Budget Cuts Conundrum

G-d Over Money.jpeg

So I’m hearing two opposing themes about the proposed federal budget cuts:


1) It’s horrible because we are cutting into the bone and this is going to really hurt a lot of important government programs.


2) It’s great because we have been spending money that we don’t really have, and we need to finally reign it in. 


Let’s face it, we’ll never get such drastic cuts across the civilian government unless this country goes into severe crisis mode–which never happens until it’s too late and something terrible has happened. 


If we even got half the cuts being proposed–which most people don’t seem to believe will even happen–that would be significant and painful itself. 


The truth of the matter is that we are facing enormous danger on both the national security and financial fronts!


– Militarily–Russia, China, Iran, North Korea pose huge threats including those involving weapons of mass destruction. 


– Financially–We have a serious national debt to the tune of $20 trillion, an annual trade deficit of half a trillion dollars, and social security and medicare trust funds that are going bankrupt. 


If we let these threats run their course, we will eventually have a crisis that will be truly nationally catastrophic. 


So what’s it gonna be–guns or butter–or national bankruptcy. 😉


(Source Photo: Andy Blumenthal)

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Bombs But No Strategy

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So the good news is that we have killed about 45,000 ISIS terrorist fighters.


The bad news is two-fold:


First, there are still roughly 15,000-30,000 remaining and more being recruited all the time. 


Second, it took us 49,315 bombs dropped over two years to do this. 


So we are averaging less than 1 kill per bomb!


Sure, we are also hitting other targets like oil and gas infrastructure and tankers.


But about 20,000 of the munitions dropped are GPS precision-guided (e..g Joint Direct Attack Munitions, Small Diameter Bombs, and Hellfire Missiles) and have cost $2 billion!


That comes out to a cost of around $45,000 just for just 40% the bombs to kill each and every ISIS terrorist, and doesn’t even include all the extensive military infrastructure, planes, intelligence, and people. 


And this is just a super tiny drop in the bucket compared to the $4-$6 trillion that the wars in Iraq and Afghanistan, after 9/11, has cost just through 2013


–That represents between 20-30% of our our entire $20 trillion national debt!


At this rate, ISIS, Al Qaeda, and the other terrorists may simply be able to cause irreparable damage and even bankrupt America.


How long can we afford to fight these extended and expensive wars against terrorism and never seem to even win–what’s the strategy here? Is there one? 


(Source Photo: here with attribution to vaXzine)

Economics, Pendulum Style

Economics, Pendulum Style

To combat the recession of 2007, the Federal Reserve initiated an aggressive policy of Quantitative Easing–purchasing federal debt en masse to flood demand for Treasuries and lower interest rates to near zero to stimulate the economy.

As of June 2013 the Feds balance sheet has swelled to over $3.4 trillion in assets of treasury debt. What happens when the Treasury has to repay those trillions?

Who is the Treasury going to borrow that money from and at what interest rate?

Just like raising demand for Treasuries lowered interest rates, increasing the supply of Treasury debt to pay back the Federal Reserve will make interest rates go way up the other way.

Rising interest rates makes borrowing more expensive–e.g. buying a car with an auto loan is more expensive, buying a home with a mortgage is more expensive–and inflation can skyrocket.

But what is worse is that despite the recent slowing of the growth of the national debt, many economists calculate the total US debt at a whopping $70 trillion when you include the host of unfunded liabilities including social entitlements such as Social Security, Medicare, Medicaid, as well as government loan guarantees (mortgage, student loan, etc,), deposit insurance (i.e. FDIC(, and the money owed to the Federal Reserve.

What is really sad about this is that the entire wealth of American families in this country is guess what–also $70 trillion–which means that we are essentially a bankrupt nation:

Family assets of $70 trillion – Family liabilities of $70 trillion = a big fat 0 in the kitty!

To pay back the $70 trillion, it is not realistic that we will simply “grow our way out” of this fiscal mess with a GDP growth rate over the last 20 years of a mere 2.6%. Also, we will likely not confiscate people’s assets to pay off the debt, rather we will print money–lots of it–so that we end up paying back the trillions of past debt in much devalued future money.

Heads we win, tails you lose!

The problem is that devaluing the dollar will mean that American family savings will become worth less as well–with the risk, at the extreme, of wiping out mass amounts of savings altogether.

Despite sequestration reducing the rate of our debt growth, the aging baby boomers with the resulting liabilities for their care will soon escalate the debt problem once again.

