More and more Americans are afraid we’re heading for a double-dip recession. President Obama says our way out of our economic slump is to double American exports over the next five years. But China’s go-go economy is slowing down, while Europeans are announcing austerity programs from London to Athens and all points in-between. If the world is contracting, who’s going to buy all the stuff we plan to export?
And then there’s the question, “WHAT are we going to export?” There are more Americans employed in government than there are manufacturing and construction. It’s been that way since 2007 and it’s getting worse. Our manufacturing base has been hollowed out and shipped overseas by the same Wall Street chuckleheads who tell us Americans are too lazy to do these jobs.
This chart shows people employed in manufacturing, mining, logging and construction versus jobs for federal, state and local government employees (including teachers). You can see this trend isn’t good.
So I’d say Obama’s Plan A is SNAFU’d. Meanwhile, about 49 of the 50 states are running budget deficits that they can only balance by slashing expenses. Congress has shown it’s in no mood for a second stimulus package. Yeah, I’d say worries about a double-dip in the economy are right. And if things aren’t handled correctly in Washington — and you’ve got to admit their track record isn’t good — never mind a recession, we could even see another depression.
So what are we going to do? Some answers are elusive, but others are obvious — at least to me. Too bad there’s no one with any guts in Washington, because doing any of these things requires putting the country ahead of special interests.
Still, since I’ve got the soap box, here’s what I would do …
#1) Save $12.2 Billion a Month. And by that, I mean call our troops home from Afghanistan and Iraq — immediately. This is nothing against our troops, who have done a great job in wars they didn’t pick to fight. But both wars, together, cost us $12.2 billion a month over and above our normal military budget. And that doesn’t include the countless loss in blood and broken bodies that you really can’t put a price on (how much would I have to pay you to blow your legs off?).
It’s funny to me (not ha-ha funny) that all the people in Washington calling for austerity don’t seem to notice this extra $12.2 billion a month we spend on wars we can’t justify that are waged for the benefit of people who hate us. A big chunk of the money is looted by corrupt governments in Kabul and Baghdad, and then there’s the run-of-the-mill looting done by defense contractors.
Here’s a few facts you may not know about the wars …
- We have spent more than $700 billion in Iraq alone since the war began; it will easily cost American taxpayers $1 trillion before we leave there.
- The Pentagon budget for 2010 is $693 billion — more than all other discretionary spending programs combined. America spends 44% of the entire world’s military budget. Surely, some other countries can pick up the spending for their own defense.
- Billions of dollars in aid to Afghanistan have been tracked to Dubai, where well-connected Afghans buy luxury villas built along the beaches of the Palm Jumeirah — a man-made island shaped like a giant palm tree — and live it up on your tax dollars. The Afghans looting it up in Dubai include a brother and a cousin of Afghan President Hamid Karzai. So, you can see that Afghanistan is rotten to the very top. I don’t want to spend another damned dime there!
President Obama was elected on a promise to end the wars. Instead, he’s expanded them, apparently after listening to bad advice from the brass hats. If it was me, I’d tell the generals to make plans to get the boys home in two months. That might send the right message.
So, $12.2 billion a month adds up to $146.4 billion a year saved.
Tens of thousands of Afghan civilians and hundreds of thousands of Iraqi civilians died because we went to those countries; they can’t do worse if we leave. Sooner or later, both Iraq and Afghanistan have to work out their own problems. And let’s say the bad guys take over Iraq. Then they’ll be just like Iran, a country with bedbug-crazy leaders who will still sell oil to anybody … including us.
#2) Hit China Where It Hurts. I’m so sick of China’s song and dance about how they might allow the value of their currency, the yuan (or renminbi), to climb a little. They’ve been playing this “maybe we’ll let the yuan float” game since 2005. For Pete’s sake, why does anyone believe them? China’s artificially low currency is a HUGE trading advantage that is sucking American jobs overseas. It needs to stop — NOW!
Most people don’t seem to remember — I guess it’s selective amnesia — that China suddenly devalued its currency by 30% when it pegged the yuan to the U.S. dollar. And it slowly and steadily devalued it even before that — the yuan traded at 1.5 to the U.S. dollar in 1980; the yuan trades around 6.8 to the U.S. dollar now. So, the answer is obvious — put a tariff on Chinese goods. If you want to be fair, make it a 30% tariff. The Chinese are never fair — so, feel free to make it as high as 50%.
The “free marketeers” will tell us tariffs are bad. Well, tariffs were good enough for our founding fathers, who slapped big tariffs on goods from England, another country that waged economic war against us after the Revolutionary War. And frankly, after all the bank bailouts, Detroit handouts, and Wall Street welfare going on for at least the last two decades, no market is truly free.
To be sure, slapping a tariff on Chinese imports would make prices of all the goods we buy from China — most everything you buy from Wal-Mart — go up by 30% or more. It would be a HUGE dislocation in our economy as well as theirs. I’m not saying it would be fun — I’m saying it’s necessary. Our throw-away lifestyles are being artificially propped up by the fact that we’re shipping our manufacturing base piece-meal to China.
