Gregory Iwan

Open Letter to American Business

It's no longer 'whatever floats your boat' but whether or not your boat FLOATS at all.

It’s no longer ‘whatever floats your boat’ but whether or not your boat FLOATS at all.

Dear American business sector:

Here’s how it is. We, the consumers who keep this country viable (at least we once did), are NOT going to buy your crap until and unless you –

  1. Reduce your incessant, blatant, mind-numbing ads everywhere. That means the ‘web, television, everything. Enough is enough.
  2. Stop calling us if we don’t want you to. The simple rule is, if we didn’t ask you to call, don’t. We usually have “Caller ID” these days, and if we’ve never heard of you, don’t be expecting anyone to pick up. This goes for your scammer friends, too. Especially them.
  3. Lower your prices. How unequivocal can THAT be? Since when is a 30% return really necessary?
  4. This one is critical, because without it, we are all headed for the dumper. HIRE MORE, much more, AND PAY BETTER. Provide benefits (you remember those; the execs have them), and you will gain a more loyal, dedicated, secure (and, therefore, STABLE) work force. Or is that what you really want? Oh, it’s a growing return for the shareholders (usually that includes management) that turns your head?

Well, unless you’ve forgotten BA 104 and Econ 102, if the common folk (the “rabble?”) don’t have the money, they won’t buy, because they CAN’T! What’s that you say? Foreigners will take up the slack? Did you just climb out from beneath a rock? Most of them don’t have much money, either. How about that 1% group? Just how many lunches can one man eat, anyway? Can anyone drive TWO Porsche’s at the same time? Try it.

Otherwise, just keep punishing and laying off your CUSTOMERS, and see where that gets you. A rising tide lifts all boats. All we ask is that you stop punching holes in them.

Full speed ahead for the 1%

The economy is burning down and the 1% don't care.

The economy is burning down and the 1% don’t care.

Detroit’s default and bankruptcy say a great deal about where we’re headed, and that has little to do with the outcome for municipal bond investors or with the national debt picture. Many, many Detroit retirees are watching their pensions blow up in front of their eyes. What will they do? I’d lay odds we’ll have a gray version of Cairo’s Tahrir Square within two years if some entity fails to come to the rescue.

But these folks were mostly if not entirely UNIONIZED. So let ’em eat Alpo, the GOP says. And while we’re at it, we’re going to chop food stamps and vouchers for subsidized housing for the poor. In short, we just don’t give a Tinker’s dam about anyone except the 1% and ourselves, sayeth the buffoons on the wrong side of the aisle and the wrong side of history.

Where might this lead in short order? Assume no other municipality files for Chapter 9. But watch Detroit. See if CURRENT (union) firefighters begin ignoring calls, because there’s no future in it for them. These people are galvanized solid gold human beings, but they do have to eat. Now and in thirty-five years, and later.

What’s the GOP solution? Cut the budget some more. Cut taxes on those who can afford them. Cut the arguing and let us “deliver.” Like John Boehner means “deliver?” Pray that the country finally sees the real cost of the anti, do NOTHING Congressional GOP.

Or else, by the time it does see, climate change will make Detroit pensions completely irrelevant anyway. Oh, Boehner’s clowns are not about to allow anything to get in the way of that little matter, either. Who cares about a few polar bears or coral reefs? These simpletons care only about SUVs, resource extraction, and a 25% return. that’s what made this country GREAT, you know.

Twin Peaks Mall (Village): not a true renaissance

Much has been made lately over the intent to build a new shopping district in Longmont. Its proponent wants one and all to believe this will be a new “mall,” and that the reincarnation of the mall property will generate a retail renaissance in northeastern Boulder County.

One has to wonder about property developers. I worked with them long enough to learn that “earning” a development fee comes first; supply and demand come later. In this case the property developer has even convinced or coerced the city of Longmont to become its financial partner, and that after the former basically “stole” the pre-existing, nearly shuttered improvements. One does not have to be a trained real estate analyst to see that the lead tenant in Longmont retail centers is “available.” Not so obvious is the underlying potential for demand for retail business.

Photo by M. Douglas Wray ©2011 FreeRangeLongmont.comAdd to the large empty spaces once occupied by Kmart, Sears (part of the old mall) and the original Walmart on a tract adjoining the mall, and a number of vacations by restaurants that chose to flee rather than fight unrealistic rent increases. Consider that when the economy seemed stronger (1990s), there were about 49 square feet of retail space in the country for every person. Now, with incomes and employment down, development activity has largely caved. Largely.

Allowing for a reasonable average of no less than $125 annual sales per square foot, Longmont’s 6.4 million (or so) square feet of retail space, owned or leased, need at least $800 million of disposable income. Assuming that the population is still 87,000, that means each man, woman and child must have more than $9,200 of income after taxes and rent (or mortgage), to support the existing retail base of 73 square feet per person. How many households do you know in Longmont pulling down that kind of dough (gross income would generally be two to three times the “disposable” sum)? Adding to the challenges, more than half of Longmont’s work force leaves town each morning. Many people shop near work as well as, or instead of, near home.