David Walker, a former U.S. Comptroller has warned about our national debt problem as well as many prominent economists.

Like a pendulum swinging from one extreme to the other, the spendthrift ways of the past will by necessity lead to penny-pinching in the future, and inflation rates of near zero since 2007 will lead to hyperinflation after 2014.

It reminds me of the story of Joseph in the Bible, with the 7 lean years follow the 7 fat years (in Egypt that time)–this is not just providence, but common sense economics.

Good times will come again when there is a return to the mean and the pendulum hovers near center, but the swings until then can be wide and scary.

Of course, like taking your medicine, the earlier we start to course-correct our nation’s finances, the sooner we get healthy again. 😉

(Source Photo: here with attribution to zzz zzz)

Sears Couldn’t Sell An Appliance Let Alone A Rolex

Sears Couldn't Sell An Appliance Let Alone A Rolex

So I was amazed at the depths to which Sears will go to try to save their horrible brand.

The Wall Street Journal (21 July 2013) described how Sears online has started a marketplace where they are now hosting the selling of high-end goods at their low-end department store site.

Sears which normally sells kitchen appliances, tools, and crappy clothing is now trying to market $33,000 Rolex watches and $4,400 Chanel handbags.

Good luck to that after their failed 2005 merger of Sears and Kmart–as if combining two lousy companies make one good one.

Since 2005, the company revenue has steadily declined about 25% from $53 billion to $39.9 billion and they lost $4 billion in 2011-2012. Yeah, that today’s Sears!

My own horrible experience with Sears:

I went online to order a range, and Sears botched the order over and over again and kept me holding endlessly throughout the miserable process and at each stage asking for my feedback and apparently doing nothing with it.

Problem #1: It started out pretty simply–I asked for some guidance comparing a couple of models, chose one, and they entered my order. However, when I looked over the order, they had entered the incorrect delivery date–when I wasn’t available. So I contacted Sears back to correct the mistake, but they couldn’t get their system to reflect the correct date–it would only show the original incorrect date–and this is a multi-billion dollar company? But I shut an eye when a supervisor finally assures me that it will arrive on the correct date.

Problem #2: The next day or so, I get a call from a Sears customer service representative who asks me whether I am the Andy located in XYZ (some G-d forsaken location)–ah, no! Well, they explain that’s where they have my order shipping to. They can’t explain how that happened, but promise Sears will fix it.

Problem #3: This time, I get a call from the Sear’s installation company. They are demanding that they will not come out to do the install unless I pay them a required inspection fee. But I explain that my order from Sear expressly states that shipping and installation are FREE. Sorry, they tell me free is not free, and if I have a problem, here’s a number to their national whatever line.

Three strikes, Sears is out–I contact them to review what had happened and to cancel this order. They refuse to cancel it–again, I think to myself this is a multi-billion dollar company? Over and over again this goes on, until finally they agree to cancel the order and refund my money.

All this nonsense literally wasted hours of my time.

Sears is no longer that brilliant mail order catalog of the early 20th century; now they are a dumpster diving junk company trying to sell brand stuff, but they are laggards to the brilliant Amazon and eBay retailers–and soon Sears will be out of business headed to the big retail trash bin of history.

The Rolex watches and Chanel bags are just another Sears circus sideshow. 😉

(Source Photo: Andy Blumenthal)

An Immigrant’s Message

It was interesting getting out of Washington D.C. this week and talking to people outside the Capital about what they were thinking.
During Presidential campaigns and debates, I always hear the candidates say, “And let me tell me about (whoever) that I met from (wherever) and they told me (whatever).”Usually, when I hear these anecdotes, I wonder what the real meaning of these are, given that they are hand-selected by the candidates to prove their points of view.So I tried it myself in Florida this week to see what people where thinking about Washington and our national predicament—I asked, “What do you think?”Well let me start by saying that I didn’t talk to as many people as a presidential candidate does—that’s for sure—but I also wasn’t looking a tag line for my next rally or speech.

So here are a few things I heard from everyday people, most of them immigrants or children of immigrants.

One person I spoke to was from Haiti and had settled in Florida.  So I asked what his concerns were.  He told me about the suffering back in Haiti after the earthquake in 2010 and how so little (relatively-speaking) had been rebuilt.  So far, I wasn’t really shocked at anything he said.  But then he went on to tell me how people in the Haitian community believed that the cause of the catastrophe was (no, not mother nature, but rather) that the U.S. government was testing new weapons in the Caribbean (from underwater submarines) and that this (accidentally) triggered the devastating earthquake in Haiti.

