Why is the current Economic Recovery so slow?
As a practicing CPA, down in the trenches, I can attest that each of the above economists are a little bit right, but they are missing the two most salient points on what is holding back the economic recovery. As seen during daily audits, consumers are not spending like they were, because of the linguring debt overhang; and, business are not investing, because of the Washington Disconnect.
The Southwest Inn at Sedona is a Boutique Hotel in Sedona Arizona, squeezed in between Las Vegas, Nevada and Phoenix, Arizona, just south of the Grand Canyon; and in one of the hardest hit regions in the United States. The thought of four more years, like the last four is of great concern. The Southwest Inn has previously published a blog on our opinion of the causes of the financial collapse; and, we have published a humerous-realistic reason behind the credit economy that failed; and, we have posted a link to a video that appears to be sadly true.
- Richard Duncan lays out his conclusion that our economy grew out of credit-debt, and blew up because of credit-debt though his use of numerous government charts. Many of the businesses that I have worked for have felt this false economy for the last decade, but were victems, unable to get off of the roller coaster. And, this is where John Taylor is absolutely correct is his criticism that without consistent and long-term policies, businesses cannot survive. Just imagine at half time, if the officials told the pass-happy New England Patriots that the rules just changed, and they could no longer throw passes??
- Why has Washington been so anxious to "bail out" those individuals who were NOT making payments on their debt, and leave the responsible individuals fending for themselves? The conclusion, reached by Reinhart and Rogoff calls for some kind of overall debt restructuring, in order to get the economy back on track; but, the charts in Duncan's book show this has not happened.
- Paul Krugman displays a telling chart in his book, that answers the question-"where did all of that money used for stimulating the economy go?"--his chart clearly shows that banks are sitting on record reserves.
- Now comes the Washington Disconnect: yes, the banks are flush with cash reserves, however they have also been engulfed in the regulations of the Dodd-Frank bill that affectively prevents the banks from lending these funds into the business sector.
The question that we must ask each of the candidates for the upcoming presidential election is: which candidate, former Governor Romney, or President Obama will be able to unlock the Washington Gridlock over the Small Business Administration that will release funds into the market place?
After watching the recent debates, and witnessing first hand, from the trenches, and looking at the decrease in SBA activity in the last four years, perhaps it is time that we tried a businessman in Washington.
The Southwest region of the United States is considered one of the key areas for the development of Solar energy. This was highlighted at a recent gathering in Las Vegas, as discussed in an excellent article in the Christian Science Monitor. The concept of revitalizing our economy through innovative energy development in the Southwest is also the solution expresssed in Richard Duncan's book, "The New Depression". Many Arizona hotels and businesses in the Southwest, like the Southwest Inn at Sedona have suffered in what authors Reinhart and Rogoff labeled as the 2nd Great Contraction in their extensive text, "This Time is Different: Eight Centuries of Financial Folly".
During the 2nd 2012 Presidential Debate, both Candidate Romney and Incumbant Obama mentioned the need for energy independance, including developing alternative energy like solar, hydro, and wind. So, we have to ask ourselves-which nominee will more likely be able to successfully revitalize the Southwest economy through the development of Solar energy-former Governor Romney, or President Obama?
Of concern: are the pledges of President Obama, and the recent statements of Senate Majority Leader Reid; and the misuse of stimulus funds during the last four years. The recent pledges of the President sound identicle to the pledges of the 2008 "then candidate Obama", and yet in the four years that he has been in office, not a single solar tower has appeared in the deserts of Arizona or Nevada. However, as we now know, thousands, millions and billions of the stimulus funds were channeled into solar panel manufacturing companies: shouldn't the funds have gone into the infrastructure development, so that there would have been a demand for the solar panels? Is this what Governor Romney brings to the table from private enterprise-a common sence approach to logical business solutions?
Is it time to give a businessman a shot at running the government? The Southwest has been one of the hardest hit regions in the United States; the devlopment of alternative energy in the Southwest would go a long way towards revitalizing the Southwest economies. Is there any reason to believe that the next four years will be any better than the last four years?
