The Approaching Tidal Wave

It's happening. Kathleen Casey-Kirschling will sign up for Social Security on Monday.

Why should you care? Because she is the first of 78 million Baby Boomers that will hit the U.S. Social Security system in the coming years.

Ms. Casey-Kirschling was born January 1, 1946, at 12:00 a.m., and is known as the first member of the Baby Boomer generation. Come Monday, she will go from paying into the Social Security system to drawing money out.

Of course, millions of workers will follow her in the coming months and years.

Our Monthly Payment Economy

This was written by Rich Galen and one of his recent emails from mullings.com.

The sub-prime mortgage mess which a few months ago we were assured would cause no more than a ripple in the economy because so many of the potentially bad loans had been securitized and the risk was spread and … what's the official financial term for "blah, blah, blah?"

That ripple turned into a tsunami as mortgage brokers, banks, stock markets, hedge funds and financial powerhouses were flooded with bad news, bankruptcies, and margin calls. The sub-prime mortgage issue will probably be made worse once the Congress sticks its nose into it and decides to bail out people who took out those impossible loans - meaning you and I will be helping make all those bad mortgage payments.

Think about that the next time your landlord takes his sweet time fixing the garbage disposal unit in your one bedroom, one bath apartment which is conveniently located on the third floor of a building which has no elevator.

One of the reasons we are in this mess - and there will be more messes to follow - is because we have become a Monthly Payment Economy. Watch a car ad. Any car ad. You are not likely to every get the total price of the car. The only number you will see is the monthly payment (for highly qualified customers). Want that luxury car? Not to worry about the total cost, we'll just stretch out the payments to 84 months - seven years. Think I'm kidding? Head over to your car dealer and hear it for yourself.

Need anything from any store for any reason? No problem. Stick it on your credit card. Card maxed out? No problem again. You've be PRE-APPROVED for another $2,500 or $5,000 or however much at a low, low annual percentage rate of 15 - 20%.

Anyone can afford another $50 or $70 per month payment. It's when you add $70 almost every month for a couple of years when you suddenly discover your walletful of credit cards is now costing about $1,500 a month just to make the minimum payments.

For those of you sending Trent or Missy off to college in the next week or so, keep this in mind: According to an article in the Ventura County Star, "freshmen who start out with no debt are likely to owe about $1,500 to credit card companies by the end of their first year of college."

Someone tell me the difference - other than scale - of a 17-year-old college freshman being driven by peer pressure to fill out app after app for credit cards (and getting an official school logo-emblazoned plastic beer stein for the effort) and someone 25 years older being brow-beaten by a mortgage broker into a mortgage which the recipient can't even make the payments under the "teaser rate" much less after the rate is "adjusted."

I know this doesn't apply to you, but according to a Marketwatch article on the foxnews.com website, "On average, households that carry a balance on their credit cards owe more than $13,000."

In Washington, DC there is a move afoot to put the brakes on the payday loan business. These are shops - generally in minority neighborhoods - which lend relatively small amounts - in the hundreds of dollars to be repaid on the next payday.

Of course, they are often not repaid so the initial annual percentage rates (which, according to the Washington Post "range from 349 to 550 percent" is jacked up even higher by fees and additional loans to pay off the initial note. According to the Post "99 percent of payday loans turn into long-term debt because the average borrower renews a loan eight times per year."

From the Congress' spending bills to the payday loan recipient. Our entire economy is based on making our monthly payments. If very many begin missing those payments, it will make the sub-prime mortgage tsunami look like … a ripple.

Billions and Billions...

The Forbes List is out again. You know, that list of the impossibly wealthy people who could own New York City if they wanted to.

I tears me up to say this, but for the 42nd straight year, I haven't made the list. I can't stand when Forbes discriminates against me because I am a non-billionaire. Or is it billionaire-challenged?

