We Need To Get Aboard

China, the second largest economy after ours, has invested $360 billion in high-speed trains which carry passengers between large cities at 200 mph.

Spain, despite its economic challenges, has invested $170 billion in high-speed rail systems. A similar rail expansion is taking place in Europe; this runs from the boot of Italy to the Baltic Sea.

Worldwide, however, most nations are not associated with such rail infrastructure, but India, Brazil, Argentina, Morocco and others are planning high-speed rail networks.

WMB believes these countries understand that modern rail systems are critical pieces in developing competitive 21st-century economies. They see the problems caused by dwindling oil supplies, congested highways and airports, and soaring carbon emissions.

Unfortunately, the United States has been sidetracked by controversy involving high-speed rail.

Deficit Versus Jobs

Officials in some states think a rail system will only add to the already high and unprecedented government budget deficits. But advocates argue it will make our infrastructure more efficient and create badly needed employment.


The Obama administration and various states will ensure the foundation of a national high-speed rail network will be laid in the next several years, according to the U.S. High Speed Rail Association.

This financial foundation includes $8 billion in federal stimulus funds slated to extend the network 17,000 miles by 2030, between all major cities in America, and at a cool 220 mph.

California will get $2.34 billion, the largest award,to help set up a high-speed line between San Diego and Sacramento by 2026.

States receiving more than $150 million in federal funds include Florida, North Carolina, Illinois, Washington, Oregon, Wisconsin, Ohio, Michigan, Virginia, and New York. But the governors of Florida, Wisconsin and Ohio, calling the rail project a boondoggle, have rejected funding.

Eventually, private funding would be included in the projected $600 billion project.

The Rail Alternative

The reasons so many interest groups support creation of a national high-speed rail system are straight-forward.


The United States has become far too dependent on foreign oil. Americans use six times more oil per capita than Europeans.

Currently, we spend up to $700 billion a year to import foreign oil, with 70 percent of this consumed by cars, trucks, and airplanes.

With oil prices hovering at $100 per barrel, the American economy is in jeopardy.

And most experts believe that we have hit the point of peak oil. This means that as demand soars and supplies decrease, the price per barrel could reach $300 within this decade.

Andy Kunz, president and CEO of the U.S. High Speed Rail Association, says enhancing America’s energy security is one of the best reasons we need a state-of-the-art high-speed rail system.

WMB agrees, and we think a national high-speed rail system will create millions of jobs, help revive the manufacturing sector by incorporating our steel and related components, and alleviate pressure on a crumbling infrastructure.

A side benefit would be removal of many vehicles daily from our clogged highways. Traffic delays cost the U.S. economy an estimated $156 billion annually.

Green And Viable

Then there’s the environment.

A national rail system also would dramatically reduce our collective carbon footprint. Advocates note the cost of building will decline each year and, eventually, exceed the estimated $600 billion budget.

Although much of the funding will be public, many believe the private sector can best run such an infrastructure.

WMB believes the United States must build a high-speed rail network to stay competitive in a world economy.

Why not put the money we spend on imported oil into a new rail infrastructure? The stakes are high, and we can’t afford to do otherwise.

America needs to embrace change, or we won’t control our destiny in the near-term.

Improvements on high-speed rail could one day reach over 300 mph and help maintain our global position and competitiveness.

We shouldn't be left behind at the station!

TechMan

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More Spending Won’t Ease Freefall

Federal Reserve Chairman Ben Bernanke recently cautioned Congress that the economic recovery remains “unusually uncertain.” But he also did not offer any practical recommendations to sustain continuing growth.

Critics and analysts at financial think-tanks point out that what really matters most is debt as a percentage of Gross Domestic Product, the total market values of goods and services produced by workers and capital within a nation's borders during a given period (usually 1 year).

Since the United States can’t lower interest rates any further, the next logical option is for the Fed to start buying Treasury bonds. Some financial experts believe this action might lead our country to the brink of a financial meltdown.

Exceeding the 90 percent debt/GDP threshold is a recipe for disaster, and it may be impossible to recover from this, according to economists Carmen Reinhart and Kenneth Rogoff.

While Bernanke said the Fed has options necessary to produce more growth, even with interest rates unable to go lower, he would not elaborate. Meanwhile, stock market and real estate prices continue to vacillate and hit lower-lows.

“We have not come to the point where we can tell you precisely what the leading options are,’’ Bernanke told Congress. “Clearly each of the options has potential drawbacks.” He added, “They’re not going to be the conventional options. We need to look at them carefully to make sure we’re comfortable with any next steps we may take.”

Last month, we cut both our third-quarter 2010 and full-year 2011 GDP estimates to 1.7 percent. During this period, the consensus for GDP growth estimates was around 3 percent.

Now we’re starting to see big brokerage analysts and the Fed lower their estimates, but even that doesn’t seem to be enough. The Fed’s estimates for 2011 had to be reduced. So how long will this persist and where does that take America?

To put the scenario into context, economic growth is slowing worldwide – both domestically and in China, the most populated place on the planet. This will keep the U.S. dollar weak and equities depressed.

We at WMB believe there will be a continued downward trend to our GDP as long as debt-financed-deficit spending continues and is the prescribed solution for Congress and our central bankers.