To be fair, the city hasn’t done everything wrong here. Its public tiff with Dillard’s came about in large part because a previous mall owner was desperate to keep Dillard’s when other anchors were moving out. By the way, Dillard’s right to veto improvement or redevelopment is worth something on its own; Dillard’s owns more than just a store. Perhaps Dillard’s wants no competition, or maybe the developer doesn’t want Dillard’s to stay. We may never know. What seems important is that a city so hungry for sales tax continues to ignore what might be its biggest asset: its historic downtown. Look around the country and see what I mean. The possible ambiance and amenities there can’t really be matched by a sterile, stainless-steel series of coffins parachuted onto a parking lot the size of some counties.

Longmont could take a page from London, where a 50-acre development will be designed as a “brand pavilion,” aimed at allowing global labels to set up interactive exhibitions linked to the growing online buying trend. To its credit London intends to include more than 1,500 homes within its new attraction.

The effective economic lifetime of Twin Peaks Mall was less than 20 years. In 2034 the tax incremental financing to be imposed for the new “mall” will not yet be retired. If malls per se are becoming extinct, wrecking ball operators in Longmont may want to keep their machinery well oiled.

Hick, job security is not guaranteed.

Frackenlooper appears to be digging his own political grave.

Frackenlooper appears to be digging his own political grave.

If it’s not clear what our governor intends to do to bills that might inhibit oil and gas operations, then our legislators are less informed than I have believed. I hope there is sufficient spine in both houses to override any folly.

In the early 1970s the state almost mandated statewide land-use planning under HB 1041. That measure gave at least implicit authority to the state to “designate” numerous classes of lands as subject to “state interest,” meaning local land-use planning efforts could generally be ignored, if the state wished to do so. Sound familiar?

The Legislature didn’t take long to “come to its senses,” eviscerating the Colorado “Land Use (Control) Commission” by denying that body funding. At the time I disagreed with that move, but if one lives long enough sometimes a different ship comes in.

There is a difference between a matter being of statewide interest and being of interest to the state in each and every spot. Municipalities take precedence even over counties in Colorado.

Does CDOT hold sway where there are no highways? Does the Public Utilities Commission have any jurisdiction where there are no powerlines, generating facilities, pipelines, etc.? If oil and gas development is important to every individual in the state, then operations dedicated to that end are also. With modern production technology one needs not drill everywhere to withdraw oil and or gas somewhere. Best practices would dictate that in some cases, “somewhere” does not always need to be here.

I notice there are no oil wells near the governor’s mansion in Denver. Left unchecked, this governor may have drilling in Rocky Mountain National Park. Don’t laugh; he doesn’t plan on abbreviating his political career just yet. Maybe legislative representatives of the people will have to do that for him.

Hick and severance: possibilities abound

Governor John Hickenlooper today recently threatened any municipality in Colorado with legal action, should it have the temerity to try to ban fracking within its corporate limits. His remarks did not resonate from supremacy clauses (state laws are “higher” than local) or any appreciation for local land-use discretion. Rather, the Guv lamented that property owners “paid for” the mineral estates beneath their feet, and so must not lose. He also alluded to severed mineral estates. There lies the meat of the argument.

Only recently employed, directional drilling accompanied by hydraulic fracturing is being used to reach targets that can not be drilled with a vertical well.

Only recently employed, directional drilling accompanied by hydraulic fracturing is being used to reach targets that can not be drilled with a vertical well.

Most severances occur when someone sells a property and retains the mineral rights, or a portion of them. This may be a hedge against benefit from future development. But modern “fracking” was not generally known or acknowledged until 2007 or so, and so I doubt many property sellers anticipated or expected that particular form of beneficiation.

I was a commercial real property appraiser long enough to learn that the “bundle of rights” within a property depends on reasonable expectations, plus knowledge of what is feasible. If someone in Colorado retains rights to mining diamonds, he is pretty likely to be wasting his time. But when a property is purchased without a severance, is the buyer cognizant of what is to be deeded? If so, what is paid for it?

The answer is very little. Only a buyer of a mineral estate in an area where a certain kind of mineral production is not only likely but also being prosecuted, would pay what might be recognized as “market value” for that estate. The increment attributable to all or part of POSSIBLE minerals within a purchase of the fee-simple interest, encompassing minerals, surface, and everything else, is generally minimal. Oil and gas operators almost always lease; they have no interest in ownership. In these days of CERCLA that may not surprise. At least there were such days prior to Dick Cheney’s tenure in Washington’s Executive Office Building.