But there is something very interesting about this years list:

For the first time, it takes more than $1 billion to earn a spot on Forbes magazine’s list of the 400 richest Americans. The minimum net worth for inclusion in this year’s rankings released Thursday was $1.3 billion, up $300 million from last year.

The new threshold meant 82 of America’s billionaires didn’t make the cut.

82 of American's billionaires? You mean there are more than 82? Wow. That's cool. Take that, European Union.

False Hope

The Michigan minimum wage rises to $7.15 an hour starting today.

“This increase will put a little more money in the pockets of Michigan citizens who are working hard every day to pay for rent, to fill up their gas tanks, and to put food on the table for their kids,” [Governor] Granholm said.

Granholm said increasing the minimum wage is one part of her plan to diversify and grow Michigan’s economy. The state’s reliance on automotive and manufacturing jobs has contributed to its economic problems.

Not to sound defeatist, but making $7.15 an hour (up from $6.95 an hour) isn't going to put a "little more money" in the pockets of Michigan citizens. Let's see, $0.20 an hour, assuming (but probably not) working at 40 hours a week, gives an extra $8 a week. Pre-tax, that is enough for 2.3 gallons of gasoline, or about two boxes of cereal.

And I don't know how paying $7.15 an hour is supposed to "diversify and grow Michigan’s economy."

Teddy Kennedy is at it Again

At least it wasn't about guns, this time...

A few weeks ago, Senator Edward Kennedy (D-MA) introduced the “Employee Free Choice Act,” S. 1041. This bill is identical to the version passed in the Democrat-controlled House. Senator Kennedy has pledged to do all he can to get the bill to a vote quickly.

So what is this bill about anyways? It's about payback to his supporters.

Labor leaders blame their troubles (decades of declining membership - in fact, only 7% of private sector employees are union now) on the process workers use to decide whether or not they want to be represented by unions. These leaders complain that the cards are stacked against them.

The yes-or-no vote for union representation involves employee secret ballot elections, which are overseen by the National Labor Relations Board (NLRB).

Currently, unions win more than half of these elections... but that isn't enough for them.

Enter Ted Kennedy and S 1041. Just eliminate the private ballot elections and certify the unions as the bargaining agents for workers once they persuade a majority of eligible employees to sign authorization cards. Unions would have as long as they need to collect signatures. That is, this “card check” process would remain open until they win.

Not bad - unless you are into fair representation.

Michigan and Taxes

I don't really know what to make of the following story, because I generally distrust any politician not named "Ron Paul." But I do find the following intriguing:

From the Michigan Chamber of Commerce:
Michigan House Speaker Andy Dillon (D-Redford Twp.) is proposing running the current fiscal year, which is scheduled to end Sept. 30, until Sept. 30, 2008 — basically combining the two — as a way to give the state the time to generate the revenues necessary to balance both budgets.

[...]

Unlike the private sector, the public sector operates under a strict time cycle for its budget. That can make some of the long-term decisions government needs to make difficult to accomplish. But if government can be run more like a business, the state of Michigan in the end may come out the beneficiary.

According to our local all-advertising (with 30 seconds of news thrown in every 10 minutes) radio station, AM 950, WWJ, Dillon wants to start a voluntary program for state employees to contribute toward their health care plans that will cover them in retirement. The current arrangement is a $13 billion unfunded liability for the state.

WWJ also reported that the Dems plan on cutting $1 billion, plus reform government by reviewing performance of the state government — function by function and department by department. These reforms would assess how efficiently state programs are administered and how effective the program is in the first place.

Finally, some Democrats want to bring state employees to "parity" with private enterprise positions.

From what I can gather, after Dillon's reforms and tax structure are put in place, the Democrats plan is to jack up the taxes.

If Michigan is going to rebound economically, two things need to happen. First, taxes must be lowered across the board. Second, oppressive regulations must be eliminated. Without this, government reforms won't matter.

March Madness - Fun Times and Economic Disaster?

