2010 Economics 7 1 10s

July 2010 Part 1July 2010 Part 1

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Long Term Outlook: An Long Term Outlook: An Abyss.Abyss.

Stagnation for now.Stagnation for now.

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Apple – The Minority Reaps Majority ProfitsApple – The Minority Reaps Majority Profits

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The Job Recession – Deeper and The Job Recession – Deeper and WiderWider

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MismanagementMismanagement

Collapsing Collapsing the Private Economythe Private Economy

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Government Jobs are NOT Government Jobs are NOT “Productive”“Productive”

BASIC ECONOMICS

Even where government jobs pay taxes, the original bill has to have been paid from other taxes.

This is called “leakage” … ~70% reduces the supply of Private Savings in favor of government net spending. Leakage also reduces velocity of proper re-investment.

As productive (Profitable) as a private economy may be, government jobs will leak the lifeblood out of the system.

Military ? Police ? Fire ? Medical Emergency ? Research ?… are those activities multipliers of the economy ?

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Government Deficits “Eat” Private Government Deficits “Eat” Private SurplusSurplus

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‘ ‘09 Government Debt still not net 09 Government Debt still not net increaseincrease

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But Govt Growth Inverts Long Term But Govt Growth Inverts Long Term GDPGDP

Simply: as government spending has gone up, economic growth has gone down.

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Government Spending Out of ControlGovernment Spending Out of Control

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Spending Freezes Will Not Regain Spending Freezes Will Not Regain ControlControl

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Health Spending Gobbling Up the Health Spending Gobbling Up the Economy ?Economy ?

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Commercial Real Estate in the Commercial Real Estate in the TankTank

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Commercial Delinquencies Triple in 12 Commercial Delinquencies Triple in 12 mosmos

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Plans to Buy New Homes Near All-Time Plans to Buy New Homes Near All-Time LowLow

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Government will Crowd Out Private Government will Crowd Out Private SectorSector

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Private Sector Took Another Dive Private Sector Took Another Dive RecentlyRecently

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22 Private Sector Losing for a Decade Private Sector Losing for a Decade ……

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The The Somewhat Somewhat Good (Flat) Good (Flat) NewsNews

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Where is this ? This is Where is this ? This is China.China.

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Interest Rates may be “dead” for a Interest Rates may be “dead” for a WhileWhile

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We are now following Hi-Debt Japan We are now following Hi-Debt Japan CurveCurve

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Stagnation Despite Hi-Liquid Low Stagnation Despite Hi-Liquid Low Interest Interest

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~450k Weekly Jobless Claim ~450k Weekly Jobless Claim StagnationStagnation

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Unemployment Duration - Ridiculous Unemployment Duration - Ridiculous HighsHighs

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Sharp Economic Interrupt late Sharp Economic Interrupt late May ?May ?

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New Taxes New Taxes Will Will DisperseDispersethe Private the Private EconomyEconomy

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Hollowing Out of America’s Comfort Hollowing Out of America’s Comfort ZonesZones

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Fed Tax 2011 Current Likely Max Possible~ Maximum Impact per $1m Profit

Estate Tax 0 55 55 ?

Dividend Tax 15 20 39.5 -$50,000

Cap Gains 15 20 39.5 -$250,000200+ Income

Rate 35 39.5 44.9 -$150,000

MediCare Tax 0 3.8 3.8 -$38,000SSA 7.5%

Max 72k 150k No limit -$75,000

Net VAT Tax 0 1% 5% -$50,000Health Tax

/empl. 0 750 2000 -$2,000 ea

Inflation 4% 6% 10% -$300,000

Dollar Value PPP 100 90 80 -$100,000Gasoline Increase $3 $4 $5 -$20,000

EPA CO2 Tax 0 1% 2% -$20,000Deductions Reduction 1% 3% 5% -$50,000

Small-Biz Tax Increases: Wipe-Out of any Typical $1m Profit

Maybe not

July 2010 Part 2July 2010 Part 2

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Long Term Outlook: An Long Term Outlook: An Abyss.Abyss.

Stagnation has Stagnation has OpportunitiesOpportunities

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AnyAnyGood Good News ?News ?

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Entrepreneurism Rise Highest in 14 Entrepreneurism Rise Highest in 14 YearsYears

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Probability of a Second Recession is Probability of a Second Recession is Zero ?Zero ?

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Probability of Near-Term Inflation is Probability of Near-Term Inflation is Zero ?Zero ?

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Employment Trends Might Turn in Employment Trends Might Turn in 20112011

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Is this level of Productivity Growth Is this level of Productivity Growth Good?Good?

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Labor Force Growth – Good for the Labor Force Growth – Good for the USAUSA

… IF there are jobs

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What to What to Do ?Do ?

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Business will have to Finance Business will have to Finance “Internally”“Internally”

BASIC DELEVERAGING TRENDS

If a business cannot charge monthly, customers will go to vendors that can (The XaaS Auto Industry Model).

Customers have no more debt capacity, therefore financing games become history and only the creditworthy can buy.

Vendors have to “make” their customers creditworthy by shouldering the burden themselves (the Government Model).

Cost reduction is the sole survival strategy where prices are in deflation while some component costs inflate (Stagflation).

International trade is about to get brutal. Source locally.

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