Calvin and Hobbes Predict Our Economy 15 Years Ago
It’s amazing that this strip published almost 15 years ago and yet properly summarizes what’s happening in our economy today. CEO overpay, employee demands, bailouts, and company policy make their way into this classic comic strip from Bill Watterson. I think the only thing missing is the Susie character taking out an adjustable rate loan to actually buy the $15.00 lemon-aid. What a great, timely piece this has turned out to be. See the strip.
About Calvin and Hobbes: One of my favorite comic strips as a kid. I remember a friend introducing it to me, and looking forward to it every day as it made it’s run through the late 80’s and early 90’s. I always found the writing, creativity, and ingenuity priceless.
U.S. Officially In Recession Says National Bureau of Economic Research
The NBER met via conference call on Friday, November 28th, and determined that the U.S. economy had peaked in December 2007, and since has been in recession.
The Business Cycle Dating Committee of the National Bureau of Economic Research met by conference call on Friday, November 28. The committee maintains a chronology of the beginning and ending dates (months and quarters) of U.S. recessions. The committee determined that a peak in economic activity occurred in the U.S. economy in December 2007. The peak marks the end of the expansion that began in November 2001 and the beginning of a recession. The expansion lasted 73 months; the previous expansion of the 1990s lasted 120 months.
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A recession is a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in production, employment, real income, and other indicators. A recession begins when the economy reaches a peak of activity and ends when the economy reaches its trough. Between trough and peak, the economy is in an expansion.
While most economists define recession as two consecutive quarters of declining Gross Domestic Product, the NBER’s definition of recession is more loosely based on their own chronological records of production, employment, income and other indicators. They have determined that the U.S. Economy hit a peak in December 2007, and therefore have since been in a recession based on that peak.
AIG Backing Out On Its Word Of No Bonuses.
Photo by Barrybar
While I understand that managers, and especially money managers at big firms need to be paid, and paid based on performance, I’m sorry – but when your company, and your job, have basically been bought by the American tax payer, you’ve got a lot of accountability to stand up to. You’ve got to be very careful how you spend your money, and you’ve got to change your corporate culture to adhere to more prudent spending. And, above all, you’ve got to be honest with the people who “bought” your job. Unfortunately AIG has done none of this.
On Tuesday November 25th, AIG made an announcement that executives would not be receiving bonuses for 2008. They played a pretty song, claiming they would bypass bonuses because of the U.S. lead bailout.
“Chief Executive Edward Liddy will receive $1 in salary this year and next, and there will be no 2008 bonuses for the company’s seven most senior executives, the troubled insurance conglomerate said on Tuesday.” – reuters.
Interestingly enough, on the day before Thanksgiving, Bloomberg found that AIG reported it would in fact be giving “cash awards” to 130 of its managers.
American International Group Inc., the insurer that said yesterday it scrapped bonuses for top executives after a U.S. bailout, will still pay 130 managers ‘cash awards’ to stay with the firm, including $3 million to retirement services chief Jay Wintrob.
Wintrob, 51, will get the “retention” payment in two installments, the first in April 2009 and the rest a year later, New York-based AIG said today in a regulatory filing. The firm previously disclosed the program in a Sept. 26 filing and said today that Wintrob and Chief Financial Officer David Herzog elected to get the payments four months later than planned.
‘The expectation from the public and Congress was that they weren’t getting bonuses, not that they’d be pushed off by several months,’ said David Schmidt, a consultant at executive pay firm James F. Reda & Associates. ‘That clearly violates the spirit of AIG saying they’ll forgo their bonuses.’ – Bloomberg.
Now, AIG chose to announce this the day before Thanksgiving, the day before a 4 day weekend for most, markets closed Thanksgiving day, obviously hoping this announcement might fly under the radar.
For executives who are lucky to have their jobs in the first place, this is not what I might hope from a troubled insurance firm. First, just be honest and open about your spending and your pay cuts. People will find out, transparency is the only possible policy. Second – take a hint. This isn’t the late 90’s. People are losing their homes, portfolios have plummeted, and workers have lost their jobs. The economy is in a crisis, can you not afford to forgo some of your $3 million dollar bonuses to help those who are actually paying for that bonus?
A Closer Look at the History of Foreclosures
Photo by respres
It doesn’t take long, usually a 5-minute walk in your neighborhood will do, to see that the foreclosure bug is reaching and infecting people everywhere. Last year there were 1.3 million homes receiving foreclosure-related notices.
Foreclosure: “the process by which a promise to repay a loan or debt secured by a deed of trust is enforced against real property. At the conclusion of foreclosure proceedings, the real property is sold to repay the debt or loan at a public auction called a foreclosure or trustee’s sale.” – www.consumer-action.org
The word “foreclosure”, and it’s meaning are becoming much more colloquial these days, and I thought it might be interesting to do a little research and find out when they started, if they have been as bad as they are now, and what lesson’s could be learned from looking at the history of foreclosures.
