David Kirkpatrick

October 7, 2009

Not all small businesses are created equal

And some small business government contractors aren’t all that small. This type of system rigging ought to be more of a public outrage than it ever is. The economic realities, and the government’s response to such, over the last 18 months or so really let Main Street know where small business stood in the overall picture — on the bottom and practically forgotten.

From the link:

In August the Small Business Administration released its annual scorecard tallying federal dollars awarded to small business contractors last year.

The good news? Federal agencies claim they spent $93.3 billion. That’s $10 billion more than the year before.

The bad news? It’s fuzzy math. Billions of dollars reportedly allocated to small contractors are still flowing to corporate giants. The SBA’s top two “small business contractors” for 2008 — VSE Corp. ($1 billion in annual revenues) and AAI Corp., a division of Textron Inc. (TXTFortune 500) ($14.2 billion in annual revenues) — weren’t small at all. They alone accounted for $1.6 billion in federal “small business” spending.

Joe Jordan, SBA associate administrator for government contracting, says his agency has been trying to weed out impostors. To get to the $93.3 billion total from the original $107 billion reported to it, he says, the SBA scrubbed out some $6 billion in contracts incorrectly attributed to small businesses, plus more than $7 billion worth of contracts that were awarded and performed overseas or fell under other exemptions.

September 30, 2009

The economy wasn’t quite as bad as thought for Q2

More of that, “Well, the news still isn’t good, but it is better than we thought.” There’s a lot of looking for any ray of positive economic news still going on.

From the link:

The U.S. economy contracted at slower pace than previously thought in the second quarter as improved consumer and business spending cushioned the impact of a record decline in inventories, according to a government report on Wednesday.

The Commerce Department’s final estimate showed gross domestic product fell at a 0.7 percent annual rate instead of the 1.0 percent decline reported last month.

Analysts polled by Reuters had forecast GDP, which measures total goods and services output within U.S. borders, slipping at a 1.2 percent rate in the second quarter after dropping 6.4 percent in the January-March period.

This will probably mark the last quarter of decline in output for the U.S. economy, which slipped into recession in December 2007. The economy is believed to have rebounded in the July-September quarter.

With the second-quarter contraction, the country’s real GDP has shrunk for four straight quarters for the first time since government records started in 1947.

February 25, 2009

Text of Obama’s address to joint session of Congress

Filed under: Business, Politics — Tags: , , , , , — David Kirkpatrick @ 11:54 am

The text as prepared for delivery:

Madame Speaker, Mr. Vice President, Members of Congress, and the First Lady of the United States:

I’ve come here tonight not only to address the distinguished men and women in this great chamber, but to speak frankly and directly to the men and women who sent us here.

I know that for many Americans watching right now, the state of our economy is a concern that rises above all others. And rightly so. If you haven’t been personally affected by this recession, you probably know someone who has—a friend; a neighbor; a member of your family. You don’t need to hear another list of statistics to know that our economy is in crisis, because you live it every day. It’s the worry you wake up with and the source of sleepless nights. It’s the job you thought you’d retire from but now have lost; the business you built your dreams upon that’s now hanging by a thread; the college acceptance letter your child had to put back in the envelope. The impact of this recession is real, and it is everywhere.

But while our economy may be weakened and our confidence shaken; though we are living through difficult and uncertain times, tonight I want every American to know this:

We will rebuild, we will recover, and the United States of America will emerge stronger than before. (more…)

January 6, 2009

10 lights in dark economic times

Filed under: Business — Tags: , , , , , — David Kirkpatrick @ 2:22 pm

It’s list day! Not really, but I am doing two lists posts in a row. Here’s ten things that are good news, as far as that goes, to look forward to during the financial crisis.

From the link, number one — and a great point:

The Savings Rate Should Increase
The slowdown in consumer spending is actually a good thing. While often decried as an accelerator of the downturn — which it surely is — the pullback in consumer spending will benefit the economy in the long term. Consumers have been on a shopping spree for two decades, and household savings have suffered. In 2007, the household savings rate was 0.6 percent. In some recent quarters, the rate turned negative, indicating that people borrowed more than they saved. As a result, many families have very little cushion to protect themselves from the vagaries of life. And, even disregarding the recent damage wrought on 401(k)s, a staggering number of people have not put away enough for retirement. At the same time, their ability to invest their savings in U.S. businesses by buying bonds and stocks has dwindled. Instead, U.S. business growth has become highly dependent on foreign investors, whose willingness to send funds to these shores could fade at any time.