Monopoly moneySo, guvna, are you going to bat for the owner of the severed mineral estate, or the owner of a complete fee-simple property? Mineral values are speculative until proven by production; drilling may or not prove them. A former oil geologist ought to know that. You also should know that the market value of a speculative probability is lower than the value of what can be seen, touched, and enjoyed (commonly known as the surface of the planet). It is a real shame you have no interest in protecting that.

Fortunately, owners of the latter are usually citizens of the state and can vote. Owners of severed mineral estates may not live here. If you’ve got nothing better to do than sue cities, then I suggest you go back to drilling. In Zimbabwe.

Agenda: wreck the train to narrow the tracks

Wreck the train to narrow the tracks.

Wreck the train to narrow the tracks.

In Latin “agenda” means things [to be, or being] done. So some of our elected representatives in Washington have an “agenda?” I don’t think so.

First, the zeal on the part of some extremists, especially on the House side of Capitol Hill, for shrinking government is said to constitute (oh, THAT word!) an agenda. It certainly does appear they would wreck the train in order to narrow the tracks. Imagine, no FAA to ground the new plastic airliner. Note: the biggest customer for the Boeing 787 is the Japanese, who will soon and again be the country’s biggest creditor. Maybe we can get them to bomb us again, or threaten to. Say, a small island in the Aleutians as a shot across the bow? Don’t miss a payment, and don’t mess with Mrs. Watanabe.

How about no FCC to make sure television commercials are no louder than the programming? I’m not the first to point out that hasn’t worked. Neither does the “no call” list, but that’s a story for another day. In either case, what’s the difference?

These legislators SAY they hate debt. How many of them have a mortgage? Ah, ah, ah, ah; you freaks can’t use a credit card, either. If you’re gonna talk the talk, then walk the walk. All that “debt” verbiage is just garbage designed to strike fear into you and me. I’ll show you fear, when the Social Security checks stop arriving. These “lawgivers” would blackmail and bankrupt us all to prove their point. And if the USA goes down, we’ll take the rest of the world with us. But don’t worry. Your congressperson or US senator will set up food lines, man the electric plants, run the water and sewage treatment facilities, fix the roads, protect our borders, in short fill in everywhere. They have our backs. So what’s the worry? After all, we elected them; didn’t we?

‘Seems Pogo must have been right after all.

O & G will hurt Longmont economic development

Our former leaders, and some current ones, would have us think passage of Question 300 would somehow discourage business from coming here. On the contrary, every local “small” businessperson to whom I’ve spoken about fracking is dead set against it in the City. I am not at liberty to divulge any names, but elected or once elected officials need to think again. If anything were THAT rosy, I need to show them this land in Florida. It’s only wet part of the year, see. And if you trust the governor to rewrite the COGCC rule book after the coming election (up or down), then you’ve just got to look at this bridge I have to sell.

Capitulation to elevated petroleum development may say that Longmont has admitted defeat on the economic development front. While that would not surprise in the current macroeconomic environment, grabbing for any tree in the face of a tsunami isn’t always the best tactic. You could get hit by a boat.

Everything has a cost. Why don’t these “leaders” tell us what those might be? Of course, only the potential benefits get the ink. At least our former city manager has the sense and courage to remind us there could be a downside. And he should know. For many years he watched as local elected “leaders” dreamed schemes that he would somehow have to implement. And that isn’t always easy.

Blind promotion of even a “tested” technology is plainly unwise. It would be advisable to take out some insurance, but after the state’s response to the Lower North Fork wildfire this year (where a state agency was at fault), it seems unlikely anyone will replace a ruined aquifer or a depleted water supply, for starters. We could demand multibillion-dollar bonding from oil and gas operators, but no; that might “discourage business.” Whose?

I’m sure no one opposing local fracking is a wild-eyed, Boulder wannabe communist. My own councilperson works for a statewide business booster organization. My own councilperson works for a statewide business booster organization. I am certain no one opposing local fracking is getting a dime out of his or her stance. I wish someone would ask if the same can be said with regard to former mayors.

Factions and “Frack-tions”

Image courtesy of sxc.hu

Zoning law has supported municipal power for nearly a century.

The uproar over oil and gas operations isn’t going away, regardless of the result of the Longmont election this November. Since I won’t be filing an “amicus” brief with the court in the COGCC suit, I will release here some of my “secondary batteries.”

The governing body of a home-rule city, in this case the Longmont City Council, has virtually unlimited authority in Colorado to regulate, limit, or prohibit one or more uses of land within it corporate boundaries (or attach conditions to such use or uses). My experience as an urban/regional planner spans some 50 cities and towns, a dozen metro districts, and three dozen counties, nearly all in Colorado. Zoning law and theory have supported this municipal power for nearly a century. What is the reasoning behind this body of (mostly) common law? The answer is, the concept of “nuisance.”

