Welcome to the Recession

As the economy slips into the depths of a [Recession/Depression] (your choice), people are starting to consume less. This decreased consumption could cause prices to go up. It sounds contrary to what would be expected. Let’s use a public utility like a water treatment plant as an example. The water utility has fixed costs. They have an administrative billing department and a group that maintains the infrastructure for water treatment and delivery. The more water consumed, the cheaper the cost per unit of production. Notice when consumption decreases drastically, the fixed costs don’t go away. The water company has to charge more per unit to keep in business.

Another misconception,“Raising taxes will increase government revenues.” It often backfires. In the 1930’s many municipalities raised taxes because the real estate base was reduced by more than half in some areas. In this case, raising the tax rate did not bring in more revenue, it brought in even less. People abandoned their homes; they couldn’t pay the bills they had. Banks today, are not foreclosing on certain areas of Detroit. Why foreclose and take possession, only to pay the back taxes and be forced to tear it down? Let the city have it (with both barrels)!

Government services will have to down size. The electricity for street lights is a fixed cost, as are public pension plans for police, fire etc. The tax base is just not there and the fixed costs are just that, fixed. Looks like education, law enforcement, fire and emergency services are in line and up front for a cut.

In private industry, the airlines fixed costs can be a double edged sword. Ticket counters, plane gates, plane leases, take off/landing fees and retirement compensation packages are all fixed costs. Add to that a not so fixed cost of airline fuel and fares that are no longer affordable to many people. Competition for the lowest air fares will run, almost of all them into bankruptcy. Naturally, our government will assume financial responsibility for these failed retirement plans.

The implied future for the airlines, suggest a death spiral for the fast food industry. Why spend 6 bucks for lunch when you can put it in the gas tank? Brown bag it to work with a thermos of coffee. That kind of kills the 4 dollar Starbucks latte. This could really put a crimp in the fast food industry. Figure 241 working days this year, a person could save $2,410 on coffee and lunch ($3,000 if you add in the taxes paid earning it).

Common sense doesn’t seem to work properly in our new environment. I guess too much money has fogged our sense of reality. Don’t expect too much help from Congress they’re all over at Countrywide getting their “Friends of Angelo” loan. Since 5 of the 6 caught were Democrats, it brings to mind the quote "If Democrats had brains, they'd be Republicans" (Don't take it politically--just joking around). We're just looking at those who got caught. I suspect there are a lot more, the imbalance makes me suspicious. I don't hold either party in high regard.

There is also a rumor floating around that the "Dodds Real Estate Mortgage Bailout Bill" is going to be renamed the "Bank of America Self Enhancement Bill." This way, the people that wrote it will get credit for their work.

It's a little like giving a hooker a signed blank check, with the taxpayer picking up the tab. Of course I guess we shouldn't bitch, the money is coming from the same place Congress got the 150 billion stimulus package to give to us. That was painless, wasn't it?

Link: Stop The Housing Bailout------------Click here to sign the petition. Name and email and you are done-- quick and painless.