“Consumer spending needs to slow down,” says Matthew Slaughter, professor of international economics at the Tuck School of Business at Dartmouth. “It’s a really important long-run structural issue for the financial health of families and the economy. More savings means companies can undertake more investment to drive faster economic growth.”

December 2, 2008

Value-added taxation …

Filed under: Business, Politics — Tags: , , , , — David Kirkpatrick @ 2:59 pm

… Bush 43’s parting “gift?” After eight years of cutting taxes and spending like a drunk monkey, George W. Bush may leave on last steaming pile on our lawn, value-added taxation. I’m all for cutting taxes, but I’m also all for cutting spending.

The Bush 43 years may be the doom of the GOP and maybe that’s not a bad thing since the RINO-accusing right seems to not get what it means to be conservative. Being an American conservative does not mean you want a christianist theocracy. It does mean letting government handle the big picture (like national defense) and then getting out of the way of all of us out there pursuing happiness and liberty.

From the link:

It’s highly possible, if not inevitable, that Americans will soon live under a radically different tax system – one that the pundits and politicians aren’t talking about.

It’s called a value-added tax, or VAT, and it’s been used for decades to pay the bills and sustain the immense growth of governments around the world, from France to Mexico to Australia. Created in 1954 by a French economist, the VAT is the most potent, efficient machine for revenue generation yet invented.

And if there’s one thing the U.S. government needs as the federal budget balloons, it’s a ton of new revenue. “The bottom line is that the income tax cannot support the level of spending that’s projected, something other countries faced years ago,” said Roberton Williams of the Tax Policy Center, a non-partisan research institute. Today the VAT raises almost half of the total government revenue in France, and a similar share in most of the developed world.

The VAT is essentially a sales tax, except that it’s charged at each stage in the development of a product instead of at the moment when the product is sold.

Take, for instance, a car with a sticker price of $30,000 and a value-added rate of 10%. Ford might buy its steel and other materials for $8,000 plus $800 in a VAT tax. A dealer then pays $25,000 plus a $2,500 tax for the finished vehicle. Ford takes an $800 credit for the tax it already paid and sends $1,700 to the government. A buyer then pays $30,000 for the SUV and $3,000 in taxes. The dealer collects the $3,000, takes a credit for the $2,500 worth of taxes already paid, and sends $500 to tax authorities. Ultimately, the government pockets $3,000, or 10% of the retail price of the car, in taxes.

December 1, 2008

We are in a recession …

Filed under: Business — Tags: , , — David Kirkpatrick @ 1:17 pm

… and I’ve been announcing the fact for at least the last six months.

Economists?!?

From the link:

It’s official: for the last year, the United States economy has been in recession.

The evidence of a downturn has been widespread for months: slower production, stagnant wages and hundreds of thousands of lost jobs. But the nonpartisan National Bureau of Economic Research, charged with making the call for the history books, waited until now to weigh in.

In a statement released Monday, the members of the group’s Business Cycle Dating Committee — made up of seven prominent economists, most from the academic sector — said that the economy entered a recession in December 2007.

November 25, 2008

Laffer on the bailout

Arthur Laffer, Reagan’s economist and namesake of the Laffer curvedisses the ongoing financial crisis bailout. I think I’ve made my thoughts about this bailout well known. Probably two words suffices to sum up my opinion — corporate socialism.

From the (second) link:

As you read this, our government is committing enormous sums of money above and beyond normal spending, solely to stimulate the economy and prop up failing companies and markets. These additional sums are huge by any reasonable measure, with estimates as high as $3 trillion in an economy with a GDP of about $15 trillion.

Here’s the bottom line: Instead of making things better, increased spending will only drive our economy further into the ground.

And there is still a lot more spending to come. First it was a $170 billion stimulus package in February of 2008, then material add-ons to both the housing and agricultural bills, followed by Federal Reserve asset swaps with Bear Stearns and a bailout of AIG (which, by the way, isn’t over yet) and then came the debt guarantees of Fannie Mae and Freddie Mac.

Shortly after that, the administration anted up $700 billion in a bailout package, and now Obama, Reid, Pelosi and Bernanke want another stimulus package of $300 billion. Just this week the powers that be are debating bailouts for Michigan’s auto industry. With the slowdown in the economy, tax receipts are now projected to fall sharply. The logic here is totally upside down, and each new measure, far from helping the economy, does enormous damage.

October 1, 2008

Senate version of bailout plan passes

Filed under: Business, Politics — Tags: , , , , — David Kirkpatrick @ 11:43 pm

Predictably.

We’ll see what the House does on Friday.

