Effects of Debt

                    

In 2003, a report by the Federal Reserve calculated the effects of government debt and its impact on long-term interest rates. It was done before the current weak economic “:recovery” and the efforts of the Administration. The report concluded: "A percentage point increase in the projected deficit-to- GDP ratio raises the 10-year bond rate expected to prevail five years into the future by 20 to 40 basis points. Similarly, a percentage point increase in the projected debt-to-GDP ratio raises future interest rates by about 4 to 5 basis points."

                       

In other words, the effect of inflation in the form of higher interest costs. A fact that still rules today.

                       

Inflation induced by heavy deficits does not arise rapidly during a recession, but it jump-starts once recovery gets going. Then it quickly gets out of hand.

                       

All the theory economists use as remedies get stymied by politicians who know the medicine will cause economic

belt-tightening. Those remedies will be over- ruled by political considerations. (See the Earl J. Weinreb NewsHole® comments and @BusinessNewshole at Twitter.)

The Wisdom of Crowds Theory

              

The assumption that the masses can be correct may arise from a theory that there is a certain wisdom in crowd thought. There has been some limited research on this to explain how a form of futures market can explain, for example, how the public could predict future election winners.

                       

Practical results from the use of such theory has been non- existent. No real futures market has ever resulted from past attempts to implement such theories.

                                       

The problem: If crowds were prescient, there would be no booms and busts and no economic manias as have existed over past centuries. All securities markets would then be predictable. On the contrary, evidence over the years suggests the opposite; crowds are invariably wrong. (See the Earl J. Weinreb NewsHole® comments and @BusinessNewshole at Twitter.)

Justice for Alleged Business Criminals

                    

I have maintained for some time that businessmen have a terrible time getting justice when both juries and judges have little understanding of business, just the anti-business sentiment they get from political cant.

                       

A further indication of this problem: A study by professors Lucian Dervan and Vanessa Edkins at the Florida Institute of Technology, and reported in the Wall Street Journal, indicates another issue bearing on such injustice.

                       

The innocent often plead guilty before trial because they feel the odds are stacked against them. And in pleading guilty they avoid a stiffer sentence from an erring judge and jury. (See the Earl J. Weinreb NewsHole® comments.)

Mutual Funds Cannot Manage Corporations

                    

Why should mutual fund managers and other institutional investors intimately direct corporate management of the companies in which they invest? That function is far different from their job of selecting securities. They have little time or the ability to attempt to get too close to be involved.

                       

I know that the job of an investment manager is to pick good corporate management. But that can be superficial at best. To truly evaluate what is good or what is bad management takes lots of on-the-site inspection and knowledge for which fund managers are not equipped. They may say they have that ability, but that would be mostly conjecture.

                       

Yet, there is a constant clamor from such groups, usually with little business acumen, who insist, that institutional investors, including mutual fund managers, micro manage each and every investment they make.

                       

Another reason I suggest investment in funds that track indexes. (See the Earl J. Weinreb NewsHole® comments and @BusinessNewshole at Twitter.)

State Budget Time Bombs

                                 

The reason state budgets are so out of hand can be attributed primarily to their unionized pension obligations. It is estimated this is a major, ticking financial time bomb, waiting for more government bailouts under various guises.  (See the Earl J. Weinreb NewsHole® comments and @BusinessNewshole at Twitter.)   

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Government “Stimulus” Usage

         

Funds removed from one pocket and placed into another pocket of your pants, is the same money. The amount is the same, no matter what pocket it comes from.

           

In the same way, money can be substituted from one pocket of government to the other, to hide the source of funding. It adds up to the same total outlay.

           

What the government in Washington called stimulus funds, for the most part, became slush funds. for use by its politically- preferred state governments. These states used the money, to a great extent, to help balance their own budget deficits.

Taxpayers who cannot recognize stimulus sleight of hand are thereby taken as suckers.(See the Earl J. Weinreb NewsHole® comments and @BusinessNewshole at Twitter.)

Unemployment and Job Training

    

When I was a principal in a major American/Canadian employee- contracting firm, during relatively poor economic cycles, we were asked to not only provide groups of employees for projects, but were also asked to train them.

           

So I’m amused by the media and political comments regarding unemployment. They always take for granted huge outlays of government training funds.

           

Furthermore, the media and politicians never tell you the government efforts generally fail. Yet, I know the job can be accomplished. Yes, even these days. when high school and so- called college graduates have problems answering the phone with some common sense. (See the Earl J. Weinreb NewsHole® comments and @BusinessNewshole at Twitter.)