The first occurrence of mass foreclosures I could find was during the first major American depression or “Panic” of 1819. It was largely due to the rippling economic effects of the war of 1812. Because of falling prices in cotton, banks were forced to tighten their credit, and this resulted in farms going into foreclosure.
Foreclosures also surged during the second largest American depression, which happened in 1837. Again sparked by cotton prices. The rapid speculation of land, and problems associated with a variety of currencies in circulation, caused a number of New York brokerage firms to fail. Also causing at least one bank president to commit suicide, and real estate prices to crumble.
During the Great Depression of the 1930’s, large portions of foreclosures were farms. 1000’s of farmers could no longer pay their bills because of lower demand on food and lower profits. But foreclosures were also hitting the average American home – some estimates say that nearly half of all U.S. urban home mortgages where delinquent as of January 1st, 1934.
Today (as of December 2007), the foreclosure rate had hit 2.2 million (up 75% from 2006). This is a staggering number, but looking back at the history of foreclosures, and seeing the tremendous downfall, and valleys of the U.S. Economy gives me hope that our current foreclosure crises really isn’t that bad. Time will only tell when this economic crises will start to rebound, and although it helps to look at the history of foreclosures, it does seem to hit home when I walk around the neighborhood and see so many fore-sale signs.
The Real Repercussions of a Failed Auto Industry
Ever wonder what would really happen if GM or Ford went out of business? All the talk recently of the government bailing out the American auto industry has just gotten me more frustrated with our government and it’s bailouts. What happened to good ol’ fashioned business? Where you had to make money to succeed, and if you didn’t you failed, and had to do something else. Lately, as the government has rescued business after business, it just makes me wonder how free is our market? I’ve thought, wow, I should work for Ford, or Fannie Mae or AIG, because apparently those jobs are government backed – pretty sweet.
So I decided to do a little research, and figure out what would really be the repercussions of a failed auto industry, to find out if it was really that bad. Let’s look at hypothetical scenario in which GM (the largest automaker at risk) declared bankruptcy and went out of business.
- Job Loss: First, GM would have to layoff almost all of their work force. In addition to those lost jobs, all the smaller companies that feed off the car manufacturer would also be in jeopardy. The Center for Automotive Research estimates that combined, this could be a loss of 2.5 million jobs.
- Unemployment Rate Rises: Last month, the unemployment rate rose to 6.5% adding 240,000 lost jobs to the U.S. Census, which was the highest it’s been since 1991. Compare that with a potential 2.5 million jobs lost if just GM where to go out of business.
- Economy Shrinks: The trickle down effect of having so many jobs lost is pretty large. Almost every facet of American economy would feel the hit. Because less people have jobs, and hence money to spend, there would be:
- Increased closings of small and mid-sized business. Pretty much all the small auto repair shops, car dealerships, and car part stores would feel a massive hit, and probably if not completely go out of business, have to cut down drastically.
- Increased Foreclosures, because more people would have lost their jobs, and their ability to pay their mortgage, there would be even more foreclosures and bank owned properties, which would drive the already dwindling real estate market down.
- Less money collected on income taxes, and property taxes. With less money going back into the economy, there would be less money going towards taxes. That means less revenue for the government, increased national and state debt, and less money for public services like police, firemen, teachers, etc.
So whether you’re for or against the auto industry bailout, one thing is for sure, the effects would be dire. What’s your opinion? Should the government step in and save the auto industry, or let the free market have it’s way? Let us know in the comments.
European Union Officially In Recession, Is The U.S. Next?
Today, the Wall Street Journal reported that the European Union is officially in recession. The EU, which makes up 15 countries in Europe, just completed their 2nd straight quarter of GDP decline, which officially puts them in a recession under the economic definition. This is the first time that the currency area of the euro-zone had two consecutive contracting outputs sense it began in 1999.
Specifically, Ireland, Germany, and Italy, some of the largest EU members have fallen into recession. The news could spark increased interest rate cuts, and could even affect the US.
Since the US and Europe are so heavily linked in the western world, and some might argue that the credit crunch in the US is much stronger than that in Europe, it would be hard to see how this couldn’t be a precursor to what’s to come in the US.
European politicians had insisted the currency area would be relatively unaffected by the credit crunch, which they saw as chiefly a U.S. problem. However, the euro zone has preceded the U.S. in entering a recession.
So far, the response of the European governments has not been as substantial as the US or Chinese, and hopefully that has been enough to fight off what has happened to our friends on the other side of the Atlantic.