If an owner of a parcel of land in a city wants to, say, process animal hides to make piles of money, he is not likely to get far if his neighbors will endure or will probably – even possibly – endure noxious or dangerous fumes, flows, effluents, vapors, odors, or noises. Normally when the effects of a use of land in this manner fail to cross the operator’s property boundary, everything CAN be fine. But cases exist where even ugliness has defensibly prompted limitations on use(s), and even interruption of sunlight has made the cut. It should be noted that the effects of “fracking” can and do travel across property boundaries, both above the ground (usually by “accident”) and below it (by design).

What makes the petroleum crowd think it can avoid these kinds of precepts and precedent? Just because a previous occupant of the White House gave them a Get-Out-of-Jail-Free card for hydrofracturing, with regard to a few major federal environmental measures enforced by the dreaded and leftist EPA, they must be encouraged – forced, if necessary – to remember that in the final analysis, all politics is local. If that means a “hodgepodge” of regulations evolves, what of it? Some places will likely WELCOME drilling.

In my view, at the core of this contest is one question: does municipal zoning govern only the surface of the land? Or are the subsurface and even the air rights above it also subject to zoning? Anyone who has built or bought a condominium knows or should know that zoned air rights make up what he is selling or building. As for what is below, a gigantic land-use case from the early 1920s is instructive (Pennsylvania Coal Co. v. Mahon). There the court concluded that the owner of the subsurface owed a duty to the surface (emphasis added), and to its owner or owners above, to prevent a loss of support. Loss of support often leads to subsidence (read “sinkhole,” or worse), which can also happen as a result of oil and gas extraction. By very limited and logical, reasonable extension, this landmark decision illuminates the concept – the need – for mineral operations to tread lightly, if at all. Witness provisions in countless U.S. land patents reserving one or more minerals, together with [only] so much of the surface as is required to access the mineral estate (sic). That kind of language places a mineral owner or lessee in the legal position of operating via an easement. Whether a prescriptive (indispensable) easement, or an easement of necessity, is not truly material. Drillers, of course, consider the matter as we now encounter it, to be a true “necessity” and count on our love affair with SUV’s and other motor vehicles, to shelter any and all abuses, accidental or otherwise.

How I wish Colorado or at least its cities would by now have adopted (there’s still time!) the mechanism of a “mineral resource overlay,” as a zoning convention. Such has served states such as the Republican bastion of Wisconsin well. An overlay can operate as a means of exclusion or one for inclusion, generally by “special review” and intensive deliberation. Jefferson County (and not the “socialists over near the Flatirons) studied and considered such an overlay early in the 1970s. A thorough review of Colorado’s Constitution and statutes will reveal that Colorado’s cities enjoy significantly greater powers than do its counties.

Courts may focus on a needle’s eye, but the instant matter is a much broader issue that should receive only the most thoroughgoing consideration. For insurance, let us hope the City of Longmont henceforth includes as a condition of every future plat approval a “Covenant of Non-Development.” Many jurisdictions in Colorado apply and require such a provision; it means no mineral processing or extraction on, in, under, or through the premises forever. There is nothing new or radical there. If a developer or property owner sits atop even a partially severed mineral estate, it is thereby incumbent upon him or her to first “make a deal” with the owner of the subsurface estate PRIOR TO application for development.

It’s only right.

Sense and sensibility?

Tied to the wheel

Tied to the wheel - for life

I wouldn’t want to bore or to lay burdens. I am aware we’ve all got ’em. But I have one example of business faces that should get some air, while I do.

One of my nieces has 6-month-old fraternal twins. they’ve come down with RSV, a virus I’m told is rather common in preemies (these kids were delivered at 29 weeks gestation). Their mother served in the Air Force, in Afghanistan. During her basic training she fractured her pelvis in two places. The Air Force, bless ’em, put screws in these. One held, one didn’t. In addition, the young lady is prone to kidney stones, some the size of ping pong balls. She opted not to have her current crop treated in south Asia, fearing an extension of her tour. The stones could not be bombarded with ultrasound thanks to the presence of the twins, conceived within thirty-six hours of her return stateside.

But wait; there’s more. My niece has also developed pericarditis. I am told the condition involves inflammation of the sac around the heart, plus fluid buildup. She would be undergoing proper treatment were it not for the RSV, which had one twin in a pediatric intensive-care unit for a week. The other, still at “home,” kept my wife’s sister up all night while she came down with the stuff; now this little girl has pneumonia. The bounce to look after these two tykes is stunning to watch. It’s given my sister-in-law what the physicians say may be a “nervous breakdown.” It was originally thought she had suffered a stroke. I’ve never put much truck in the “nervous breakdown” diagnosis of anyone. I think it’s a copout. Needless to say, the stress load on grandma has been beyond imagination as she also tries to look after her husband and mother-in-law a thousand miles away. HER husband would not be there, had it not been for yet another egotistical corporate executive who decided to carry a spear for a long-time (but growing “expensive”), loyal, capable, fair managerial employee. Starting to get the picture?

