Tag Archives: McKinsey and Company

Until we all realise that the edge of the abyss is on the Americans, we all need to realise that what will topple the Americans, will have a massive effect on us all. Partly because we are linked, partially because the events that are in effect there are also in effect in the Commonwealth and both are not willing to change their ways.

The issues all start with an article in the Guardian (at http://www.theguardian.com/world/2013/oct/19/barack-obama-address-shutdown-debt-ceiling).

The first quote is: “There’s been a lot of discussion lately of the politics of this shutdown. But the truth is, there were no winners in this.“

Actually, there are. The banks! They are making a bundle and as things go, the US will be (pardon my French) the Bank’s Bitch for a long time to come. $17,000 Billion has that effect on them. The article by the LA Times, which I personally call laughable, can be found at http://touch.latimes.com/#section/-1/article/p2p-77819148/

The four points should be looked at.

1. The U.S. debt burden is starting to decline. That’s right – it’s going down, not up.

Really? $17,000 Billion remains that. The economy is not even close to being on par, and as long as the government is spending over a trillion a year more than they earn, the debt is not going anywhere. If we go from the T-Bill path, then the payable cost of T-bills (basically the discount value), for the entire amount would be $453 billion. This is of course not realistic; the number that is closer is based upon the annual deficit increase. These numbers were discussed in my blog ‘A new third World continent‘. So, when they do start to mature, an annual amount no less than $1,000 billion a year for no less ten 5 years would be needed. So, that debt burden is going nowhere, it will be there waiting for the people and it will come with additional bills.

2. China holds only a relatively small fraction of U.S. debt.

That is actually true, yet roughly 14% of $17,000 billion is still a massive amount, it just seems little. By the way, if they suddenly cash in, the chances of the US being able to pay it becomes smaller and smaller by the day. The debt ceiling is there and it would be instantly crossed.

3. The U.S. has had a national debt for almost its entire history.

Again that is also true for the most, yet in 2000 it was only 5 trillion (roughly), so in 13 years it grew by 12 trillion dollars, it grew from 5 to 9 trillion up to 2007 and the rest grew in the last 6 years.

4. Debt crises have marked American politics from the beginning.

Well, that is not entirely incorrect. The article starts with General George Washington. The guy who ran the American defence forces before Patton, roughly about 140 years before Patton. The debt remained under 1 trillion until the 80’s, so basically the US went through Independence Day 1 (1776, not the one with the aliens), WW1, WW2, the Cold War and the Vietnam war. All these elements involving massive amounts of politics, (except the Cold war, which was a contemporary event where Ivan Aleksandrovich Serov and Allen Dulles had a bit of fun, as well as their successors (boys will be boys).

The moral here is not about the marking of American politics, it is about Politics not doing what they were supposed to be doing. From my point of view, the right questions were not asked, hence the actions proceeded were of a game where open and clear communications were not in play (or this deficit would be a lot smaller).
There is plenty of blame to go around! Initial there was former President Clinton, even though the coffers actually had real cash in his era, the Silicon Valley crash started to leave its mark. It drove Gray Davis (former Governor of California) out of office and it was the beginning of a massive shift. After that the USA had former President Bush. He did a good job, but then 9/11 struck. The consequences had a major influence, it also changed the premise of many, instead of a true revamping of intelligence, 4 agencies were suddenly spending like there was no tomorrow. The military costs went up, which would really hurt the treasury coffers and lastly the financial crash of 2008 was one that had a long term consequence, especially as a building named America got prepped in the years 2003-2005, by the time the 2008 financial fire hit the house, there were no fire hydrants and there was no one able to actually fight that fire. The rest is the now and many are still reeling from those hits.

This takes us back to the article in the Guardian, where President Obama is quoted saying “First, we should sit down and pursue a balanced approach to a responsible budget, one that grows our economy faster and shrinks our long-term deficits further.“

That is a simple answer, stop spending too much. I understand that spending $5 to make $50 is perfectly sensible, but America has become a nation of entitlements and costs, not profits. When you as a nation allow for tax evasion and keep on postponing putting a stop to these acrobatics (the Tax evasion rule is not expected to become active until 2014). So the US is in an extremely fragile situation. It is basically what you hear of Fox News (people like Glenn Beck, Bill O’Reilly and John Stossel), is that view wrong? Well the Nanny state is an overprotective government. I am all for protection. We should protect the weak, the sick and so on. But when you are broke, you cannot pay the beggar with coins you do not have, you cannot feed the hungry with food you cannot pay for. When your money runs out, it runs out. So until the government gets their horses back on track, entitlements will (not should) suffer. Perhaps doing something about Corporations and their tax evasion? For Example, Google paid the UK $12M in taxation, whilst their UK revenue was $3,000M. That is less than 1/2% in taxation. They avoided $2B in taxation in the US, according to the Bloomberg article (at http://www.bloomberg.com/news/2012-12-10/google-revenues-sheltered-in-no-tax-bermuda-soar-to-10-billion.html)

So how much taxation is NOT going into the US coffers? That list of corporations using tax havens is long and they are all prosperous. So, when entitlements fall away, look at those places on why support is gone.

