PowerPoint lessons, he understood that the job of leading people and institutions is filled with complexity. He taught generations of managers the importance of picking the best people, of focusing on opportunities and not problems, of getting on the same side of the desk as your customer, of the need to understand your competitive advantages, and to continue to refine them. He believed that talented people were the essential ingredient of every successful enterprise.
RENAISSANCE MAN
Well before his death, before the almost obligatory accolades poured in, Drucker had already become a legend, of course. He was the guru's guru, a sage, kibitzer, doyen, and gadfly of business, all in one. He had moved fluidly among his various roles as journalist, professor, historian, economics commentator, and raconteur. Over his 95 prolific years, he had been a true Renaissance man, a teacher of religion, philosophy, political science, and Asian art, even a novelist. But his most important contribution, clearly, was in business. What John Maynard Keynes is to economics or W. Edwards Deming to quality, Drucker is to management.
After witnessing the oppression of the Nazi regime, he found great hope in the possibilities of the modern corporation to build communities and provide meaning for the people who worked in them. For the next 50 years he would train his intellect on helping companies live up to those lofty possibilities. He was always able to discern trends -- sometimes 20 years or more before they were visible to anyone else. "It is frustratingly difficult to cite a significant modern management concept that was not first articulated, if not invented, by Drucker," says James O'Toole, the management author and University of Southern California professor. "I say that with both awe and dismay." In the course of his long career, Drucker consulted for the most celebrated CEOs of his era, from Alfred P. Sloan Jr. of General Motors Corp. (GM ) to Grove of Intel.
-- It was Drucker who introduced the idea of decentralization -- in the 1940s -- which became a bedrock principle for virtually every large organization in the world.
-- He was the first to assert -- in the 1950s -- that workers should be treated as assets, not as liabilities to be eliminated.
-- He originated the view of the corporation as a human community -- again, in the 1950s -- built on trust and respect for the worker and not just a profit-making machine, a perspective that won Drucker an almost godlike reverence among the Japanese.
-- He first made clear -- still the '50s -- that there is "no business without a customer," a simple notion that ushered in a new marketing mind-set.
-- He argued in the 1960s -- long before others -- for the importance of substance over style, for institutionalized practices over charismatic, cult leaders.
-- And it was Drucker again who wrote about the contribution of knowledge workers -- in the 1970s -- long before anyone knew or understood how knowledge would trump raw material as the essential capital of the New Economy.
Drucker made observation his life's work, gleaning deceptively simple ideas that often elicited startling results. Shortly after Welch became CEO of General Electric in 1981, for example, he sat down with Drucker at the company's New York headquarters. Drucker posed two questions that arguably changed the course of Welch's tenure: "If you weren't already in a business, would you enter it today?" he asked. "And if the answer is no, what are you going to do about it?"
Those questions led Welch to his first big transformative idea: that every business under the GE umbrella had to be either No. 1 or No. 2 in its class. If not, Welch decreed that the business would have to be fixed, sold, or closed. It was the core strategy that helped Welch remake GE into one of the most successful American corporations of the past 25 years.
Drucker's work at GE is instructive. It was never his style to bring CEOs clear, concise answers to their problems but rather to frame the questions that could uncover the larger issues standing in the way of performance. "My job," he once lectured a consulting client, "is to ask questions. It's your job to provide answers." Says Dan Lufkin, a co-founder of investment banking firm Donaldson, Lufkin & Jenrette Inc. (CSR ), who often consulted with Drucker in the 1960s: "He would never give you an answer. That was frustrating for a while. But while it required a little more brain matter, it was enormously helpful to us. After you spent time with him, you really admired him not only for the quality of his thinking but for his foresight, which was amazing. He was way ahead of the curve on major trends."
Drucker's mind was an itinerant thing, able to wander in minutes through a series of digressions until finally coming to some specific business point. He could unleash a monologue that would include anything from the role of money in Goethe's Faust to the story of his grandmother who played piano for Johannes Brahms, yet somehow use it to serve his point of view. "He thought in circles," says Joseph A. Maciariello, who teaches "Drucker on Management" at Claremont Graduate University.
Part of Drucker's genius lay in his ability to find patterns among seemingly unconnected disciplines. Warren Bennis, a management guru himself and longtime admirer of Drucker, says he once asked his friend how he came up with so many original insights. Drucker narrowed his eyes thoughtfully. "I learn only through listening," he said, pausing, "to myself."
Among academics, that ad hoc, nonlinear approach sometimes led to charges that Drucker just wasn't rigorous enough, that his work wasn't backed up by quantifiable research. "With all those books he wrote, I know very few professors who ever assigned one to their MBA students," says O'Toole. "Peter would never have gotten tenure in a major business school."
I first met Drucker in 1985 when I was scrambling to master my new job as management editor at BusinessWeek. He invited me to Estes Park, Colo., where he and his wife, Doris, often spent summers in a log cabin, part of a YWCA camp. I remember him counseling me to drink lots of water, ingest a super dose of vitamin C, and take it easy to adjust to the high altitude. I spent two days getting to know Drucker and his work. We had breakfast, lunch, and dinner together. We hiked the trails of the camp. And I became intimately familiar with his remarkable story.
Born in Austria in 1909 into a highly educated professional family, he seemed destined for some kind of greatness. The Vienna that Drucker knew had been a cultural and economic hub, and his parents were in the thick of it. Sigmund Freud ate lunch at the same cooperative restaurant as the Druckers and vacationed near the same Alpine lake. When Drucker first met Freud at the age of eight, his father told him: "Remember, today you have just met the most important man in Austria and perhaps in Europe." Many evenings his parents, Adolph and Caroline, would gather the intellectual elite in the drawing room of their Vienna home for wide-ranging discussions of medicine, politics, or music. Peter absorbed not merely their content but worldliness and a style of expression.
When Hitler organized his first Nazi meeting in Berlin in 1927, Drucker, raised a Protestant, was in Germany, studying law at the University of Frankfurt. He attended classes taught by Keynes and Joseph Schumpeter. As a student, a clerk in a Hamburg export firm, and a securities analyst in a Frankfurt merchant bank, he lived through the years of Hitler's emergence, recognizing early the menace of centralized power. When his essay on Friedrich Julius Stahl, a leading German conservative philosopher, was published as a pamphlet in 1933, it so offended the Nazis that the pamphlet was banned and burned. A second Drucker pamphlet, Die Judenfrage in Deutschland, or The Jewish Question in Germany, published four years later, suffered the same fate. The only surviving copy sits in a folder in the Austrian National Archives with a swastika stamped on it.