From the link:

In stark contrast to the House rejection of the plan on Monday, a bipartisan coalition of senators — including both presidential candidates — showed no hesitation in backing a proposal that had drawn public scorn, though the outpouring eased somewhat after a market plunge followed the House defeat. The Senate margin was 74 to 25 in favor of the White House initiative to buy troubled securities in an effort to avoid an economic catastrophe.

Only Senator Edward M. Kennedy, who is being treated for brain cancer, did not vote.

The two Senate leaders, Senators Harry Reid, Democrat of Nevada and the majority leader, and Mitch McConnell of Kentucky, the Republican leader, strongly urged their colleagues to approve the plan despite the political risk given public resentment.

September 25, 2008

Buffett banks on Goldman Sachs Group

Didn’t blog earlier on Warren Buffett’s foray into the financial crisis morass, but this Wall Street Journal article puts the Berkshire Hathaway deal in the context of Paulson’s proposed $700B bailout.

This is the very first bit I’ve read anywhere that puts some real substance on the issues at hand and why Buffett’s deal is rational in a way the Bush 43 administration’s bailout is not as presently constructed.

From the link:

Berkshire Hathaway‘s investment in Goldman Sachs Group provides a template for how to get the financial system back on its feet.

The problem is, the Bush administration’s $700 billion bailout plan ignores some of the key lessons of Warren Buffett’s deal. Most notably: Capital, or lack of it, is at the heart of the crisis.

The proposed bailout only goes a certain distance in addressing that, so it mightn’t spark the sort of quick confidence rebound its proponents are hoping for. That explains Wednesday’s renewed stress in debt markets.

The realism of the Goldman/Buffett deal is instructive. The market was getting nervous about funding Goldman’s highly leveraged balance sheet. The bank had to adjust and raise expensive capital quickly.

First, Goldman agreed to become a bank-holding company Sunday, giving it greater access to Federal Reserve credit. Then it reduced leverage markedly by raising $10 billion in fresh capital from Berkshire and other investors. It did so even though it meant diluting shareholders by as much as 20%.

In contrast, the government’s bailout plan contains no explicit demands that banks raise capital. If Goldman needed to, others surely do.

September 22, 2008

Salience on the bailout

Filed under: Business, Politics — Tags: , , , , , — David Kirkpatrick @ 11:43 am

Andrew Sullivan gets the best email. Here’s part of one he posted from a Daily Dish reader on Bush 43’s proposed financial bailout:

Third, the administration’s proposals continue a process of socializing loss and preserving profits and distributions, many of which were made with full knowledge of the pending losses. When management distributes illusory profits to insiders in full knowledge of a massive loss, this is called a fraudulent conveyance, and in equity proceedings such distributions are routinely recovered for the creditor mass. There should therefore be a careful scrutiny of distributions of profits and bonuses by failed firms.  The bailout we now see may mean effectively that taxpayer money is subsidizing the purchase of macmansions and Bentleys by investment managers who behaved irresponsibly.  How can that happen?  Only in the age of Bush.

I’m not certain how all this came to pass, but George W.’s legacy is somehow going to combine the worst of Republican, and Democrat, political traits.

I’m a huge proponent of divided government, but against my better thoughts I’m voting Obama because the GOP needs a thourough thrashing to start the rethink, flush the christianist fools and get back to some actual “little l” libertarian roots. Otherwise it’s done as reasonable political party in this land.

July 30, 2008

McCain and the tax question

Filed under: Politics — Tags: , , , , , , — David Kirkpatrick @ 2:47 pm

The title of this Jonathan Martin post at Politico is, “Why is McCain not slamming the door on taxes?” That is a great question. Here’s a blog post of mine with a great link to head to when comparing the two candidate’s tax plans.

I feel like I’ve been blogging a lot more about Obama than McCain, but frankly McCain is doing very little that is interesting or inspiring and I don’t really have any interest in piling on the negative posts like more partisan blogs are currently enjoying. I did post on an anonymous GOP strategist describing his campaign tactics as “insane.” And I considered dedicating a post to his well-documented problems with the personal computer, and now his campaign’s fumbling with the Web 2.0 crowd with ill-conceived projects like BarackBook.

See how easy it is. I spend a short graf explaining why my McCain blogging might seem light and I found it impossible to ignore two negatives. And that’s without mentioning Huckabee likening McCain’s efforts to Bob Dole in 1996.

Back to the original link, Martin asks a great question. Why isn’t McCain taking the tax issue by the horns and speaking to the fiscal conservative leg of the GOP stool? This past Sunday on “This Week” he was asked if he’d consider raising payroll taxes to address Social Security. McCain said, “There is nothing that’s off the table.”

