RWWNL 2010


Wednesday, November 24, 2010

The Solution — or My take anyway

The last two issues have been on the problem. That only leads to the correct question. What is the solution? That could lead us to many answers. We could look to the past two Presidents for a solution.

W would say that continuing the past policies would be the best answer. His goal was to protect America from foreign terrorists. That is the primary goal of the President of the United States and should I say his primary goal. He left the rest to the legislative branch.

H would tell us that we have not stimulated the economy to the extent that we need to. He would give this project to the legislative branch of the government. He would expect them to pass another bill that would right the economy. One can hope that another ‘magic’ pill will do the trick.

We have been hoping for a government solution for a long time.  The waiting did not work. The American people decided that changing the people in the chairs was the solution. Let us hope they are right. The voters have spoken, and we now await the results.

The answer. As the Tea Party stated, is it’s now time to stop the spending. It should be accomplished like carving the Thanksgiving Turkey. It must be done one slice at a time.  No area of the federal budget should be exempt.  We should cut the spending until it hurts, and then cut again. We must come back to find that the Turkey has turned into a pile of bones.

We must bring some sanity to our financial markets. We have to cut until the budget is balanced. Then we have to turn loose the credit market. Interest rates must be allowed to go UP. We have to wring out all of the dollars that were created to save us from the normal business cycle. It should have been allowed to produce these results years ago.  They may have to go much higher than they did during the last business cycle that was halted, that ended at a rate in the 20+ percent range.

Then we need to write a set of guidelines for banks and trading Companies. This will be a tall order, and be a true challenge to the legislative branch of the government. Let us hope that Barney Frank is up to the task.

What I am proposing is a tall order, but it is what the voters said they wanted. It will bring a real change to our way of life. We will have to return to the way we survived during the 1930’s. Our parents survived. Are we up to the task? Is our government up to the task? Are the journalists ready to tell us the truth and do what they can to get us through this? Those are all questions that remain unanswered. So far, I have not seen any signs that people really understand what we have to go through to solve what we have done to ourselves. The longer we wait, the more hurt that we will see. It is going to be painful enough.

My wife is undergoing ankle surgery, and will be in a cast for 3 months. I will not be regular in my issues, but plan to continue as I can.

Until Next Time

Terry

Terence R. Wilken
Editor in Chief, RWWNL


Wednesday, November 17, 2010

A Race to the Bottom

How many of you have gone skiing or hiking for the fun of it.  What if you found out you were starting a dangerous journey? Well we have started down that hill. It is fun and exciting. What we do not realize is that we are at the edge of the Grand Canyon, and there is a cliff at the end of our journey. Beyond is a quarter mile drop-off.  Would we have begun this ‘game’ if we had known what was at the end?

As we know if we have ever done this before, is that the steeper the decline gets, or the faster we go, we only speed up the descent.  We are on that journey.

Now put this in an economic perspective.  The legislative branch of the government was kind enough to give us a nudge at the top of the hill. They started us on this journey, and stayed with us for a while, giving us a push whenever they could. Then they brought in the real power. The FED. The Federal Reserve brought their big engines that could produce a nice breeze at our back. Then they found out that they could get the same results with a finger push on a button.

Both parties are of course doing this for our own good. Without them, we would be in much worse shape. Why are they really doing this? To stimulate the economy, control growth, and reduce unemployment? Are we going to manage inflation and pay off our debt with cheaper dollars? Are we doing this to eliminate the business cycle? These sound like good reasons, but is this really the best way that it can be accomplished. A better question is: Is this what we really want to do?

What they do not understand is that once we reach a certain speed, there is no turning back. We do not have much time left, and the clock is ticking. Do we have enough time to make changes to turn us around? We need answers. All we get is rhetoric. Let us hope someone  with sense decides to come to the rescue.

Until Next Time

Terry

Terence R. Wilken
Editor in Chief, RWWNL


Wednesday, November 10, 2010

Fire the fed!