I asked what made them think this, and he told me how the people back in Haiti had witnessed U.S. response efforts and how zones were “mysteriously closed off” and the event was handled in tremendous stealth.  I asked was it just him whom thought this?  And he told me that this was a widely held belief by the people there.

Well, this was not like anything I had heard in the any of the candidate speeches during the election.  Maybe this guy was just an oddball, crazy, and telling wives tales about the going-ons in the Beltway, and everyone else was just feeling rosy.

So I spoke to someone else, a cabdriver from Romania living here for nearly 30 years – old enough to remember his country of birth but experienced enough to compare life there and here. He told me that he felt the people in Washington D.C. did not really care about him or others in the country. I asked what he meant by that.  He questioned our leaders of many decades (with the exception of two in the last 40 years—which I won’t name to protect the others), and he said that the others are basically just in it for themselves.

With regards to the “fiscal cliff,” he said, “No one is willing to make the real decisions that the country needs.”  He went on to add, “Unfortunately, politics has become just a profession.” Moreover, he said that “People aren’t even thinking short-term [let alone long-term], they’re just not thinking at all!”

This immigrant said he was worried generally about the future of the country and warned of what he believed was civil unrest to come, because he felt nobody was really dealing with our serious financial problems. He said that he had lived through a thousand-percent inflation back in his home country, literally, and that he felt we were going down the same road. Matter-of-factly he said, “Washington has bankrupted this country.”

Again, this was very different from the spin on most of the news shows these days, where the real estate recovery (however slight), consumer confidence (rising but on the edge with the rest of “the cliff”), and healthy personal and corporate balance sheets are all the rave. “What, me worry?” is the dominant attitude, not only about the “fiscal cliff” and the well known $16 trillion deficit, but also the other $86.8 trillion in national debt for entitlements, which according to the Wall Street Journal (27 November 2012) is not readily discussed.

My wife spent time talking to a woman less about politics, but more about her life predicament. Her husband passed away after 27 years of marriage, and she was just eking out a living primarily on the survivor benefits. She was living in a trailer, and having trouble finding a job. (“There is a lot of age discrimination out there,” she said.) She said she was lonely, despite her boyfriend, and that what mattered to her was just having some nice people in her life to talk with.  Her current plans were to continue monitoring her boyfriend’s activities on dating sites—he didn’t realize she could do that – and visit Bulgaria. There, she would meet the family of her late father, who unbeknownst to her had a child with a mistress that she only learned about upon his passing. She was angry at the doctor who prescribed her hormones, which she is certain gave her breast cancer, and she indicated that if she could do it over again she wouldn’t have listened so unquestioningly to what he said. For her, alternative healing such as attending a “drumming circle” was helpful, especially in calming all “the chatter “and worry on her mind.

While she didn’t talk about the country per se, this lady was clearly having a tough time in life and although she smiled frequently, the pain she felt was clear not only by the stories she told, but by the look on her face.

So, these were some stories that I heard—a little different from campaign fodder—but very telling in a way about what REAL people out there are thinking and feeling—versus the sound bites.

Now, we need to figure out how to dispel the negativity out there and help people and the country get it together.  It’s not enough to bicker, but we need a grand vision, a genuine strategy to get there, and the ability to articulate it to the masses—sacrifice will be needed, it’s time to get down to it and be real for at least the third time in 2 generations. 😉

(Source Photo: Andy Blumenthal)

Goldman Sachs Reputation Sacked?

Sacking_of_rome

When Greg Smith published his editorial in the New York Times (14 March 2012) on the alleged debased culture and greedy exploits at Goldman Sachs, this was far from surprising after the many misdeeds of Corporate America over the last decade that saw the rise of Sarbanes Oxley in 2002 and the massive financial bailouts in 2008, which does not represent who we really are and can be.

It’s not that Corporate America is bad, it’s just that they frequently get rewarded for doing the wrong things.

All too often, promotions, corner offices, year-end bonuses, and stock options are the rewards for racking in profits, but are not necessarily tied to innovation and/or customer satisfaction.

I believe over the years this has taken many word forms from snake oil salesman, charlatans, spoilers, and many others.

Greg Smith who worked for a dozen years at Goldman–in of all things “recruiting and mentoring”–described the venerable Goldman Sachs as a place where:

– “Interest of clients continue to be sidelined”

– “Decline in the firm’s moral fiber represents the single most serious threat to it’s long-term survival.”