Drucker immigrated to London shortly after Hitler became Chancellor, taking a job as an economist at a London bank while continuing to write and to study economics. He came to America in 1937 as a correspondent for a group of British newspapers, along with his new wife, Doris, whom he had met in Frankfurt. "America was terribly exciting," remembered Drucker. "In Europe the only hope was to go back to 1913. In this country everyone looked forward."
So did Drucker. He taught part time at Sarah Lawrence College before joining the faculty at Bennington College in Vermont. He could be a difficult taskmaster. One Bennington student recalled that Drucker said her paper "resembled turnips sprinkled with parsley. I could wring his fat frog-like neck," she wrote in a letter to her parents. "Unfortunately, he is a very brilliant and famous man. He has at least taught me something."
Drucker was a professor of politics and philosophy at Bennington when he was given the opportunity to study General Motors in 1945, the first time he peeked inside the corporation. His examination led to the publication of his groundbreaking book, Concept of the Corporation, and his decision, in 1950, to attach himself to New York University's Graduate School of Business. It was around this time that Drucker heard Schumpeter, then at Harvard University, say: "I know that it is not enough to be remembered for books and theories. One does not make a difference unless it is a difference in people's lives."
CREATING A DISCIPLINE
He took Schumpeter's advice to heart, beginning a career in consulting while continuing his life as a teacher and writer. Drucker's most famous text, The Practice of Management, published in 1954, laid out the American corporation like a well-dissected frog in a college laboratory, with chapter headings such as "What is a Business?" and "Managing Growth." It became his first popular book about management, and its title was, in effect, a manifesto. He was saying that management was not a science or an art. It was a profession, like medicine or law. It was about getting the very best out of people. As he himself put it: "I wrote The Practice of Management because there was no book on management. I had been working for 10 years consulting and teaching, and there simply was nothing or very little. So I kind of sat down and wrote it, very conscious of the fact that I was laying the foundations of a discipline."
Drucker taught at NYU for 21 years -- and his executive classes became so popular that they were held in a nearby gym where the swimming pool was drained and covered so hundreds of folding chairs could be set up. Drucker moved to California in 1971 to become a professor of social sciences and management at Claremont Graduate School, as it was known then. But he was always thought to be an outsider -- a writer, not a scholar -- who was largely ignored by the business schools. Tom Peters says he earned two advanced degrees, including a PhD in business, without once studying Drucker or reading a single book written by him. Even some of Drucker's colleagues at NYU had fought against awarding him tenure because his ideas were not the result of rigorous academic research. For years professors at the most elite business schools said they didn't bother to read Drucker because they found him superficial. And in the years before Drucker's death even the dean of the Peter F. Drucker Graduate School of Management at Claremont said: "This is a brand in decline."
In the 1980s he began to have grave doubts about business and even capitalism itself. He no longer saw the corporation as an ideal space to create community. In fact, he saw nearly the opposite: a place where self-interest had triumphed over the egalitarian principles he long championed. In both his writings and speeches, Drucker emerged as one of Corporate America's most important critics. When conglomerates were the rage, he preached against reckless mergers and acquisitions. When executives were engaged in empire-building, he argued against excess staff and the inefficiencies of numerous "assistants to." In a 1984 essay he persuasively argued that CEO pay had rocketed out of control and implored boards to hold CEO compensation to no more than 20 times what the rank and file made. What particularly enraged him was the tendency of corporate managers to reap massive earnings while firing thousands of their workers. "This is morally and socially unforgivable," wrote Drucker, "and we will pay a heavy price for it."
The hostile takeovers of the 1980s, a period that revisionists now say was essential to improve American efficiency and productivity, was for Drucker "the final failure of corporate capitalism." He then likened Wall Street traders to "Balkan peasants stealing each other's sheep" or "pigs gorging themselves at the trough." He maintained that multimillion-dollar severance packages had perverted management's ability to look out for anything but itself. "When you have golden parachutes," he told one journalist, "you have created incentives for management to collude with the raiders." At one point, Drucker was so put off by American corporate values that he was moved to say that, "although I believe in the free market, I have serious reservations about capitalism."
We tend to think of Drucker as forever old, a gnomic and mysterious elder. At least I always did. His speech, always slow and measured, was forever accented in that commanding Viennese. His wisdom could not have come from anyone who was young. So it's easy to forget his dashing youth, his long devotion to one woman and their four children (until the end, Drucker still greeted his wife of 71 years with an effusive "Hello, my darling!"), or even his deliciously self-deprecating sense of play.
During his early consulting work with DLJ, the partners flew out to California to meet with Drucker at home. After one of his famously meandering monologues, Drucker thought everyone needed a break.
"Well, boys," he said, "why don't we relax for a few minutes? Let's go for a swim."
The executives explained that they hadn't brought their swimming trunks.
"You don't need swimming suits because it's just men here today," replied Drucker.
"And we took off our clothes and went skinny-dipping in his pool," recalls Charles Ellis, who was with the group.
Surely, Drucker never fit into the buttoned-down stereotype of a management consultant. He always favored bright colors: a bottle-green shirt, a knit tie, a royal blue jacket with a blue-on-blue shirt, or simply a woolen flannel shirt and tan trousers. Drucker always worked from a home office filled with books and classical records on shelves that groaned under their weight. He never had a secretary and usually handled the fax machine and answered the telephone himself -- he was something of a phone addict, he admitted.
PRIVACY PREVAILS
Yet Drucker also was an intensely private man, revealing little of his personal life, even in his own autobiography, Adventures of a Bystander, the book he told me was his favorite of them all. Not surprisingly, perhaps, the Drucker Archives at Claremont Graduate University contain only one personal letter from his wife to him. Doris had clipped two images from a 1950s-era newspaper, one of a handsome man in a plaid robe, fresh from a good night's sleep, another of a couple in love, man and woman staring into each other's eyes, over a late evening snack. She glued each black-and-white image onto a flimsy piece of typing paper and wrote the words: "I love you in the morning when things are kind of frantic. I love you in the evening when things are more romantic." It is undated and unsigned.