From Forbes.com:

For the first time, most games in the 2006 National Collegiate Athletic Association tournament will be broadcast online for free. That's one reason why consulting firm Challenger, Gray & Christmas has estimated March Madness will cost $3.8 billion in lost productivity...

In 2005, Challenger, Gray said March Madness would cost $889 million. That number quadruped this year because a Gallup poll indicated that 41% of Americans--more than 58 million U.S. workers--are college basketball fans. Previously, the firm had estimated a much lower number of fans.

Nevertheless, the games will surely combine with the warming weather to distract employees from their spreadsheets. Workers have always spent time checking scores, chatting about the games and participating in office betting pools. But the free online broadcasts could take office time wasting to a whole new level.

By the way, as a University of Michigan alum, I wish the Michigan State Spartans and their awesome coach, Tom Izzo, the best of luck tonight.

Conversely, as a University of Michigan alum, I hope the Ohio State Buckeyes get their backsides kicked back to Columbus in the first round.

Why So Stunned, Governor?

One moment Gov. Jennifer Granholm was the confident saleswoman, telling a receptive Flint audience Monday night that her plan to raise taxes and spend more on education would lift the state's economy.

Then, riding back to Lansing, the cell phone rang. Comerica Chief Executive Officer Ralph W. Babb Jr. was calling to give her a heads-up that he would announce the next morning he was moving the company's corporate headquarters from Detroit to Dallas.

So it was early March and a bank - part of the Detroit economy for about 157 years - was moving to greener pastures. Why so stunned, Governor?

You head off to Germany to beg for jobs, but you don't even know what is going on in your own backyard?

I keep hearing all kinds of psychobabble from your administration. "We need to attract the right companies to make the Michigan we want..." Yadda yadda.

I wonder why all this bad economic news sneaks up on you? You didn't know that Comerica, Michigan's largest bank, was unhappy here? You didn't know that Delphi Corp. was ready to call it a day in Michigan? You were surprised when Pfizer bailed on Ann Arbor? You were shocked when Ford went $12 billion in the toilet last year and announced a mass exodus of jobs from the state? You didn't forsee DaimlerChrysler getting rid of plants in Michigan?

Perhaps the problem has to do with a leader who doesn't understand economics, the need for businesses to make money, the realization that small business is screwed beyond belief in this state, and lack of realization that excessive taxes and regulations don't make Michigan an attractive place to work. Most leaders aren't so out of touch with the business world.

I Thought It Was A Bluff

I guess most of you non-Michiganians won't care, but The Detroit Free Press reports this morning that DaimlerChrysler CEO Dieter Zetsche isn't "sold" on selling Chrysler.

I can't prove it, but my guess (conspiracy theory, actually) has always been UAW-related. This is UAW-renegotiation time, the contract is up this year. So, what do you do to enhance your position? You say the Chrysler division sucks our money right up and we want to investigate getting rid of it.

Tax Hikes Are Not "Investment"

I live in Michigan, a state in great economic trouble. Our state government is in a budget shortfall and instead of trimming the fat, our governor wants to raise taxes. But, she maintains, these taxes are really “investments.”

How will raising taxes help our ailing state? It won’t.

First, taxation is never investment. Period. Ever. “But aren’t taxes to build libraries and schools investments?” No. “What about roads… we need to pay to maintain our roads.” No. Taxes are taken from people by force, not consent. Most of us pay taxes because we don’t want to face consequences of disobedience. I obey and pay rather than throw my life away.

Investments, however, are something I make voluntarily. I choose to invest. I can choose to avoid investments. I control, at least to some degree, my investments and how they work for me.

Taxes are not investments.

Michigan, economically, looks like Rocky Balboa in one of those “Rocky” fight scenes where he gets beat up savagely by Apollo Creed, Clubber Lang or Ivan Drago. It isn’t a pretty picture. Raising taxes will only make the pounding worse.

