The best things in life are free
But you can keep them for the birds and bees
Now give me money
That’s what I want
– ‘Money (That’s What I Want)’ by Berry Gordy
We have high hopes for 2015. It is starting off so well. Only three weeks in and we almost tore a stomach muscle laughing.
So many unwitting comedians. So many political pratfalls and financial market gags. No fraud or no foolishness is too absurd. And the spectators are willing not only to suspend disbelief but also to chuck it out the window.
Recently came news that US auto sales were increasing. Everyone hailed this as good news. Then it emerged that auto sales have become the latest subprime finance scheme. Bloomberg:
‘Automakers are increasingly selling vehicles with 84-month loans that reduce monthly payments while making it tougher to repay faster than cars lose value, John Mendel, Honda’s US sales chief, said in an interview.
‘The Tokyo-based company will avoid longer-term loans even as Nissan tries to supplant it as the fifth-biggest automaker in the US, he said.
‘Sales will keep growing as the Federal Reserve’s zero-interest-rate policy encourages investors to collect yield from auto loans, said Tom Webb, chief economist at Manheim Consulting.
‘“We’ve seen this movie before, we know how it ends, and it’s not pretty,” Webb told reporters at an event before last week’s show.
‘“It can have some negative impact on the market in creating a vicious cycle of negative equity if the consumer doesn’t hold onto their vehicle long enough,” Melinda Zabritski, senior director of automotive finance for Experian, said by phone.
‘“Something has to be done to keep the market affordable, or consumer buying is going to have to change and we’ll have to return to less frequent purchases.”’
In other words, auto buyers will be underwater…in their cars. They have, in effect, ‘taken out’ the equity from their wheels just as they once did their bedrooms.
Fair shot, fair share?
We were just recovering from a good bout of laughter over that when President Obama delivered his State of the Union address.
‘Middle-class economics means helping working families feel more secure in a world of constant change. […] That means helping folks afford child care, college, healthcare, a home, retirement – and my budget will address each of these issues, lowering the taxes of working families and putting thousands of dollars back into their pockets each year.’
Hillary Clinton, in line to succeed the commander-in-chief, tweeted her response:
‘@BarackObama #SOTU pointed way to an economy that works for all. Now we need to step up & deliver for the middle class. #FairShot #FairShare’
Political speeches are as hollow as a dry gourd. It is a waste of time to try to analyse them. You might as likely find an ice cube in the Sahara as any trace of real wit or meaning in them. Still, they can be funny.
The US federal government is bankrupt.
According to Boston University economics professor Laurence Kotlikoff if you include its ‘off balance sheet’ liabilities, Washington is on the hook for $210 trillion.
So, the president now proposes to give more of what it doesn’t have to people who have no business taking it…
Dancing to the same tune
Still, promising other people’s money is the only course of action open to an ambitious politician.
Republicans and Democrats dance to the same tune. It is the music of the Berry Gordy song — later sung by The Beatles — ‘Money (That’s What I Want)’.
Voters vote for what they want. And circa 2015, it’s hard to find a voter who doesn’t have his hand out. Which is not surprising. They need the money. Bloomberg:
‘Americans have continued to lose ground since the 18-month recession ended in June 2009. Median household income fell 3.9% to $51,939 in 2013 compared with 2009 when Obama took office, US Census Bureau data show. The poorest fifth fared even worse, with incomes dropping 5.9% to $20,900.’
And here our chuckle turns to a look of deep concern and puzzlement. How could the greatest economy ever created…with technological breakthroughs coming as frequently as STDs…and capital for research, development and investment available almost at no cost…
…make people poorer?
We don’t know whether to laugh…or reach for a drink.
Berry Gordy wrote his song in 1960. By the end of that decade, the US had changed.
The American Enterprise Institute’s Nicholas Eberstadt:
‘During the 1960s […] America’s traditional aversion to the welfare state and all its works largely collapsed. President Johnson’s “War on Poverty” (declared in 1964) and his “Great Society” pledge of the same year ushered in a new era for America, in which Washington finally commenced in earnest the construction of a massive welfare state.’
Tomorrow — the comedy continues…
for The Daily Reckoning Australia