It was Doris, in her own unpublished memoir, who told the story of how she once locked Drucker in a London coal cellar to hide him from her disapproving mother. As Doris' mother turned the house upside down in a frantic search for a man she thought was sleeping with her daughter, Peter spent the better part of the night crouched in a cold, dark hole. Doris' mother had long hoped her daughter would someday marry a Rothschild or a German of high social standing. The last thing she wanted was for her to marry a light-in-the-pocket Austrian.
In his later years, as his health weakened, so did Drucker's magnetic pull. Although he maintained a coterie of corporate followers, he increasingly turned his attention to nonprofit leaders, from Frances Hesselbein of the Girl Scouts of the USA to Rick Warren, founding pastor of Saddleback Church in Lake Forest, Calif. Warren, author of The Purpose-Driven Life, considered Drucker a mentor. "Drucker told me: 'The function of management in a church is to make the church more churchlike, not more businesslike. It's to allow you to do what your mission is,"' Warren said. "Business was just a starting point from which he had this platform to influence leaders of all different kinds."
Still, it was clear Drucker cared deeply about how he would be remembered. He tried in 1990 to discredit and quash an admiring biography of quality guru Deming, whom he seemed to consider a rival. And when Professor O'Toole assessed the influence of Drucker's landmark 1945 study on General Motors, he concluded that the guru not only had had no impact on GM but also became persona non grata at the company for nearly half a century. "I sent it to Peter, and he spent hours going over it with me," recalls O'Toole. "He was a little unhappy with it because he didn't like the conclusion. He felt he had had a big impact at GM. I thought that was either very generous of Peter or else he was kidding himself."
During the same period, Drucker, then 80 years old, penned a severely flawed foreword for a new edition of Alfred Sloan's My Years with General Motors. In one passage, Drucker quotes Sloan as saying that the death of his younger brother Raymond was "the greatest personal tragedy in my life." Raymond, however, died 17 years after Alfred. In another section, Drucker noted that the publication of the book had been delayed because Sloan "refused to publish as long as any of the GM people mentioned in the book was still alive. On the day of the death of the last living person mentioned in the book, Sloan released it for publication," wrote Drucker. In fact, Sloan generously heaped praise on 14 colleagues in the preface of his book, and all were still alive when My Years with General Motors was first published.
Whether the mistakes were a result of sloppiness or his declining intellectual power is not clear. But Drucker was no longer at the top of his game. The dean of the Drucker school, Cornelis de Kluyver, had reason to believe that Drucker's influence was on the wane -- the school was having difficulty attracting big money from potential donors. To gain a $20 million gift for its puny endowment, de Kluyver agreed in 2003 to put another name on the school, that of Masatoshi Ito, the founder of Ito-Yokado Group, owner of 7-Eleven stores in Japan and North America. Students protested, even marching outside the dean's office toting placards decrying the change. An ailing Drucker volunteered to speak directly to the students. "I consider it quite likely that three years after my death my name will be of absolutely no advantage," he told them. "If you can get 10 million bucks by taking my name off, more power to you."
In April, during our last meeting, I asked Drucker what he had been up to lately. "Not very much," he replied. "I have been putting things in order, slowly. I am reasonably sure that I am not going to write another book. I just don't have the energy. My desk is a mess, and I can't find anything."
I almost felt guilty for having asked the question, so I praised his work, the 38 books, the countless essays and articles, the consulting gigs, his widespread influence on so many of the world's most celebrated leaders. But he was agitated, even dismissive, of much of his accomplishment.
"I did my best work early on -- in the 1950s. Since then it's marginal. O.K.? What else do you have?"
I pressed the nonagenarian for more reflection, more introspection. "Look," he sighed, "I'm totally uninteresting. I'm a writer, and writers don't have interesting lives. My books, my work, yes. That's different."
Wednesday, July 27, 2011
Guest Post: Ominous Similarities
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Portugal Joins Spain And Greece In Lying About Its "Colossal" Deficit
First Spain's Castilla La Mancha region was the first to announce it had "discovered" major debt ceiling holes, now it is Portugal's turn. The Telegraph informs that "Portugal's new leader Pedro Passos Coelho has told the nation to brace for further austerity measures after his government discovered a "colossal" €2bn (£1.7bn) hole in the public accounts left by the outgoing Socialists." And while it answers our immediate question "who's next" it certainly does not provide an answer to who's last. Because as more and more governments are changed, more and more such "discoveries" will be announced, but luckily for Europe (and then America), there are far more pressing issues that distract the populace than discoveries than in the past would have led to popular backlash. Concurrently, Portugal joins Greece in indicating that beggars can most certainly be choosers: "Mr Passos Coelho also appeared to caution the European authorities that his government will not tolerate heavy-handed interference in the country. "We want to take part in an ambitious European project and make our contribution so Europe can confront its problems in the most ambitious way, but as prime minister I will not stand by and let Europe govern Portugal," he told a party gathering." And while short-termism reigns across capital markets at least for a few more hours, the reality is that there is simply not enough money out there to plug each and every hole as it is uncovered. But that will take the market a few weeks to months to realize.
More on Portugal demanding equal terms (with who?) in Europe's resolution of the latest bankrupt state:
There is growing rancor in Lisbon over the term of the €78bn rescue by the EU and the International Monetary Fund, and the sweeping powers of the inspectors as they impose a "structural adjustment" on the economy.
The penal rate of interest charged by the EU is expected to top 5.5pc and risks trapping the country in debt-deflation. At the same time fiscal austerity, without offsetting monetary stimulus or devaluation, may tip the economy into an even deeper downturn.
EU officials are pushing hard for a 100 basis points reduction in rates on rescue loans, hoping to win backing from a reluctant Germany at an EU summit on Thursday.
The revelation of a budget hole in Portugal has echoes of what occurred in Greece in late 2009, when an audit by the new Pasok government exposed a budget deficit twice the level previously declared to the European Commission.
To recap: major lies about deficits in Greece, Spain and Portgual. But certainly all is well in Europe's core and, needeless to say, America. And if it isn't, there is always the printing press. So of all things to get sold off today (as predicted), we get the one asset that can not be printed.
Go figure.
Your rating: None Average: 5 (4 votes)Want to Live Cheaply? Head to Texas
By Venessa Wong
In Texas, it's not all oil wells and rodeos. Despite this state's great wealth and culture, plenty of folks are living a hardscrabble existence. Harlingen, a developing city in the heart of the Rio Grande Valley, has one of the lowest income levels in the U.S. Fortunately for residents of this hot, dry city in the state's southern tip, it is also the cheapest place in the country to live.