I don’t expect a “read my lips” moment of disingenuity out of McCain, but taxes is one place he can really set himself apart from Obama. All this may just come down to his very inartful dancing around issues where he differs from the base, doesn’t want to/can’t lie (I pick the latter), and has to come up with a sentence construction that remains true to his beliefs while placating the hardline GOPers listening.

I really don’t see him riding Iraq into the White House.

Beyond the convoluted statements, my corollary guess is McCain just isn’t comfortable talking about economic issues. He’s admitted to not truly understanding that policy area and it’s an area he’s not going to be actively involved in if he were to win the presidency.

From the very first link back up in sentence number one:

By his positions, he meant that he opposes raising taxes.   He reitereated this stance yesterday at a town hall meeting in Nevada with a one-word answer: “no.”   He’s been similiar unequivocal when asked the same question in the past.

But McCain’s refusal to slam the door Sunday on Social Security has worried some Republicans who not only are concerned for philosophical reasons, but because it could have the effect of diluting McCain’s claim that Obama is the tax-increaser.

“If Mr. McCain can’t convince voters that he’s better on taxes than is a Democrat who says matter-of-factly that he wants to raise taxes, the Republican is going to lose in a rout,” said the Wall Street Journal editorial page today in a scathing editorial.

July 29, 2008

Fed not raising rates before next year

Filed under: Business, Politics — Tags: , , , , — David Kirkpatrick @ 1:05 pm

This is an interesting article from AccountantsWorld.com covering how the short-term interest rates are not go up before next year given the current market conditions.

From the link:

Earlier in the summer, experts thought rates might go higher by December. But this view has receded in recent weeks as financial markets have destabilized anew and leading indicators point to slower growth over the remainder of the year and into next.

“I am a little less confident than I was before” that the Fed would hike rates this year, said former San Francisco Fed Bank President Robert Parry in an interview.

“I frankly thought we’d see more signs that the weakness of the economy was going to disappear,” said Parry.

The tax rebates have not packed the hoped for wallop. The crisis of Fannie Mae and Freddie Mac has sparked renewed stress in financial markets.

This has put the Fed in something of a box. But investors should keep alert as the Fed is looking to escape.

The simple reason is that, at the moment, almost all Fed officials, both hawks and doves, would like nothing better than to see interest rates move up from the “emergency” low level of 2%.

For the hawks on the panel, it would mean the Fed was backing up its warnings that higher rates are needed to combat ugly inflation data.

For the doves, higher rates would be good news that the economy could be moved out of the intensive-care unit.

At the moment, the doves don’t think the economy is strong enough to swallow the tough medicine of higher interest rates. And they are in the majority.

Tax plans from McCain and Obama

Filed under: Business, Politics — Tags: , , , , , , — David Kirkpatrick @ 12:20 am

If you’re looking for a one-stop center to compare and contrast the tax plans of the two presidential candidates, look no further.

TaxProf Blog, written by Paul Caron, gives you a starting point and then some.

(Hat tip: Megan McArdle)

July 15, 2008

McArdle on the Fannie/Freddie issue

Filed under: Business, Politics — Tags: , , , , — David Kirkpatrick @ 12:38 pm

Megan McArdle, the libertarian economics blogger at the Atlantic, on the Fannie Mae and Freddie Mac troubles. She titled her post “Too big not to fail.” The post is pretty comprehensive and provides a lot of information and analysis on the subject.

From the link:

In my view, the central problems with FM/FM are two:

1) Because they are government sponsored, the government let them get away with practices that would never fly in the private market. Contrary to the belief of many on the left, this is par for the course; just take a look at what’s happening to state and local government pensions now that the federal government has forced them to account for their liabilities like normal pension funds do.

2) They are too big not to fail. Their mortgage portfolios cover so much of the market that any significant problems in the mortgage market will make them technically insolvent as soon as they mark their securities to market. Any attempt to clean up their portfolios, by, for example, selling off some of their underperforming securities, will move the MBS markets against them, making the problem worse.

It’s not clear that bringing them fully into the government is even a second- or third- best solution; the government is not set up to be a hedge fund, nor should it be. Once the immediate crisis is over, it’s time to strip their GSE status and break the companies up into less risky firms.

June 12, 2008

Strong dollar, weak dollar — a primer

Filed under: Business, Politics — Tags: , , , , — David Kirkpatrick @ 1:43 pm

There’s a lot of talk in the news these days about our “weak” dollar. If you haven’t taken Econ 101 (and maybe even if you have) the concept of a strong dollar, or a weak dollar may be not be all that clear.