We allowed W to spend our way into deeper debt. He did not start with those intentions, but that is the way it ended up. He did a lot of good things, but neglected to watch out for the economic condition of the Country. He should be remembered for what he did right, and chastised for what he did wrong. It is amazing that he was blamed for both. It is funny how things are remembered. It will be interesting to see how H is perceived.

H started out wrong. He allowed his legislature free reign to do what they wanted. They begin with a bailout of the banking system. Of course W agreed to this effort so that blame could fall on him if anything went wrong. After spending years convincing everyone how bad the banks were, they were deemed too big to fail.  TARP was created. That stands for Troubled asset relief program. It was designed to rid us of all our ‘toxic’ assets. We still have more troubled assets building up and we have a lot more bailing to do. Freddie and Fannie are still creating these bad assets.

Then we bailed out two auto Companies, as they were the industrial backbone of our Country. Of course we let them write off debts that they owed, and helped them rebuild the money they owed their employees.  They are touted as doing well today, but then who would not if someone paid off all your debt.

Then, not to make us feel like we had been left alone, they added a stimulus package to the Federal budget to create or save our jobs. At least they added the word “saved” somewhere along the line.

They had not spent enough. Even after adding debt to the annual budget, they saw that bills were still coming in the mail.

Not to worry. They had a benefactor. The Fed stepped in and saved us. They bought up the debt with more debt. They actually did what we discussed as a possibility last week. Who would have thought anyone could be that dumb. Well I guess there is one born every minute.  They did it so that Companies would be able to receive loans in order to create jobs. And we thought we had already done that. We must be wrong. The Fed is too big to fail. But are they to big to fire.

This is not going to end pretty.

Until next time,

Terry

Terence R. Wilken
Editor in Chief, RWWNL


Wednesday, November 3, 2010

A Race to the top or a Race to the bottom.

First of all, I hope that all of you voted this week.  You may not feel any better, but you did something that is very important if any country is to survive. The Iraqi people gave us an example of that. Let us hope that their effort is rewarded. We can all learn from others. Now it is time to become the teacher. We need to train our government in the fundamental principals of economics.  I called H about a year ago to explain to him that it was important for any President to take a basic economics course. It appears that he did not listen.

I have learned to call our new President by his middle initial. President George W. Bush was originally called by his middle initial. At first I was offended that a sitting President would be addressed in such a manner. But then it grew on me. I now think of President Bush as W. To me it has become a term of endearment.  I am hoping that H will catch on for President Barrack H. Obama.

We have put a private Company in charge of our money supply, and brought in many experts to save us. We even brought in someone who gave us the bad medicine (high interest rates) to cure our illness once before. Paul Volker has changed his mind. He is going along with the  “go along to get along” folks and feed us the good medicine. The good medicine in their mind is more money. In order to pay back the debt that we have already taken on, we will have to buy that debt ourselves.

This will result in lower interest rates, and lower the value of the dollar.  Not to worry, our exports will increase and put everyone back to work. A lower dollar will make our goods cheap to foreign countries, and make their goods expensive to us. We can put our people to work and sell to them.  Are we happy?  I think we will be until we realize what we have done.  If we are successful, we will have changed places with China. They will buy our goods, and we will take on their lifestyle. They can then hound us to lower our prices, and force us to buy their debt. Is this a race to the top or to the bottom? I will let you make that choice.

Until next time,

Terry

Terence R. Wilken
Editor in Chief, RWWNL


Friday, October 29th,  2010

Spreading the Wealth

The need for spreading the wealth was very important at this time two years ago. Our President was ahead of the game. We did not even give him credit.

The rich need to offer employment to those who can offer something in return. That return is called a skill or expertise is some area. It can even be an unskilled contribution if it offers a return to the employer.  That relationship would be a win for both sides. An employer with an idea or a vision, and an employee with the ability to make it happen. Now that would be a novel idea.

Spreading the wealth does not mean hiring those that offer nothing in return. This is called welfare, and has proved not to work. To offer help to those who cannot help themselves is called charity. That is a different story.