Already businesses are experiencing trouble collecting from their customers. Raising taxes, and adding new taxes to our service industries, puts many financially-struggling companies in a terrible position. Now they will owe the state while still fighting to collect from customers. This is a terrible time to exacerbate cashflow problems.

When states add taxes, they must build their infrastructure to oversee the collection of these taxes. Now, in addition to a government that won’t cut, we see more layers will be required to collect these taxes.

Michigan businesses will need to pass the burden on to the consumer. Consumers are already hurting with taxation.

Tax hikes are not the answer.

You Know Things Are Rough When...

Michigan's economy has been in the dumper for a few years.

Then, last week, Ford announced a $12 billion loss for 2006. Dang.

Now, this:
General Motors Corp., Ford Motor Co. and the Chrysler Group need to reduce the number of dealerships nationwide by 60% to 70%, a veteran financial analyst said today.

When will it all end?

Worst Paying Jobs

Forbes Magazine also put out their list of worst-paying jobs.

The "top" three worst paying jobs are:
3. Dining Room and Cafeteria Attendants and Bartender Helpers (i.e. Bus Boys) - mean annual salary = $15,560.

2. Combined Food Preparation and Serving Workers, Including Fast Food - mean annual salary = $15,430.

3. Cooks, Fast Food - mean annual salary = $15,230.

I've personally discovered a some new categories of "worst paying job."

Laid-off Manufacturing Shlub: mean annual salary = $0
Currently Unemployed Manufacturing Shlub: mean annual salary = $0
Laid-off Shlub Who Tips Over Friends' Couches to Grab Loose Change: mean annual salary = $15 (but, alas, it is taxable income)

Best Paying Jobs

Forbes Magazine recently released the 25 Best-Paying Jobs list. The top five:

1. Surgeons average $181.850
2. Anesthesiologists $174,610
3. Obstetricians and Gynecologists average $174,490
4. Oral and Maxillofacial Surgeons average $169,600
5. Internists, General average $156, 790

This list is a load of crap. It doesn't take much research to see what the really good paying jobs are.

1. Senator/Congressman - average $7.5 million including lobbyist payouts
2. Businesspartner with Bill/Hillary - average $100,000 payouts on $1,000 investments
3. Criminal Defense Attorney (specializing in white-collar crimes) - average $7,000 per hour with their Senator/Congressmen clients
4. Drug Dealer average $3,000 an hour for just standing on a street corner - or more, if the traffic typically drives by in Daddy's Jaguar with a girlfriend inside.

We Should Be More Interested

Big news, yet I just can't get interested.

Treasury Secretary John Snow is retiring, and President Bush is naming Goldman Sachs CEO Henry Paulson as the replacement.

I look at the news and just bristle, realizing this is an important story, that Treasury Secretaries can leave their paw prints on the economy (positively or negatively) for years. Not as important as the Fed Chairman, but still rather important.

But the cares of the world have taken their toll, and I just can't get interested. It sounds like one of the multiple economics classes I took in my Masters program years ago. I knew they were important, but darn it, they sure weren't exciting.

Cool Piece of Trivia Amid a Sad Story

Picture copyright brachauto.com

A few weeks ago, I was driving down I-75 from Detroit, through southern Michigan, and into Ohio. I passed a long - and I mean long - train that paralleled I-75. The train, chugging along south for the Ohio border, brought to mind so many people I know who have moved out of the state due to the paltry Michigan economy.

Looks like another auto supplier is making that trek south - this time to Kentucky.

The German steelmaker, ThyssenKrupp AG, is hightailing it out of Detroit by December. According to the Free Press, their Detroit plant is hemmoraging money to the tune of $28 million in the last quarter alone.

Now, the 2-million-square-foot factory builds parts mainly for Ford's Expedition and Lincoln Navigator large SUVs, which are being redesigned later this year. Combined U.S. sales for those SUVs fell 23% this year through April. ThyssenKrupp declined to say whether it will be a supplier on the new model.