The cost of living in Harlingen is about 18 percent below the national average, the lowest level in the U.S., according to price data from more than 340 urban areas provided by the Council of Community & Economic Research, a research organization in Arlington, Va. The statistics cover the period from the first quarter of 2010 to the first quarter of 2011. Harlingen was followed by the urban areas of Pueblo, Colo., Pryor Creek, Okla., McAllen, Tex., and Cookeville, Tenn. The most expensive areas were Manhattan, N.Y., with a cost of living more than twice the national average, Brooklyn, N.Y., Honolulu, San Francisco, and Queens, N.Y.
"We have relatively low income in the [Rio Grande] Valley, including in Harlingen. We have fewer college educated folks" and hardly any high end retailers, says Harlingen Mayor Chris Boswell. Still, the area is growing, Boswell says, and as it develops from an agricultural area into an economy based on light manufacturing and health care, prices may increase somewhat.
Housing, grocery, and transport costs are exceptionally low in Harlingen: over the year, monthly principal and interest payments for homes averaged only $847, a loaf of bread about 90¢, and a gallon of gas $2.65, reports the Council for Community & Economic Research (C2ER). In Manhattan, the most expensive area, monthly house payments averaged $4,686 (more than five times as much), bread about $2.23 (about 150 percent more), and gas $3.148 (about 19 percent more).
C2ER collects quarterly data on such costs as housing, groceries, transportation, utilities, health care, and other basic goods and services. To calculate the cost of living, the council put the greatest weights on housing and gasoline, as items representing the greatest amount of spending were considered more important. "Housing is the biggest piece of living costs everywhere," says Howard Wial, a fellow for the Metropolitan Policy Program at the Brookings Institution. "They depend on how attractive a place is to people."
Lower costs do not necessarily mean more people can afford a high standard of living: The average annual wage in the Brownsville-Harlingen metro area was only $31,720 in 2010, compared with a U.S. average of $44,410, according to the U.S. Bureau of Labor Statistics. So while Harlingen's cost of living may be 18 percent lower than the U.S. average, area income is about 28 percent lower.
Harlingen also has one of the country's highest poverty rates, about 30 percent of individuals, compared with 13.5 percent nationally, according to U.S. Census Bureau's 2005 to 2009 estimates. The city's unemployment rate in April was 9.4 percent. Several other low-cost areas also had low income and high poverty rates, including nearby Brownsville, Tex., McAllen, Tex., and Cookeville, Tenn.
"What the local market can bear would have an impact [on prices]," says Dean Frutiger, project manager for C2ER. "There aren't many Nordstroms or Saks Fifth Avenues in that list of lowest-price areas."
Of course, regional variations in price result from supply and demand. High home prices in Manhattan, for example, result in part from the low level of supply relative to demand. In Harlingen, the average home price is between $100,000 and $150,000, according to data from the Real Estate Center at Texas A&M University.
Tuesday, July 26, 2011
Monday, July 25, 2011
Sunday, July 24, 2011
Saturday, July 23, 2011
Friday, July 22, 2011
Thursday, July 21, 2011
They really are different
By Phil of Phil's Stock World (originally published as Tempting Tuesday - Murdochs Testify to Parliament)
News Corp. (NWS) is down 20% of late.
Today we hear from the Murdoch family, owners of the venerated Wall Street Journal as well as Dow Jones, Inc., who will be explaining how their company allegedly broke the rules, lied, threatened and/or bribed almost everyone, engaged in cover-ups, slandered anyone who got in their way and callously ruined the lives of innocent people - all in the name of profits. Already Sean Hoare, the reporter who blew the whistle on Murdoch has been found dead inside his London apartment. "The death is currently being treated as unexplained, but not thought to be suspicious. Police investigations into this incident are ongoing," said a police statement.
Would that be the same British Police Department that's had two high-level resignations over accepting bribes from Murdoch's organization? The Daily Mirror newspaper quoted an unnamed friend as saying Hoare "thought that someone was going to come and get him, but I didn't know whether to believe half the stuff he was saying." In other words, Hoare was poor and intimidated by NWS (he was refusing to testify against them) while the Murdochs are rich so every possible benefit of the doubt is being given to them just like Rebecca Nalepa was found with her hands and feet bound with a rope around he neck hung off a balcony in a San Diego mansion and the police there are thinking "suicide."
As F. Scott Fitzgerald once said: "The rich are different than you and me - they have more money." As Bill Domhoff pointed out this weekend, when we talk about the rich, we don't mean the top 1% - people who "only" make $1.6M a year or more. Sure those of us in that group may have a "get out of jail free" card for when we speed and we may get our buildings approved quicker than most and we may get a local ordinance passed here or there but, when you move up to the top 0.1% ($36M or higher per year income) or the top 0.01% ($450M or higher annual income), where Mr. Murdoch lives - not only do you get both national and international laws rewritten to suit your needs (like taking over 100% of the UKs satellite broadcasts), but the other laws don't even apply to you.
This lack of accountability leads to increasing bad behavior, as evidenced by our own financial crisis, where the Masters of our Universe screwed their own clients with "shitty deals" yet not a single arrest has been made other than finally shutting down one Ponzi scheme so that the rest of Wall Street can point to Madoff and say - "See, people were arrested" - even though he had NOTHING to do with the sub-prime lending or CDS fiascos that destroyed the US economy and cost the taxpayers (so far) $9 Trillion Dollars or 180 times more than the size of Madoff's entire fund, much of which has now been recovered. Unlike Madoff victims, the victims of the Banksters will never have a special prosecutor on their side with the power to recover our money.
That's because just 10 banks, most in the famous international "Gang of 12" which includes both Murdoch and GE (both of whom control the media - especially the Financial Media) own 77% of our nation's banking assets. That's 40% up from 55% back in 2002, when deregulation let these banks go totally wild. GS, MS , JPM, C, BAC and WFC are the 6 top US banks with $10Tn in assets between them. Others in our Gang of 12 are the EU powerhouses of CS, DB, BCS and Nomura in Japan - they are the masters of the financial universe and the expression applies to any of the majors who use their assets to influence the Global Economy in pursuit of (what else?) more wealth.