AccountantsWorld.com has posted a nice little Q&A covering the basics of the issue. There are positives and negatives to both states for the US dollar, and either extreme is not good. The primary consequence of our current weak US dollar that most everyone is feeling and talking about is its direct relationship to the cost of gas at the pump.

From the link:

Q: What is the relationship between a weak dollar and oil and gasoline prices?

A: It is a direct one, since oil generally is bought and sold in dollars. The more the value of the greenback goes down, the more it costs to buy a barrel of oil.

Of course, there are other factors involved in today’s roughly $4-a-gallon (€0.64-a-liter) gasoline prices. They include soaring demand from China and India, political turmoil in some oil-producing regions, the inability or refusal of major oil-exporting countries to increase production, and market speculation.

The weaker dollar has been a major factor, and one that could threaten the chances of a U.S. economic recovery.

Q: How long has this been going on?

A: The dollar has been on an extended slide against other major currencies, especially the euro and the Japanese yen, for about five years, during which the U.S. trade deficit with the rest of the world generally continued to widen. That required more borrowing from abroad and further weakening the dollar. At the same time, the economies of Europe expanded, driving up the value of the euro against the dollar. And recent sharp interest cuts by the Fed to deal with the U.S. housing and credit crises also have served to push down the dollar’s value. The dollar has fallen sharply against the euro in the past year.

Q: What is the U.S. government’s position on the dollar?

A: U.S. officials, usually the treasury secretary, have long repeated the mantra that a strong dollar is in the nation’s best interest. Yet the administration did nothing to back up its assertion with action, and many policy-makers clearly welcomed the slide, mainly because it helped to keep U.S. exports expanding, a rare bright spot in a troubled economy.

During the last week, however, officials have signaled that they do not want further declines. Bush, Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke have issued statements backing the need for a strong dollar and expressing misgivings about the economy.

“A strong dollar is in our nation’s interests. It is in the interests of the global economy,” Bush said Monday as he embarked on a European tour.

February 7, 2008

Tax reform colored Green

Filed under: Business, Politics — Tags: , , — David Kirkpatrick @ 2:55 pm

Interesting concept from David Freddoso at the Corner. He combines tax reformation with environmentalism. Doesn’t sound workable in practice to me, but any tax reform ideas always get my attention.

From the post:

At times — and not just after a few drinks — I’ve thought about what would happen if we scrap the income tax and go to an energy consumption tax. It would look a lot like the Fair Tax, with a pre-bate for basic levels of household energy usage. “The Green Fair Tax.” You’d pay all of your taxes at the pump and on your utility bill.

The benefits? Big energy users like Al Gore would pay tons in taxes, and normal people would pay very little. It would not distort markets as badly as our current tax code (almost nothing could). It would also be superior to a cap n’ trade system designed solely to benefit large corporations. The possibility is tempting because it could bring a lot of support from the Left as well.

Perhaps just a pipe-dream — but no harm in dreaming.

January 31, 2008

Another (?!) Fed rate cut

Filed under: Business — Tags: , , , — David Kirkpatrick @ 2:16 pm

I didn’t get to this yesterday, and still find it more than a bit odd and very disconcerting from an economics perspective. The Federal Reserve cut the Fed funds rate by a half point dropping the rate to three percent.

This was the second cut in eight days with a three quarter point cut last week. Even though this latest cut was somewhat expected the move strikes me as desperate, and maybe even a bit reckless, market manipulation. Basically the Fed is telling everyone it didn’t trust last week’s pretty drastic move to percolate and do its job.

The rationale is policymakers are worried about housing and jobs and indicated there could be future cuts. From an economic perspective I like to see the market largely sort itself out through difficult times, and certainly be given time to react to a strong move like last week’s cut.

This cut, barely a week later, gives me a certain amount of pause and makes me wonder what the Fed knows, fears to the point of this move, and hopes to forestall.

Here’s some numbers from the AP article linked above:

The benchmark 10-year Treasury note fell 17/32 to 104 8/32 with a yield of 3.73 percent, up from 3.68 percent late Tuesday. Prices and yields move in opposite directions.

The 30-year long bond lost 1 14/32 to 109 6/32 with a yield of 4.39 percent, up from 4.36 percent late Tuesday.

The 2-year note dropped 1/32 to 99 21/32 with a 2.29 percent yield, unchanged from Tuesday.

The Fed has reduced rates by 2.25 percentage points since September when financial markets began seizing up in response to the subprime mortgage crisis.

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