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Category: Economics / Money / Investing (Page 8 of 9)

Economics, Money, and Investing.

KBR (Kellogg Brown & Root) Scandal

It has come to light that KBR (formerly Kellogg Brown & Root) avoided paying hundreds of millions of dollars in Medicare and Social Security taxes by setting up shell companies in the Cayman Islands. KBR is the nation’s top Iraq war contractor and until last year was a subsidiary of Dick Cheney’s old company, Halliburton. The plot of greed and corruption gets thicker and thicker with this administration doesn’t it? I wonder if the feds will bother to prosecute KBR or maybe the right officials and judges can be bought off to just just sweep it under the rug, along with everything else.

You can read more about it here in this Boston Globe article:

Top Iraq Contractor Skirts US Taxes Offshore

Slow Motion Train Wreck

Inflation has been underway for quite a while already. Anyone who shops for food over the past two years can see it. Finally, it has become bad enough that the official government agencies that calculate inflation can no longer “alter the basket” and fudge the numbers to cover it up. With prices skyrocketing all around us, everyone can see it.

So what now? I expect that we are seeing just the tip of the iceberg and it’s going to get a lot worse. The magnitude of the problem is enormous. The U.S. has spent way beyond its means on borrowed money. We have lost most of our export industries to other countries. The hole that the U.S. has dug for itself is very deep and it will be a long time before we can dig back out. We no longer have the ultra-high powered economy we had coming out of WW II, capable of manufacturing anything and everything in any quantity almost immediately. I remember a quote from a British physicist who worked on the Manhattan Project when they asked him what was the main difference between working in England and working at Los Alamos. He said, in England I could order a box of pencils and it would take three months to arrive; here I can order a cyclotron and it arrives in three days. This is the economic and industrial muscle that powered us through the 50’s and 60’s. The world had never seen anything like the United States. But times have changed.

Fed Chairman Bernanke is discovering that his position no longer has the power it used to have. Years ago, back when the United States was the 800 pound gorilla of world economics, the fed chairman could make a slight adjustment and all the economies of the world would respond. Today, you can see this is no longer true. The fed can make radical changes in interest rates and nothing happens, even in the United States, much less the world. The president wants to stimulate the economy with a $100 billion in tax rebates–well, over Christmas Week, the feds and other world banks flushed $550 billion into the capital markets and, you guessed it, nothing happened! $100 billion will do basically nothing in this situation. The U.S. economic system is maxed out and we can no longer manipulate the world’s economies to our advantage because we are no longer the 800 pound gorilla. China and India have trillions of dollars of capital to spend and invest as they please. They have been investing it in the U.S., but when the U.S. ceases to be a good place to invest, all that cash we’ve been spending will dry up. We don’t have trillions in cash to spend, we are in debt. For years, and especially during the Bush administration, the U.S. has been behaving like a rich teenager with his parent’s credit card. Those days are coming to an abrupt end. For years I’ve been wondering just how long the U.S. could keep up the drunken party spending spree. I think I shall soon know the answer.

What we are witnessing is what people have warned about for 30 years. Spending beyond our means on borrowed money and based on the good will and strength of the almighty dollar eventually must come to an end. The crash will be long and deep for the following reasons: It will be deep because we are so vastly overstretched and overextended. It will be of long duration because we no longer export much, we don’t make steel, we don’t make vehicles, almost no heavy industry, we have nothing much to export, we have a “service economy”, so we can’t earn the cash to dig ourselves out of the hole. We are witnessing a slow-motion train wreck and there’s nothing that can stop it. Unemployment is skyrocketing, the recession is accelerating, Bernanke is making radical interest rate cuts and all that’s happening is he’s debasing the currency, but the economy is not responding.

What can individuals do? Not much. Those who have not prepared starting three or four years ago to get out of dollars and into hard assets are pretty much out of luck. If hyper-inflation sets in then $900 gold will seem cheap, but who’s to say exactly what will happen? A lot of it depends on how the other economies of the world treat the U.S. once we fall over the edge and into the hole. The fact that a lot of countries don’t like us and don’t trust us is not going to help when our economy becomes a charity case. If someone has a crystal ball maybe they can leave a comment to this post and let us know whats going to happen. This will likely play out over a long period of time. What do you think? Anyone out there have a crystal ball?

A College Education is Not for Everybody

The education system in the U.S. applies a one-size-fits-all approach. Everyone is expected to to do K-12 and go on to college. This is what kids are told from first grade on and they are told “everyone can and should get a college education”. K-12 education is aimed solely at college prep and I submit that this whole approach is wrong and at the root of many social problems in this country. At some point in the early 20th century, Americans got the idea that everyone’s goal should be college. This is misguided and ends up harming a large percentage of kids, leaving many of them at age 18 with a diploma in their hands, no marketable skills, and the sense that they are a failure. Since kids are told all along that college is the way to go for everybody, the ones who don’t make it feel like failures because they didn’t make it to college “like everyone is supposed to”. These kids’ self-esteem is accordingly low.

