Category Archives: America’s Economic Future

The National Debt – A Few Comments

In August, I wrote an article titled “America’s Trojan Horse” which can be found listed along the right-side of the homepage as well as at this link:

This article had to do with various facets of our national debt, many unexplored.  Here is an excerpt that I would like to further comment upon:

“The first of these concepts is that the financial markets have allowed us to grow and perpetuate our debt loads, absorbing this debt issuance at reasonable, if not low, interest rates.  While this continual absorption of ever-increasing debt at lower rates is counterintuitive, it has nonetheless occurred.  Why this counterintuitive event has occurred is largely unknown.  Although it appears to be a long-term market anomaly (a propitious one at that) it might also be a concatenation of short-term market anomalies.  The latter supposition is certainly a troubling facet to ponder, as it would likely make our ability to sustain such debt levels more tenuous.”

Here is a long-term monthly chart of the 10-year Treasury yield.  As one can see, the trend in yields has been down:

EconomicGreenfield TNX Monthly 11-27-09

 Chart courtesy of

Various economists have recently stated the national debt is at roughly $6 Trillion, or roughly 40% of GDP.  They view the “danger point” as the national debt to GDP ratio of 100%, meaning that we can incur an additional $8 Trillion in national debt (to roughly $14 Trillion) before reaching the 100% level.  Given that $8 Trillion in additional national indebtedness would likely take a few years to incur, it would appear based off of this reasoning that we have some time before the 100% “danger point” is reached.  I don’t agree with these figures (IMHO the actual level of debt is far higher) as well as the line of reasoning.   No one really knows at what time or level the national debt hits a critical level.

It currently appears that the amount of the national debt is “tolerable” and is not causing undue concern in the markets.  Metrics that cause me to draw this conclusion include the subdued level of interest rates on government debt (as seen by the above chart), seemingly low price levels of the sovereign credit default swaps of the United States, and a general lack of concern shown by the public and Congress, despite ever-increasing deficits that appear to be heading for at least $1 Trillion annually for the foreseeable future.  It wasn’t too long ago that a $500 Billion annual deficit was considered exceedingly high.

However, is this national debt level really as “acceptable” as it appears?  Do we have a number of years at current deficit levels before we hit the “danger point?”  When we do approach the “danger point,” how long will we have before there are repercussions, and how serious will these repercussions be?

These questions are difficult to answer, as they appear contingent upon a number of complex, interrelated factors.  I have some theories as to how and when the “danger point” will be reached, as well as the repercussions.  However, these theories are still in the “formative” stages and thus I do not wish to explicitly specify a number or timeframe.

However, I will say that I am led to believe that the level of national debt, as well as our present propensity to accrue it, is not as “tolerable” as it may appear.  In other words, I believe the “danger point” and subsequent repercussions may be reached sooner than the consensus believes.

If this “danger point” does present itself relatively quickly, of course it would have ramifications in many areas.  Stimulus-based deficit spending, as well as other deficit spending, could likely become prohibitive.  As well, other tangential effects could include higher interest rates.  Furthermore, there may be a sudden need to actually reduce significant portions of the national debt.


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SPX at 1087.27 as this post is written

Expanding Upon Two Concepts

I would like to briefly expand on a couple of points I made in my recently posted “America’s Trojan Horse” article (which can be found listed along the right-hand side of the main page.)

First, I wrote, “There also appears to be a growing insensitivity to higher deficits and debts.”  This is alarming, as sums  of money that recently (as of 1-2 years ago) would have been considered exceedingly high are now seen as relatively low.  An example of this was the $150 Billion tax rebate  (stimulus) that was distributed in the late spring and summer of 2008.  At the time, an $150 Billion stimulus was considered very substantial.  However, with the stimulus and interventions that have been enacted since, this $150 Billion amount almost seems relatively small by comparison. 

I fear that we, as a nation, may be losing our perspective and comprehension of the sums involved here.  While spending, or committing, $1 Trillion and multiples thereof (or $1 Billion for that matter) has become rather commonplace during this period of economic weakness, one should be mindful of  the difficulty in earning (as in profit) these amounts of money.

