So Very Sheik

In Mumbai and across India, tens thousands of Muslims (they represent about 15% of the total Indian population) marched in protest against the terrorist slaughter of innocents in the recent attacks. 40 Muslims were among the victims. Mumbai Muslim clerics refused to accept the bodies of the attackers into their sacred burial grounds stating that these vicious terrorists were not true Muslims and did not deserve the honor of being laid to rest with other true believers. Even the Pakistanis, whose own intelligence service supported and nurtured the group that implemented the Mumbai attack, mounted a campaign to identify and arrest the perpetrators who remained at large, capturing at least one of the masterminds.

While my Indian friends point out that Indian Muslims often think of themselves as Indians first and Muslims second, the revulsion against terrorism, felt deeply in the hearts and minds of moderate Muslims everywhere, is a necessary precursor to a “moderate” de-escalation of terrorism in the name of Jihad and Islam. The once common Indonesian “soft Islam,” which presented religious tolerance for non-Muslims, must find a revival. The alternative is a return to the exchange of holy wars, modern day Jihad meets the Crusades, with state-of-the-art weapons and the mass misery that goes with it.

As Pakistan’s Western Tribal district and her own intelligence service appear to be the most dangerous centers of terrorism on earth, clearly major focus must be placed on that region. But Barack Hussein Obama, by name and ethnicity, has the particular stature and background to begin a process of gentle détente with the Islamic world that holds much hope from his election.

Indeed, the President-Elect seems acutely aware of the significance of the moment as he announced, in a December 9 interview with the Chicago Tribune, that he will make a speech from the capital of a major Muslim nation shortly after he takes office. "I think we've got a unique opportunity to reboot America's image around the world and also in the Muslim world in particular," he declared.

In a sea of negativity, the calming words of positive action can be very loud.

I’m Peter Dekom, and I approve this message.

The Year the Earth Fell from the Sky

On December 9, the World Bank presented its most dour global economic forecast since 1982. Noting that there were no clear countervailing driving forces that would reverse this trend, this august body predicted that capital flow into the developing world, the poorest nations, would fall by 50% in 2009. That means that dire poverty becomes hopeless, abject poverty for many of this planet’s inhabitants.

About 1.1 billion human beings on planet earth currently subsist on $1 a day or less, more than double that number on less than $2 a day. Hard to fathom how this is possible, and unimaginable that these circumstances could get much worse. It can; a lot! This is truly a global recession, already depression in some nations by any economic description, which threatens to linger at or near a bottom we have not yet reached for some intolerably long period of time (possibly years). For those at the edge of existence, (The ones who won’t be able to provide adequate food and shelter from their own labor or agricultural efforts) this downturn may in fact signal massive widespread death and disease.

Global economic growth, pegged at 0.9% by the Bank (others think even this number is too optimistic), does not keep up with the population growth and hence represents an actual aggregate contraction. With a general deflationary trend on raw commodities, the money that will be earned by those at the bottom of the spectrum will decline just as job loss in emerging economies will send an army of people who were once filled with hope back into the world of marginal subsistence. Lower prices for basics will only help the few with enough money to buy them.

Strong negative indicators show even developed countries with serious economic issues that will have a major negative impact on the local standard of living, much worse than what we face here in the United States. In the Western world, Ireland, Italy and Greece (where there has been rioting, sparked by a shooting, but continued over a failed economy) are high on the list of countries at risk.

We think we’ve got it bad when, as Madlen Read and Martin Crutsinger of the Associated Press put it, “Investors are so nervous they're willing to accept the same return from government debt that they'd get from burying money in a coffee can — zero… The Treasury Department said Tuesday it had sold $30 billion in four-week bills at an interest rate of zero percent, the first time that's happened since the government began issuing the notes in 2001.” That’s certainly bad news, but if you have money you can invest – anywhere – you’re still better off than most folks on earth.

The World Bank’s economists found the post-World War II recessions inappropriate comparisons to this current crisis, finding that only the Great Depression had sufficient parallels. Even people who want to spend and grow, who can sustain the required costs, are forced to hold back because of the global dearth of credit.

In the end, dire prospects mandate difficult and powerful decisions. As the greatest economic power on earth – at least for now – what the United States does to reinvigorate its own economy and how it supports poorer nations in coping with theirs will determine how quickly we reach the place from which we can fall no more (the sacred “bottom” that allows the world at least to take a breath) and how long we have to stay there until some semblance of growth can resume. I most certainly do not envy the tasks that will grip the President-Elect, his administration and our Congress for the foreseeable future. Trying to find the shortest path toward recovery will still inflict untold pain on most of the population of earth.