Enter the father of the twins. He has a middle-executive job with a medium-sized new car dealership located in the south metro area. The pressure quickly grew on him to “be there, and produce, or face ‘plan B’.” Three guesses what Plan B is. Here’s a young man struggling to earn something to meet an astronomical hospital bill, who is being torn from helping with the “bounce,” as both parents, two grandmothers, a family friend, a sister, and even an uncle and an aunt try to assist. It really does take a village …

This young father has received a load of dressing-down and a pile of work as his thanks for attempting to look after his family. No sympathy, only “where’s my profit, pilgrim?” Sounding familiar?

When I hear some business claim to be “family friendly” I must assume that means the CEO’s family counts. But not any underling’s. Deal with it, or else.

Damn, am I glad I’m retired. But I bleed for these youngsters. I wonder how much they can take.

Natural gas & Longmont: Risk motivation

The following is a statement excerpts of which were read before the Longmont Planning Commission February 15, 2012.

At one time I earned my living acquiring land rights and permits for two oil majors consecutively – CONOCO and Union Oil of California (UnoCal). I know a little about the natural resource industry, and a bit about the risks it faces and generates. More about that in a moment.

All the regulations in the world won’t prevent use of a defective piece of well casing, or what can result from a poor cement job. BP’s Macondo well in the Gulf of Mexico is one illustration of the latter.

A major condition or factor that could materially reduce potential damage from a modern directionally- drilled oil and gas well is less-dense well spacing. Unfortunately, spacing is controlled by the state.

I’ve read two authorities (one is Fitch, the debt rating concern) stating that the natural gas market is essentially selling the stuff today at the marginal cost of production. Now, there’s risk. Many holes are probably being planned under a “drill it or drop it” scenario. Loss of a lease may be more important than revenue.

I  have a list of some of the kinds of chemicals used in hydrofracturing, presented in the fall of 2008 at the annual Ground Water Protection Council forum in Cincinnati, Ohio. Here are just three:

Ethylene Glycol. This is good in your car’s radiator; not so good in your drinking water.

Glutaraldehyde. This is a “cold sterilant” used in the health care industry as well. Read “biocide;” you wouldn’t want your dog to go near this.

Hydrochloric acid. At any strength this is nasty material. You would find just a drop quite objectionable, and especially on your skin. If that isn’t taxis enough for you, in its stead Muriatic Acid is often used. This is fine for cleaning your swimming pool, but definitely not if anyone is in it.

I’ve learned that the typical fracked hole uses the equivalent of two rail tank cars of these chemicals. This is not the drilling fluids, but rather only the fracking additives. The next time you see the Burlington Northern go by, have a look at the tank cars so that you can comprehend the magnitude of this use.

We can only hope that that the first local drilling effort results in a dry hole. This would provide little to no encouragement to the mineral operators. Once these chemical migrate vertically through seams or joints in sediments (don’t believe they cannot), or up old, abandoned, even undocumented wells that did not have to be cased or cemented, then it is too late.

Interesting to me is that some sources in the industry say “fracking” can withdraw hydrocarbon gases and liquids from a radius as great as ten miles. I don’t remember granting a lease for my property, so if this is done from the east side of town then some oil firm is in mineral trespass. Many cities require a covenant of non-development (of minerals) in return for annexation or plat approvals. I recommend everyone thoroughly examine his title insurance policy.

The City as a surface owner has a bully pulpit from which to hold feet to fires. But more important would be a substantial performance and damage bond. While I worked for those mineral operators I secured legislative clearance to place mineral operations within the River of No Return Wilderness in Idaho, and gained regulatory permission to conduct operations within the suburbs of Baltimore, Maryland. The latter went within 150 feet of the Patapsco Reservoir, a city drinking water source. Obtaining these permits is responsible for only some of my grey hair.

To me the key for this city is to make failure very expensive for this undertaking. This explains why neither the Idaho wilderness nor the Baltimore reservoir has been threatened by drilling to date. Without a solid and enduring market, then, perhaps these promoters will go away.

We can only hope.

Road to … a Banana Republic

Dead set on doing damage

Trampling the republic into a Banana Republic

I wouldn’t be breathing a sigh of relief over apparent agreement over the national debt and deficit. Getting a runner to first base isn’t much, and we haven’t yet got him there (the “fat lady” – the Tea Baggers – will have to commit to the mixed bill at least once more). If there are words in it having more than one syllable, well . . . It’s easy to see why I’m not very confident yet. We have been here before. Remember the Newt Gingrich “Contract With [On] America?” The government shut down in 1995. And what happened? That flareup cost the USA plenty. And U. S. companies slammed on the hiring brakes. Markets HATE uncertainty, and companies, while not fearing the shareholders, tend to take a wait-and-see approach. Why do you suppose we’ve had a “soft patch” in the economy so far this year? When did the Tea-Baggers go to Washington? With all the continuing instability we still look like a banana republic, and interest rates could still rise, perhaps a lot. That would really help the economy, like throwing a drowning man an anvil.