Cool piece of trivia: Their 82 year-old plant built the body for the '55 T-bird.

As many as 8,000 people worked at the Detroit plant in the mid-1950s, making roofs, doors and fenders for General Motors Corp., Ford Motor Co. and the former Chrysler Corp...

The plant is on 85 acres east of downtown Detroit, with a facade that's a replica of Philadelphia's Independence Hall. In 1924, Budd Co. bought the factory from Liberty Motor Co., which built cars there from 1919 until 1923. ThyssenKrupp purchased Budd in the mid-'70s.

Picture copyright seriouswheels.com

Overheard

Gas prices still have people griping. But I heard this insightful comment during a gripe session:

A fool and his money are soon parted.

Hummer is the proof.

Nanny State Can't End High Unemployment

France is dealing with another set of riots - this time from students upset about the high unemployment first-time job seekers (say, people 26 years old and under) face.

So, d'etat Nanny decides to make changes to workplace rules (through the CPE, which translated, is the "First Employment Contract")in order to encourage the hiring of this age group. But they decide to do this through greater regulation.

What exactly did they try to pass?

The CPE is a new work contract for under-26s with a two-year trial period. In that period, employers can terminate the contract without having to offer an explanation.

The CPE says that after the first month employers have to give two weeks' notice for severance of contract, and after six months the notice period is extended to one month.

For other employees, the trial period is usually only one to three months.

After the two-year trial period for under-26s, the CPE reverts to a standard full-time contract.

Of course, employers balked at these rules. But the real protests came from students and others in the 26-and-under crowd because it would undermine "job-protection."

I know this isn't France (thank God), but based on the French problem du jour, I'd like to make a couple observations.

First, there is no such thing as job security or job protection. If the market dictates you are the best buggy whip, you will only outlast all the other buggy whip manufacturers. Don't plan to go on forever making buggy whips.

Second, you make your own reality. Don't rely on the government to live life for you or to make your decisions. Government wants everyone to be equal - therefore we will be equally miserable if we allow them the power to make us that way. Step up to the plate and pull out of it through smart, efficient, hard work.

Third, if you are in the under-26 crowd, realize that you don't rule the world, that you are not wiser or smarter than your older-worker counterparts. You won't realize this for another five years or so, but you really have no clue how the world works. And as a general rule, your attitudes stink. Do something to make yourself valuable to an employer. No one gives a rip where you went to college or what cute little degree you have. It isn't worth toilet paper if you are too "good" to do your job. Lose the attitude, roll up your sleeves, and get to work.

Fourth, the best "job protection" is to be a good worker, honest and productive. Even so, crap happens, so always have a backup plan... or two, or three.

Fifth, when it comes to ballot box issues, a lot of people like to stick it to those who they feel are in a better position than themselves. Business owners, bigt busienss, etc. Here is some raw truth - if you stick it to those guys, you are sticking it to yourself. Government can create jobs, but they cannot create wealth. Those in business can create wealth. If you oppress them, they have fewer opportunities or incentive to do so - and it ultimately goes to haunt those that thought they should be punished in the first place. This also screws people who are not in the business owner class, but have that great idea or product that will create wealth for themselves and any employees they hire.

This isn't a comprehensive list, just a few observations. But I think they hold true.


economics , France

Trouble on the Auto Front

Man. It really stinks being Chairman and CEO of Ford Motor Company. As the Detroit Free Press shares, poor Bill Ford, Jr. is experiencing falling pay.

Ford Motor Co. Chairman and CEO Bill Ford, who told shareholders in May that he would not take any salary, bonus and other awards until the company's automotive operations were profitable, received other compensation totaling $13.3 million last year, according to a regulatory filing today.

That's down 40 % from the $22.2 million that Ford, the great-grandson of company founder Henry Ford, earned in 2004. It reflects the challenging times that face the Dearborn-based automaker.