It would be even better if government would get out of the way and let it happen. I will not hold my breath. The government has decided to spread the wealth in the only way they know how. They are spending our money. They are trying to tell us that they will collect it back from the rich, but the problem is that we all know better. It will have to come from all of our children, our grandchildren, and us. If it keeps up, we will have to add a lot of greats to that.

We need to add wealth to the people who are part of this country. The only way that will happen is to increase the value of the medium of exchange. Currently that is the dollar. For long-term readers of the RWWNL you know that the only way to increase the value of the dollar is to increase the interest rates or the return on the investment. Currently the investment is the dollar.  The last time that happened, it worked. It was very painful for a length of time, but the American people came out ahead in the end. It is time to spread the wealth again. To do this, the government needs to get out of the way, reduce spending to equal income, and increase the value of the dollar. If we change the government, I hope the new one has the strength to do what is right.

Until next time,

Terry

Terence R. Wilken
Editor in Chief, RWWNL


Wednesday, October 22, 2010

The Name Change

It is time to get to some serious issues. One is the name change issue.  When you are about to lose the battle, it is not time to change your tactics. It is time to change the name of the battle. If it has a totally new name, than we have started the battle from the beginning. I should have thought of this sooner.

We now have a new name for how to handle the growth in the debt. It is now called QE. We have begun QE 1, and now can start QE 2. QE does not stand for quarter ending for you accountants out there. It stands for quantitative easing. Now that I have accomplished my original goal of confusing you, I will get on to the game.

Ok, the name for QE before I decided to confuse you was monetizing the debt. Now is that not easier to understand. What the name change means is that we are running out of people who want our dollars. We have been selling dollars to foreign countries in the form of treasuries in order to finance our wonderful standard of living. Are you happy yet? They have decided that they now do not need more dollars, so we have decided to buy dollars ourselves. This would be like going to the grocery store and filling up your basket. At the checkout stand you find that you have no money. What do you do?  Easy, just deposit an IOU in the till and walk out the store. I am sure that they will accept that. You will pay it back at some point in the future. You promise.

So what is the end game. According to the government, the end game is inflation. We can inflate our way out of this morass.  Inflation means higher prices. Deflation means lower prices. What would you rather have?  Honestly, you would not enjoy either. The government is in a real quandary. They need inflation badly to keep feeding their trough. They have reached their limits. No matter how much money they add, there is no inflation. You can ask the social security administration if you want an answer to that one.

We are coming down to the END GAME. It will not be pretty. You can thank the federal government for that.

Until next time,

Terry

Terence R. Wilken
Editor in Chief, RWWNL


Tuesday, October 12, 2010

A Lesson on Inflation

My grandson and I learned all about inflation together.  He has been the proud owner of a game boy for several years. He is an avid gamer. He wanted a new game for it, and it only cost $20. He did not have the money. I decided to teach him about the higher art of finance. I told him that I could not loan him the money, but that is what the bank was for. If he would go to the bank with me, we would see if he could borrow the money.  So off we go.

They decided they could loan him the $20 if only he had some collateral to provide so they could insure they got their money back. He only had the clothes on his back, and said that he did not have any thing of value. They told him that if he did not have any collateral, they could not loan him the money. Then he slowly dug into his pocket and pulled out a one ounce silver coin. They said they would loan him $5 towards the coin. This was the value as of two years ago, and they had not checked the current value.

I asked them where they got their $ from. They told me from the Fed across town. So off to the Fed we went. When we arrived we found a large logging operation next to a paper mill. It was attached to a large white brick building that had a huge Name Plate. FED. We went to the back of the building and found that the doors were open, and the interior was full of printing presses. The back yard was full of stacked paper that appeared to be dollar bills. When we turned to the gate we saw a large tanker coming through that had a sign saying it contained green ink.  They were printing dollar bills as fast as they could. They had billions of them.

Then I took my grandson to the silver store. I had him ask how much he could get for his silver dollar. Since it was in good condition and of a good date, they offered him $25 for the coin.

I did not make my grandson give up his silver coin for the game, but we did learn together that if you produce too much of anything, that its value goes down. I do not think he will give up that coin for quite some time.

