Professor Elam

The Banana Republic of

America

 

Banana Republic is a pejorative term for a country that is politically unstable, dependent on limited agriculture (e.g. bananas), and ruled by a small, self-elected, wealthy, and corrupt clique.  A banana republic also typically has large wealth inequities, poor infrastructure, poor schools, a "backward" economy, low capital spending, a reliance on foreign capital and money printing, budget deficits, and a weakening currency

 

If your life has been turned upside down this past year, perhaps

Washington

,

DC

has finally come to affect you. I submit that the

USA

is looking more like a Banana Republic every day, let’s take a look. 

 

California

has long been a ‘window on the future’ for the

US

.

California

recalled its Governor a few years back. Now Governor Terminator is in even more trouble, but at least he is better looking than Gray Davis.

California

is dependent on lots of things, but is seemingly not in control of any of them.  The legislature, in its own culture of corruption, rejected  Gov Terminator’s plan for redrawing districts, and kept itself in power. Gee that  sounds corrupt to me!

California

is now broke, sending IOUs as tax refunds. The voters just rejected more taxes. Gee, what a window on the future!

 

 The  

USA

does not have  large wealth inequities other than Richard Fuld’s $300 M last year salary at Lehman. Lehman  then went broke along with a  few thousand other examples like that. By the way, did you know Fuld was on the Federal Reserve Board when that happened, really he was!  The PresBO says the infrastructure needs improving and that bridge did fall in the river in

Minnesota

. And gosh help you trying to drive down I 35 on Friday afternoon but …. We will need to resurrect Al Capp’s

Lower Slobovia

to find a country our math grads might beat on an exam. This has resulted in creative college degrees like Recreation and Environmental Engineering.  Our capital spending is to keep people in homes they cannot afford to begin with.

China

meanwhile is building a road system second to none. Our newer bridges tend to go nowhere….So actually we have high capital spending with negligible results.

 

And boy do we have a reliance on foreign capital. In an effort to rally those financial troops, Treasury Secretary Geithner was preaching to the faithful in

China

this week.  Chinese students laughed  when he claimed the

US

  has a strong financial system. It seems we will be printing trillions of dollars to jolt our economy. The economy as noted will be jolted by trying to keep AIG in business which is handily guaranteeing GM bonds.  We are also building magnetic trains from

Los Angeles

to capital intensive, business friendly, er ah

Las Vegas

.  The budget deficit will exceed an admitted  $1.5 trillion this year so no telling how high it really is.

 

The currency, dollar index, has fallen from 120 in 2002 to 72 this past year; that should qualify as weakening I would think. Interestingly the solution is to issue more debt while claiming the Dollar is strong. That debt is then invested urging folks to buy condos in Vegas, after all that magnetic train will need some riders.  Well, I hope this clears up the big picture.

 

Meanwhile here in Andrews,

Texas

, epicenter of land based petroleum reserves in

Texas

,  there is a reluctance to develop the oilfield. Why would that be?  Capital market confidence measured by the Dow Jones has been from 12,000 to 7500 to 14,000 to 6,600 to 8,500 as I write. Playing the US Dollar like a yo yo, the oil price rose to $145, fell to $35, and is now $68, probably headed to $75.  But what then?  (well keep reading this column like any good Indiana Jones serial….) These numbers will not fit into any workable capital budgeting model known to this accounting professor. The oil prices gyrate with the dollar, not oil demand.  And that is precisely the problem. Oil producers cannot be assured of a price which means they cannot price oil services into a workable business plan. 

 

Meanwhile, plans for alternate energy such as windmills flourish.  Plans to penalize carbon energy only need a few more votes from coal states to pass. Such mixed messages continue to make planning difficult.

 

So much for the main course, time for dessert, make mine a Bananas Foster, and hold the flambe.  We’re getting lean and mean here in the Banana Republic of the

USA

.

 

Stay in touch with Dennis the rest of the week at http://www.professorelam.typepad.com/markets

 

Professor Elam writes a weekly column for the Andrews County News.