Our current tax structure does not simply allow but ENCOURAGES wealth to pool into the hands of the relatively few. $10Tn in the hands of 6 US banks represents a 40% increase ($4Tn) over 2002. If we work that backwards then we see that there USED to be $4Tn in the bottom 99% that has now been transferred to the top 1%. That's OK though, I'm sure they can afford it - they think, after all, there's 99 of them for each one of us and we are, after all, better (richer) than them, are we not?
So the poor banks (and the poor people who bank there) used to have 45% of the nation's assets just 9 years ago. But hey, look on the bright side - they STILL have 23%, that's more than half of 45%!
As you can see from this chart (thanks for the charts, Jessie's Cafe American), the US already taxes our Corporations and Citizens FAR less than almost any other nation on Earth and that, of course, had led us to run up TREMENDOUS deficits, to the point where we had to borrow $15 Trillion - just to keep pretending we could run our Government without collecting the taxes to pay for it. That's BRILLIANT though because the rich people get 99% of the tax breaks while the deficit is EVERYONE's problem.
In fact, for the past few years, our Federal Reserve has placed a stealth tax on ALL of the American people by devaluing our Dollar by 15%. The cool thing about taxing the population by devaluing the currency is it's not just a tax on one year's earnings but a tax on everything they have worked to accumulate over their entire lives! That's right - through inflation, the Fed is able to reach into your bank account and under your mattress and, of course, into your home equity and take 15% of EVERYTHING you have - whether you declare it or not.
There are no loopholes (which are now over $1Tn a year for the top 1%) to escape from inflation unless, of course, you are a Member of the investing class and you own stocks or commodities or collectibles that rise against inflation. Then you are in such good shape that 40% of the nation's wealth actually migrates from the bottom 99% into your bank account in less than a decade. Come on, you've gotta love this country - Go Capitalism!
At this point, as Charles Hugh Smith points out, the bottom 80% have just 7% of the Financial Wealth left and own just 8.9% of all stocks so these engineered market rallies are not helping those who need help the most and then you get these jackasses on TV telling us that we can pay off the deficit (the one we built up because the rich people didn't pay their taxes) by gutting the retirement accounts of the bottom 80%.
Forgetting the fact that a person who worked for 40 years and had 10% of his income (call it an inflation-adjusted $25,000 since we're talking bottom 80%) removed every year - even at just 4% interest, should have $259,068 coming to them (10 years of full SS checks) - forgetting the great crime we are all planning on perpetrating against these people who have been counting on this money (THEIR MONEY) coming back to them in their old age - what is the actual end game planned for when we do stop giving 40M people their retirement checks?
I know that we, the people, are trained not to examine the potential consequences of our actions so when some blowhard politician talks about cutting the post office, we don't wonder how we will get our mail and when they talk about cutting back regulation, we don't think about Three-Mile Island, Love Canal or any of those horrible side effects of the drugs they DO approve but what exactly will happen to Grandma and Grandpa when the day they stop working is the day they start starving?
Of course, if Grandma and Grandpa are rich (and, for the top 1%, the chance that they already came from wealth is 89%) - this is not a problem. The $2,500 monthly Social Security check is just funny money to them and they wouldn't go to those Medicare doctors anyway. But, for the bottom 99% - Mom and Dad will be moving in, and that too is yet another tax that will be placed on the poor - who now have to support their parents as well. But don't worry, this will only go on until Mom or Dad get ill and then the family will go bankrupt very quickly.
Fortunately, our leaders already planned for this contingency and Bush signed the "Bankruptcy Reform Bill" of 2005 to make sure there would never be an escape from debt for the working poor. This means that, if you are foolish enough to take your Father or Mother to the doctor and put your name on hospital paperwork, you too can rack up millions of Dollars in debt once their insurance runs out.
Of course if you are poor and you bind your sick Mother's hands and feet and put a rope around her neck and toss her off a balcony - it probably won't get ruled a suicide because, well - you are poor and nobody owes you any favors, do they?
Do I have a solution for this? No, I do not (not one that would be politically acceptable anyway). All we can do is to get as rich as possible before this whole mess comes unglued so we can be one of "THEM" ourselves! Along those lines, we went long on the S&P yesterday as the market bottomed out in the afternoon with aggressive bullish plays on both SSO and SPY and those should be helping us get closer to goal this morning as a combination of positive earnings reports and much improved housing starts gives the markets an early boost.
We'll see how our lines hold up, in Member Chat this morning we set levels to watch for at Dow 12,500 along with 1,317 on the S&P, 2,775 on the Nasdaq, 8,300 on the NYSE and 825 on the RUT - if we can make those and hold it, we may actually have a reason to make some more bullish picks but, for now, we remain cashy and cautious.
Click here for a free trial to Stock World Weekly where we discuss these issues and their effects on the stock market.
Top photo credit: Telegraph.co.uk
Wednesday, July 20, 2011
Wildebeast Heard Shifts From Dumping All Long Bonds To Lifting Every Available Offer
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Your Dog May Be Smarter Than You Know
WEDNESDAY, Jan. 12 (HealthDay News) -- So you think your dog is smart? A Border collie named Chaser managed to learn the names of 1,022 objects over three years, say U.S. researchers.
It's likely she could have learned the names of more objects, but the training was stopped because of time constraints, said the team at Wofford College in Spartanburg, S.C.
Chaser's ability to learn and remember the names of so many objects was tested repeatedly under carefully controlled conditions. She understands that the names refer to specific objects, independent of commands such as fetch.
The study is published online in the journal Behavioural Processes.
"This research is important because it demonstrates that dogs, like children, can develop extensive vocabularies and understand that certain words represent individual objects and other words represent categories of objects, independent in meaning of what one is asked to do with those objects," researcher Alliston Reid said in a journal news release.
Further research is needed to find out if other breeds of dogs have similar language capacity.
More information
The U.S. Border Collie Club has more about the breed.
-- Robert PreidtSOURCE: Behavioural Processes, news release, Jan. 6, 2011Copyright © 2011 HealthDay. All rights reserved.Tuesday, July 19, 2011
Monday, July 18, 2011
Deficit Deal Deception
Intro by Ilene at Phil's Stock World
Michael Hudson argues that there is no real need to raise the debt ceiling (below). Rather than slashing social security, medicare and other social support programs, we could cut spending that is funding our various wars, end Wall Street bailouts, claw back outrageous profits from fraudsters acting through the TBTF banks, and stop pandering to other special interest groups. We could raise taxes on the ultra-wealthy - the top 0.1% - those who measure their monthly income and capital gains (non income for tax purposes) in millions. But there is no political will, or big campaign contributors, that will support a real solution. The issue is another example of creating a crisis so that emergency measures can be rammed through à la Rahm Emanuel's famous statement about never letting a good crisis go to waste.
