Are You Smarter Than a BILLIONAIRE?
All of those billionaires out there surely know something that we don’t. Right? After all, they are really smart people who have the inside dope on economic trends; that’s how they got so rich one might suppose. But in recent times, a troubling trend is appearing to debunk the above suggested logic.
You’ve all heard of Carl Icahn, the billionaire investor who is currently attempting to take over Yahoo? Mr. Icahn bought more than a billion dollars in Motorola stock at around $18.00 a little while back and Motorola trades today for $9.82.
But this more recent play by Mr. Icahn may prove to give credence to the statement that “lucky is better than good.”
Icahn bought 6 million shares of Homebuilder, WCT Communities Inc. in early 2007 for about $19.00 per share. He offered to buy out the company in March of 2007 at $22.00 per share, but the company took itself off the market and refused the offer. Too bad for the stockholders as the company now trades for 66 cents per share and is in bankruptcy.
In the year of 2000, General Motors stock was trading at $69.50 per share and GM Chairman John F. Smith, Jr. had this to say, “We have returned more than $34 billion to our shareholders since 1997, while simultaneously strengthening our financial position, funding profitable growth initiatives and establishing strategic global relationships in our various business segments.
“During this period, GM has also achieved record earnings, underscoring our commitment to do more with less… improving earnings while utilizing less shareholder capital,” Smith said.
General Motors reported losing $15.3 Billion in the second quarter of this year of 2008 and now trades for $10.10.
So are all of these rich people and companies good or just lucky? I suggest the latter. They are lucky in good times and appear good in lucky times, but in reality have little control over our flawed economy. We may have reached a point when even the rich and famous will be seen for what many of them are, carpetbaggers of highest degree.
So what happens when the mega rich start losing money? What happens when they stop consuming in a country that is totally consumption based? In my opinion, we’re about to find out.
Yesterday the stock market went up by more than 300 points on the news that the Fed would leave interest rates low and continue our inflationary march. Oil also dropped to the incredible price of only $119 per barrel. Gasoline dropped to the absolute bargain price of somewhere below $4.00.
All of this is wonderful news and most certainly we have reached the bottom of our decline and housing is likely to rebound by the end of next week. Just kidding, you could reach up as high as you can and not touch bottom.
The drop in oil price didn’t put one single extra barrel of oil on earth. The continuation of low interest purposeful inflation just allowed the crooks a few more months to shear the uninformed sheep.
Here it is from the King of Simple in Mikeronomics. There is only one possibility of the U.S. pulling out of this decline and that is employment. Good, high paying, sustainable, broad-based employment and a lot of it. But then, that would require exponential growth…wouldn’t it?
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It’s all about the jobs.. If you remember the last “jobless recovery”..?? Didn’t last long.. We need what we are not going to get… Good high paying jobs.. What we don’t need, we will get.. We don’t need more debt.. We don’t need more inflation…
WmA…
In the minds of many people, growth has become synonymous with increase in wealth. They say that we must have growth to be rich enough to afford the cost of cleaning up and curing poverty. That all problems are easier to solve if we are richer is not in dispute. What is at issue is whether growth at the present margin really makes us richer. There is evidence (a study by Daly & Townsend 1989) that in the US it now makes us poorer by increasing costs faster than it increases benefits. In other words we appear to have grown beyond the optimal scale.
The growth has got to stop; immediately would be none too soon. But our government not only has us locked into an economic policy that cannot work, they have confused terminology for alternatives that must be implemented immediately. Herman Daly had it right when he said, economists will complain that growth in GNP is a mixture of quantitative and qualitative increase and therefore not strictly subject to physical laws. His point is valid and accurate; precisely because quantitative and qualitative change are very different. It is best to keep them separate and call them by the different names already provided in the dictionary. To grow means “to increase naturally in size by the addition of material through assimilation or accretion.” To develop means “to expand or realize the potentialities of; to bring gradually to a fuller, greater, or better state.” When something grows it gets bigger (exponential growth is even much bigger than this). When something develops it gets different. The earth ecosystem develops (evolves), but does not grow. Its subsystem, the economy, must eventually stop growing, but can continue to develop. The term “sustainable development” therefore makes sense for the economy, but only if it is understood as “development without growth”; qualitative improvement of a physical economic base that is maintained in a steady state by a throughput of matter-energy that is within the regenerative and assimilative capacities of the ecosystem. Currently the term “sustainable development” is used as a synonym for the oxymoronic “sustainable growth.” Sustainable growth fits more appropriately into a sub-category of exponential growth.