I’m Peter Dekom, and maybe, just maybe, we can get through this together.

2005-2007, When Things Were Really Bad

I ran across a story by AP’s Stephen Ohlemacher recently that summarized economic realities over the period of 2005-2007, gathered as census data (the American Community Survey), which report was released on December 9. The census takers look at three million households annually and give annual information for geographical areas of 65,000 or more (providing three year averages for communities between 20,000 and 65,000). The sum and substance of the report is that Americans were making less money, costs were rising, but we consumed at a record pace, well beyond our means… leading up to a meltdown in every segment of American life.

The analysts at the Associated Press produced the following conclusions from the numbers they reviewed:

1. Median household income dropped in 79% of the cities and towns. Incomes dropped in the wealthiest communities as well as the poorest. Nationally, incomes dropped by 4.3%, to $50,007.

2. The poverty rate increased in 70% of the cities and towns. Nationally, the poverty rate increased from 12.4 % to 13%.

3. The unemployment rate increased in 71% of the cities and towns. Nationally, the unemployment rate increased from about 4% in 2000 to 6.6% in 2005-2007.

4. Median home values increased in 92% of the cities and towns studied — doubling and tripling in many cities, mainly in California.

My take? America caught a bit of expansion at the beginning of the decade and rode a “growth” wave that did not really exist. We fought a war with borrowed money while reducing taxes, our educational system did not keep up with the competition, the dollar plunged, and we still acted as if we were in a growth economy. With government reducing barriers to corporate excess and leaving volatile and unproven markets remain virtually without regulation, the financial world borrowed itself to take advantage of this unfounded consumer exuberance.

People and companies borrowed to their expectations, not to the reality that was around them. The government set the example and made sure there were no brakes on that train. Sooner or later, someone had to pay dearly for this miscalculation. That would be us… now and for a very long time. Perhaps we will learn our lesson… perhaps not.

I’m Peter Dekom, and I approve this message.

“The Economy will Get Worse before it Gets Better”

Sobering and realistic words from an incoming Administration… Now that it is official, the recession started in December of 2007, we have a year of pain under our tightening belt. Even though this passage of time alone is longer than the last two contractions of the American economy combined, 2009 promises to be a much more punishing year. If we actually push the official unemployment rate up to the expected 8%-9%, the government’s own “alterative measurement” (which looks at part-timers wanting to be full-timers and people who want jobs but have given up looking) threatens to be a staggering 15%-20% of jobless Americans, almost hitting Depression era highs.

With retail sales hitting 35-year lows, foreclosures reaching record highs and the number of people whose mortgages are higher than the value of their homes nearing 30%, the cycle feeds negativity on itself. People lay people off when they can’t sell what they make, those laid off people buy less and can’t pay their mortgages, more foreclosures create lower home values, and with each reduction, the society as a whole drops down a notch. It’s a spiral that must be broken.

Bernard Baumohl, chief global economist at the Economic Outlook Group, a research and forecasting firm quoted in the December 8 New York Times: “For the average American it’s going to be devastating for the next 6 to 12 months… I have not seen anything particularly hopeful right now, which tells me we have a ways to go.”

The solution? We can see it in the numbers and patterns in recent history itself. A laissez faire governmental attitude – let the chips fall where they may – sustained a decade-long recession in the 1990s in Japan, even as the rest of the world recovered from a downturn, Japan languished at the bottom until the government reversed itself. After the Crash of ’29, the Depression took the economic drive of World War II to end it in 1939, and the stock market did not resume its pre-Depression average value until 1954. This current market collapse actually started when, after bailing out insurance giant AIG and pushing Bear Stearns into JP Morgan Chase, the Department of the Treasury defied market expectations and let Lehman Bros. totally collapse on September 15. The markets have been pretty much all downhill from there.

We also know that giving money to anyone without lots of strings, limited supervision and less planning simply does not work either. Left unsupervised, big financial institutions have only used government money for their own selfish plans. I’ve called that phenomenon “Paulsonomics,” but the lessons are equally clear: you cannot support this economy from the top; unless your efforts have a direct and immediate impact on jobs and home values, you are simply robbing from the middle and lower classes to consolidate power and control in the mega-wealthy institutions that actually survive into the seemingly distant period of recovery. But the government still has to support the economy in the right use of its money.