– If you make enough money for the firm…you will be promoted.”

– At sales meetings, “not one single minute is spent asking questions about how we can help clients.”

– Leaders callously “talk about ripping off clients” and call their clients “muppets,” a British slang terms for “idiots.”

The funny-sad thing is that after all these horrific accusations, Goldman has not come out and full-on-full repudiated these claims.

On March 15, the Wall Street Journal reported “Goldman Plays Damage Control” saying that “it will examine the claims.” 

Rather than denying the accusations in specific ways and pointing out their true moral fiber, the Chairman in a memo to employees chose to downplay the accuser calling him only one “of nearly 12,000 vice presidents” of 30,000 employees. In other words, this is just the opinion of a lone wolf.

More generally, the Chairman wrote coyly that this does “not reflect our values,our culture, and how the vast majority of people at Goldman Sachs think of the firm and the work it does on behalf of our clients.”

In another article, in Bloomberg BusinessWeek (19-25 March 2012), it states similarly that “Goldman Sachs would have you believe it’s learned from the financial crisis. Don’t be fooled.”

The article goes on to list a scathing history of scandal from Goldman Sachs Trading Corporation that “blew up” after the stock market crash of 1929 to Goldman’s settlement with the SEC for a whopping $550 million in 2010. Further, it describes a current conflict of interest case with El Paso and Kinder Morgan that they call a Goldman “heads-I-win, tails-you-lose approach.”

While I have always respected the likes of Goldman Sachs for their unbelievable brainpower and talent,the accusations against them and by extension against others in Corporate America is very concerning.

The notion that customers are but idiots for Corporate America to pillage and plunder is not democracy and capitalism, but greed and evil.

When we no longer value a creed of service above pure profiteering then moral bankruptcy is just a prelude to financial bankruptcy.

No company can stay afloat and be competitive over time, if they do not work to strengthen their balance sheets, income statements, and cash flows.

However, at the same time, no competitor can thrive for long on a culture of greed and duplicity that sees people as victims to spoil, rather than as customers to serve.

While I do not know the details of Greg Smith’s accusations, this last part I know in my heart to be truth.

(Source Photo: here)

>Technology Cannot Save Us From Arrogance

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This week we saw firsthand what uncontrolled deficit spending can do to a modern democratic nation, such as Greece.

For all intents and purposes, Greece is bankrupt except for the ~$150 billion bailout they are getting from the International Monetary Fund and the European Union that will keep them afloat.

In return for the funds, Greece has to adopt “austerity measures” that will limit jobs, programs, and social spending.

The result this week was social unrest, rioting in the streets, and civilians killed.

Other European nations with high deficits to GDP spending are at risk, such as Portugal, Spain, and Italy, as well as major Asian countries like Japan.

The uncertainty and fear of this chaotic situation struck the U.S. stock market hard—with the S&P falling almost 800 points this week, during a time of supposed economic recovery.

Last evening, I watched on the news as a professor from Columbia University debated with the newscaster about whether or not the U.S. was susceptible to the same type of debacle that we are witnessing overseas.

The newscaster took the position that our $13 trillion national deficit—much larger than Greece’s—certainly put us at similar risk, even though we have a much larger GDP.

The professor countered that we are not like Greece—we are different and that what is happening there cannot happen here in America.

Why?

The professor said that he thought that we are more innovative, more technologically savvy, and more able to grow our way—economically—out of this. He laughed at the prospect of America running into any sort of grave financial difficulty, because of “who we are.”

As someone who is focused on the importance of technological prowess, innovation, and progressive change to our economic health, competitiveness and national security, I fully appreciate the vital importance of these factors.

Yet at the same time, it seems to me to be stretching credulity to say that technology and innovation alone can save us from the consequences of fiscal unrestraint.

While I believe in our strong political, social, and economic foundation, I question whether we are truly so different from our neighbors overseas.

For IT leaders, the point is that just because we drive investments in new technology—“the art of the possible”—that does not make us invincible.

While technology can help us grow in amazing ways and potentially solve our most complex and challenging problems, it is not a mystical, magical elixir and cannot solve our deficit no matter how large it gets unchallenged.

It seems to me that our greatest challenge is arrogance.

As a nation, we can by proud of our ideology and many achievements, but we cannot rest on our laurels, thinking that we are immune to the consequences of our mistakes. We must accept that our spending will catch up with us, unless we course-correct.