As Jim Quinn of Burning Platform points out: "We will hit $20 trillion in debt by 2015. That is a lock. Total Federal government revenue today is $2.175 trillion. We spend approximately $1 trillion per year on our military related adventures, or 46% of our total revenue. If interest rates are 5% in 2015, we will spend $1 trillion on interest. If rates are 10%, we will spend $2 trillion on interest.
"Do you get the picture? An unsustainable trend will not be sustained. We have two choices. We can proactively address the problem or just wait for the collapse of our economic system. This debt ceiling reality show is all the proof I need. Our leaders will choose to wait. It won’t be long." (THE SHOW MUST GO ON)
How much do we spend on military? According to usgovermentspending.com, we spent an estimated 848.11 Bn in 2010.
According to Warresters.com, we spend even more on military as a whole. Its numbers include past expenses: "'Current military' includes Dept. of Defense ($653 billion), the military portion from other departments ($150 billion), and an additional $162 billion to supplement the Budget’s misleading and vast underestimate of only $38 billion for the 'war on terror.' 'Past military' represents veterans’ benefits plus 80% of the interest on the debt.* (*Analysts differ on how much of the debt stems from the military; other groups estimate 50% to 60%. We use 80% because we believe if there had been no military spending most (if not all) of the national debt would have been eliminated.)"
For 2009, Warresters calcuated: Total Outlays (Federal Funds): $2,650 billion, MILITARY: 54% and $1,449 billion, NON-MILITARY: 46% and $1,210 billion.
Obama’s Debt Ceiling Doublespeak
Courtesy of Michael Hudson
Video: youtu.be/z2uxb0oIfnE
Transcript
PAUL JAY, SENIOR EDITOR, TRNN: Welcome to The Real News Network. I’m Paul Jay in Washington. And in Washington the drama over whether the United States Congress will raise the debt ceiling or not continues. The Republicans defend the need to cut spending and get government under control and the Democrats standing, defending the people’s social programs–at least that’s the theater that’s being played out. What is the reality? Well, for his take on all this, we’re now joined by Michael Hudson. Michael is a distinguished professor at the–distinguished research professor, I should say, at the University of Kansas City. He’s the author of Super Imperialism: The Economic Strategy of American Empire. And he joins us again from New York City. Thanks for joining us, Michael.
MICHAEL HUDSON, RESEARCH PROF., UMKC: Thank you, Paul.
JAY: So, what do you think? Good versus evil. We’re playing out the debt struggle and the debt ceiling issue. And if we don’t raise the debt ceiling, we’ll be in the apocalypse. What do you make of it all?
HUDSON: I think it’s evil working with evil. I think the whole argument in Congress is a charade that was pretty much set up two years ago, when the Obama administration first took office and Mr. Obama appointed the reduction commission of Republican Senator Simpson and Clinton manager Bowles. When Mr. Obama went on television two days ago, he said he’s hoping to reach a compromise, which is pretty much what this commission said. And the people he appointed to the commission to head it were the people who said, number one, cut back Social Security. If you have to choose between paying Social Security and Wall Street, pay our clients, Wall Street. And secondly, cut back Medicare. But most especially, cut back Medicaid to the poor. You have to give money to the job creators, mainly the financial managers who are closing down firms, downsizing, and outsizing–outsourcing on labor. They’re called job creators instead of–to the people who actually get work and spend money on goods and services, which is what’s keeping the market going in business.
JAY: Now, somebody who defends the Obama administration would probably say, number one, Obama was dealing with the political reality in America that public opinion and the press and the media were heavily on the side that government needs to be cut. And they would also probably make the argument that there are inefficiencies that could be cut. I mean, Obama did at least early on in his administration say–talk about the need for stimulus. So that certainly his waned. Do you think there’s any merit to some of that defense?
HUDSON: I think that words–Mr. Obama’s great with words. He says one thing, and he does the opposite. Here’s basically the charade that’s happening when he’s trying to be reasonable. In order for him to move way to the right and to continue the Bush administration policies, he needs the Republicans to move even further to the right. They have to be so extreme that they’re perceived as the crazies. And then Mr. Obama can say, look, they will give Mr. Obama room to move way to the right, because he’ll say, I’m not as crazy as Michelle Bachman. I’m not as crazy as Boehner. I’m not as crazy as the Republican leaders. But they were going to close down the government, and that would have really hurt us. And we have to–we do have to cut what’s inefficient. What’s inefficient? Paying for people on Medicaid. Got to cut it. What’s inefficient? Medicare. Got to cut it. What’s inefficient? Paying Social Security. What is efficient? Giving $13 trillion to Wall Street for a bailout. Now, how on earth can the administration say, in the last three years we have given $13 trillion to Wall Street, but then, in between 2040 and 2075, we may lose $1 trillion, no money for the people? That is absolutely crazy. So when we talk about public opinion, we’re talking not about public opinion that watches your Real News Network; we’re talking about the public opinion of Fox TV and sort of the echo chamber that says–that presents the financial sector as job creators rather than job destroyers.
JAY: Well, what would you think are the real repercussions if, let’s say, they don’t raise the debt ceiling now in August? Let’s say Obama calls the Republicans’ bluff. It seems to me it is quite a bit of a bluff, seeing as the US Chamber of Commerce has told the Republicans they have to vote in favor of raising the debt ceiling. It’s kind of hard to believe that in the long run the Republicans are going to defy the business and banking community. But let’s say they play this out and Obama says, okay, we’re not going to savage government spending the way you want us to, and if you want to not–if you want to force us into this quote-unquote “abyss”, we’ll go there because it’s on you. So what is the abyss? I mean, is this really such a serious issue?
HUDSON: It’s not about the abyss at all. It’s not about the debt ceiling. It’s about making an agreement now under an emergency conditions. You remember what Obama’s staff aide Rahm Emanuel said. He said a crisis is too important to waste. They’re using this crisis as a chance to ram through a financial policy, an anti-Medicare, anti-Medicaid, anti—selling out Social Security that they could never do under the normal course of things. They’re using this to stampede the Democrats.
