The First Cut is the Deepest?

That may be the case for many, but it is not true of the President's plan to have his cabinet cut a total $100 million dollars in spending. I can't help but recall a scene from Austin Powers when Dr. Evil declares a $1 million ransom from world leaders. Likely for Dr. Evil, he was corrected by Number 2 and upped his ransom request to a properly adjusted for inflation $100 billion dollars. Too bad someone like Number 2 wasn't on hand for today's cabinet meeting. According to The Wall Street Journal story "Obama Tells Cabinet to Trim Spending," The White House heralded recent reductions in travel and paper flow as examples of spending cuts.

While these cuts may be good intentioned, they pale in comparison to the enormous size of this year's fiscal spending. According to House Minority Leader John Boehner, the $100 million dollar cut represents .0025% of the expected $4 trillion in total government spending for 2009. Just the interest on our current national debt amounts to 1.2 billion a day. Mr. Obama was quoted as saying, "A hundred million there, a hundred million here, pretty soon even in Washington, it adds up to real money." Too bad our nation's leaders seem blind to the magic of compound interest that keeps adding on to the nation's debt which as of April 17th is 11,185,715,978,983.38 and counting.

More Bad News for Las Vegas

The recent news regarding commercial property in Las Vegas is bleak at best. The Las Vegas Sun article titled, "Las Vegas braces for commercial foreclosures" exposes how the decline in the Las Vegas economy is beginning to be reflected in an increase in the number of defaults on commercial real estate loans. Before 2007, Las Vegas was a boom town with a variety of new commercial properties. New strip malls, office buildings and industrial space sprang up to support the appetite of the growing southwestern city. However, the rising tide of unemployment and business failures is putting these commercial properties on shaky ground. According to New York-based Real Capital Analytics’ senior analyst Jessica Ruderman, the value of the troubled commercial loans is now $6.4 billion is figure is up from $4.7 billion in early 2008. The $6.4 billion reflects 26 percent of the Las Vegas commercial market is either in default or foreclosure.

Many fear that the number of commercial defaults seen in Las Vegas is not just an anomaly unique to the entertainment capital of the world. The Wall Street Journal has reported that as many as 700 banks could fail because of a combined exposure of up to $250 billion in potential commercial real estate losses. If this report becomes reality commercial properties around the country will look like ghost towns and we will more than likely see yet another government sponsored bank bailout.

At Our Mercy?

The New York Times article titled, "China Slows Purchases of U.S. and Other Bonds" shows how the Chinese government has been managing their foreign currency reserves. Data released by China's central bank show that the Chinese government actually sold their holdings of US Treasuries during the first two months of the year. This trend was reversed in March when the Chinese appear to have started to once again buy foreign securities. It is thought that increased confidence in the Chinese economy may be the reason for the reversal but there could be another reason.

In the months preceding March, Chinese officials had been highly critical of the U.S. economic policies that included huge amounts of government spending. The Chinese are worried that the increase in spending along with the Fed printing money has the potential to bring on inflation which would dilute the value of their U.S. reserves. The Chinese find themselves in a precarious position. They have a vested interest in U.S. economic success. For now it would appear that the U.S. economy has become too big for the Chinese to allow it to fail.

Sit Down and Shut Up

According to an article on Bloomberg.com titled, "Fed Said to Order Banks to Stay Mum on ‘Stress Test’ Results" the U.S. Federal Reserve has instructed banks to keep the results of their recent financial evaluations to themselves. Treasury Secretary, Geithner considers the banks' stress tests to be like physical examinations administered by doctors to patients. The hope is that the tests will help the administration evaluate the symptoms of financial instability that may exist in the nation's 19 largest banks and decide how to treat them.

While it is important to obtain knowledge and information to properly dissect a problem, publicly traded financial institutions must be transparent. Apparently, the Fed does not want the release of the results to influence the outcome of this month's earnings season. It would seem the much heralded concept of "full disclosure" is now subject to the whim of government.

Nation of Savers?

Who knew that the American consumer was actually capable of saving? Data from the Federal Reserve that is cited in The Wall Street Journal story titled, "U.S. Consumer Credit Drops by $7.5 Billion" shows that revolving debt which is mostly associated with credit cards dropped in February by 9.7%. However, it is important to consider why people are saving. It would appear that there is a correlation between the loss of jobs and the lessening of debt. As people fear that they may lose their jobs they are reluctant of over extend themselves.

Interestingly, this decrease in revolving debt appears to be more than a short term blip. Fourth quarter data on U.S. household debt showed a 2% annual rate decrease. This after the third quarter showed a marginal increase of 0.2%. As unemployment increases, it is likely that consumers will continue to save. Likewise as consumers retreat, business will slow their production. It is interesting that saving, the one attribute that many have said the American public lacked the most, may now lead to the further decline of our economy.

Shipwrecked

According to a recent New York Times article titled, "Boats Too Costly to Keep Are Littering Coastlines", it would appear that the current economic woes are having an impact on areas of the U.S. coastline. Many coastal areas are finding boat owners are deliberately abandoning their boats because they can no longer afford the costly nature of boating. In response to the increasing number of derelict boats, some states are working on writing laws to make owners who abandon their boats be handle responsible. Maj. Paul R. Quellette of the Florida and Wildlife Conservation Commission summed it up in saying, “Our waters have become dumping grounds. It’s got to the point where something has to be done.”

One option that some boat owners have used to get from out from under the expense of their depreciating boat is to make the sinking of their vessel look like an accident. This enables the owner to escape the payments on a vessel they are hopelessly upside down on. A San Diego insurance investigator noted that his caseload has nearly tripled in the past year. These abandoned vessels are a poignant symbol of our shipwrecked economy.

Say Domestic Cheese

A recent article in The Wall Street Journal titled, "Looming Tariffs Whet Appetite for Delicacies" illustrates the unintended consequences that occur when governments put tariffs on certain imports. The most obvious outcome is that the prices of the import increase dramatically. The upcoming tariff rates on most E.U. produced delicacies are slated to increase by 100%. While tariffs hurt imports, they can provide domestic companies will an opportunity to gain some market share. However, this approach restricts a free market. In a free market, the consumer is the ultimate judge of whether or not a product deserves to compete in the marketplace.

As the article indicates, the basis for this mini trade battle between the U.S. and the E.U. is a disagreement over an E.U. ban on hormone treated beef. Would not a better approach be for the consumers in the E.U. to be given the choice between purchasing beef with hormones versus beef without hormones? Until some sort compromise is reached, it looks as though Roquefort cheese lovers living in the U.S. better look for a domestic alternative or pay the price.