The wealthiest among us drew a pass – again. So, too, have the “job creators,” or corporate titans. McDonald’s created 60,000 jobs or so via a nationwide job fair of sorts over a month ago. Over one million people applied. Bravo for Ronald, but those jobs pay what? $10 an hour? Wow. Pardon me if I’m underwhelmed. Those workers won’t be buying much, beyond toilet paper, gasoline, and beans.

Workers have never claimed a lower share of national income growth than now, after inflation. Total employment remains lower than in late 2008, when corporate profits troughed. Not much sign of a trough now. But there’s no more tailwind from federal spending, and there won’t be any, now that the GOP has arm-wrestled the rest of Washington to no worse than a draw. And it’s all one way with the “Inc.” crowd, which still has more than $1 trillion stashed overseas. The firms intend to either hold their breaths until they turn blue, or secure yet another exemption or sweetheart deal allowing them to repatriate those funds with few or no worries about their disposition. Can you say, it’s third Lexus time? No, the very rich will peel that largesse out of the coffers and invest it. Wasn’t it overinvestment that got us into such a mess in 2007-09? Same verse, different tune in 2000 (Internet bubble).

Numerous banks are repaying TARP funds by – you guessed it – borrowing from the U. S. Treasury. The financial industry spent almost $half a billion last year lobbying in Washington. That’s a lot of champagne, sister. Private-equity fund operators have shown they are willing to repudiate debt at the drop of a hat. Meanwhile, they continue to pay themselves enormous management fees. Banks or bonds, it hasn’t mattered. But stop the (federal) borrowing, they say. I submit these nefarious practices need to stop long before federal “spending” does. And know this: there are no data suggesting that deficit spending in inflationary, either (Federal Reserve Bank of Chicago, 2010).

Those who advocate “austerity” should look around to see how well it’s working elsewhere. In the United Kingdom, austerity has become a dirty word. Retail sales languish, tax revenues are stuck in low gear, and home sales are lousy. A lot to like there. The tea haulers should tell us whether they are aware that in 2007 the average income tax rate for the 400 largest tax returns in the USA was 17%, down from 26% in 1992. Fair share, my butt.

Businesses may claim that regulation or uncertainty or banks’ reluctance to lend lie behind their slow sales, but it’s easy to find the villain here. People out of work don’t buy. Larger firms have made a conscious decision to avoid adding labor. These same firms are taking business away from smaller concerns. No wonder corporate profits are through the roof.

I find it interesting and amusing that the American people have suddenly had it up to here with debt. These are the same people who couldn’t borrow enough. Maxing out three, four, even eight credit cards was pretty common four years ago. So now they’re ticked off at their national government for apparently behaving in similar fashion? I have long advocated higher wages for the “rank and file;” had many of us had higher incomes in 2005 or so, would we have just borrowed more? There’s a bet.

What a fragile, perilous state we find ourselves in. It’s like sailing through an iceberg field while the captain and helmsman are drunk. But don’t be complaining about federal spending if you are benefiting from same. And items as remote as federal prisons, water quality standards, the operation of the federal judiciary, and border patrolling benefit us all. Yup; federal spending. You’d think Uncle Sam was throwing hundred-dollar bills out of helicopters. No, that was said to be Fed Chairman Bernanke’s strategy. No, the only thing we have to fear is (guess what?) Fear itself.

Thanks, Franklin.

Where did all the (money) go?

Image courtesy of the Sunlight Foundation

Japan is in the news. Its fiscal situation is less of a problem than ours, because its households’ gross financial assets exceed their national debt. Why should we be in such a shape? It could be our spendthrift ways, egged on by incessant advertising. Or perhaps it’s America’s now chronically low wages. The bottom 20% of US workers now earns less than $27,000 per year. Try feeding a family on that.

 

Prominent economist Mark Zandi says the GOP’s anti-public spending intentions will COST the USA 700,000 jobs. So much for “jobs, jobs, jobs.” It’s a lot like “drill, drill, drill” while watching the Gulf Coast become coated with tar balls. Spending more has precisely the same effect as cutting taxes. The result is no different. So who got us here? If the party in control of the US House wants to do both, where is that taking us? The more the government delays tax hikes, the more its debt burdens are going to swell. It’s that simple. Most of the current federal deficit is being financed without increases in the publicly traded portion. That’s important. If you add up new Treasury issuance, subtract shrinkage in Fannie and Freddie debt and purchases by the Fed (when it buys Treasuries we owe more of the debt to ourselves, not foreigners), the result is that direct US borrowing in the markets is at a standstill.

US tax revenues are at their lowest level since Truman was President. The increase in our national debt was due not to fiscal spending to stimulate the economy. Rather, it was more due to an abrupt slowdown in economic growth. Where did all the growth go? Has anyone looked in the pockets of the bankers, hedge-fund managers, and mortgage brokers? Some commentators like to say that when people invest in domestic issues they are buying into American productivity. That may be the result, but the intent is to buy into American production, or what there is left of it.