The second concept I would like to expand upon is that of “Intellectual Leadership.”  I devote a paragraph in the paper to this concept.  The phrase is not one which is often heard, which is unfortunate.   Nonetheless, I think it is a very important concept, especially during this period.

SPX at 1007.37 as this post is written

New Article: “America’s Trojan Horse”

I just posted a new article titled “America’s Trojan Horse.”  The subtitle is “A Different Look At The National Debt.”  It can be found under the “Pages” section along the right-hand side, as well as at this link:

The article goes well with many of the themes presented on this blog, including Sustainable Prosperity, America’s Economic Future, and the overall quality of decision making in policy.

Please let me know of any comments.

SPX at 1002.26 as this post is written

“Why Aren’t Companies Hiring?” Part V

Businesses have reacted to the tumultuous economic conditions in many ways.  A logical action has been to reduce cash outlays to a level appropriate to what the new economic conditions seemingly warrant. 

Along these lines, expenses have undergone scrutiny and in many cases have been cut, in order to preserve cash as well as improve profitability (or limit losses).  Labor costs are notable expenses because of their size.

Many firms have incurred double-digit (percentage) revenue losses over the last few quarters.  This can create a rather alarming atmosphere, especially in light of the tremendous overall uncertainty going forward, as discussed in the last post.  In this type of fast-moving, uncertain environment where revenues, and losses, can accrue quickly, many businesses have felt they have had to move fast in order to contain potential damage.   

Large-scale layoffs have occurred for a number of reasons.   Under such uncertain, and unpleasant economic conditions, layoffs represent a quick means by which to bring down total costs and preserve cash.  Layoffs have, over the years, become a type of “standard operating procedure” in business, i.e. they are viewed as a rational decision during tough times and are not stigmatized like they may have been a few decades ago.  While there are of course many arguments that can be made with regard to the worth of an employee, as well as viewing employees as assets as opposed to expenses, in reality it is very difficult to quantify how one, or a number of, employees’ dismissals will negatively impact a firm in the future.  In other words, quantifying an employee’s value is very difficult.  However, determining each employee’s total cost is rather straightforward.

Furthermore, there are other factors at play.  Employee “turnover” costs are difficult to measure.  This refers to how expensive it is for a firm to have high employee turnover, as opposed to low turnover.  It is easy to neglect this, and other issues, in difficult economic times.

Another factor that comes into play is executive compensation issues as well as stock market pressures.  How are the major executives getting paid and influenced, and how does this directly and indirectly impact hiring and employee costs?  Since the highest executives are (likely) getting paid and otherwise motivated to produce profitability, this may well serve as a major influence when viewing employee expense levels.   The executive compensation agreements and stock market pressures can create a relatively “short-term” outlook with regard to profitability and a resultant bias against “expenses.”

One also has to wonder as to whether employees are at least partially “bearing the brunt of”  poor operating practices that have exacerbated adversity at firms during this period of economic weakness.    There are many potential areas within any firm that may be better managed even given the complicated and unpredictable nature of this economic weakness.  This “inefficiency” may be compounded should greater economic weakness develop.  If a firm is unaware of these “inefficiencies”, it may neglect them, thereby causing greater losses, which in turn produces greater pressure to reduce expenses and therefore employees.  These “inefficiencies” may be large, given the complicated nature of our current economic environment.  Also, the previously mentioned issue that most firms don’t have operating experience in pronounced economic downturns also plays a role in exacerbating this issue.  

As seen by these past five posts, the question “Why Aren’t Companies Hiring?” has a complex answer that encompasses many different factors.  Given the severity of the problem, as well as its adverse impact on the economy, the natural question becomes what can be done to encourage, or cause hiring to happen?  This question, again, has a very complex answer, especially in light of issues regarding Sustainable Prosperity.

As I started this series of posts with a quote, I will end it with one as well.  This quote underscores the severity of the unemployment situation, and is from Mortimer Zuckerman discussing the unemployment levels. It can be found in his recent Wall Street Journal editorial found here:

“The job losses are also now equal to the net job gains over the previous nine years, making this the only recession since the Great Depression to wipe out all job growth from the previous expansion.”

