I have written frequently on economics. Both on the theoretical and the practical. Occasionally I feel compelled to repeat myself. This is, primarily, because I read so much that is written by those that have no understanding of their subject.
The situation in Cyprus is what brings me to this point. They have gone that one bridge too far on the road of tax and spend. They are desperate. When governments get desperate, in most cases, the citizens suffer most. In this case though, while the citizens will suffer, there will be Russian oligarchs that suffer even more. When these ultra-rich Russians accumulate cash, they like to put it in foreign banks for obvious reasons. In this case, those obvious reasons bit them in the butt.
So, in a way, that was kind of a smart decision for Cyprus. It will probably insure their membership in the European Union. At least for a while. Of course, they will have to change their way of living or they will be right back in the mess where they started. That probably means more riots and destruction. So all is really not well in beautiful downtown Cyprus.
Meanwhile back in other European countries, they see what Cyprus is doing and this gives them pause for thought. At the same time, I assume, that those with savings in Spanish and Portuguese banks, for example, are making, shall we say, alternate arrangements.
I admit that I have even considered this possibility for the USA. I know that we have FDIC that insures our deposits and the fourth amendment to protect us against unreasonable search and seizure. But with the way things are going, I can't help but be a little nervous. After all FDIC is a government agency. And who gets to define unreasonable? But I really think the United States is safe. At least for now.
The point that I set out to make is about all the noise in the press about how great the stock market is doing. It's going up like a sky rocket. The economy is back and humming. Right? Not just no, but hell no.
Europe is in financial turmoil. It will be for some time. They do not alter the course of the "ship of state" handily over there. Also, I don't feel a lot of love either to or from Asia in the investment arena. So lets look at the good old USA. The companies on the stock exchange are generally stable. They are sitting on piles of cash because they are afraid to invest in new equipment or expand their work force. As a matter of fact, they have cut back on operations and personnel. They are running lean, mean, and profitable even in a tough economy. That is called management. American business has some very good management.
So if you are sitting out there clutching a bunch of cash in your hot little hand, what are you going to do with it? Bank interest rates are so low you might as well keep it under your mattress. Property is always sound. Of course, you might have to wait a couple of decades to make a profit on it. So American equities would appear to be the logical solution.
The stock market, however, is the only factor in the economy that is doing well. Economic growth is bouncing along the bottom with no real upward push. There are fewer Americans employed than since the early eighties. Taxes are up and inertia is down. Energy is trapped in the ground and we have an administration that is proud of that fact. If it weren't for private land we would really be hurting.
These things can be fixed. That's what elections are for. But for now don't go believing those glowing reports. That glow is from the last piece of coal that is crumbling to ash.
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