Random Thoughts for the Week

2012 May 6
by SJ Leeds

The Fiscal Cliff – Investors are worried about the economic impact of tax increases that could take effect in January 2012.  Most notably, people are worried about the expiration of the Bush tax cuts, the expiration of the payroll tax cuts and automatic spending cuts (from the sequester).  Chairman Bernanke referred to this while testifying before the House Financial Services Committee when he said, “Under current law, on January 1, 2013, there’s going to be a massive fiscal cliff of large spending cuts and tax increases.  I hope that Congress will look at that and figure out ways to achieve the same long-run fiscal improvement without having it all happen at one date.”


This tells me one thing…the Great Recession has been followed by a Horrible Recovery.  If raising the top tax rate back to the levels before President Bush took office (which were still below 40%) and withdrawing 6.2% of employee salaries for payroll taxes (rather than 4.2%) would push us off of a cliff, that should give you an idea of where we are.  In other words, things are so bad that we couldn’t go back to the tax structure of the beginning of this century and survive.  I’m not going to argue with that.  It just tells you the dismal state of our economy.


The Socialist vs. The Conservative – no, I’m not talking about President Obama against Governor Romeny.  (President Obama isn’t a socialist and Governor Romney isn’t a conservative.)  It will be interesting to see what happens in the EU now that France has signaled their discontent with Germany by electing a left-leaning President.  The war against austerity is building.


Tell Me What I Already Believe – with respect to cable news, Fox News is the most watched source.  Now, it seems like MSNBC might be passing CNN.  Maybe people don’t like CNN (and what it’s become).  But, CNN has tried to maintain its position as the nonpartisan news source.  Fox is the source for the right and MSNBC is the source for the left.


So You Want to Know How Divided Our Country Is – I read an article that said that the issue of the so-called “Buffett tax” was raised at Berkshire Hathaway’s annual meeting.  I read that one shareholder said that his 84-year old father didn’t want to hold Berkshire’s stock because of Buffett’s support for this rule.  Apparently, half the audience cheered.  Buffett suggested that the 84-year old should consider owning Murdoch’s company instead.  That led to applause from another portion of the audience.  Buffett also said that running a company didn’t mean that he had to put his citizenship in a blind trust.


Debt Inequality – CNN had an interesting chart showing the 25-year change in “debt-to-income” ratios for the top 5% and the bottom 95%.  Back in 1983, the levels were approximately equal.  But, the bottom 95% have doubled their ratios!  Of course, this doesn’t answer the question of why the debt ratio has increased.  See chart below.

Another Lousy Report Card – the employment report showed that we only created 115K jobs in April.  That’s not going to solve our labor problems any time soon.  Yet, our unemployment rate dropped to 8.1%.  The reason for this seemingly incongruous result is that the participation rate dropped to 63.6%, the lowest rate since 1981.  There are many reasons that the participation rate is so low (and the reality is that we don’t know all the reasons).  Possibilities include discouraged workers (many of whom will return if they believe jobs are returning), retiring baby boomers (people leaving the work force at an increasing rate) and the large number of people joining the ranks of the disabled (see my blog from two weeks ago).


Some Unemployment Rates are More Important Than Others – The Financial Times reports that job growth in the 14 states pivotal to the presidential election has advanced at a slower rate than the rest of the country.


Lower Demand for Employees.  Atlanta Fed President Lockhart said that on the demand side (for employees), many businesses that existed five years ago are gone.  While this is normal, we have fewer start-ups because of the weak economy and difficulty getting financing.  Also, many businesses that weathered the recession made deep and apparently permanent cuts in the workforce.  Many businesses have also made investments in technology that have eliminated the need for certain types of jobs (and the skills that these firms now demand may be quite different than in the past).


Congratulations Jay!  My oldest son Jay had some great success this weekend in the fifth-grade level of a state academic competition in Ft. Worth.  He placed first in two competitions (Math and Maps/Charts/Graphs) and placed third in Number Sense.  Congratulations Jay!


Have a great week.


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