Economic Reality

[Gaspar]

So we had a rather pathetic 1.8% economic growth for the first quarter, but when you break that number down it gets ugly.  Two-thirds of that 1.8% went into spending for business inventories/process improvements, not in sales to end consumers.

That brings our real growth to only 0.15%.

I can expand on this a little further to say that much of the money invested in inventories came from money that would have been spent on employee salaries.  Material costs were low and businesses anticipated material prices to increase as a function of rising fuel costs and guaranteed higher cost of business as promised by the administration's proposed tax policies.

So companies are doing the smart thing and hunkering down for the impact of several economic realities.  This plays out exactly as any student of Friedman or Von Mises would expect.

There are only two things I can think of that could possibly reverse this:

1. Drastic reduction in fuel costs (would have to come from reduction in fuel taxes, because that's all we have immediate control over).

2. The promise of significant tax and spending cuts.

I think there are probably some other REAL economic stimulus measures that could be instituted, but their impact would not be as significant as the above.

We must accept that the administration will not consider either of the above steps, because that would require an admission of fault, and this administration was founded on pride alone. All of the economists who touted President Obama's economic policies have now resigned.  This is a small positive step, because there is no one left to claim the wisdom of these actions and President Obama may be able to present them as scapegoats, however I believe he wont.

Much like my earlier stock predictions, I hope I am wrong, but it seems I may have only been myopic in my time frame on the market.

Please present your ideas/thoughts.

[Conan71]

Along the lines of what fuel prices are doing to the economy:

Dan Akerson, CEO of GM (Government Motors) suggests a dollar a gallon gas tax to drive people into more fuel efficient vehicles.  I understand the concept of modifying consumer behavior via taxation, but considering the people this gas tax would hit hardest probably cannot afford to buy a new or even newer car, it sounds really regressive to me.

"NEW YORK (CNNMoney) -- General Motors CEO Dan Akerson said his company and his industry would be helped, not hurt, if consumers paid higher gas taxes.

In an interview published in Tuesday's Detroit News, Akerson floated the idea of a $1 a gallon increase in the gas tax as a way to encourage buyers to purchase smaller, more fuel efficient cars. Greg Martin, spokesman for GM's Washington office, confirmed that the quotes reflect Akerson's and GM's view.

Akerson said he would support a jump in the gas tax if it came instead of tighter fuel economy regulations that GM (GM, Fortune 500) and other automakers will have to meet in coming years. By the year 2025, automakers could be forced to hit fuel economy averages of as much as 62 mpg.

Akerson said that a higher gas tax, including an immediate 50-cent-a-gallon increase to take advantage of recent declines in gas prices, would probably make some of his Republican friends "puke." But he said it would do more to help the environment than the pending fuel economy rules."

http://money.cnn.com/2011/06/07/news/companies/gm_gas_tax_hike/


To over-simplify, the more money someone spends at the gas pump, the less they've got to spend at Wal-Mart or Reasor's. 

In my industry, inventories are very slim.  Manufacturers are trying to buy as much raw material like copper and steel on a JIT basis to keep from getting caught with their pants down if the bottom suddenly falls out of the commodity and raw material markets like they did in 2008/2009.  That's making it really hard to meet customer demands on delivery time-lines.  The higher gas and material costs are simply not sustainable for the long-term. 

IMO, I think it's time to put some serious clamps on commodity futures trading.  It's nothing more than people making money by pushing paper at the expense of end users and consumers.

[Gaspar]

One of my main clients just completed the install of 3 x 24,000 fuel tanks at their facility to store gasoline and diesel. 

They actually purchased the options on this fuel last year, but have become concerned about the stability of that market as a whole, so they opted to spend the money to store it onsite.

[RecycleMichael]

Those tax cuts you propose have just added to our debt and didn't create any jobs.

Corporations are having record income quarters and now we don't have enough money to pay worker's pensions or keep schools open.

[Gaspar]

Corporations are having record income quarters and now we don't have enough money to pay worker's pensions or keep schools open.

Excellent point! 

Most of the companies I work with are also reporting record income.  They have significantly less competition, having weathered the recession and watched their competitors go under.  They have also emerged with a smaller workforce.

Now they have to make tough choices.  With looming increases in the cost of business and and a decrease in the economic stability of their consumer base, they are doing exactly what smart businesses do.

[dbacks fan]

Along the lines of what fuel prices are doing to the economy:

Dan Akerson, CEO of GM (Government Motors) suggests a dollar a gallon gas tax to drive people into more fuel efficient vehicles.  I understand the concept of modifying consumer behavior via taxation, but considering the people this gas tax would hit hardest probably cannot afford to buy a new or even newer car, it sounds really regressive to me.

"NEW YORK (CNNMoney) -- General Motors CEO Dan Akerson said his company and his industry would be helped, not hurt, if consumers paid higher gas taxes.