Those who talk of cutting spending often really mean shifting spending. Look at Wisconsin. And to think there are conservative commentators who speak of provision of public services as “excesses.” See “pockets,” above. Again.

If rhetoric matched interest rates it would surely become very quiet around the country. That might save quite a few hearing-aid batteries.

Invest in human capital

Chief Executive Officers of the S&P 500 enjoyed a median salary in 2010 of only $1.025 million. Add in benefits and bonuses and that grew to $7.5 million. The stock market appears to be just fine with unemployment near nine per cent. For one, that helps assure an accommodative Federal Reserve. But recent tax changes are the most important consideration today.

These changes encourage firms to invest in physical, not human capital. They include accelerated depreciation, higher payroll taxes (states are strapped for cash), and higher workmen’s’ compensation or health-care costs, if not both. Something like 70 percent of more than $2 trillion stashed away by U.S. firms is gathering mold overseas. That’s around $1.5 trillion, with a “t.” If real tax rates were 30 percent, that might bring about $450 billion in to the federal government, countering the loss from extension of the Bush tax cuts on high-earning individuals. Firms don’t repatriate this money; in fact, they’d rather borrow more than bring it home and pay some taxes. I wonder if they’d rather not use our roads, bridges, airports, hospitals, schools, and jails. Maybe.

Most of the recent improvement in consumer confidence has occurred in higher-income households. I wonder if one reason Walmart has not been doing as well as usual lately, is that they cater to “middle America” — those making between $40,000 and $70,000 a year. This customer base is disappearing. I believe businesses for the most part have set themselves to “make it” on the consumption of the higher brackets. That explains the cash stash, even after potential taxes. Business does not seem to be innovating; it is playing not to lose. It might help if corporate leaders observed what happens to athletic team coaches who do the same.

Ounce of Prevention

Radiation, always a hazard

Back when ionizing radiation dose was measured in “Roentgens,” “rads,” and “rem,” (why change such a thing? To confuse us? Has the “yard” gone anywhere? The “meter”) I worked in a nuclear power plant owned by the United States armed forces – a “nuke.” It was rather small, but it was still dangerous. Once while I served as the plant health physicist (radiation safety officer to the non-cognoscenti), three men were working one day in the “spent fuel pit,” moving fuel elements and control rods that had come out of the reactor. These things are much more dangerous than fresh, new elements; those that have never been inside a reactor core could sit at your dinner table with you for weeks and not hurt you at all. You could even safely lick one. But once the thing has been in a core and run in a fission reaction, where nuclei break up to furnish energy, all bets are definitely off. Fission “products” are pervasive – goodies like Cesium 137, Strontium 90, Iodine 129. Take my word, please; you don’t want this stuff anywhere near you or your home in any form.

In order to finish their labor, these three crew members apparently overstayed their, ah, welcome. People who work in this industry are allowed to incur higher radiation exposure than the general public, theoretically because the former understand it better. When I heard about the time these guys had spent in the “pit,” I immediately asked to retrieve their film badges. I know; ancient technology. I was informed by the plant manager (an E-8, if you want to know and care) that these had been “contaminated” and so had to be deposited in low-level waste drums. I next asked for the crew’s portable dosimeters.

Direct-reading dosimeter

If I couldn’t immediately send the badges for an overnight development and reading, at least the dosimeters might provide some idea of the total dose these men had received. Nope; these, too, had apparently become contaminated. Gone. I immediately went to the three and begged them to take two showers. Then I directed them to be sure the so-called “hand and foot” monitors at the plant exit gate read absolutely zero; any reading meant they were not to leave. They could “follow orders,” but they didn’t need “the atom” following them home to their children. I never knew how overexposed these people may have become. The U.S. government didn’t seem to care.

Geiger counter

This incident, which I dared not report because of personal and professional safety concerns, was nearly parallel to another when low-activity waste was being loaded on an eighteen-wheeler (civilian contractor) for shipment to a dump in South Carolina. After only about one-fifth of the trailer was loaded (you know that the part nearest the cab gets loaded first), my calibrated portable sensor – not a dosimeter – told me the radiation flux limit at the driver’s head position had been reached. The same plant manager directed me to fill the trailer up. I told the driver to get out of the cab and to spend as much time away from the rig as possible. I seriously considered reporting the situation to the Atomic Energy Commission, but at the least I would probably still be in “the brig” for insubordination.

I knew a good deal then about nuclear energy and plant operations. Everyone in the crew was extensively cross-trained, and we had to memorize everything — I mean everything – on the whole property. I knew that one cause of the Three-Mile Island problem was that its crew did not know its plant well. Chernobyl, in the Ukraine, was run without much competence and poorly designed. With nuclear reactors in the news now, I wonder how much has changed, from supervision of demanding, dangerous work, to design (spent fuel pits in Fukushima, Japan, are not inside the reactor building; they are on the roof!), to unbelievably ill-informed siting decisions, or worse.

