Mr. Peabody Economy

I have been on vacation for a few days, which explains the lack of posts, but I cannot get to sleep tonight, so I thought I would put in a quick word or two.

Today my daughter and son entered into their first turtle race. Their grandfather was kind enough to catch them a box turtle, Mr. Peabody, so named for his (or her) reaction to being picked up. The race consisted of five turtles being placed under a plastic clothes basket in the middle of a marked circle. The clothes basket is lifted and the first turtle to the circle line wins. Mr. Peabody took three rapid steps from where he started and then just stretched out his head for all to admire his pretty markings and wonderful progress. And there he stood and there he stayed until the end of the race. My kids took it all in stride.

I fear that our economy is acting a bit like Mr.Peabody. We had a lot of early stimulus, which got us off to a seemingly great start, for which we congratulated ourselves and looked around for others to do the same. Yet now that we have been through our initial stimulus and things are pretty much just as miserable as before for the vast majority of Americans, what next? It would seem, very little.

Now I am not saying the Administration is being complacent, just that there is little in the way of options. Sure we can do more stimulus, but when you scratch the surface, the only thing being spent is the stimulus and absent a few areas that make sense, like extending unemployment and health benefits, there is just so long you can stimulate some sectors. A longer broader cash-for-clunkers may generate more temporary sales, but you are simply front loading sales. As we saw in September, when the program stops, sales plummet. The same for the very costly first time home buyer's credit. There is just so much blood you can get out of a rock.

And that brings us to the real crux or two of the problem. People cannot spend what they do not earn (or are given) without incurring debt. The cash-for-clunkers and first time home buyer's programs gave people monetary incentive to incur debt and stop saving. While this might provide a minor jolt to one sector or another, it does not cure the underlying cause of our mess, which is too much debt. Too much debt is fixed by paying it down. And to pay it down over the long haul you need more pay, less spending or both. If tax revenues in the various states is any indicator - and it is a very good one - then that more pay thingy ain't happening.

http://news.yahoo.com/s/nm/20091009/pl_nm/us_usa_state_budgets

This makes sense given the unemployment figures and reduced hours for those still employed. So without more pay the only way to pay off debt is (a) for the government to pay it off for us (which just moves it to another balance sheet) or (b) to spend less and pay it down [I will ignore (c), the default option for this point.] On (a), unless you are a too-big-to-fail financial institution that supplied us with those folks running the Treasury and Fed, it seems the government has no interest in paying off your debt. So we go to (b) and the government does not like (b) either. Why, because saving and paying down debt means recession and recession bad, recession very bad. Government want good and good, according to the government, is more debt.

What the government needs to do, however, is not promote more spending and debt (though most measures to date seem to have that aim). It needs to focus on job growth, which includes investments in new technologies, like alternative fuels, climate change related technology, agricultural improvements, lower cost health care technologies and the like. These will be the new technologies of this century; technologies we can develop, patent and export. Technologies that can improve the world environment, reduce dependence on non-renewable energy supplies, reduce dependence on countries that generally do not like us, assist developing countries and provide America with a strong footing going forward. George Soros seems to have his head in the right place, investing a billion on clean alternative energy.

http://www.nakedcapitalism.com/2009/10/soros-to-put-1-billion-in-clean-energy.html

Imagine what the U.S. could have done with the $180 billion it used on AIG alone! I am not saying there are a lot of easy answers, but we need to start spending our money finding the tough to find answers. This is something that will take some time and we are looking for quick fixes. But let me tell you a secret - with our debt load there are no quick fixes. It is going to take a long time to get out of this mess. And even if it doesn't, what in the heck are we waiting for on investing in our future? We should have started more productive spending on these technologies years ago. Instead we are spending trillions that, I believe, is simply leading to a new bubble, and a much worse one at that.

Disclosures: I own stock in Valcent Technologies, a company focused on biodiesel from algae and alternative agricultural systems.

Future Office Space

I work in Manchester, NH in an old textile mill. At one point, Manchester was the top textile producing location in the U.S. and probably one of the largest producers in the world. That was over a hundred years ago. Today none of those mills are still operating as mills. Some have been torn down but most these days are converted into offices, stores, hotels and the like. Well it looks like China is about to create some future office space. Their textile mills seem to be running very low on business these days.

http://www.chinastakes.com/2009/10/xmas-season-orders-dont-bode-well-for-chinese-exporters.html

Disclosures: None