Until next time,

Terry

Terence R. Wilken
Editor in Chief, RWWNL


October 7th, 2010

The Unlimited Card

Well my brother has got me started again. Do not know where this will lead, but it might be an interesting journey.

We have had many years of being in the limelight of bad economic decisions but now it appears that it has gotten even worse. The last “regime” used the limit on our credit cards, and now this regime has requested a new card. It is a special card deemed the UNLIMITED card. It currently has low interest rates, but offers unlimited credit. Wow, I wonder if they will make it available at Target. And you were just worried about losing your house.

This is small potatoes when we could be losing your country. It may be a small price to pay. But wait, (cancel that letter to Bernanke) I just got a letter in the mail. It is from J P Morgan. It says that they have stopped the foreclosure on my house. It seems there has been a mix up in the process. Someone who was not authorized to complete the foreclosure procedure did it. I understand that Barney Frank has written a letter to all those Companies and demanded that they stop forthwith. I knew that he would come through. Nancy told me that he was the person who knew the most about banking issues, and of course I always believe whatever Nancy tells me. I know that Barney is in charge of writing the rules and regulations, so all will be ok. I just hope that he reads this bill, and includes himself in being covered by the bill.

What they have found out is that the procedures they have been following are not correct. They may have to go back to the drawing board. Upon even further review it is even worse than that. You see they had put all the loan documents into a special electronic vault and secured it away for safekeeping. This system was called MERS. Now we are really in a pickle. They say that they can only file against the original owner, and he or she will have to sign a document to that affect. This is true if they can establish who the original buyer was, and find the original loan documents. What a quandary we are in, but at least I will not lose my house. That is a plus.

Until next time,

Terry
Editor in Chief, RWWNL


October 4th, 2010

Open Letter to the Federal Reserve

Dear Mr. Bernanke,

I understand based on your announcement at the conclusion of the FOMC meeting two weeks ago that the Federal Reserve is interested in purchasing additional assets. Good idea. I know that this is a new innovation of the Fed under your leadership. It sure has worked out well so far for our country, and I am willing to do my part.

The times are dire, and as loyal Americans we should all do what we can to contribute to the recovery. The Fed has the ability, unique in all the world, to create unlimited amounts of money out of thin air, with absolutely no adverse consequences. I certainly support your continuing to do this, and at an ever-increasing pace, as now seems inevitable.

I am a faithful citizen who believes that any well-intentioned American should be able to collaborate with our beloved central bank in the economic recovery. It just doesn’t seem fair that the opportunity for civic service should be limited to banks and poorly managed insurance companies. Yes, I know those banks feel a special sense of responsibility because they are your shareholders, but let’s look past that and open it up into a real grassroots program of sea-to-shining-sea stimulus, with just plain folks from Delaware to Alaska supporting their country by offering select assets for sale to the Fed, as nobly and generously as any fat cat!

In the spirit of patriotism, then, I present this proposal:

By this letter, I offer to sell to the Federal Reserve my home in Southwest Oklahoma City. It is a mid-century modern of just over 2,500 square feet, with 3 bedrooms, 2-1/2 baths and a beautifully maintained yard on just under one forested Hill Country acre. You wouldn’t want to live here, but it’s an okay house for dumb hicks who live in flyover country. The sale price will be $298 million. Terms will be cash but, in order to save wear and tear on the printing presses that will be so heavily used in the coming months, I will not expect currency, but instead will cheerfully accept your wire transfer.

The closing date will be October 7th, which will leave exactly one month for the benefits to the national economy to take hold before the November elections. If you want to close sooner, then I can have some buddies of mine bring a pickup truck over after work tonight and move my family’s stuff out. We have like a 120,000-to-1 pickup truck-to-limo ratio here in the OKIE State; kind of the inverse of what you are accustomed to. But I digress.

This deal I am giving you will be of tremendous benefit to the economy, as the proceeds of the sale will be deployed to fund no fewer than six Stimulus Operations, any one of which is almost certain to be more effective that the things that have been tried so far. Check it out:

Stimulus Operation #1: $200,000 to retire the existing mortgage loan, freeing up funds that can then be loaned to other borrowers who will in turn contribute to the much-needed reflation of home prices. I say we cannot move quickly enough to bring back the 125% loan-to-value loans, the 50-year loans, the 1.5% Double-Reverse Super-Duper-ARMs, and the 300 credit score qualification standard.