JAY: Yeah, I understand the point. What I’m saying is is, you know, whether Obama would want an alternative policy or not. What if he says to Republicans, okay, do your worst, we’re not going to go down this road? What would be the repercussions of him saying–. I mean, I think the Republicans, personally, would more or less cave in, because they’re not going to defy the whole business community. But let’s say–. So, what happens? So they don’t raise the debt ceiling. So, what happens next?
HUDSON: Then, obviously, they have to cut back some kind of government spending. What are they going to cut back? They’re not going to cut back the war in Libya. They’re not, because that’s–.
JAY: They have to cut back because they can’t borrow more. That’s the point you’re making.
HUDSON: Right. They’re going to have to decide what to cut back. So they’re going to cut back the bone and they’re going to keep the fat, basically. They’re going to say–they’re going to try to panic the population into acquiescing in a Democratic Party sellout by cutting back payments to the people–Social Security, Medicare–while making sure that they pay the Pentagon, they pay the foreign aid, they pay Wall Street.
JAY: Yeah. But what–I hear you. But what I’m–I’m saying, what could be an alternative policy? For example, don’t raise the debt ceiling. Number two, raise taxes on the wealthy. Number three, cut back military spending. I mean, there are ways to do this without having to borrow more money, aren’t there?
HUDSON: Of course. There’s no need at all. Of course they’d–. First of all, the Federal Reserve can basically print money. And whether they count this as the debt or not, they can say this is off-balance-sheet activity. They can technically sell Treasury bonds to themselves and say this is–. They can do Enron-type accounting if they wanted to.
JAY: [crosstalk] probably is some of that going on anyway. But go on.
HUDSON: Of course they could cut back the fat. Of course what they should do is change the tax system. Of course they should get rid of the Bush tax cuts. And the one good thing in President Obama’s speech two days ago was he used the term spending on tax cuts. So that’s not the same thing as raising taxes. He said just cut spending by cutting spending on tax cuts for the financial sector, for the speculators who count all of their income that they get, billions of income, as capital gains, taxed at 15 percent instead of normal income at 35 percent. Let’s get rid of the tax loopholes that favor Wall Street.
JAY: I mean, this is, I guess, the point you were making at the beginning of this segment. Obama has bought into the only solution is some form of cutting. The alternative strategy’s not even being talked about. So of course he loses the battle of public opinion, because he’s not fighting it.
HUDSON: That’s correct. And that shows where his actual beliefs are. Lawyers very rarely understand economics anyway. But Mr. Obama has always known who has been contributing primarily to his political campaigns. We know where his loyalties lie now. And, basically, he promised change because that’s what people would vote for, and he delivered the change constituency to the campaign contributors...
***
Washington's Blog's also makes the point:
S & P: America Could Default Even if Debt Ceiling is Raised
Knee-jerk conservatives may say, "yes, we have to slash all social support programs like unemployment benefits and food stamps".
Knee-jerk liberals might say "raise taxes instead of cutting any spending".
But the truth is that plugging the major holes in our economy is more important than either cutting spending or raising taxes.
And stopping bailouts and giveaways for the top .1% of the richest elite (which weaken rather than strengthen the economy, as shown here, here and here) and slashing spending on unnecessary imperial wars (which reduce rather than increase our national security, as demonstrated here and here) is what the budget really needs.
As I wrote last year:
Why aren't our government "leaders" talking about slashing the military-industrial complex, which is ruining our economy with unnecessary imperial adventures?
And why aren't any of our leaders talking about stopping the permanent bailouts for the financial giants who got us into this mess? And see this.
And why aren't they taking away the power to create credit from the private banking giants - which is costing our economy trillions of dollars (and is leading to adecrease in loans to the little guy) - and give it back to the states?
If we did these things, we wouldn't have to raise taxes or cut core services to the American people.I pointed out the next month:
If there's any shortfall, all we have to do is claw back the ill-gotten gains from the fraudsters working for the too big to fails whose unlawful actions got us into this mess in the first place. See this, this, this, this and this.***
Matt Taibbi agrees with Michael Hudson that the debt ceiling debate is a charade and that Obama's move to the right is a political strategy that has nothing to do with solving, let alone identifying, the real problems in our economy.
Obama Doesn't Want a Progressive Deficit Deal
By Matt Taibbi of The Rolling Stone
Excerpts:
But what is becoming equally obvious, to both sides, is that the Obama White House is using this same artificial calamity to pitch its own increasingly rightward tilt to voters in advance of the 2012 elections.
It has been extremely interesting in the last weeks to see observers on both sides of the aisle make this point. Just yesterday, the inimitable New York Times conservative Ross Douthat listed Obama's not-so-secret rightward push as a the first in a list of reasons why the Republicans should dig in even more, instead of making a sensible deal:
Barack Obama wants a right-leaning deficit deal. For months, liberals have expressed frustration with the president’s deficit strategy. The White House made no effort to tie a debt ceiling vote to the extension of the Bush tax cuts last December. It pre-emptively conceded that any increase in the ceiling should be accompanied by spending cuts. And every time Republicans dug in their heels, the administration gave ground.
The not-so-secret secret is that the White House has given ground on purpose. Just as Republicans want to use the debt ceiling to make the president live with bigger spending cuts than he would otherwise support, Obama’s political team wants to use the leverage provided by those cra-a-a-zy Tea Partiers to make Democrats live with bigger spending cuts than they normally would support.
[...]
This is interesting because just last week, the liberal opposite of Douthat at the Times, Paul Krugman, came to the same conclusion:
It’s getting harder and harder to trust Mr. Obama’s motives in the budget fight, given the way his economic rhetoric has veered to the right. In fact, if all you did was listen to his speeches, you might conclude that he basically shares the G.O.P.’s diagnosis of what ails our economy and what should be done to fix it. And maybe that’s not a false impression; maybe it’s the simple truth.
[...]
The blindness of the DLC-era "Third Way" Democratic Party continues to be an astounding thing... They've abandoned the unions-and-jobs platform that was the party's anchor since Roosevelt, and the latest innovations all involve peeling back their own policy legacies from the 20th century. Obama's new plan, for instance, might involve slashing Medicare and Social Security under "pressure" from the Republicans.