Kids who don’t make it to college are often condemned to an unfulfilling life of relative poverty and dependence, working at a worthless job that provides no satisfaction or sense of achievement–the stereotypical hamburger flipper. If they have kids of their own they can’t survive without food stamps because the unskilled jobs they can get, assuming they can get a job at all, pay poverty level wages. For some, upward mobility consists of getting into a life of crime, selling drugs, or other activity that brings in a decent amount of income and such alternatives don’t appear so bad “because they are a failure or a dropout anyway”. None of this should happen. The concept that everyone needs to go to college is nonsense–a pipe-dream conjured up by educators with little sense of reality or human nature. The problem I describe would not happen if the educational system took into account the reality that not everyone needs a college education nor is everyone suited for a college education. What everyone needs is a good job and the self-respect that comes from having and performing a good job. For some this means college, for others it definitely does not.

My suggestion is to copy the European educational system. At 12 or 13 years of age, kids are given an aptitude test. If they pass the test, they proceed to Hochschule and Universität (high school and university). If they don’t pass they go to a trade school, and trade school in Europe is nothing like trade school in the United States. It is interesting, engaging, challenging, and fulfilling. Most of the training takes place in industry and small business, not in a school. Almost all of the kids’ schooling takes place in a real work environment so when they graduate they really do know their trade and usually get hired by the company that trained them. What’s more, they get paid in the process. This is how it worked in Germany in the 60’s and 70’s when I was there, and again in the 90’s when I was there. Germany and Austria are still running the same system today.

Out of such a system there are no “dropouts”. You don’t end up with high school graduates who still know nothing, and more importantly, have no skills at all. I have met 35 year old men (white guys) in the United States who deal drugs and constantly get into trouble, and in talking to them I learn that they have a diploma but no skills whatsoever, have never actually done anything productive in their lives, have never built or made anything. Some have never even used a screwdriver or a power tool–nothing. Their self-esteem is zero. They readily admit that they are useless and only know how to steal and deal. There’s something extremely wrong with an education system that turns out people like that. And these are men who had opportunity, not poor “ghetto kids”. Imagine how it is for a ghetto kid, raised by parents who are just as I describe above, who live on public assistance and who are surrounded by friends and family who are the same. How is a kid like that to even know of a better way unless the educational system provides it to him or her? Our “ghetto kid” is likely going to drop out of high school, and even if he or she graduates will likely not make it to college, and will be in the situation I described earlier.

Yes, I know that the German / Austrian school regime would never fly in the U.S. The political correctness people would raise holy heck about it being discriminatory. Let’s see if that’s so. The fact is that not everybody is university material. You can’t push everybody through the same mold of a high school education that is aimed at college prep. Some of us are bricklayers, stonemasons, carpenters, dental technicians, mechanics, artisans, musicians, plumbers, electricians, etc. Not everybody is cut out to be a physicist.

The way that you educate for those trades is to involve and obligate small businesses. Of course, it goes without saying that the rules and requirements on the small businesses who teach are very strict, they are closely monitored, and they have no choice. All businesses above a certain fairly small size, like ten employees, must take on apprentices for training. It’s part of the cost of doing business in Germany and Austria. From what I’ve seen of this system, up close and personal, it works great. I have seen it, talked with business owners about it, and I’ve talked with and sometimes worked alongside the kids in training. (I speak German) I know it works and it’s been working for 100 years. This is not an unproven idea that I cooked up with my academician friends, it’s a tried and proven system that could be studied and imitated in the United States.

But like I said, I’m sure U.S. educators will rail at my suggestion here, calling it discriminatory. Meanwhile, our present system that is supposedly non-discriminatory continues to turn out legions of high school “graduates” that can’t read above a fourth grade level, can’t find their own country on a map of the world, and have no marketable skills. So much for an American’s “right to an education”. I submit that our present education system does discriminate. It discriminates against those who are not college material and leaves them at age 18 with nothing useful.

Tele-Snooping Workers

http://news.yahoo.com/s/ap/20080223/ap_on_hi_te/snooping_workers

As always, the human element will foul up the best laid plans for implementing security. Quite a large percentage of people will bend rules for personal reasons because it’s “important” (to them). They will also bend rules for money. Ever wonder how private investigators and data aggregators can get their hands on personal information so easily? Of course it’s illegal but that doesn’t stop anyone.

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