In an interview published in Tuesday's Detroit News, Akerson floated the idea of a $1 a gallon increase in the gas tax as a way to encourage buyers to purchase smaller, more fuel efficient cars. Greg Martin, spokesman for GM's Washington office, confirmed that the quotes reflect Akerson's and GM's view.

Akerson said he would support a jump in the gas tax if it came instead of tighter fuel economy regulations that GM (GM, Fortune 500) and other automakers will have to meet in coming years. By the year 2025, automakers could be forced to hit fuel economy averages of as much as 62 mpg.

Akerson said that a higher gas tax, including an immediate 50-cent-a-gallon increase to take advantage of recent declines in gas prices, would probably make some of his Republican friends "puke." But he said it would do more to help the environment than the pending fuel economy rules."

http://money.cnn.com/2011/06/07/news/companies/gm_gas_tax_hike/


To over-simplify, the more money someone spends at the gas pump, the less they've got to spend at Wal-Mart or Reasor's. 

In my industry, inventories are very slim.  Manufacturers are trying to buy as much raw material like copper and steel on a JIT basis to keep from getting caught with their pants down if the bottom suddenly falls out of the commodity and raw material markets like they did in 2008/2009.  That's making it really hard to meet customer demands on delivery time-lines.  The higher gas and material costs are simply not sustainable for the long-term. 

IMO, I think it's time to put some serious clamps on commodity futures trading.  It's nothing more than people making money by pushing paper at the expense of end users and consumers.

Great idea, add $5.00 to $10.00 for every 10 gallons of gas puchased at the pump, great way to drive the economy. Don't forget that that increase will be passed along to cities and towns and raise the cost of the services they provide. Cities would have to raise taxes or cut back on fuel usage for police, fire, refuse, etc.

Makes me wantt to go out and buy a horse, and maybe a simple wagon that it can pull. Wait, can't do that, I'll get taxed everytime the horse takes a crap.

[Gaspar]

Those tax cuts you propose have just added to our debt and didn't create any jobs.

I need to address this too.  I'm confused. . .

If you reduce energy costs (fuel) companies can expand business, and consumers can use that money elsewhere besides the gas tank.

If you reduce taxes, you also make that capital available for other uses both on the business and consumer side.

Both actions create opportunity, and opportunity creates jobs.

Any cuts would need to be balanced with spending reductions, so your claim really doesn't go anywhere.

[Conan71]

Any cuts would need to be balanced with spending reductions, so your claim really doesn't go anywhere.

It might be easier for them to understand if President Bush had not coupled a tax cut with massive spending increases. 

Instead, it makes it easier to take the lazy approach to reducing the deficit and debt: raise taxes.  Then you don't have to wrap your mind around or even acknowledge all the waste, duplicity, and dependence on the government which is rapidly bankrupting the country quicker than a lack of overall revenue.

[Townsend]

I need to address this too.  I'm confused.

No need.  That's a given.

[Gaspar]

No need.  That's a given.

Par

[RecycleMichael]

...they are doing exactly what smart businesses do.

Lobby for more tax breaks!

[Gaspar]

It might be easier for them to understand if President Bush had not coupled a tax cut with massive spending increases. 

Instead, it makes it easier to take the lazy approach to reducing the deficit and debt: raise taxes.  Then you don't have to wrap your mind around or even acknowledge all the waste, duplicity, and dependence on the government which is rapidly bankrupting the country quicker than a lack of overall revenue.

Exactly my point.  Scouring the news it seems that the only solution the left wants to engage is more spending and more taxation.  Neither of which is capable of producing anything except an increase in "temporary" dependence.  I say "temporary" because the weight of such dependence makes collapse imminent.

A couple of years ago their was the conspiratorial concept that President Obama and many of the ultra-liberal members of his majority congress may be engaged in a Cloward–Piven strategy to produce change based on collapsing the current system.  

I think many of us, especially those of a libertarian persuasion, had fun with this possibility, but believed it could never come to be, because the American people would not allow themselves to be led down this path.  The rebuke of Congress last year was evidence of that.  Now I am not so sure we weren't too late.

[Gaspar]

Lobby for more tax breaks!

No. . .Hunker down.

Hire temps.

Streamline workforce.

Invest in technology to increase efficiency.

Spend excess capital on inexpensive materials.

Purchase energy options for future use.

Anything but hire employees!

[nathanm]

My thoughts on gaspar's premise from a bus wending its way across the Dominican Republic: If you're wrong, double down and be wrong twice. The Obama Derangement Syndrome schick is getting repetitive at this point.I'd be more verbose, but my other phone is in my luggage. This one has no keyboard, only swype.

[dbacks fan]

I'm going to go and try to stimulate the economy. Buy gas at QT, have lunch at a locally owned restaraunt, and hit happy hour at a locally owned sports bar.