The only part remaining is an article that came to view as I was reading up on a few parts. It is at http://www.rawstory.com/rs/2013/03/25/economics-professor-smacks-down-bill-oreilly-he-has-no-idea-what-a-nanny-state-is/

And the story is about Professor Richard Wolff having a go at Bill O’Reilly. It was on ‘Democracy Now‘ so the idea that this is about a democrat having a go at a Republican should be clear.

The first part was in regards to “a clip of O’Reilly talking about the latest round of European bailouts, which O’Reilly said is happening ‘because they’re all nanny states’ that do not have enough workers to support ‘entitlements’.“

So what are the numbers? According to the site, http://apografi.yap.gov.gr/ where the Greek state currently employs 614,053 people, 15,000 jobs got axed in the first half of 2013. The Greek population is around 11 million; this gives us that just over 5.5% of the ENTIRE Greek population works for the state. There are reports that this used to be over 20% (in 2011), so how is that not a nanny state? According to the Oxford press it is stated as “a view that a government or its policies are overprotective or interfering unduly with personal choice.” when 1 in 5 works for the government, overprotective seems to be the case. The only part I do not agree with, in this case, with Mr O’Reilly is that Greece seems more and more the consequence of short sightedness and utter stupidity. In reflection, when a government asks Goldman Sachs to hide the size of their debt, I personally want to sail towards words like stupidity and irresponsibility.

Professor Wolff sees Germany and Sweden as Nanny States. That is not incorrect, however the next part “they’re the winners of the current situation. The unemployment rate in Germany is now below 5 percent.” is misrepresentation. First of all, when changes were needed (around 2009) Germany tightened the belt by A LOT! This is why it seems that they got off lighter, because they decided against borrowing (a lesson that the USA still has not learned). The second part is that Sweden has a different system. Yes, they do have a protective nanny state, but taxation is also higher. It is 57% at the highest tier; whereas the rich and playful in the US seem to pay only 29%. In addition, most Swedes are ‘proud’ (slightly overstated, I admit) to pay taxation. The more they pay, the higher their status. (Inwards they’ll sulk like nothing you’ll ever see).

So, Professor Wolff is missing his shares of facts too. In addition, Sweden had to deal with its own issues in 2003 as Ericsson dismissed thousands of people. They went from 85,200 staff members in 2001, to 51,600 in 2003. That is over 33000 in just 2 years. Try finding a job in IT in 2003. So as Sweden got itself back on its feet, they had moved themselves into a position to remain cautious. There is a good PDF file to read, it is called ‘Growth and renewal in the Swedish economy‘ It is by McKinsey and Company and worth reading. I wanted to add the link, but like Google’s ability to avoid taxation; they are getting better and better in avoiding clean links (just huge links full of Google statistics garbage). Although Sweden got through it all not too harmed, their current projections are not too good. Their deficit is likely to rise to 3% this year. One of the more noticeable incomes Sweden had was from Vattenfal and their nuclear power plant, the issues in the UK showed that Vattenfal has issues, some of their sites (outside of Sweden) were not panning out the way they were. www.vattenfall.com/en/file/Q2-report-2013_35251329.pdf has some interesting materials. So as they reported an operating profit of MINUS 25 billion (in Swedish kronor), they are still there, but that is an amount that hurts, and of course as they depreciated that much, it will affect the Swedish deficit. Let us not forget, they only have a population of 9.5 million and unlike Greece they are doing decently well. As for health care? The numbers from the OECD (Organisation for Economic Co-operation and Development) show us two interesting facts, percentage of government revenue spend on health gives us USA 18.5% (highest), whilst Sweden spend 13.6% (lowest), then look at the percentage of health costs paid by government which gives us USA with 45.1% (lowest) and Sweden with 81.4% (2nd highest). So, either the Swedes get a much better bang for their buck, or in comparison the American system is extremely flawed. There are ways to find out which, but compared to the UK, which is almost identical to Sweden in covered health costs, yet the slightly higher spending by the UK government leaves me with the thought that an overhaul of US healthcare was essential, but until I see the actual numbers on the new system, I will remain doubtful whether Obamacare would ever be a solution (but I refuse to judge until better numbers are known).

So in the end, the information by Professor Wolff reads less correct when you take another look at certain facts.