And sure, China would probably retaliate by slapping a tariff on goods we sell them. They have more to lose than we do. China’s exports increased 48.5% in May from a year earlier.
How to turn $25,000 into $283,625 …
Next Tuesday at noon Eastern time, you’ll find out how. We’re going to introduce you to the only man we know whose “buy” and “sell” signals could have helped investors grow their portfolio 11.3 times larger since December of 2004 — enough to turn a $25,000 portfolio into $283,625.
In fact, this analyst has amassed such an impressive track record, we had five Weiss Research analysts scrutinize each and every trade to make sure it was accurate!
But you know what else a tariff program would do? It could start pulling jobs back from China to the U.S. The problem is that the jobs could just go to another low-wage manufacturing country. That’s why we need to put “fair-wage” tariffs on all imports. The alternative is to see America’s manufacturing base continue to be eaten away until our economy is as rotten and hollow as a termite-infested log.
One last thing: The U.S. trade deficit was $380.66 billion in 2009. If we could cut that in half, that would be effectively a $190 billion stimulus package every year, without incurring any debt in the process.
#3) Reinstate Glass-Steagall. The financial reform getting worked over in Congress right now is a toothless wonder. It does nothing to address the main problem on Wall Street, which is that the banks we apparently can’t allow to fail are entwined with the trading houses that are ripping us off.
At one time, banks did boring ol’ banking and brokers gambled with other people’s money. This was due to the Glass-Steagall Act, passed in the 1930’s to help prevent a recurrence of the 1929 market crash and the Great Depression. It provided strict separation of the activities of various types of financial firms, the overlapping of which was significantly responsible for creating the late 1920’s market bubble and subsequent crash.
Glass-Steagall forced financial firms to divest themselves of overlapping operations and focus on their core business. Reinstating Glass-Steagall is the most obvious financial reform needed. The fact that the Obama administration opposes reinstating Glass-Steagall raises another needed reform.
Since some of the banks we bailed out have paid back some of the money, the total cost of the bailout is now expected to be $89 billion. Since Wall Street will repeat its mistakes unless we change things, reinstating Glass-Steagall will probably save us at least another $89 billion.
#4) Close the Revolving Door between Wall Street and Washington. The major players shuttle between top jobs in Washington and Wall Street. As a result, the government is “captured” and in effect becomes an arm of Wall Street, passing laws to make bankers richer rather than protecting average citizens.
In the late 1990s, Sandy Weill, then head of Citicorp, led the fight to rescind Glass-Steagall. Phil Gramm, the chairman of the Banking Committee, worked with Citigroup lobbyists to get it the repeal passed. The repeal was called the Gramm-Leach-Bliley Act after the three Republican senators who pushed it through Congress. President Clinton embraced the repeal.
According to PBS’s “Frontline,” just days after the Treasury Department agreed to support the repeal, Clinton’s Treasury Secretary, Robert Rubin, accepted the job as Weill’s chief lieutenant at Citigroup. Phil Gramm went on to become an executive at UBS, another giant bank that was a big beneficiary of repeal.
What is needed is obvious. If you work in the government, you can’t work on Wall Street for 5 years. Period. That may mean we’ll have to accept that we don’t have the best and brightest in those jobs. Considering that the best and brightest seem to be ripping us off, I’ll settle for competence and adherence to the spirit as well as the letter of the law. It will be far less expensive.
#5) Legalize the Underground Economy and Tax It. Everybody wants services, but nobody wants to pay higher taxes … that you need to pay for services. And those expensive wars that President Bush started and President Obama is continuing? NOBODY wants to pay for them, either. The fact is, we need to get more inflow to match our outgo. The place to get mo’ money is to legalize the underground economy, an economy that is operating tax-free right now. I’m talking about marijuana.
According to analysis by CNBC, marijuana could be a $100 billion business if it was legal. And a Harvard University paper, “The Budgetary Implications of Drug Prohibition,” projects that legalization of marijuana could yield over $20 billion in tax revenues and enforcement cost savings.
And it’s not like we’re winning the war on drugs. If anything, we’re losing. Look at this chart from the DEA on eradication and seizure of pot plants …
The numbers aren’t going up because less people are growing pot. Quite the opposite. Marijuana prohibition is working out about as well as alcohol prohibition did in the 1920s — it enriches criminals, criminalizes users, and robs the public treasury of potential tax dollars.
Hey, you don’t want your taxes to go up? Neither do I! So legalize pot and tax it. And consider legalizing other underground economies as well. According to Wikipedia, my favorite source of possibly made-up statistics, prostitution is a $108-billion-a-year business. What if we legalized and taxed that as well? Every dollar in taxes a prostitute pays is potentially one less that YOU have to pay.
