Tag: Business

The New Year’s Day walk

A walk in two continents.

For many years it’s been traditional for me and the family to take a walk on New Year’s Day.  But this time, without me, my wife and family back in the UK decided to go to Stonehenge for a walk, on a cold crisp day.

Why ‘back in the UK’? Because I was in Sharjah, one of the seven emirates in the UAE.

When here I always stay in one of the original hotels of the country, built on the edge of the corniche.  As the day was warm and bright I decided to vary my walk.

Instead of going some 5kms round the lagoon, I made my way towards the area where the shops are mostly run by Indian people. For many years their influence has been very strong, indeed the rupee was used as currency until not long ago.

Arab dhow

It didn’t take long to leave the main area that is regularly seen and head down towards the old port where the Dhows are moored. There is an ancient feel to this area, and the water front is full of activity.

There was one man who had been unloading coal from his boat onto the quay side. You could hardly see his features until he smiled. All along there were people onboard their various craft, none of which really looked seaworthy, but which obviously make a regular and long journey to India.

The pathway was broken, and the occasional cat appeared from a rubbish bin. I made my way past the open market where animals are sold. Nothing is hidden here ! It was prayer time, and from many different minarets came the sound of the chanting. There was a lot of dirt and rubbish, uneven walk areas, and tatty shops. All with quite an East African feel. I passed a selection of tents where many plants and flowers were for sale; no garden centre as we have come to expect in England.

I finally worked my way down to the fish market, and was amazed at the white covering to the broken pathway, which turned out to be made up entirely of fish scales.

The next part of the walk was back towards the lagoon where directly in front of me was the Burj Dubai, which has taken

The Burj Dubai

just over 5 years to build, and measures 2684 feet. It is due to open this week, and if you want some office space, the cost is $4000 per square foot. The contrast from such back street filth to the glitter of the world’s tallest building separated by only a few miles brought home the stark contrast of what for most people is reality, and the unreal.

Sadly the amount of rubbish in all its forms is a huge problem, but I did smile when I saw one fisherman improvising, for instead of a float on the end of his line he was using the upturned remains of an old plastic bottle, but it did work!

Nobody bothered me, and I was quite happy taking in the sights and smells, and lost in my own thoughts, amazed that if you smiled and caught somebody’s gaze they would likely wish you Happy New Year.

By Bob Derham

U.S. GDP Growth Revised Downward….again!

Lies, damn lies, and statistics!

What a shock.  U.S. GDP is not growing at 3.5% per year, as originally reported, and celebrated with much fanfare from President Obama about how the stimulus program was working.   It is not even growing at the revised 2.8% annualized rate reported a couple of weeks later.  The latest re-revised figure is 2.2%.

Nearly the entire 2.2% annualized growth, or 3rd quarter growth of 0.55%, is driven by the cash for clunkers program, the government spending program (also called the stimulus program, but I have a big problem with that particular name), and the extended tax credit for first-time home buyers. As a result, this increase in GDP is not only entirely temporary and fleeting, it will cause lower GDP later.

The cash for clunkers program did not create more overall demand for cars; it simply pulled some of the future demand for a new car into today, all the while wasting millions of tax dollars on administering the program, and putting some dealerships out of business in the process.

The spending program simply shifted profits from businesses to support other segments of society, all of which is temporary and destroys the productive capacity of the economy for many periods to come.

The extended tax credit to first-time home buyers is a real head-scratcher.  A curious time to redistribute funds from the producers in the economy to finance a program which lowers the cost to those home buyers who would not have the funds to buy a home in the first place….second wave of home mortgage foreclosures, anyone?

By Sherry Jarrell

Government Spending is like a Hamburger Store

THERE IS ONLY ONE. 100% TAX. BIG GOVERNMENT!

(with apologies to McDonald’s Big Mac packaging)

At times when money is tight and our resources are stretched to the limit, it pays to spend our money wisely.  That is why it makes so much more sense to reduce the costs imposed on private industry instead of increasing spending by government.  Industry takes their earnings and reinvests them to create sustainable wealth creation: they hire and train workers, conduct research, build and perfect machinery and robotics, and develop brand equity and a reputation for quality. All of these endeavors represent lasting value creation. What is spent on these things this year will continue to create revenues, wages, and profits for years to come.

100% Beef (or is it tax!)

Government spending is pure consumption.  Think of a hamburger store.  While it may taste  good at the time, it is temporary and fleeting, and will likely do more harm than good in the end.   It keeps the beast alive for one period, and then the process has to start all over again next period.

When we approve a massive spending bill, it covers government purchases of goods and services for the next year, maybe less.  In one end; out the other, with nothing left to show for it, except a hungry program that needs to be fed again next year, and the next and the next.