Challenging times? Like watching every manufacturing and technology job in the State of Michigan go to other states or go to India and China?

The fact of the matter is that dinosaurs like Ford and GM are not only experiencing "challenging times," they are close to extinction. These bloated beasts have placed small businesses in jeopardy for years by artificially raising salaries and benefits, stealing employees, and just plain not paying their bills.

In another few years, they will not exist in their current incarnation. It will be for the better. These companies are reaping as they have sowed.

... and Statistics

There are three types of lies: lies, damn lies, and statistics.
-Benjamin Disraeli, former British Prime Minister

According to consulting firm Challenger, Gray & Christmas, March Madness will cost $3.8 billion in lost productivity this year. Up from last year's estimate of $889 million. CBS is broadcasting the games online, so most games will be available for viewing on the web, which will cause a chaotic ripple in our econonmy as workers hide from the boss and watch the games on their computer, or gather around the water-cooler to talk about the buzzer-beating shot. (For those of us who don't give a rip about sports and don't know what "March Madness" is - it is the championship tournament in college basketball.)

Using data from Internet tracking firm Hitwise, Challenger, Gray calculated that 58 million workers would spend 13.5 minutes online every day for 16 business days. The average American wage is $18 an hour, so every 13.5 minutes costs $4.05.

But not every college basketball fan has Internet access at work. That Gallup poll might be vastly overestimating the number of fans; other surveys have found that far fewer Americans follow men's college basketball. And many workers would have wasted those 13.5 minutes anyway, playing FreeCell or Googling their ex-girlfriends.

Who comes up with this stuff?

I know here in Detroit, we won't watch the game online at work... we are just glad to still have jobs. As the Detroit News reported on March 8, "Michigan lost another 29,000 jobs in January, a rate of one job every 90 seconds." Quite the stat. But all that is not as impressive as stat as as former heavyweight champ, Mike Tyson, brought us in 1988 when he knocked Michael Spinks out in 91 seconds in their heavyweight championship fight. At a purse of $20 million, he earned $219,780.22 for every second in the ring that night.

Remember Mitch Snyder, homeless advocate in the 1980's, and his shocking (albeith made up) statistics that millions of homeless people die each year because of Ronald Reagan? Rush Limbaugh pointed out that we wouldn't have a homeless problem very long at that rate: If 2,000,000 homeless people died every year, that comes out to 5,479 homeless people every day, or 228 every hour, or 3.8 every minute.

Who cares if statistics aren't true?

As Thomas Sowell points out,

False statistics are only part of the problem. Even accurate statistics can be given misleading emphasis. The U.S. Bureau of the Census seems dedicated to producing statistics that emphasize differences between groups -- black and white, men and women, etc. -- and far less interested in statistics which indicate how much all Americans have progressed over time...

Perhaps the greatest distortions of statistics involve comparisons between "the rich" and "the poor" -- who are mostly the same people at different stages of their lives. Most of those who were in the bottom 20 percent in 1975 were also in the top 20 percent at some point over the next 17 years. That too is not a "politically correct" message, so you seldom hear it.

The one thing that all these distortions and falsifications of statistics have in common is their thrust in the direction of creating artificial "problems" and "crises" to be dealt with by imposing government "solutions." That is apparently what makes them so attractive to the media that these shaky numbers are uncritically accepted and proclaimed to the public.

And I bet that 72.3% of you reading agree with Mr. Sowell. I hope the rest of you are not destroying our economy and your employer's bottom line by watching March Madness on your computer.

statistics , Politics

The Cost of Gas and Oil

The USA is too dependent on oil, so says the President (and many other important political, economic, and techincal leaders).

We all know gasoline comes from oil. Why is it so expensive around the nation?

Here is a brief but interesting graphic display that shows the prices of gas both nationally and internationally, then explains what goes into the equation that gives us that pump price.

Tags: Gas Prices , Oil