The following comment was emailed to me from Duffy Witmer, CEO of The Pioneer Saloon in Ketchum, Idaho. Duffy was responding to my earlier blog, regarding our economy. I have worked with Duffy and the Witmer family for over 20 years; we meet monthly to discuss the economy and the impact on The Pioneer Saloon and The Kneadery, as well as family planning issues. Duffy has been an inspiration on running the Southwest Inn at Sedona. This comment would be funny, if it were not so sadly true.
Heidi is the proprietor of a bar in Detroit ...
She realizes that virtually all of her customers are unemployed alcoholics and, as such, can no longer afford to patronize her bar.
To solve this problem, she comes up with a new marketing plan that allows her customers to drink now, but pay later. Heidi keeps track of the drinks consumed on a ledger (thereby granting the customers loans).
Word gets around about Heidi's
"drink now, pay later" marketing strategy and, as a result, increasing numbers of customers flood into Heidi's bar. Soon she has the largest sales volume for any bar in Detroit.
By providing her customers freedom from immediate payment demands, Heidi gets no resistance when, at regular intervals, she substantially increases her prices for wine and
beer, the most consumed beverages. Consequently, Heidi's gross sales volume increases massively.
A young and dynamic vice-president at the local bank recognizes that these customer debts constitute valuable future assets and increases Heidi's borrowing limit.
He sees no reason for any undue concern because he has the debts of the unemployed alcoholics as collateral!
At the bank's corporate headquarters, expert traders figure a way to make huge commissions, and transform these customer loans into DRINK BONDS.
These "securities" then are bundled and traded on international securities markets.
Ignorant naive investors don't really understand that the securities being sold to them as "AAA Secured Bonds" really are
debts of unemployed alcoholics. Nevertheless, the bond prices continuously climb - and the securities soon become the hottest-selling items for some
of the nation's leading brokerage houses.
One day, even though the bond prices still are climbing, a risk manager at the original local bank decides that the time has come to demand payment on the debts incurred by the drinkers at Heidi's bar. He so informs Heidi.
Heidi then demands payment from her alcoholic patrons. But, being unemployed alcoholics -- they cannot pay back their drinking debts.
Since Heidi cannot fulfill her loan obligations she is forced into bankruptcy. The bar closes and Heidi's 11 employees lose their jobs.
Overnight, DRINK BOND prices drop by 90%.
The collapsed bond asset value destroys the bank's liquidity and prevents it from issuing new loans, thus freezing credit and
economic activity in the community.
The suppliers of Heidi's bar had granted her generous payment extensions and had invested their
firms' pension funds in the BOND securities.
They find they are now faced with having to write off her bad debt and with losing over 90% of the presumed value of the bonds.
Her wine supplier also claims bankruptcy, closing the doors on a family business that had endured for three generations, her beer supplier is taken over by a competitor, who immediately closes the local plant and lays off 150 workers.
Fortunately though, the bank, the
brokerage houses and their executives are paid HUGE bonuses and bailed out by a multi-billion dollar no-strings attached cash infusion from the government.
The funds required for this bailout are obtained by new taxes levied on employed, middle-class, nondrinkers who have never been in Heidi's bar.
Many Hotels in Sedona
like the Southwest Inn at Sedona
are helping the US economy with a combination of special pricing, combined packages, and attractive promotions. In addition, the Southwest Inn at Sedona continues to offer increased value
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, including a good nights sleep and a freshly prepared organic breakfast, something that you would expect to find in one of the Sedona Bed and Breakfasts
The Southwest Inn at Sedona
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Finally, in order to help the US economy, the Southwest Inn at Sedona
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I am writing this blog post in response to many of my professional clients, who have recently asked for my opinion on our economy. I thought that I would break this blog post into two parts: part one would be a statement of facts, trying to leave out any personal views that I might have; and then the second blog post will interject my opinions. I look forward to publishing these blog posts and soliciting as many comments as I can, in hopes that maybe we can have an impact on our current state of affairs.
