posted on Jan, 30 2005 @ 06:28 PM
The Economy is in trouble!
Here is a artical I think is true, if you want to read.
A Brief Update on the U.S. Economy
By Michael C. Feltham, FCEA, ACPA, FSPA
Jan 27, 2005, 15:35 Email this article
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Job Creation: whilst the Bush Administration boasts about job creation, what is needed is to examine, more closely two facets: (1) the type of jobs
and related earnings. (2) working conditions and loss of fringe benefits.
1. Types of jobs: A job is not a job is not a job! Most of the blue and white collar jobs lost are being replaced with McJobs which offer no career
track, reduced hours for hourly paid workers increased hours for workers with fixed-salaries and menial work that offers few non-monetary rewards.
2. Working conditions: The conditions under which workers perform their jobs and earn their living in the U.S. have been deteriorating for U.S.
citizens in recent years. As early as June, 2004 a report of research on 168 countries at the Department of Health and Human Development at the
Harvard School of Public Health (HSPH), found that:
• More than 160 countries offer guaranteed paid leave to women in connection with childbirth. The U.S. does not.
• The only other industrialized country which does not have paid maternity or parental leave for women, Australia, guarantees a full year of unpaid
leave to all women in the country. The Family Medical Leave Act in the U.S. provides only 12 weeks of unpaid leave to approximately half of mothers
and nothing for the remainder.
• 45 countries ensure that fathers either receive paid paternity leave or have a right to paid paternity leave. The U.S. does not guarantee
• At least 96 countries around the world in all geographic regions and at all economic levels provide for paid annual leave. The U.S. does not
ensure paid annual leave.
• 76 countries guarantee working mothers the right to breastfeed. The U.S. does not protect the ability of working mothers to breastfeed, despite
its importance to the health of baby and mother alike.
• 139 countries mandate paid sick leave. 117 of these countries ensure at least one week. The U.S. does not guarantee even one day leave for
Beth Shulman is a lawyer and consultant focusing on work-related issues and author of The Betrayal of Work: How Low-Wage Jobs Fail 30 Million
Americans. In her January, 2004 article, Working and Poor in the USA, she reported:
"For generations, Americans shared a tacit understanding that if you worked hard, you could earn a livable income and provide basic security for
yourself and your family. That promise has been broken. More than 30 million Americans--one in four workers--are stuck in low-wage jobs that do not
provide the basics for a decent life. ... millions of middle-income jobs take on the characteristics of the low-wage economy--layoffs, outsourcing,
unaffordable healthcare and vanishing pension benefits."
Deficits: With rapidly increasing global distrust of the US dollar, eventually, Mr Greenspan will be forced to ramp-up both Prime and Discount
interest rates. This will tank the Bond Market.
Normally, the USA has managed to clamber out of deficits through economic growth. Not this time! I say this, mainly, since corporate productivity
increases over the past ten years, have been mainly achieved through the massive roll-out of ICT systems, at the expense of de-layering middle echelon
Perhaps worse, most major corporations have been "Pip Squeezing", extant products, rather than investing heavily in R & D and new product offerings.
Since all products have a finite Life Cycle (basic rule of product economics and marketing analysis), such Sunset offerings have not long to go. More
to the downside.
Outsourcing: The obvious Front-End attractions (in terms of cost saving) can kick-start revenues and impact positively on the Bottom Line. But the
hidden danger is that as US manufacturers cede greater and greater knowledge and manufacturing/service skills to emergent nations, those nations will,
shortly, steal their clothes! It happened in Japan.
This is already happening in India, as major Indian IT companies, are now setting-up US based subsidiaries and bidding, aggressively, on US
Consumer Debt: Consumer debt is now totally out of control! Sub-Prime lending has expanded rapidly, to the point where the poorer families have become
indebted to sometimes three sub-prime mortgages, just to step onto the housing ownership ladder.
Logically, financial institutions are lending ever-increasing debt, to US consumers, who are buying Chinese and Korean goods and the funds are
galloping back to Asia!
The Equities and Bond Markets: All such markets operate on confidence and Lemming Instinct! Presently, with a few exceptions, in my opinion most
stocks are hugely over-valued.
One has to retreat to the sanity of the Sage of Omaha, Mr Buffet, and look for net asset values against total stock values. It is pointless (other
than in the short term) having a hugely over-valued stock, just because the Directors are paying excessive dividends, "To keep the markets happy",
when often, the dividends are being paid from borrowed funds!
In conclusion: It appears that the critical downside issues are:
• The imminent collapse of the over-valued real estate market;
• The un-sustainability of the twin deficits (considering the vast forward budget downside, created by retiring Boomers and health and social
security, plus the insane, forward cost of the Iraq misadventure);
• Negative Growth (real terms) potential.
It is also interesting to me, that historically, speculators were still piling into the stock market, in 1928, when companies were already failing!
Without doubt, a reality alignment cannot be too far away.
One final point: New accounting standards, plus the increasing effect of Sarbanes-Oxley, will disallow pro-forma projections, thus the market will
react more quickly to bad news, Globally.
© Copyright 2004 by AxisofLogic.com
Also see the new analysis and report by Michael Lind in the Financial Times (U.K.) -
How the U.S. Became the World's Dispensable Nation
Michael C Feltham FCEA, ACPA, FSPA
Michael C Feltham is a columnist for Axis of Logic. See his bio and additional insights, analyses and forecasts at Feltham on the Economy. By
professional discipline, an accountant, who specialised in international finance and economic analysis in the 1970s. Until December 2001, he was an
External Examiner and Moderator to Ashcroft International Business School at their Cambridge and Chelmsford faculties at MBA level. He writes widely
on technical finance and economic matters. Michael is Founder and CEO of a software company and CFO of a New Media company. You can reach Mr. Feltham