Government programs in and of themselves never produce lasting value; only in conjunction with private industry is any wealth or value created. And even then the government purchases have pushed aside, prevented, crowded out, or priced out purchases that would have been made by the private economy.

So, please, keep this in mind whenever you think of any type of government spending or tax increase: it is here today, gone tomorrow.  Oh, and skip the fries!

By Sherry Jarrell

Speechless!

Maybe it’s me but at any level this appears to be very wrong!

Haldeman - Freddie Mac
Williams - Fannie Mae

The US Government put huge amounts of taxpayer’s money into the two huge US Mortgage companies Fannie Mae (Federal National Mortgage Association) and Freddie Mac (Federal Home Loan Mortgage Corporation).

Now the BBC has reported that:

The heads of US mortgage giants Fannie Mae and Freddie Mac may each receive pay packages of up to $6m (£3.7m) for 2009, depending on company performance.

Now I’m not an American nor do I really understand the issues BUT when taxpayers put in $111,000,000,000 of THEIR money into these organisations (that’s $365 for every man, woman and child on the US Census!) and so many of those same US taxpayers are up the proverbial financial creek without a paddle, there has to be a better way of rewarding top bosses (of US publicly owned corporations) than the option of $6,000,000 each!

But the regulator which decided the pay levels said the awards were 40% lower than before the government bailout.

The sums involved reflected the need to attract and retain talent, it argued.

Frankly, I just don’t believe that there aren’t many other incredibly capable business leaders who would do these jobs for a fraction of six million dollars.  (The present incumbents are Michael Williams at Fannie Mae and Charles E. Haldeman Jr. at Freddie Mac who will receive a base of $900,000 in 2010 with the opportunity to earn $5.1 more if “certain targets are met“.)

Read the article here – I’m going to lay down in a dark, quiet room for a while!

By Paul Handover

Banks are being paid to NOT LEND!

It’s a funny old world just now!

The President of the United States recently pressured the heads of the nations’ largest banks to increase lending to

Pres. Obama

small business and home-owners.  Obama claimed that the banks, as recipients of federal bailout funds, had an unusually heavy responsibility to take such measures in order to create more jobs and help nurse the economy back to health.  All of this was done very publicly and with much fanfare.  Worldwide press coverage was universally favorable.

Seems reasonable, doesn’t it?

But it is not.  You are being duped.  I can’t tell whether whoever writes this stuff for Obama knows the truth and skilfully skirts it, or just writes flowing prose with no connection to the truth that curries voter buy-in by blaming Wall Street and Corporate America for all that’s wrong in the world.

Read more of this Post

The Future of Video Stores

Economics in the real world!

Tim Clodfelter of the local Winston-Salem Journal wrote a very interesting piece on the future of brick-and-mortar

Tim Clodfelter

video stores and video rental places such as NetFlix and Red Hat.

I happened to be quoted in the article as an economist (the comment about “reducing the average cost every time we watch a purchased video” was supposed to be a joke!), but actually met up with Tim in my role as mom and pseudo-agent!  Let me explain.

My 15-year-old daughter was standing in a very long line of young ladies waiting to audition for the Coen Brother’s remake of True Grit. Tim was there to get the story on the open casting.  I asked him over hoping he would talk to my daughter.  He and I got to talking instead; he found out that I was an economics teacher, and pulled out his notes on the Video Store story.  He ended up talking to me and several other parents in line, all of whom had a different approach to viewing movies.  The resulting article follows with permission to publish on Learning from Dogs.

By Sherry Jarrell

Read the Video Store story

Fractional Reserves of the U.S. Banking System Explained

What are Fractional Reserves?

The US Federal Reserve, or Central Bank, is the banking system’s bank. It is the lender of last resort.

It is through the Central Bank that banks settle their accounts with each other. The central bank serves as a clearinghouse for checks written by depositors, and it holds the commercial banks’ reserves.

Bank reserves (vault cash, and deposits by banks at the Central Bank or the Fed) are monies held out of circulation by banks to satisfy the Fed’s reserve requirements and the currency demand by the public. Excess reserves are those held above the legal reserve requirements to handle uncertain demand.  Bank deposits not held in (required plus excess) reserves are used to make loans and earn interest.

When banks make loans, they do not actually lend out the equivalent in cash but instead create on their balance sheet a loan asset and an equal liability called a demand deposit.  Such lending by banks is limited only by reserve requirements (set by the Fed) and the cash they need to satisfy cash withdrawal demand by their customers.

As these loans are then re-deposited by the borrower, the multiplier process continues as fractional reserves are held back and the balance is “lent” out again.

By Sherry Jarrell

Parenting the Government

Governments version of the Magic Roundabout.

