Give Cash to Viable Industries, Not Banks
Source: James West, Midas Letter††(1/21/09)
Government treasuries are only prolonging the inevitable and showering manna from heaven on the most undeserved with the bank bailouts now raining down on financial institutions from New York to London. And making loans to industries that are bloated with inventory, employees and inefficiencies is akin to prescribing dieting to anorexics. Itís sheer folly. . . Obamaís determination to evolve a greener fueled infrastructure is probably the best idea, though the huge hydrocarbon complex is not going to disappear overnight.
The banks uniformly add the cash to their balance sheets, but they donít lend Ėeither to business or to each other. They nobly announce the reduction or elimination of bonuses for top management, but there is virtually no mention of major scaling back in base pay. Guess where that bailout money is going?
Besides, how many banks do we need? If we all seem to moving towards an acknowledgment that excess credit and the artificial capital it conjures up is a primary characteristic of overheated bubble-prone cycles, then bailouts should take the form of shut-downs and career transition counseling.
Automobile sales have plummeted, and lots are full of brand new cars that few are buying. What good is it propping up auto manufacturers with huge inventory surpluses with precious capital? What are they going to do? Build more cars that nobody will buy?
There are other industries that are in the midst of an unwanted yet inevitable down-sizing Ė the victims of the secondary and tertiary waves of recession. The airline industry is the most obvious. Anyone who has been flying around a lot will surely notice the pleasantly short lineups and empty rows of seats on aircraft. Following the airline industry into contraction will be the aircraft manufacturing sector, tourism related businesses such as hotels, rental cars, restaurants, attractions.
What government economic managers need to do is look at the industrial landscape with a dispassionate and non-populist eye, and ascertain where demand for commodities and their derivative products are likely to result in consumption. Then, invest in those industries so that the workforce from bloated downward trending industries can migrate to promising revitalizing sectors.
Infrastructure build-out, though necessary, couldnít come at a worse time. A national make-work program funded by imaginary dollars isnít going to do the U.S. economy any long-term favors. Again, it only prolongs the agony. Infrastructure build-out should occur organically from regional tax-bases.
Of obvious candidacy in this regard is the natural resources industry and agriculture. Among natural resources, exploration is of singular viability. Identifying mineral deposits within the territory of the United States is building a reserve of metals that could be accessed when the economy moves back into a growth phase. Considering the worldís future requirements for uranium, gold, silver and a multitude of other industrial minerals, it is remarkable that no talk of investment in this most basic industry is tabled.
Obamaís determination to evolve a greener fueled infrastructure is probably the best idea, though the huge hydrocarbon complex is not going to disappear overnight. Shell, Chevron and BP had all set up test hydrogen filling stations in an effort to position themselves as the best-suited for massive investment for that infrastructure. However, at this point in the game, hydrogen is a long way from fulfilling its promise, and the electric and gas-electric hybrids are starting to lead the race to commercial viability.
One of the industries thatís going to need a build-out in the near future is the recycling business. Considering the vast number of housing projects and office towers now sitting half complete and stalled for financing across the United States, there should be a lot of money in recovering the building materials used before they corrode, rot and rust their way into uselessness.
Americaís strong suit has historically been its innovative spirit, for which is celebrated the world over. Its what put America on top of the global economy in the first place. Trying to revitalize the economy through the ersatz funding of banks and auto-manufacturers flies in the face of that tradition. America can do better than that.