SPX at 975.15 as this post is written

“Why Aren’t Companies Hiring?” Part IV

In addition to the adversity and financial strains suffered by firms during this period of economic weakness, there exists significant uncertainty on many fronts.  As mentioned in the last post, many businesses would find any further economic weakness to pose a formidable challenge.  Although economist forecasts are predicting a weak economic recovery from here, economic forecasts have proven less than accurate the last couple of years.  Furthermore, it could prove especially difficult to predict how any one company’s demand would be specifically impacted by further economic weakness. 

In addition to the uncertainty over future economic conditions, there is a broad array of factors and issues that create uncertainty.  Some of these factors and issues have to do with proposed legislation, such as the environmental legislation, health care reform, various financial reform provisions, and other possible legislative acts.  All of these issues pose a lot of questions right now, as none are finalized yet each hold the potential for increased costs as well as changes in “the ways things are done.”

In addition to these legislative acts, there are probable increases in taxes, as well as changes in tax methods forthcoming.  Again, both the financial impact as well as the inherent change create uncertainty.

Cumulatively, this high level of uncertainty both in future economic conditions as well as legistlative and other changes, appears to be one filled with potential challenges and increased costs.  Even if the economy follows the economist consensus of a gradual weak, but sustained recovery, these economic conditions could prove challenging for many firms, especially those already financially impaired. 

This uncertainty factor is highly significant with regard to companies’ hiring, or lack thereof, as further discussed in the next post.

Part V to follow…

SPX at 979.62 as this post is written

“Why Aren’t Companies Hiring?” Part III

The economic weakness that has occurred has caused a significant amount of financial damage.  This can be seen in a variety of indicators and statistics, such as widening credit spreads, defaults, credit downgrades, etc.  These worsening conditions have been accompanied by a curtailed (in many cases severely) access to credit.  Whereas credit and other types of funding were abundantly plentiful (and in many cases cheap) into 2007, that level of credit and financing availability has since undergone a dramatic reversal.

An array of adverse business conditions have added to the misery.  These have taken various forms, from very high excess manufacturing capacity to low capital investment.

In addition to these adverse conditions and financial strains, a major factor going forward will be consumer spending.  As I discussed in a June 18 post, the ability for the consumer to keep spending may well be constrained going forward due to a variety of factors.  This will be one more “headwind” that businesses will likely encounter.

Should further significant economic weakness occur, there is another major concern relating to businesses – their ability to successfully manage through severe economic weakness.   Most businesses have not been exposed to the severity, both in length and extent, of economic weakness that further economic weakness would entail.  This lack of operating experience could pose significant challenges and hurdles to businesses that have already been adversely impacted.

Part IV to follow…

SPX at 977.57 as this post is written

“Why Aren’t Companies Hiring?” Part II

The economic weakness that accelerated in the latter months of 2008 and into 2009 played out in a very “tricky” fashion.

Very few mainstream economists foresaw what would happen.  A testament to the complexity of the situation as 2008 progressed was the business shows airing arguments during the summer as to whether the economy was even in a recession.

Needless to say, that argument was answered by the 4th quarter.  The list of rather unbelievable economic occurrences in 2008, and into 2009, is very extensive. 

Given the “trickiness” in which the economic weakness has played out, one question that may be asked is “How well have businesses reacted?”  As well, another major question becomes, “Given how businesses have reacted so far, how are they positioned for the future?”

Both of these questions are very difficult to answer.  With regard to the first, there really is no established “scorecard” with which to grade businesses’ response to the events of 2008 and 2009.  As aforementioned, the way the economic weakness played out was “tricky” and certainly highly unexpected.  While one may argue, in hindsight, that corporate forecasting might have been better, or any number of corporate actions, from cash management to inventory control, could have been more effective, those arguments certainly make more sense “after the fact.”  Sure, things may have been handled better, but most businesses won’t, and can’t, be effectively run if they seek to plan for contingencies that, at the time, seem very unlikely, if not unimaginable.  