I believe it was Detective Joe Friday who made this quote famous, "Just the facts, Mam".
As I write this post, a recent poll indicated that 50% of those economists polled now believe that we are headed for a double dip recession. As a practicing Certified Public Accountant, with active clients in the Northwest, Southern California and the Southwest, I can state that most small business owners do not believe that the recession labeled as the 2nd Great Contraction by Kenneth Rogoff and Carmen Reinhart in their excellent text, "This Time is Different: Eight Centuries of Financial Folly", never ended. As we approach the 2011 Labor Day weekend, the number of unemployed individuals is still above 9%. Republicans blame the failed policies of the Obama Administration; Democrats blame the Republicans for creating grid-lock; and now, Vice President Biden has labeled the Tea Partier's as Terrorists. Critics of President Obama's decision to let congress take a vacation while the economy teeters on the brink were shocked by his statement that the last people he wanted back in Washington were the Congressman. Isn't that what President Reagan once told us, "that Washington is not the solution--it is the problem"? Many of my clients, and a few Sedona Arizona Hotels, including the Southwest Inn at Sedona have asked, "how did we get into this mess, and how are we going to get out"?
Looking back to 1990, we were going through a minor recession, because of a blowup in the Tech Boom. Our economy was flat and going nowhere. Washington came up with a clever plan to stimulate our economy and provide a social agenda to those who could not afford a home: Ease monetary credit and regulations. Massachusetts Representative Barney Frank in his role as Chairman of the House Banking and Finance Committee empowered Fannie May and Freddie Mack to begin aggressive lending to banks, which were encouraged to loan to individuals who would not have qualified for loans, without the easing of financial regulations. What followed was one of the greatest expansionary periods in our countries history. But after so many years of growth, stimulated by the real estate industry and the ever-increasing desire to put anyone and everyone into a home, the easy credit that created our "false" economy (sounds like an opinion, but it is a fact) overtook common sense, and our national debt to income ratios soared to above 125% by 2007. Charts in the "This Time will be Different" text clearly show that once you go above 90%, you are entering unsustainable territory.
Now, after years of economic stimulus, why are we now talking about a 2nd recession? Where did all of that money go?
The Fed embarked on an unprecedented program of buying up the "toxic assets" (the bad loans made to individuals who should not have been allowed to take them out), from the banks who had written the loans, which then swapped bad debt for cash on the balance sheets of the banks, but at the same time Washington under Barney Frank (yes, the same guy who created this mess) wrote over 500 banking regulations encapsulated into the Dodd-Frank Bill, which made lending these funds out to the public almost impossible. This government disconnect, which created an infusion of cash into our system, also froze the funds in the vaults of the banks with a burden of regulations. Bloomberg News reported on Friday, September 2, 2011 that the Federal Government has now filed law suits against 12 of the largest banks from whom the government bought the bad loans from, for selling them fraudulent loans, (again a fact, which makes it very hard not to interject an opinion). Didn't we use a bait and switch gimmick: unsustainable private-sector debt was transferred to public debt; and now those debts are unsustainable as public debt. The August 13th issue of The Economist stated it exactly, "the risk of America and other rich-world countries slipping into recession again is real. The root of the problem on both sides of the Atlantic is simple: too much debt, and too little political will to deal with its consequences".
So, why did Bernie Madoff go to jail and Barney Frank will receive a pension for life?
In August of 2011, the Standard and Poor's rating agency downgraded the United States debt to AA+ from AAA. The Charles Schwab Center for Financial Research stated that the S & P's rationale for the downgrade was its view that the recently negotiated budget agreement fell short of what's needed to stabilize rising US debt levels. They added that an additional factor was the contentious nature of the budget process itself, which reduced the S & P's confidence in the ability of policy makers to address rising US deficits. The August 15th issue of Time Magazine stated that the credit rating agencies were looking for a $4 trillion deficit cut, which would have dropped the percentage of US debt to GDP from 101% down into the low 90's, where according to the research of Rogoff and Reinhart, is barely over the threshold of unsustainable.
