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I am much more concerned with the legislative gridlock than I am afraid of the results of any Congressional agreement.
The US Congress, however, needs a housecleaning… Either the President or the People need to insist that there needs to be forceful deadlines that have some teeth. If a ‘super committee’ cannot come to an agreement, then they should not be allowed to continue in Congress. We have moved for term limits, let’s go for expulsion or for a penalty censures committee members with a black mark that *ends* their political career.
The pain of legislative failure must outweigh the political reward of legislative failure… At this point I am more afraid of ‘no decision’ than I am of any compromise between them… If they cannot agree, fire them all and start again…
…as for the President’s suggestions last evening… I listened carefully and found nothing that will (in my humble opinion) be effective. This criticism is not just with the President’s proposals, it is with *everybody’s* proposals
- he kept talking about how different government actions would put money back into the peoples pockets (except for the Warren Buffetts of the world)…. and that is not really the problem. Having the money *in* their pockets does not solve the economies problems… it needs to be *spent*, and spent quickly
- in the economic universe there are a few “laws”… one is the “quantity theory of money” which reads: M * V = P * Q
- …or the supply of Money (actual dollars and demand deposits…) times the quickness that the money changes hands (Velocity) [this is the demand side of the monetary equation: let’s say that the money supply is $1,000 and everybody spends their share of it roughly every three days for a velocity of 100 times per year… you now have the purchasing power of $100,000]
- = the Price of goods and services times the Quantity of goods and services [this is the supply of dollar denominated stuff available to buy… let’s say we have 50 houses at $2,000 each which equals the $100,000 worth of goods in our little economy… everything is in equilibrium]
- now comes the crisis and everybody (even rich people and working families) get spooked in a bad or uncertain economy… they postpone buying anything discretionary and those who are in fear of their jobs stop all spending and just hold onto their money… The ‘V’ in the equation drops from 100 to, say, 35… NOW we only have 35 * $1,000 or $35,000 chasing those $100,000 worth of houses, so the price of the same number of houses falls fast and far (that is where we are today… too many houses being chased by too few dollars)… the new equilibrium is $35,000/50 houses = $700/house down from the original $2,000 (ouch!)…
- What the stimulus programs have done so far is add to the Money supply, have done *nothing* to improve the Velocity, little to the Price of housing, and nothing to the Quantity of houses (which nobody is building, so it is actually decreasing)… so now the supply of Money is $1250 times 35 = ?? * 45… so now the price of a house is $972… we are in a classic deflationary spiral (why buy a house today when it will be less expensive in 2 months?) [computers have been in this deflationary spiral because the power and features keep improving even if the price remains the same… like getting a bigger house for the same money if you just wait a few months]… *and* both the methods created by the stimulus are inherently “inflationary” [not bad if you can control it]… and they still don’t fix the problem
- with lots more Money in the economy, if the Velocity comes back, then the economy quickly becomes overheated (too much money chasing the same amount of goods) and the problem with too much money is that you cannot take the money *out* of the economy nearly as easily as you put it *into* the economy [you have to sell bonds… only now there is a substantial inflation premium]
- and all these “shovel ready infrastructure repair projects” do not increase the actual ‘output’ of the country so even though there are more people with more money, they are still chasing the same number of houses as before (it is the same effect if you give everybody a 10% raise without any increase in output, now everything costs (surprisingly) 10% more… only here, with our government, that 10% ‘raise’ does not go to you, rather it extends unemployment or refinishes a bridge, so, surprise, if you have the same pay, your pay now buys 10% *less*…
- two alternatives to really fix the economy:
- you need to entice everybody with money in their pockets to spend it NOW, not later… in the retail business this is called a ‘sale’ and there needs to be real value associated with the ‘buy it now’ value proposition. Recently, I made one policy/economic suggestion where everybody could fully depreciate anything bought in 2011 and 2012 in the year that it was purchased (just like expensing your car or business building)… Here is the link to that suggestion…
- Something like this will increase the velocity, spend some of the money that is ‘sitting on the sidelines,’ reward successful businesses, hopefully get some additional people hired *and* add some output to the economy (more cars, houses…) so that when Velocity does increase, the economy will already have some additional Q in the economy to keep prices somewhat in check… something like $1200 * 90 = ?? * 55 … now houses have risen back to $1963 each, prices are on the rise, Velocity is almost back to where it was (some of us think that it never will go back to where it was), the housing market is growing and stable…
- …but nothing mentioned last night addresses velocity, and unless (perish the thought) we have an event like WWII, we will have the same lethargic non-recovery that the US had during the entire *decade* of the 1930s…
- The only person in government that fully understands this is our Fed Chairman, and he does not seem to be saying much…
- Net, net, I don’t like anybody’s proposals right now.
- Can your mind wrap itself around the ‘quantity theory of money?’ This *will* be on the test!!
What did you think of all the proposals? J
Someone in my past suggested that there were two types of people:
- those people who, when their neighbor gets a fancy new car, dedicate themselves to working harder to buy an even fancier new car [the old addage of “keeping up with the Joneses”], and
- those people, when their neighbor gets a fancy new car, quip “I hope your garage burns down.”
