Economics and Government26 Oct 2010 02:16 pm

I read the following two articles this morning and felt they help highlight two of my recent themes on this site, one that US journalism is dead and two that the emergent global economy will be dominated by a handful of people while everyone else is heading towards serfdom.
The articles will be in parenthesis, and my comments will not.

( Auto giant Ford Motor Company today said it has reported a 69 per cent jump in third quarter net income to USD 1.68 billion driven growth in North American operations.)

Many Americans will be angered by the fact that a bailed out company would be making such obscene profits. Yet, my focus would be in an investigation of how the profits were made.

(Ford attributed its robust quarter numbers to better products, momentum in North America and continued success at Ford Credit amid still-challenging business conditions.)

This explanation of profits is skillfully worded and misleading and, of course, is allowed to stand without any questions by the media reporting (or just printing) the story. First of all better products don’t make profits. So, the question is who is buying all these vehicles. There is no mention of the USA in particular which probably means sales were not strong here, but maybe had some improvement in Mexico and Canada (North America).

The real key here is the mention of the “continued success at Ford Credit amid still challenging business conditions”. What this most likely means is that the bulk of Ford’s profits are on financing of previous sold vehicles and not on current sales.

(”This was another strong quarter and we continue to gain momentum with our One Ford plan. Delivering world class products and aggressively restructuring our business has enabled us to profitably grow even at low industry volumes in key regions,” said Ford President and CEO Alan Mulally.)

(In terms of geographical locations, Ford has posted a impressive numbers in all the regions-North America, Europe and Asia Pacific Africa accept South America.)
Alan’s indirect message is that Ford is making more money selling abroad than in the US. And like most industries is making more profit through an increase of volume through an increase of customer base (global market). This means that while sales numbers are reducing in the US they are expanding in countries such as China, and coupled with the low cost of labor abroad is allowing Ford to make substantial profits even though vehicles prices are not increasing.

(Ford said it has,” posted a 28 per cent sales increase in Asia Pacific Africa, including a 14 per cent increase in China led by Fiesta demand and a 190 per cent increase in India led by sales of the new Ford Figo.” During the quarter, the company had announced plan to launch eight new vehicles in India by mid-decade and export Ford Figo from India to 50 markets.)

Yep, sales in emerging countries are what’s powering their profits along with the financing of vehicles.

(Ford said it will continue to post good numbers with increases in both cash flow and profitability in 2011.)

Sounds like a winning formula to me, get bailout money locally to help finance expansion abroad. Sit on hordes of cash, borrow money at almost 0% and then invest it in stocks and higher interest bonds and claim money made in this fashion as business profits. So, even though sales numbers are hurting you can still claim money made through investments as profits and make even more money as investors buy your stock because of your profit claims in quarterly reports. Add on to this the financing of vehicles already sold and:
Keep this up and you can become even wealthier without selling or even making cars and trucks. In the meantime until emerging markets go into a major economic downturn you can make even more additional profits through cheap labor selling cars to previously carless consumers.
Okay, now time for article number two.

(One out of every 34 Americans who earned wages in 2008 earned absolutely nothing — not one cent — in 2009.

The stunning figure was released earlier this month by the Social Security Administration, but apparently went unreported until it appeared today on in a column by Pulitzer Prize-winning tax reporter David Cay Johnston.)

Jesus, three percent of the working populace didn’t make a penny and no major publication bothered to even print the information. My claim of US journalism being dead seems less like an exaggeration now huh.

(It’s not just every 34th earner whose financial situation has been upended by the financial crisis. Average wages, median wages, and total wages have all declined — except at the very top, where they leaped dramatically, increasing five-fold.)

As I have mentioned many times on this site it appears as if we are heading towards a global deflationary spiral which will assist in getting the American and European middle class more in line with the wages of the rest of the planet. More and more wealth and ownership into fewer and fewer hands.
(Johnston writes that while the number of Americans earning more than $50 million fell from 131 in 2008 to 74 in 2009, those that remained at the top increased their income from an average of $91.2 million in 2008 to almost $519 million.)

The number of the wealthiest people whose wealth and standard of living increased was cut in half in a years time. These people aren’t poor by anyone’s standard, but the elite club of winners in the global economy is shrinking fast. While almost everyone’s wages and net wealth is in severe decline, the top seventy four people did rather well. There total wealth didn’t just increase 5% or 6%, or even 20% which would represent an incredibly lucky year in the stock market, but their wealth went up some 500% to 600%.

(The wealth is astounding, says Johnston. “That’s nearly $10 million in weekly pay!… These 74 people made as much as the 19 million lowest-paid people in America, who constitute one in every eight workers.”)

Let’s hear that again, seventy four people are making as much as 19,000,000 people. In other words 74 people are making more than 1/8 of the entire work force.
(In September, Senate Republicans along with a handful of Democrats, partnered to defeat the Creating American Jobs and Ending Offshoring Act, a bill that would have raised taxes on companies that send jobs abroad and benefited companies that bring jobs back to American soil.)

This is not about just getting rich. It’s about getting rid of the middle class and reducing all but a few to a life of servitude and subsistence living. Few will own and the rest will be owned. This sounds harsh, and I hope I’m wrong, but the data is the data.

When I try to make sense of many of the actions and trends of the last two or three decades no other explanation seems to fit the data. Trust me I keep looking for a more humane explanation, but none fits the data.

I am by nature an upbeat, energetic and positive person. I think we still have many opportunities to stop this madness, but you can’t change a problem until you identify it. The more accurately you identify and define the problem the better your solution can be.

So, here’s to having the courage and stomach to thoroughly explore and understand the problem.

Jim Guido

PS The first article I read on Google News, and the second article is from the Huffington Post.

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