Democrats want to stimulate our economy by using Keynesianism policies of increasing government spending; even though The Office of Management and Budget reports that 35% of our current debt is directly attributable to "government programs" including the shortfall in tax revenues from the current recession. Republicans, led by Sara Palin rant and rave about lowering taxes, but as I pointed out to Judge Andrew Napolitano on a recent Fox News radio show, taxes are a simple algebraic equation, which multiplies "taxable income" times a tax rate: remember that a number times zero is still zero. Under our current economy, our government is collecting fewer taxes, because of the drop in taxable income of so many small businesses; so lowering taxes does not appear to be the problem. As a practicing Certified Public Accountant with a degree in Tax Law, I can tell you that the United States has the most complicated and inefficient tax system in the world, largely because each congressman has written in countless loopholes to satisfy their constituents.
Quite simply, our debt is a function of our government's choice to spend more than they take in. If we look at our debt acquisition back to President Nixon and the abolition of the Gold Standard, we can see that we were very close to being neutral. Under Presidents Ford and Carter, Congress adapted the Keynesianism model of stimulating the economy by spending more, which in turn ran up the deficit between income and spending. Ironically, Republicans point to President Reagan for stimulating the economy with tax cuts, but the fact is that under President Reagan, we ran up record deficits, primarily through a build up in military spending. By the time President Reagan handed the rains over to 1st President Bush, the deficit had been reduced, but it still was a deficit. President Bush ran up more spending by way of the first Gulf War. Finally, under President Clinton and the Newt Gingrich led congress, we eliminated the deficit, and actually produced a budget surplus. Under the 2nd President Bush, and a democratic led congress that went nuts spending the Clinton surplus, we quickly fell back into a deficit. President Obama says that he inherited this mess, but whom did he inherit it from: President Bush, or Nancy Peloci and an out of control Congress? Either way, Obama's government has now outspent all of his predecessors by record levels. Former Governor Mike Huckaby has stated that it is time to "throw the bums out"; is he right? A recent New York Times poll found that 82% of Americans disapprove of how Congress is doing their job.
Carmen Reinhart and Kenneth Rogoff, in a July 14, 2011 post to Bloomberg News stated that, "current debt trajectories are a risk to long-term growth and stability, with many advanced economies already reaching or exceeding the important marker of 90 percent of GDP".
Has the Obama Stimulus program worked? We currently have record deficits, plummeting consumer confidence, extraordinary cash holdings of US corporations, a sudden drop off in retail purchases, and a decline in the exchange rate of the US dollar. Anders Aslund, writing for the Petersen Institute for International Economics has stated that, "the United States needs a fundamental reform of both public expenditures and revenues to function normally". We have lost a generation of growth, and yet many of those who accumulated debt prior to 2008 are still saddled with untenable debt payments. We know what those who took out the real estate loans, which could not be afforded did: they walked. Ironically, most of the government's efforts have been aimed at these financial vagabonds, leaving the rest of functioning America to struggle beneath the weight of the debt burden. As long as this debt burden rides on our shoulders, consumers are not going to spend, thus business are not going to hire. What makes Congress believe that a cut in the payroll tax will encourage businesses to go out and hire new employees? Only a demand of goods and services will produce that affect; and only a reduction of debt to income will allow individuals to feel comfortable about spending again.
Congress bailed out Wall Street, why can't they bail out Main Street? Carmen Reinhart spoke to the 2010 Jackson Hole Economic Symposium, and advocated the need for "forbearance". If countries like Greece are allowed to receive debt restructuring, and if underwater homeowners can simply walk away from their financial troubles, then why can't Congress come up with a plan to help successful and struggling businesses restructure their debt, which in turn would increase their cash flow, which in turn increases spending, which in turn increases hiring of new employees.