A recent government study, reported by the Associated Press on December 8, also illustrates what happens when mortgage restructuring is minimal and not well-planned to fit the real world. The study looked only that those mortgages that were reworked before the big crash (those from the first half of 2008) where the benefits to homeowners were marginal at best. Even in those less dire circumstances, half of the homeowners are now in default again.

History and the need for prudent government suggests that somehow, the big three automakers need to be around for at least a while longer, sustaining necessary jobs in key parts of this nation. But they need to be controlled, management reconfigured and taxpayers rewarded in success. The message from both the President-elect and congress today was unambiguous: As it was in Washington, it’s now time for new leadership in Detroit.

Clearly the new Administration understands this truth – it has de-prioritized limiting deficits and accepted that battling this severe recession requires the counter-measures of a nation at war. The new government also has more time to consider the repair job, but that also means that implementing its solutions will not begin to make much of a difference until well into 2009. How many Americans will go under by then?

Healthcare is still on top of the priority list, since more unemployment necessarily means more without health insurance; this sector does promise new jobs and technology solutions for a recovery phase somewhere down the line. I’ve already discussed the infrastructure job challenge, and I cannot stress enough the role of training and education – currently two segments that are suffering greatly – any nation that expect to experience genuine prosperity again.

To those who think that a “bailout” only benefits rich corporations at the expense of the people, our government needs to make sure that does not happen again. But to those who think we should simply stop “bailing out,” history is littered with the bodies of that failed policy. The plan requires planning, oversight, realistic expectations and timelines and clear “strings” and limitations.

I’m Peter Dekom, and I approve this message.

Wouldn’t You Rather Be in North Dakota?

I asked my wife the other day if there were any place in the modern industrialized world that might not be in a recession. We figured that such a place simply could not exist – this recession was too deep and too pervasive. Well, we were wrong. The December 6 New York Times noted that North Dakota is not only facing the most miniscule foreclosure rate, but car sales are 27% higher than last year! Farmers have had a bumper crop, construction is non-stop – no massive layoffs here. The damned state budget even has a $1.2 billion surplus!

There’s even a job shortage. At Microsoft’s Fargo “campus,” for example, they need additional construction workers to accommodate their $70 million expansion efforts. In a state with a total population of 635,837, there are 13,000 job openings. State officials have traveled to “the layoff State” – Michigan – to look for workers. The Times noted at one state employment office, there were more people working at the facility than people needing help!

The denizens of this fair state are blasé about their good fortune; they chalk it up to their fiscally conservative nature. Take the Times interview of a co-owner of a car dealership that sells Toyotas, Dodges and Scions in Bismarck, Justin Theel: “We feel like we have been living in a bubble. We see the national news every day. We know things are tough. But around here, our people have gone to their jobs every day knowing that they’re going to get a paycheck and that they’ll go back the next day… Our banks don’t do those goofy loans.” Ja, sure, ya betcha, Justin! Makes me kind of warm and fuzzy all over. I said “warm” Justin… and I hear tell, I do, that yer winters are pretty bitter up dere, eh?

Skeptics remind us that sooner or later, the economic malaise that impacts North Dakota’s customers and the economic pressures felt in neighboring states are eventually going to disrupt a good bit of this seeming insulation from the financial crisis that plagues the rest of the world. And some local manufacturing concerns have already felt the downturn in demand that has already required some contractions.

Still the lessons sitting in Bismarck, Fargo and all of those other surrounding frozen places are good ones for lots of people in cities like New York, Los Angeles, and even Washington, D.C. These people make real things, grow real crops and, shock and surprise, even save their money in bank accounts not dreaming that their home is a closet piggy bank. They don’t construct “financial instruments” with risk-based analysis valuations, they don’t borrow mountains more than they earn and they are grateful for what they have.

Okay, I admit it, I am a tad jealous. It’s miserable watching the markets tank, people lose their homes… and when a bunch of my friends and colleagues lost jobs in the entertainment industry layoffs (Viacom laid off 850 on December 5^th, and NBCUni chopped 500 off its payroll), the pain I thought I was feeling in my life made me feel selfish and ashamed. Funny how if you provide real values, work hard and live within your means, life can be good… very good. But then there is the winter thing…

I’m Peter Dekom, and I approve this message.