I learned Thursday that at age 98 Dick had passed to his heavenly reward. It is both a sad time and a happy time.
I met Dick at a Friday morning Bible study group at Highland Park United Methodist Church. I did my best to be prompt for the 7:00 starting time. Dick, on the other hand, had already taken his morning swim and read five papers before our 7:00 start. The group was small and intimate. We shared much of what was going on in our lives as well as exploring different books and different themes of the Bible. He was wonderfully open and completely engaged. He listened and understood as well as any friend that I have had.
During that time in the Friday Bible study and Sunday HPUMC services, we shared much. There were discussions about finding, reinforcing and growing our Faith… and there were discussions about job loss, suicide and homosexuality among our group. Among many topics, we discovered we were Brothers of Lambda Chi Alpha Fraternity. While he was active in the fraternity matters, he had worked with John Hand who had been president of my Alpha Pi Chapter my senior year.
During that time we also shared books and thoughts on politics. He treated me like a peer. Visits to Billy and Dick’s home and apartment in Dallas and their residence in Austin were structured to have a glass of red wine and discuss the events of the day. To this day they are the model both of hospitality and of a cordial, loving couple. Their openness and selflessness made an indelible mark on my heart. I can only hope that something that I did began to repay their generosity and example.
Both Dick and Billy were wonderfully supportive of my decision to return to school to research and finally earn my PhD in the use of information technologies in business. It was difficult moving from a challenging/well paying position at Dell Computer back to school and teaching full time. I remember them attending a graduation party at Mary Kay Mars’ home. Billy had very recently returned home from painful knee replacement surgery and complications, yet they managed to attend to show their support.
Dick and I also shared our Rotary Club of Dallas involvement. He was the sage, past president. He encouraged me to become more involved. He would save a seat at his table and introduce me to all the special people who would be seated at the table like I was somebody special.
I particularly remember one Easter Sunday when I had picked Billy and Dick up from the Forum to drive them to the HPUMC services so they would not have to worry about parking or walking to the basketball arena where the Easter Sunday Service was conducted (to be sure that all would be able to attend the one, large, Easter Service). They always sat in the fourth row on the right side on the isle. I regularly joined them. On this Easter Sunday, they took their normal place in the seats on the right about half an hour before the scheduled start of the services… and for the next thirty minutes hundreds of attendees paraded up and greeted them personally and warmly. I have never seen greater respect for members of any Congregation than I saw on that Easter. The well-wishers were both the most powerful and the most humble in the community. It was quite apparent that they were, as a couple, a hub of both the Church and the Community.
Every person has a handful of people that in retrospect have shaped their lives. Usually it happens earlier in life, but in some cases it also happens later in life. For me Dick and Billy were a model of love and grace and compassion that leave me with but one question: How could I have been so fortunate to know and love Dick and Billy Rubottom? They touched so many people and in doing so, they filled us with the Spirit of the Lord as few people do.
In the News & on the Web:
As JFK boldly stated… “Ich bin ein Berliner.” So am I.
In 1983, I was fortunate to have been awarded a Fellowship, called a Rotary Group Study Exchange, from the US to the West German Rotary District around Hanover. In addition to Northern Saxony, the team also spent a long weekend in West and East Berlin. During that five weeks, I became an international citizen.
There have been very few international events that have drawn my interest and fascination more that the plight of the this country cut in two by opposing political factions.
One of the most emotional events that happened while the five of us were visiting was at a local Rotary club in West Germany. The club president requested that one of our GSE team (who was an accomplished tenor) sing the US National Anthem… He shocked the host president by stating that he would do so only on one condition… they the club sing their National Hymn. Carl launched himself into a wonderful, a cappella rendition of the Star Spangled Banner. After he had completed his end of this agreement the German Rotarians, including the NATO General siting immediately across from me, started singing their National Hymn. Although the tune was robust, it was immediately obvious that there was some problem, some disagreement with the words until late in the hymn when they all, somehow, came together. After this, everybody sat and started lunch. One of the local Rotarians turned to our group and remarked, “that was extraordinary.” He then proceeded to explain that when Germany had been split that the National Hymn of West Germany had become the 3rd verse of the same National Hymn, and that recently some Germans had begun singing the 1st verse again as a statement for reunification. It seems that this club of community leaders had split the verses, some singing the more correct 3rd verse and some singing the reunification 1st verse (remember this is 1983, 6+years before the wall fell). Eventually they all completed singing their Hymn, singing the 1st verse. It was both a bold and radical statement of reunification for this group.
More that 26 years has past since that day. The wall, or ‘frontier’ as they called it, has fallen. The eastern block has tumbled. I have become a Rotarian here in San Jose, CA. I still treasure that moment when that Rotary Club in West Germany, who had lived in their Germany, in two parts, for almost 22 years, made a reunification statement both to themselves and to their guest from the USA. Those Rotarians became a piece of who I am today… Thank you and Godspeed in your reunification journey. J