In order to accomplish the balancing act required to achieve a sustainable development, nonrenewable resources should be depleted at a rate equal to the rate of creation of renewable substitutes. Projects based on exploitation of nonrenewable resources should be paired with projects that develop renewable substitutes. Using accounting principals, the net rents from the nonrenewable extraction should be separated into an income component and a capital liquidation component. The capital component would be invested each year in building up a renewable substitute. The separation is made such that by the time the nonrenewable is exhausted, the substitute renewable asset will have been built up by investment and natural growth to the point where its sustainable yield is equal to the income component. The income component will have thereby become perpetual, thus justifying the name “income,” which is by definition the maximum available for consumption while maintaining capital intact. It has been shown how this division of rents into capital and income depends upon: (1) the discount rate (rate of growth of the renewable substitute); and (2) the life expectancy of the nonrenewable resource (reserves divided by annual depletion). The faster the biological growth of the renewable substitute and the longer the life expectancy of the nonrenewable, the greater will be the income component and the less the capital set-aside. “Substitute” here should be interpreted broadly to include any systemic adaptation that allows the economy to adjust the depletion of the nonrenewable resource in a way that maintains future income at a given level, such as recycling in the case of minerals. Rates of return for the paired projects should be calculated on the basis of their income component only.
The Sustainable Energy Economic Prosperity Act, under the Department of Energy’s, Sustainable Development Agency, was supposed to work in the direction of sustainable development which as noted above is directly linked to sustainable energy. They are failing miserably however, due to their not understanding the exponential function (a ticking time bomb) they have created for us and the speed with which we need to proceed to avert major physical and economic tragedies that loom at our door step.
The good Dr. Bartlett put it best when he insinuates that our reaction to a common phrase “the State forecasts robust growth” is inverted; otherwise we would be elated to hear our doctor proclaim “You have a robust cancer.” -bb
Humans can make up laws and rules as they see those guidance principals benefiting society. But as Herman Daly said, these laws, rules and principals cannot be counter to physical or universal laws.
I shouldn’t say that they “can’t” be counter; more aptly they can’t be counter for long.
As an example, I could say that as a group, we are going to extract 1 gallon of water per day for a year from a 52 gallon drum. I would be proven wrong on day 52 when it became evident that we were going to be 313 gallons short.
Our economy is no different, we have violated physical law with our man made growth based economy that in no way considers the finite resources that are critical to our continuance; thus violating physical law.
And like the water example, we will suddenly realize that our puny human conceived edicts fail to change physical law.
Mike - you are spot-on again. We have bumped into geological limits on growth. Growing our way out of this is not an option. Of course, collapse isn’t an appealing option either, so what does government do?
Monetarize the debt. That extends the party for a while longer while they plan their escape. That also gives you and I time to plan. Most advise I am reading says to invest in gold, silver and assets outside the US, and avoid the dollar like the plague.
If you like horror stories, go to Shadow Government Statistics for a frightening report entitled Hyperinflation Special Report, dated April 8, 2008. It explains the current government approach to extending the party a little longer. Not to spoil the end, but the cover of the report says it all…”hyperinflationary depression remains likely as early as 2010.”
The author, John Williams, knows what he is talking about, he does meticulous research. It is a bit long, but worth the time and effort.
Hi Greg,
I have often spoken about the coming hyperinflation. All that is necessary for that to happen is for foreign nations to quit buying our debt and start to shed dollars.
Many suggest that this won’t happen, banking on the “too big to fail theory.” I’m more of a “the bigger they are the harder they fall” kind of guy.
On subject of gold, I don’t hold with that action. Please read my article today and I’ll touch on that subject.
I saw the mention of hyperinflation.
Is this the most likely result? What about deflation due to the decrease in quantity of money because of writedowns in the mortgage securities?
jecht8,
Welcome to our community!
Hyperinflation is definitely the most likely results.
Devaluation (deflation) actually encourages hyperinflation as the foreign holders of our debt become concerned about the underlying ability of our economy to service that debt. (which they should).
At some point, they begin to divest U.S. dollars causing a glut and thus creating hyperinflation. Or, they will demand higher interest for the greater perceived risk, which in turn cranks the inflation machine into high gear.
We must remember that our “shorts” have been covered in the U.S. by debt since about 1980. Our National Debt has increased by more than 1000% since that date and continues unabated.
If “unsecured Federal debt” were considered (more than $60 TRILLION) we would already have hyperinflation.
Any questions, please ask.