Perhaps even more important is the second question, “Given how businesses have reacted so far, how are they positioned for the future?”  If one believes the current consensus among professional economists, that the worst (as far as economic weakness) is behind us, and that a steady, if not weak, economic recovery will continue through 2010, then the answer appears to be that businesses, as a whole, will continue to face a challenging environment, but in most cases will be able to survive.   

However, if the economy defies consensus expecations, and materially weakens (a view I hold, as previously mentioned in this blog), it is much harder to generalize how adversely businesses would be impacted. 

In the next post, I will discuss some issues that bear significance should this more adverse economic scenario occur.  

Part III to follow…

SPX at 977.68 as this post is written

“Why Aren’t Companies Hiring?” Part I

“As unemployment approaches 10%, what is less well publicized is that the number of “underutilized” workers in the U.S. has increased dramatically from 15 to 30 million. Those without jobs, as well as those individuals who only work part-time and have become discouraged and stopped looking, total 30 MILLION people. The number is staggering.”

-Bill Gross, from the July 2009 Pimco Investment Outlook


The unemployment issue currently facing the country is severe and complex.  Although this unemployment problem is to various extents recognized, there seems to be little discussion around the question “Why aren’t companies hiring?”  The  simple, and perhaps indirect answer, is “because the economy is bad.”

The next few posts will explore this question “Why aren’t companies hiring?”

A few disclaimers with regard to this series of posts:

First, this unemployment/hiring aspect of our current economic situation is very complex.  This series of posts will present a simplified approach to the question, as to avoid excessive complexity and length.

Second, as with any discussion of our current economic situation, it is of course impossible, and unwise, to characterize all businesses as if they currently are in the same situation.  Obviously, they are all unique; however, there is enough commonality as to be able to generalize to some extent, especially among those businesses that suffer when the economy is weak.

Third, I have many theories as to why companies aren’t hiring; this series of posts will explain some of them.  The remainder will go undiscussed, at least for now, due to a variety of reasons.

Part II to follow…


SPX at 976.29 as this post is written

Copyright 2009 by Ted Kavadas

Tax Breaks And The Economic Greenfield vs. Economic Brownfield Concept

Here is a recent story from BusinessWeek, “Will Tax Breaks Boost Jobs?”

As seen in my article (with italics added for emphasis) “America’s Economic Future – ‘Greenfield’ or ‘Brownfield’ ?”

One way to determine whether an economic “greenfield” environment exists is whether businesses are thriving and multiplying naturally – with an indicator being that they are choosing and wanting to locate their operations and sales territories in a specific location without needing to be artificially induced to do so through various incentives or coercions. However, this indicator has to be viewed in the overall economic context, as there may be circumstances that can serve to override casual observations.”


One of the reasons I started this blog is because I felt that this economic ‘greenfield’ vs. ‘brownfield’  concept is not understood; yet has massive implications for our economic future.

As seen in the BusinessWeek article, that states and regions have to engage in bidding wars to attract and/or retain businesses (and jobs) is likely a “red flag.”  While it is easy to dismiss these “bidding wars” as “the way things are,” perhaps the critical question, in the larger context, becomes “Is this the way things should be?”

SPX at 953.18 as this post is written

Warren Buffett’s July 9 Interviews

I Warren Buffett’s July 9th interview on CNBC

 to be interesting, especially when he says:

“And it’s very important the economy gets, comes back.  It will come back.  Government has less influence on how fast that happens than a lot of people would like to hope that it would.  But government is a player, but it has no silver bullet.  The economy will come back, though.”

Here’s another interview from July 9:

In this interview I found this comment, where he is discussing the economy, to be interesting:

“I want to emphasize we’re going to come out of this better than ever. I mean, the best days of America, by far, lay ahead. But not next week or next month. I don’t know exactly when we’ll come out. But we will come out big time.”

It would have been very interesting for him to have elaborated upon the above statement.  For instance, what factor(s) does he think will be the main economic drivers?

SPX at 879.13 as this post is written


Copyright 2009 by Ted Kavadas