Wall Street’s downturn last week is probably because the Fed leaked word that the second round of “quantitative easing,” known as QE2, is coming. The first round in 2008 to prop up the ailing housing market and pay down credit facilities for big banks wasn’t enough to turn the economy around.

What Do The Numbers Mean?

With a record high of nearly 41 million Americans on food stamps and 45% of the unemployed seeking work for six months or more, what else can be done if the second round of deficit spending doesn’t work?

Before the Fed begins to throw even more money at the floundering economy, there are some economic indicators that should be considered and will not be helped by more deficit spending:

• The U.S. dollar has been down for nine consecutive weeks; down 9 percent since last June.

• T-bill yield are at record lows; two-year yields are shrinking to 0.49 percent.

• The yield spread (the difference between 10-year and two-year T-bills (which shows a long-term confidence when it’s high) continues to collapse.

• The S&P 500 is down below its 200-day moving average (an indicator of a market or stock) of 1115.

• U.S. volatility is spiking from its recent stability.

• Japan’s markets are down significantly; down 11.9 percent for the year to date.

Though many analysts try to quantify our economic situation empirically, it may be much easier to summarize it through the words of French political thinker and historian Alexis de Tocqueville, 1835 author of Democracy in America.

He wrote: “The American Republic will endure until the day Congress discovers that it can bribe the public with the public’s money.”

This post is by TechMan, WMB co-author who blogs about trends, issues and ideas affecting business, industry, technology and consumers.

U.S. Deficit Spending Is Riptide

When President Barack Obama proposed his 2010 budget, he highlighted health care, clean energy, education, and infrastructure as priorities. Deficit control received passing mention.

The federal deficit was $1.42 trillion last year and an additional $1.17 trillion will be added during fiscal 2010, according to the Congressional Budget Office. By the end of 2020, the CBO projects an accumulated deficit of nearly $10 trillion – and it could easily go higher. The numbers are staggering!


Tax increases will be levied on the highest income earning taxpayers, returning the highest marginal tax rate of 39.6 percent, indicative of the Clinton era, according to the CBO. Funding for Medicare, Medicaid and Social Security has jumped by about 13 percent over the 2009 federal budget. The base Department of Defense budget has increased through 2014 by an average of 1.2 percentage points, from $534 billion to $575 billion.

Estimates of revenue are based on optimistic Gross Domestic Product growth that exceeds the CBO’s January forecast through 2010 but is broadly consistent with it from 2011 through 2019.

The budget’s GDP growth assumption is more optimistic than the February Blue Chip consensus forecast through 2014 (by an average of 1.2 percentage points) but again is broadly consistent with the Blue Chip from 2015 through 2019.

What does all this mean? We need to follow the money trail and its impact.

Budget Deficit vs. National Debt

A budget deficit is when you spend more money in a given period (i.e. month) than your income. So what do you do? You borrow (maybe in the form of a credit card) to pay it back. The amount you borrowed is called your debt. But you have to pay interest on your debt. If by next month you can’t cover your spending, you have to borrow more and you still are saddled with the interest on your loan.

If you have a deficit every month, you have no choice but to keep borrowing and your debt accelerates. Eventually, your interest payment on the loan is bigger than any other item on your budget. Over time, all you can do is pay on your interest payment and you may not even be capable of covering that portion. And there’s no money left to pay for any other line items. This situation is known as bankruptcy.

Every year since 1969, Congress has spent more money than its income. The Treasury Department must borrow money to meet
budget appropriations made by Congress. The United States must pay interest on that huge debt, and now the Treasury Department is having trouble finding lenders.

A recent BBC News article – “Foreign demand for U.S. debt drop by record amount” – reported that foreign demand fell by a record amount in December as China reduced its holdings. The Treasury Department said foreign holdings fell by $53 billion, a new record.

China cut its debt holdings by $34.2 billion. This means that Japan is now our biggest debt holder after China. This drop in demand may mean the United States might have to pay more to borrow while servicing a record and growing budget deficit.

China previously questioned whether U.S. T-bills and notes are safe and whether we can sustain our deficits. China now questions the U.S. position as the world reserve currency.


This year our federal budget is nearly $14 trillion and is projected to create a record deficit of over $1.5 trillion, further weakening the value of the dollar. To put this into perspective, our budget deficit is becoming a larger portion (percentage) of our overall budget.

Over the last 75 years, Congress has enacted laws to create more debt to pay for our underfunded entitlement programs such as Social Security, Medicare and the Medicare prescription drug program. These programs now total nearly $108 trillion.

How Long Can We Sustain The Deficit?

We can’t keep raising taxes or print money to pay for our entitlement programs, especially with unemployment stuck around 10 percent. Wall Street really can’t get too aggressive again by creating derivative and hedge fund markets – that’s what the housing bubble was about.
This country needs to create new wealth to get out of this mess. There are only a few areas of opportunity left to accomplish this nearly insurmountable feat. For instance, we need to develop renewable energy industries, leverage our agricultural prowess, and harness our intellectual properties working through our institutions of higher learning.

We live in a world economy. We must work in conjunction with our government and institutions of higher learning to add value to our country if we are to create more wealth relative to the rest of the world. Otherwise, our standard of living will continue to show serious decline.

This post is courtesy of TechMan who writes about trends, issues and ideas affecting business, industry and technology.