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Wednesday, October 19, 2016

The Economy

What have I noticed? A few things:

  • The very rich seem to have more money than they know what do with. The interest rate banks are paying on deposits is near zero and in some cases it is even below zero. When an interest rate is below zero, it means you are paying the bank to hold your money. I suppose that could be cheaper than buying a safe, installing an alarm system, and buying enough insurance to cover your losses should someone break in and steal your money.
  • The outfits that are becoming fantastically valuable, things like Facebook, Google, Twitter et all,  are not necessarily making anyone any money. I am sure there are a few people who managed to get in on the ground floor and cashed out when the stock price got high enough, but most of the stock holders are holding on to their stock, hoping that the stock price will go even higher, or that the company might eventually start making money. I suppose some of them are making money, but I suspect most of them are overvalued. Good, solid investments have a P/E (Price to Earnings Ratio) of around 20. Companies with a P/E of 100 are a crap shoot.
  • Many of the internet startups are displacing existing businesses. They are doing things more efficiently and / or better than traditional businesses, which means they employ fewer people. If might take 100 people to get an internet startup rolling, but it could easily put thousands of people out of work.
  • The cost of everything except housing is going down, but fewer people are working so we've got more bums aka the 'homeless'.
  • Production requires more capital investment. Factories are increasingly automated. They produce more goods, better, faster and cheaper than ever, but the cost of building and equipping that factory has skyrocketed. No one is going to invest a billion dollars in a new factory unless they are pretty sure it is going to make money. And you can't compete in today's marketplace unless you can get your production costs down to almost nothing. Kind of an oxymoron, eh? It costs a billion dollars to build widgets that sell on the street for a nickel. The factory makes a fraction of a cent on each one, but they build a zillion of the things every year, so I guess it adds up.
I'm thinking we really need to bring back the sun god and start building pyramids. There's nothing wrong with our economy that good dose of old time religion and hard work won't cure.

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