Is all of the government's spending necessary? The World Economic Forum has downgraded America to 68th for government waste. You will recall that President Reagan created the Grace Commission to study government waste. That commission never died; it is now called Citizens Against Government Waste. They publish an annual summary of those most outrageous expenditures by congress. Why not start reducing our expenses by following a few of their recommendations? Remember then candidate Obama's example of government waste: there are two agencies overseeing Salmon-one for when they are in the water, and one for when they are out of the water. We now have more money and more people working for government agencies then we had 3 years ago, and with no apparent help to the economy. In fact hiring government workers adds to the already bloated reserve of federal entitlements and pensions required to take care of these workers.
Finally, should a fairly simple tax return for an average family, with wages, a little interest and dividend income, maybe a retirement account and a home mortgage and a few medical expenses really require most of a weekend to prepare for the average citizen? Should the Tax Code be written for self-serving interests via loopholes?
Those are the FACTS. I have tried to stay politically neutral without tipping my hat; however, in the follow up blog, I will go hell bent on expressing my opinions. For now, I have read the facts, and I believe that some combination of Forbearance, or debt restructuring to improve the debt to income ratio, along with Governmental expenditure and tax reform are the only answers to our economic problems.
The Southwest Inn at Sedona is making an ongoing effort to produce our own form of forbearance through price and value offerings. If you are interested, please read how the Southwest Inn is Helping the US Economy.
Travel Reviews have become an important part of the research that business or vacationers use in order to select the hotel, restaurant, or tours that will most likely enhance their visit. Unfortunately, at this early stage in the review sites infancy, many of the posts are unfilterd, or taken as verbatem, thus allowing for professional postings from skilled writers who have never set foot on the property, or aggresively negative postings that can often times affect the economics of a small business, which is allready stressed from the 2nd Great Contraction.
Several Sedona Arizona Hotels, including the Southwest Inn at Sedona recently received the prestigious "Certificate of Excellence " award from Tripadvisor, for industry excellance. As the Innkeeper, I can tell you that we take all of the postings very seriously, however we do have to question some of the inconsistent postings: as much as we try, we sometimes cannot please everyone; and we are affended by the outright nasty and aggressively negative comments--yes, we are sensitive and we have feelings!
As an Innkeeper, as a CFO for several restaurants, and as a traveler, I would like to offer the following guidelines for posting a travel review:
1> As your momma once said, "if you cannot say anything nice about someone, then don't say anything at all"; try to look at the forest and not the trees; is the glass half empty, or half full?
The Southwest Inn at Sedona recently had two posts, from guests that stayed with us on obverlapping days. One post called the owner frumpy, complained of traffic noise, stated that the front desk clerk was in middle school, and ranted on and on about much to do about nothing. The other guest complemented the owner for hand writing driving and hiking directions, loved the ambiance of the property and its location, was head over heels appreciative of the front desk clerks attention to his car lights being left on, and carried on about the beauty of the Sedona Red Rock vistas.
So, where is the difference? The negative post said nothing about hiking in what Jon Kraukower called "a phantasmagoria of red sandstone spires and forested ravines"; she did not spend one moment sitting beneath a Vortex, reflecting on life, and she failed to "look up" from the parking lot and see the overpowering presence of one of God's artful creations. The positive post guests' spent everyday venturing out into the wilderness canyons, and enjoyed an early morning sunrise walk at Budda Beach, beneath the Cathedral Rock Vortex.
Negative posts often come from those who need to "get a life": they need to be compassionate about those they share this planet with, and they need to "smell the roses"! Whereas, the positive posts come from those travelers who wake up every day and appreciate the opportunity to be part of this planet, and appreciate the opportunity to share their daily experiences with those around them.
Of course, everything will never be perfect to everyone, but the key difference in the travel posts sends us a clear message on life: keep it in perspective, and try to stay fair and balanced; if you think you are having a bad day, take a look at what is going on in the world; soften your eyes, and take in the bigger picture; appreciate the moment that you are occupying in this time of space.