Stimulus Operation #2: $45 million to pay the capital gains taxes (before the 15% rate becomes as obsolete as the Constitution). The importance of this Stimulus Operation should be self evident, but, to avoid any misunderstanding, let me remind you that the government can deploy these resources more effectively than any private person, as the President reminded us just two weeks ago.

Stimulus Operation #3: $400,000 to purchase a replacement home. I am thinking of getting one of those nice, new condos that were built just before the crash and are still standing empty. You know what I am talking about, what with so much of this sort of thing on your balance sheet, along with some vacant shopping centers and a couple hundred billion dollars in unmarketable securities.

Stimulus Operation #4: $1.4 million in wanton consumption. This will help bring back the retail sector and will also prop up employment in luxury goods. After all, if we are going to keep the luxury goods sector strong, then somebody needs to be out there buying, besides the small number of financial players and political cronies who gobbled up all of the last round of stimulus money. Although it will be inconvenient, I promise to spend this money within seven to ten days in order to expedite the recovery effect.

Stimulus Operation #5 (or as I like to say, V): $50 million to buy a Gulfstream V, or maybe a Global Express if I can find a nice used one within my budget. I don’t want to go overboard here, but supporting the general aviation sector is as good a way as any to contribute to the recovery.

Stimulus Operation #6: $200 million to be placed in a portfolio of investments carefully targeted to bring about the continued employment of hard-working people so that they can pay a bunch of taxes that we are pretty sure will be going up next year (although the end of September is much too soon for any reasonable person to expect a clear indication of tax rates that will be effective way out in the future, more than three months from now). What? You’re skeptical about the portfolio? Well, yes, I know that capitalism is a thoroughly discredited idea, but it is no dumber than National Health Care! And, like the Congress, I am willing to try any dumb idea if there is even a remote chance that it might benefit our beloved country!

(Now that I think about it, and in the interest of full disclosure, I’d better point out that some of that that $200 million might end up in short positions. Not that I’m pessimistic or anything, but I’d hate to think of the consequences of committing fraud against the Fed. Just look at the way you guys went after … well, I can’t think of any examples, but I am sure there are some.)

Now if you’ve been following the math, then you probably noticed that a million dollars are unaccounted for. Let’s just call it “contingency,” and keep in mind that it is available to reimburse any miscellaneous expenses that were necessarily incurred by your people in the process of reviewing and approving this proposal. Or maybe we could use it to buy breakfast for one or two of those early morning meetings of the President’s Working Group on Capital Markets. Whatever you decide, we’ll keep it on the DL. (Or, as young hipsters at the Fed say, DS, for “deep storage.”)

Well there you have it. Yes, it will be a sacrifice for my family to move out of our house and downsize to a distressed condo, but we all must do our part to support the economy.

I know there is some danger that this deal, being several orders of magnitude smaller than the ones you normally consider, might at first glance seem unworthy of your review. I get that. But please keep in mind just two things. First, I’m not greedy. In your world, they say “Greed is good,” but think about it, how many yachts can you water ski behind? (I think I heard that in a movie.) Sorry, but where my country’s welfare is concerned, I am just not comfortable asking for the kind of money that the big boys are pulling down in these stimulus scams. Second, let me stress that, of all the stimulus deals you have funded and will continue to fund, my proposal truly is the best value proposition. After all, you are getting something of value instead of absolutely nothing.

I know that you must be very busy, but please have one of your people get back to me with your acceptance of this offer within the next two days. Otherwise I may have to take this opportunity to the Treasury or the Exchange Stabilization Fund — or maybe Goldman Sachs. You’ll probably end up funding the deal anyway, but you’ll pay a lot more, cuz you know how big their cut is.

Patriotically yours,

Terry Wilken
Oklahoma City, Oklahoma