Read more here: Obama Doesn't Want a Progressive Deficit Deal | Rolling Stone Politics | Taibblog | Matt Taibbi on Politics and the Economy.
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Your rating: None Average: 5 (7 votes)Guest Post: Made In U.S.A.: Wealth Inequality
Submitted by Charles Hugh Smith from Of Two Minds
Made in U.S.A.: Wealth Inequality
Here's the Great Game: mask the nation's rising wealth inequality with Central State spending that keeps the debt-serfs passive--all funded by debt, of course.
While we may not make that much stuff in America any more, we can say that the nation's gigantic wealth inequality is totally Made in the U.S.A. Before we examine the data in some charts, I want to stipulate that great wealth in and of itself does not make a person an "enemy of the people" or threat to democracy. I confess to having generally lumped the top 1% of wealth holders into one category, something I have decided to stop doing, as this misses two critically important distinctions:
1. Not all wealth is created equally. Compare Steve Jobs, who is a billionaire for developing and selling "insanely great" mass-market technologies that people willingly buy because it enhances their lives, with a person who made his $1 billion by insider trading or misrepresenting the risk of his company's stock (basically the same thing). (If you need a hint here, think "Countrywide" or "Enron.")
Clearly, there is a distinction between those two fortunes: one created value, employment for thousands of people, and tremendous technological leverage for millions of ordinary people. The other enriched one crooked insider via trickery and deception.
2. Wealth destroys democracy and free markets when it buys the machinery of governance. Larry Ellison has made billions by developing and selling databases and business services. To the best of my knowledge, he spends his wealth on personal hobbies such as large homes and racing yachts. His lobbying efforts appear to be confined to yachting and the possible purchase of sports franchises. In other words, the political influence of his billions is localized and benign in terms of Federal policy decisions.
Compare that to the millions spent by the "too big to fail" banking industry to buy Congressional approval of their cartel's grip on the nation's throat: Buying Off Washington To Kill Financial "Reform".
Much of the debate about wealth inequality focuses on whether the super-wealthy are "paying their fair share" of the nation's taxes. If we refer to point 2 above, we see that if the super-wealthy are allowed to buy the machinery of governance, then they will never allow themselves to be taxed like regular tax donkeys.
In that sense, the debate over tax rates is pointless, because as long as the super-wealthy own the levers of Federal governance and regulation, then they will buy exclusions, loopholes, rebates, subsidies etc. which relieve them of whatever official tax rates have been passed for public consumption/propaganda purposes.
Let's take a look at wealth in America.
In Who Rules America?, Sociologist G. William Domhoff draws an important distinction between the net worth held by households in "marketable assets" such as homes and vehicles and "financial wealth." Homes and other tangible assets are, in Domhoff's words, "not as readily converted into cash and are more valuable to their owners for use purposes than they are for resale."
Financial wealth such as stocks, bonds and other securities are liquid and therefore easily converted to cash; these assets are what Domhoff describes as "non-home wealth" on his website Wealth, Income, and Power.
As of 2007, the bottom 80% of American households held a mere 7% of these financial assets, while the top 1% held 42.7%, the top 5% holds 72% and the top 10% held fully 83%.
According to the Fed flow of funds data, total assets of households and non-profits (a small slice of the pie) are $71.9 trillion, liabilities are $13.9 trillion and net worth--everything from jet skis to homes to stocks to bonds--is $58 trillion.
Here is a snapshot of total assets by category:
Pension funds and "other assets" include Treasury and corporate bonds, favored holdings of pension funds and the wealthy due to their relative safety and guaranteed yield.
Here is a snapshot of stock ownership:
No surprise there: the top 1% owns roughly 40% of all stocks, and the top 10% own 81%.
Wealth comes from earned and unearned (rent, dividends, etc.) income and capital appreciation, so it's no surprise that the income of the wealthiest segment has also far outpaced the lower 95%:
Meanwhile, the ratio of earned income to GDP is plummeting, which suggests that less of the national income is going to wages and salaries:
Thus it's no surprise that the median income has actually declined during the past decade of bogus debt-based "prosperity":
Here's a snapshot of just how debt-based that phony "prosperity" was:
Private borrowing declined as the home equity extraction ATM was closed, but the Federal government helpfully picked up the slack, borrowing and spending roughly $2 trillion a year so that total debt kept right on rising:
You have to wonder how much of our national wealth is the result of private consumption being transferred to the Federal ledger:
Put these charts together and you get the outlines of the Great Game: to keep the debt-serfs from rebelling, the Financial Elites have OK'd the funding of private spending by Federal debt. The Federal Reserve is a key player in the Game, of course, and its "job" is to suppress interest rates so the true costs of this skyrocketing Federal debt are masked, at least for awhile.
Beneath the happy surface of Federal transfers and spending funded by debt, earned incomes for the bottom 95% are falling and wealth is accumulating in the top 1%. The Federal Reserve's project of goosing stocks and bonds has greatly enriched the holders of those assets, while doing essentially nothing for the bottom 90% except increasing their government's debt load.
It's painfully obvious that the Federal government and the Fed are the handmaidens of the politically powerful Financial Elites. Why spend your own money on bribes, bread and circuses when you can arrange for the Central State to borrow the money? Why, indeed. "Austerity" is of course a modest reduction in the amount of money borrowed and spread around to keep the masses safely passive, but a few trillion trimmed here and there over a decade won't change the Great Game.
Frequent contributor B.C. summarized this reality quite cogently:
The top 1% of US households receive nearly as much income each year as the value of Germany's GDP; and they receive more income than all other nations' GDP (individually, not cumulatively) but the GDPs of Japan, China, and the US.
The financial wealth of the top 1% exceeds the value of the entire GDP of the EU (the world's largest GDP in aggregate).
Moreover, the top 1% could lose 90% of their financial wealth and still collectively have more wealth than all but each of the world's top eight GDPs (US, China, Japan, Germany, France, UK, Brazil, and Italy).
When one hears that wealth and income inequality is extreme in the US, I suspect many do not realize just how extreme it really is.
Peak Oil (falling net energy and available net exports), government "austerity", and the effects of population overshoot imply that wealth and income concentration will become even more extreme, affecting what remains of the professional middle class, who are largely dependent upon the ongoing growth of debt-money and government borrowing and spending.
Thank you, B.C. In other words, the top 15% better keep their eyes on the referee, if you know what I mean.
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