You can’t see, smell, or taste ionizing radiation. You probably noticed that in the dentist’s chair. When your uncle develops pancreatic cancer in the year 2036, can you say it was the Dr. Pepper he drank, or the years spent working at the nuclear power plant?

The problematic Japanese reactors are quite old. Numerous cooling and heating cycles may have meant that the steel in the containment vessels has suffered from a phenomenon known as “neutron embrittlement.” Suffice it to say, this process compromises the intergranular integrity of stainless steel, rendering it prone to cracking.

I also worked a long time in institutional real property market analysis, investment, and appraisal. I still know what makes a site “work” for a use, from a hamburger stand to a prison. There is no more than one reason (a ready source of last-ditch cooling medium if everything goes to the crapper) I can think of to build a cluster of nuclear reactors on a seashore, as at San Onofre, near Camp Pendleton in southern California. And erecting any such plant anywhere near ANY kind of seismic-risk zone is pure madness.

Go ahead; tell me where there is NOT seismic risk. I’ll hold.

Japan has a lot of nukes on the coast

The Wasatch Front in Utah is a high-risk zone. It hasn’t had an earthquake in two centuries, you say? How old is the Earth? Two centuries can’t even be found on a geologic time scale. You might explore the feasibility of placing these things (which will still be built, otherwise where you gonna plug in your electric car and recharge your cell phones?) on the core rock of one continent or another. In North America that core is termed the “Canadian Shield.” So much of Canada might work. Same for Brazil and West Africa. India is okay. Even most of Russia. Sorry; but, hey: we’re blessed with the Rocky Mountains, right? But Japan? Chile? You need to be certifiable. There is no “benefit” to balance the cost, even at an infinitesimally small probability, of even one Chernobyl. By summer we may have had five on the planet.

One nuclear-reaction product that doesn’t even have to be put in the fuel comes out with it: Plutonium 239. Neutron capture creates it. Think nuclear alchemy. This stuff is the stock and trade of Dr. Strangelove. Its half-life? Try 24,000 years. We humans built our first town about 12,000 years ago. It takes about ten “half-lives” for this stuff to “run down” through radioactive decay. Suffice it to say explaining such to your grandkids doesn’t come close.

So when the wizards in their hard hats show up at the hearings seeking to construct one of these things, what are you going to tell them? Does “hell, no” begin to get the discussion started?

Higher wages = lasting growth

Workers can't SPEND it if they don't HAVE it.

I must question the motives of politicians and pundits who wave potential inflation in our faces, like it’s the lantern in Paul Revere’s Old North Church steeple. If inflation returns, we just might be able to regain the illusion of prosperity, which was evident during the Greenspan Fed’s push behind more “irrational exuberance.”

The corollary to inflation for these Chicken Little’s is, of course, public debt. If there is so much concern, why are Republicans, including Newt Gingrich and Senator John Cornyn of Texas, floating a method for states to be allowed to declare bankruptcy? Why? So states can ditch pensions; that’s why! Unions are wounded and down, so why not finish them off?

States cannot operate if they cannot borrow. We’re going to learn this lesson the hard way in Colorado sooner or later. Of course, tax increases MUST be resisted, it is said, only because those most able to pay would pay most of them.

Those who complain most about government “spending” should do a little data mining. It turns out that there is now one government worker (at all levels) for every 13.96 persons in the USA, the lowest share of population in nearly twenty-five years.

Make no mistake, debt is still high. US household debt equals 100 per cent of Gross Domestic Product (GDP); throw in government and the non-financial corporate sector, and we have just over 250% of GDP, the same as the Eurozone. There go the French Fries, again. In the UK the total load is 280% of GDP, while in Japan it’s 370%. Australia’s ratio of household debt to disposable income is 156%, highest among major economies. But Australia’s economy is growing at a rate north of four per cent, and its unemployment rate is descending toward four per cent. Some in the bond-rating game who three years ago couldn’t find an issue or issuer they did not love, have lately focused on debt ratios to revenue. Well, that’s easy to fix (see “those most able to pay,” above).

Reducing the ratio of debt to GDP requires a growth rate including inflation higher than the interest rate on that debt. Starting to see that inflation may actually help, if it isn’t wildly excessive? A significant part of US Treasury debt is short-term, making the value of that part of the debt less sensitive to inflation. Ben Bernanke truly may know more than the rest of us!

Throughout most of the period 1998 – 2007 US personal consumer expenditures generally grew more quickly than did the personal saving rate. Personal debt will constrain any return to those high-growth days and ways. I can see only one way back to real and lasting growth: higher wages. That would reduce some of the (trash) tax-talk and revive some consumption. For the long term we might even goose benign investment through saving. But first, American households need to have something to save FROM.