My Point: There Are Solutions to This Economic Mess
People say: “Well, we CAN’T reinstate Glass-Steagall … we CAN’T legalize pot.” Hey, if we aren’t willing to try “taboo” solutions, then it sure looks like we’ll continue down the same road we’re going down now … and some potential outcomes aren’t pretty.
One book I recommend to everyone is “Collapse: How Societies Choose to Fail or Succeed” by Jared Diamond. In the book, Diamond tells the fascinating story of the Norse people who lived in Greenland many hundreds of years ago. Their world underwent changes that threatened their way of life and their very existence.
The Greenland Norse lived on an island that was surrounded by fish … oceans of fish … but they refused to eat fish. Fish was taboo for the Greenland Norse. The winters got colder and colder, killing the crops and livestock in Greenland until the remaining Norse starved … even though fish were packed gill to gill off their shores.
There were other people in Greenland during those cold winters — the Inuit. They had no problem eating fish. They lived while the Norse died.
I want America to be as flexible as the Inuit. We should recognize that things need to change. Maybe we can’t afford to be the world’s policeman anymore … or to let Wall Street rob us blind … or to let certain parts of the economy (the illegal parts) operate scot-free from taxes.
I think we can all agree that the national economy and the global economy are both on slippery slopes. It’s time to think outside of the box. We just need an effective leader who is willing to grow a pair and try some real solutions. If you don’t like my solutions, come up with others. But don’t tell me America can’t be fixed. It can be fixed … you just have to be willing to do it.
Hope for the Best and Prepare for the Worst
Until and unless the parasites — oh, did I say parasites? I meant politicians — in Washington actually remember who pays their salaries and start doing their best rather than their worst, you might want to prepare for the worst. Those preparations may include …
1. Own Gold. If our nation continues to spend more than it brings in, we will follow Greece and Europe down the road to a currency crisis. One way to insure against this is to put some of your wealth in physical gold bullion — and silver, too. And with the recent pullback in gold, it’s a great time to buy it.
2. Get Out of Debt. If this country is headed for a serious financial crunch, you don’t want debt hanging over your head. You want cash in the bank along with gold in the vault.
3. Start Prepping for the Worst. You can prepare for whatever emergencies life throws your way. And if we have a really big crash, the government might not be there to save your fat behind. Consider following the recommendations in my book, “The Ultimate Suburban Survivalist Guide.” The advice in there covers everything from money to power supplies to guns to canned goods.
4. Don’t Lose Hope. There is a light at every tunnel. The economy may well go into a double-dip recession — or worse — but there are stocks that will likely outperform on the way down and lead the charge on the next leg up. On the one hand, I like gold and silver miners. On the other hand, I like companies that pay big, fat dividends. They outperform in every recession — even bad ones.
Our leaders in Washington and on Wall Street may not wise up — but you can start making the smart moves with your money today! Our government may not be able to adapt and make tough choices. Can you?
All the best,
P.S. My monthly publication, Crisis Profit Hunter is packed with dividend-paying stocks — as well as gold and silver picks. Plus, if you subscribe now, you can get a FREE copy of The Ultimate Suburban Survivalist Guide. The next crisis is coming — get yours today!
About Uncommon Wisdom
For more information and archived issues, visit http://www.uncommonwisdomdaily.com
Uncommon Wisdom (UWD) is published by Weiss Research, Inc. and written by Sean Brodrick, Larry Edelson, and Tony Sagami. To avoid conflicts of interest, Weiss Research and its staff do not hold positions in companies recommended in UWD, nor do we accept any compensation for such recommendations. The comments, graphs, forecasts, and indices published in UWD are based upon data whose accuracy is deemed reliable but not guaranteed. Performance returns cited are derived from our best estimates but must be considered hypothetical in as much as we do not track the actual prices investors pay or receive. Regular contributors and staff include Andrea Baumwald, John Burke, Marci Campbell, Selene Ceballo, Amber Dakar, Roberto McGrath, Maryellen Murphy, Jennifer Newman-Amos, Adam Shafer, Marty Sleva, Julie Trudeau, Jill Umiker, Leslie Underwood and Michelle Zausnig.
Attention editors and publishers! Uncommon Wisdom issues can be republished. Republished issues MUST include attribution of the author(s) and the following short paragraph:
This investment news is brought to you by Uncommon Wisdom. Uncommon Wisdom is a free daily investment newsletter from Weiss Research analysts offering the latest investing news and financial insights for the stock market, precious metals, natural resources, Asian and South American markets. From time to time, the authors of Uncommon Wisdom also cover other topics they feel can contribute to making you healthy, wealthy and wise. To view archives or subscribe, visit http://www.uncommonwisdomdaily.com.
From time to time, Uncommon Wisdom may have information from select third-party advertisers known as “external sponsorships.” We cannot guarantee the accuracy of these ads. In addition, these ads do not necessarily express the viewpoints of Uncommon Wisdom or its editors. For more information, see our terms and conditions.
|© 2010 by Weiss Research, Inc. All rights reserved.||15430 Endeavour Drive, Jupiter, FL 33478|