Okay. If you tried this ploy on your parents, you wouldn’t get away with it.  If your kids tried it on you, you wouldn’t fall for it either.  So why are the American people letting the Government get away with this ploy?  I don’t know. And I don’t get it.  Maybe there is just so much going on that it gets lost in the mix. Maybe it’s because of the deceptive and disingenuous way it’s being presented by Pelosi, Reid, and Obama.

Here’s the ruse:  “Give us more of your money today, and we will reduce tomorrow’s health care costs. We will increase efficiency.  And we will do all of this without increasing the budget deficit!”

Yeah, right.

What exactly is stopping them from reducing health care costs and improving the efficiency of health care delivery now? Why do they need more money today to accomplish these things tomorrow? What magical powers does the next dollar of tax collections have that the current ones don’t?

Exactly.  None.  So when Congress asks to increase taxes and the deficit in order to fix health care tomorrow, let’s respond to them as we would our clever but errant children: Ask to see some proof today first.

You know how that will turn out. And so does Congress.  That’s why they just keep promising the moon.  What I don’t get is why we continue to let them get away with it.

[Not just the US Government plays on the roundabout – I’m sure they learnt from the Brits! Ed.]

By Sherry Jarrell

The Poor Pay Czar

Pity the poor Czar.

Kenneth Feinberg, pay czar

The US poor pay czar is lamenting his task: how to limit the pay of executives at companies receiving a bailout without undercutting the ability of the firm to secure talented management.  “It’s a delicate balance!  Very difficult indeed.”  Well, Mr. Czar, difficult for you, maybe, but a piece of cake for the labor market.  That’s exactly what the labor market does, day in and day out, quite naturally.

Compensation should not be the purview of an appointed administrator serving at the pleasure of the executive branch of the U.S. Government.

By Sherry Jarrell

[Market forces difficult to stamp on. Ed.]

The Fatuous Obsession with Celebrities

The humungously uninteresting saga of Tiger Woods’ infidelities

The press has been full in recent days of the Tiger Woods saga. I have followed this with a combination of astonishment and disgust and touched on it yesterday’s Post.

Astonishment? Not at Woods’ extramarital adventures. Frankly, I am astonished that anyone could possibly be astonished to learn of his frailties.

I must have been about 13 when I took an interest in John F Kennedy, mostly because of his assassination. As a young teenager I read and listened to the news over the coming months and gradually realised that this great American hero and hope for the future was a serial philanderer. And as I grew up I realised that this is the kind of behaviour that rich and powerful men in particular get up to.

I soon realised that some men simply give in to their sexual drives; integrity, promises and faithfulness just go out of the window. Once again – just like the British MPs who filched public funds by the £1,000s –  BECAUSE they can do it (for a while) they DID do it.

This is regrettable for stable marriages and the happy upbringing of children, but it is a fact. And so Woods’ antics were

Paul Newman

not the slightest bit surprising. In fact, what IS surprising is to hear of famous people who have NOT given in to basic urges, the most famous recent example being the much-loved and missed Paul Newman.

No, what astonished and disgusted me was the press interest in Woods’ philanderings. Of course, the media only publicize what they think people want to hear or read about, and this in order to sell more copies and rack up more advertising revenue. And as the media are not stupid, it clearly IS true that many people ARE interested in the sexual antics of famous people.

But what does this tell us about the seriousness of the human race? All this fuss over one more weak, unfaithful and ultimately boring husband when on the same day hundreds of thousands died of treatable disease, when goodness knows how many more tons of ice melted, how many more tons of CO2 were released into the air, how many more victims of the hellish North Korean regime there were?

He’s a famous golfer? Oh dear ….  someone good at putting a ball into a hole? This is supposed to be IMPORTANT?

Sadly, the whole episode is just another example of the fatuous obsession with celebrities, as if they are somehow more interesting or important than anyone else. No, my local postman is far more interesting than Tiger Woods, and I don’t think he cheats on his wife either.

And as for comment about the business wisdom of Woods not talking to the press? Oh dear again – one weeps. Why should anyone CARE whether he talks to the press or loses sponsors? Who GIVES a damn? Well, apparently, millions. And this is fairly depressing when there is so much else to worry about. And if big name sponsors of the once “Mr Clean” of world sport are now looking rather foolish, well I for one won’t shed any tears. They peddle fantasy, shallowness and envy; it’s time we had a reassessment of priorities and bit more common-sense and realism.

Please Mr Murdoch et al; give us a break from Tiger Woods; he is just nanoscopically irrelevant in the grand scheme of things and what on earth has his private life got to do with his golf anyway? But I expect we will have to suffer months of reading about the vast settlement his wife will get as his divorce is dragged through the courts and the media. Oh dear, I need a drink ……

Despairing of Kempten in the Allgau

By Chris Snuggs