Who is lying to who?

I guess that title should actually be “whom” for all those grammar cops out there… but I never professed to be totally literate!

Well if you will remember I posted the other day (7th this month) about having done the company survey.  Maybe I should be working a little harder on my “Exit Plan”?  Well maybe not as I don’t think anyone reads this stuff but me.  Although this latest Dilbert really fits right behind that last one…

Now, Some get smart statements, I collected these from my recent reading about the markets and trying to learn a little financial smarts.  The problem with this type stuff is now I need to try and digest this stuff? – WD0AJG

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Companies are NEVER going to come out and tell you the future looks like crap because they are compensated with stock options as part of their pay package and are thereby enticed to keep the rose colored glasses on at least for public press releases.

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The ability of US corporations to maintain their bottom lines in the last two years has been remarkable due to massive cost cutting and layoffs. However, that strength in earnings will not persist without a rebound in revenues, which as we have stated many times, cannot happen in a debt deleveraging, consumer saving environment.

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A country’s economy divides into three sections: private, government, and exports. If you play with the variables a little bit you find that you get the following equation. Keep in mind that this is an accounting identity, not a theory. If it is wrong, then five centuries of double-entry bookkeeping must also be wrong.

Domestic Private Sector Financial Balance + Governmental Fiscal Balance – the Current Account Balance (or Trade Deficit/Surplus) = 0

By Domestic Private Sector Financial Balance we mean the net balance of businesses and consumers. Are they borrowing money or paying down debt? Government Fiscal Balance is the same: is the government borrowing or paying down debt? And the Current Account Balance is the trade deficit or surplus.

The implications are simple. The three items have to add up to zero. That means you cannot have surpluses in both the private and government sectors and run a trade deficit. You have to have a trade surplus.

Let’s make this simple. Let’s say that the private sector runs a $100 surplus (they pay down debt), as does the government. Now, we subtract the trade balance. To make the equation come to zero there must be a $200 trade surplus:

$100 (private debt reduction) + $100 (government debt reduction) – $200 (trade surplus) = 0.

But what if the country wanted to run a $100 trade deficit? Then either private or public debt would have to increase by $100. The numbers have to add up to zero. One way for that to happen would be:

$50 (private debt reduction) + (-$150) (government deficit) – (-$100) (trade deficit) = 0. (Note that we are adding a negative number and subtracting a negative number.)

Bottom line: you can run a trade deficit, reduce government debt, and reduce private debt, but not all three at the same time. Choose two. Choose carefully

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the domestic private sector and the government sector cannot both deleverage at the same time unless a trade surplus can be achieved and sustained. Yet the whole world cannot run a trade surplus.

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The Final getting smart is this “snip” from the recent post of a weekly letter ( The X-factor from Street Talk Advisors).  You do have to sign up to read this but it is free.

Title is “Taxes – Who Pays It And What I Think About It”

This one hits home on both Taxes and CEO pay to a little extent.  Both seem to be out of control and disproportionate in what is paid and by who or to who.   I once had a friend/co-worker tell me that “America’s greatest pastime was not  baseball – it was big corporations or the government screwing the workers” – I laughed it off at the time but now, maybe I need to revisit that?  – WD0AJG

“Let’s look at some facts: