Category Archives: Economy

Fleeced by the Fed

Posted on January 29, 2012 by James A. Bacon| 19 Comments

Fed’s zero interest rate bails out Wall Street and Treasury, sinks middle class

by James A. Bacon

The Federal Reserve Board announced plans last Tuesday to keep short-term interest rates at near zero for another three years and said it might embark upon another bond-buying program to drive down long-term interest rates. The stock market rallied and President Obama’s supporters hailed the rising stock market as a sign of his brilliance as a manager of the economy.

Call me a party pooper, but I see nothing good coming from this. Let’s set aside fears that the Fed’s jam-down-the-pedal monetary policy might drive down the dollar or ignite a monster credit bubble and focus on the topic that seems to preoccupy Washington’s political class these days: the distribution of wealth.

There will be winners and losers from the Fed’s monetary policy. The winners will be the nation’s debtors. The losers will be the nation’s creditors and savers. Debtors will continue to pay rock-bottom interest rates. Creditors and savers will earn rock-bottom returns on their investments. Indeed, with the Fed’s stated objective of maintaining a 2 percent inflation rate, many small savers will see the real value of their savings erode.

The largest debtor and biggest beneficiary of the Fed policy, of course, is the federal government, which owes more than $15 trillion and is on track to owe $16 trillion before the year is out. When compiling the fiscal 2012 budget, the Office of Management and Budget assumed that the interest on 10-year Treasury notes would average 3.6 percent this year while 91-day Treasury bills would average 1.0. percent. Compare that to actual interest rates today under the Fed’s easy-money policy: 2.1 percent for 10-year notes and 0.4 percent for T-bills. That averages out to roughly a full percentage point less than forecast – cutting Uncle Sam’s anticipated interest payments by about $150 billion.

That’s not the end to the Fed’s largesse. As the Fed purchases more long-term bonds, it collects more interest on the bonds, which it kicks over to the Treasury. In 2010, the interest amounted to $79.3 billion. As the Fed pushes bond purchases well past the $2 trillion mark, that number is likely to rise. Thus, Chairman Ben S. Bernanke’s contribution to deficit reduction could approach $250 billion this year – and yet more in 2013 and 2014.

So, how has this economic stimulus worked out? American consumers are huge debtors, too, but they haven’t seen remotely the same benefit. Total consumer credit outstanding in the third quarter of 2011 stood at $2.47 trillion – the same level as in 2009. But interest rates are lower, right? Yes, but only marginally:

  • The average interest rate on a four-year auto loan declined from 6.7 percent to 5.9 percent over the same period.
  • The average interest rate on personal loans slipped from 11.1 percent to 10.8 percent.
  • The average interest rate on credit cards eased from 13.4 percent to 12.3 percent.

If consumer spending has boosted gross-domestic-product growth over the past year, it’s not because marginally lower interest rates have made it so much cheaper for consumers to borrow. It’s because lower interest rates have devastated the incentive to save. What’s the point of setting aside money to earn a half-percent interest in a bank certificate of deposit or money-market fund when inflation trotted along at 3.0 percent in 2011 and, if the Fed is right, will continue at 2.0 percent this year? Your savings are losing value. Why not spend the money instead?

Mr. Obama bemoans the difficulties of America’s middle class. His answer: Raise taxes on rich people. Meanwhile, he says nothing as Fed policy eviscerates the savings of middle-class families who don’t have $1 million or more to invest in exclusive hedge funds or private-equity accounts that generate higher returns.

Mr. Obama bashes the greed-meisters on Wall Street yet says nothing about Fed policy that props up bank profits with hundreds of billions of dollars of low-interest lending.

The American people understand what they have to lose from higher tax rates, but they have no concept of how the Fed is fleecing them. Monetary policy is opaque even to those who follow it for a living, and it’s simply beyond the comprehension of most Americans – including a brain-dead press corps that is all too happy to peddle Mr. Obama’s narrative of a growing income gap and the injustice of the tax rate paid by Warren Buffett’s secretary.

But give Mr. Obama credit for this: While his handmaiden Bernanke plunders the middle class in order to prop up Wall Street and the U.S. Treasury, the president has exploited the resulting uncertainty and unease by posing as a champion of Middle America. That’s more than you can say for Newt Gingrich, who is attacking Mitt Romney for the sin of being a successful, wealth-creating capitalist, or for Mr. Romney, who seems incapable of defending himself. Like Sherlock Holmes and Professor Moriarty at Reichenbach Falls, they are locked in a death grip that will plunge them to their political demise.

I’ve never been much of a fan of Rep. Ron Paul, but the man is making more and more sense when he says it’s time to abolish the Fed.

This column was published originally in the Washington Times.

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Posted in 2012, Budget, Economy, Federal, Poverty & income gap

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Does Vlad Have the Right Idea?

Posted on January 25, 2012 by Peter Galuszka| 10 Comments

By Peter Galuszka

As conservatives argue about cutting deficits and keeping low taxes for the rich both in Virginia and nationally, a bigger question is coming up: does Vladimir I. Lenin actually have the answer?

Sounds strange, I know, but not if you read Britain’s center-right weekly business newsweekly, The Economist. In a leader titled, “The Rise of State Capitalism,” they note that the success of state-private economies in China and Singapore, countries such as Brazil and South Africa are flirting with the idea of turning back some of their privatization work and going more with state-owned companies.

As the magazine states: “With the West in a funk and emerging markets flourishing, the Chinese no longer see state-directed firms as a way station on the way to liberal capitalism; rather, they see it as a sustainable model.”

Also underscoring the success of state-influenced economies is a recent and startling Brookings Institution report that rates 200 global urban areas for their economic performance. Shanghai leads the list, followed by cities in Saudi Arabia, Turkey, India and more in China. None is an example of traditional, U.S.-style market capitalism.

Indeed, you have to go pretty far down the list, to spot 19, to find the first U.S. city, which is Houston and that’s all petroleum money. Washington is No. 134. We don’t even get to the Old Dominion until No. 159 and Virginia Beach. Richmond is a stunningly bad No. 191, beating out only comatose Sacramento among U.S. cities.

The study should be a wakeup call to Baconauts and Boomergeddons everywhere that maybe they are barking up the wrong tree. Or maybe, even worse, they are completely clueless. At Mr. Jefferson’s Capitol, legislators are playing shell games with budgets to make Mickey D. McDonnell seem like a modern, Republican governor worthy of a vice presidential run. And, we’re screwing around with public private partnerships such as the massive U.S. 460-area highway to give private biz a cut and let them toll the crap out of the rest of us for years — all in the name of Margaret Thatcher and Ronald Reagan who left the scene more than 20 years ago.

While budget hawks complain about the big bad government and public spending on such things as social services and infrastructure, their beloved model is fading into the dust bin of history. I’m no China expert, but I, like everyone, was taken aback by the  modern, efficient cities of Shanghai and
Beijing when I visited in October. Unlike the U.S., transportation was clean, efficient and hassle free.

Of course, The Economist must stay true to its OxBridge roots and come out warning that state capitalism with a big spoon of Asian Mandarin sauce might not be the best strategy for the West. But the trends are jolting and deserve a look.

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Posted in Budget, Demographics, Economic development, Economy, Finance, Infrastructure, Labor & workforce, Planning, Taxes, The Economy, Uncategorized

Good Move on Uranium

Posted on January 20, 2012 by Peter Galuszka| 2 Comments

By Peter Galuszka

Gov. Robert F. McDonnell has punted on the uranium controversy and that’s a good thing, assuming the General Assembly doesn’t lift the mining ban anyway.

There are simply too many unknowns about mining the tract owned by Virginia Uranium near Chatham and the state has no knowledge or regulations about mining the highly toxic and radioactive substance.

What’s more, there are big questions about whether it is needed. Market prices are stable and while developing countries such as China and India plan many new nuclear power stations, advanced economies such as Germany are scaling them back after the Fukushima disaster in Japan last year.

McDonnell’s decision comes despite an onslaught of expensive and extensive flackery by the local people who own the farms where the uranium deposit is located and the Canadians who actually control the company. The Virginia Public Access Project reports that Virginia Uranium has paid out more than $150,000 to political candidates and has hired five powerhouse Richmond-based PR firms. It paid all expenses for a dozen legislators who unwisely made a trip to France to see an abandoned uranium mine and who were treated to the delights of Paris on the way.

Virginia Uranium says it’s just dandy that McDonnell recommends delaying lifting the moratorium and continues its campaign, including a full page ad in the Richmond newspaper with drawings showing just how safely the tailings from the mine project would be stored.

The problem is that the issue isn’t just going away. If it doesn’t, the state will have to cough up money as schools go without to come up with regs. Virginia Uranium shouldn’t pay for them — they’d be tainted. But why should the state be burdened when it has so many other things on its “to pay” list?

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Posted in Agriculture & forestry, Disaster planning, Economic development, Economy, Environment, Finance, Land use, Money in politics, Planning, Politics, Regulation, Uncategorized

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Malodorous Portsmouth

Posted on January 18, 2012 by Peter Galuszka| Comments Off

By Peter Galuszka

Is there something stinky going on in Portsmouth?

It’s a question that has suddenly wafted up when residents of the port city learned that the Virginia Ports Authority has been in secret talks with Canadian-owned PCS Phosphate to put in a plant to melt sulfur pellets for fertilizer production.

The same project had been pitched for Morehead City, N.C. but was shouted down by a lively environmentalist coalition, which sparked a controversy that reached the office of Tarheel Gov. Beverly Perdue. PCS Phosphate operates one of the world’s largest phosphate mines in coastal Beaufort County, which is an easy barge trip away from either Portsmouth or Morehead City.

It’s a story near and dear to me since it was one of the first I covered as a cub reporter at the Washington (N.C.) Daily News back in my college-day summers of 1971 and 1972. The big mine, then owned by TexasGulfSulphur, had been in operation since the mid-1960s and had created all sorts of ecological challenges for the beautiful coastal plains and swamps of Beaufort County about 120 miles south of Tidewater. Water kept filling up the huge surface mine pit, so TexasGulf drilled wells to force water from an aquifer away from the pit. That dried up homeowners’ wells for miles and prompted years of lawsuits.

Later, when French oil giant Elf Aquitaine ended up owning the mine, which makes fertilizer products, the mine got the largest-ever fine at the time from North Carolina air pollution control officials. Canada-based Potash Corp. of Saskatchewan eventually ended up buying the operation and owns PCS Phosphate.

With a history like this, it’s small wonder Portsmouthians are up in arms about a sulfur melting plant which will only employ about 10 people. Company officials insist it won’t stink up anything.

But then, Portsmouth, an industrial town that hosts the Norfolk Naval Shipyard, has always been a touchstone for unwanted industrial projects. In the 1970s, an oil refinery was proposed by some independent oilmen but was never built. In 2007, Portsmouth pushed Chesapeake into ending an ethanol plant planned across the city line. That may have been a good thing since the U.S. has too many ethanol plants.

The VPA has come under criticism for keeping the sulfur project under wraps for as long as it could. After all, isn’t the VPA a public agency (“quasi” public agency)? The plant would be built close to nice old neighborhoods that Portsmouth has labored for years to revive. It would be only one mile from Norfolk’s waterfront that also has plants for a new revival after a renaissance in the 1980s.

Funny how these plans seem to come out faster in a more open state like North Carolina.

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Posted in Agriculture & forestry, Economy, Environment, Planning, The Economy, Transportation, Water-waste water

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Good and Bad Capitalism

Posted on January 16, 2012 by Peter Galuszka| 12 Comments

By Peter Galuszka

The Republican presidential primary season has taken on a peculiar wackiness, particularly when free market advocate Next Gingrich takes on front-runner Mitt Romney for his days as a private equity capitalist at Bain Capital.

The conservatives amongst us shudder at the very idea that something as precious as finance can be spotlighted (as they conveniently forget just how cravenly the finance industry nearly crashed our economy in 2008).

What raises my interest, however, is not that capitalism is inherently evil, but that there are different ways to go about it.

Harvard-trained Romney lead Bain Capital in the 1980s and 1990s and profited mightily. Bain was part of the leveraged buyout revolution of the 1980s in which financiers would target companies, amass takeover war chests, buy them and either sell them off or not. Proponents argue that this approach leads to greater efficiency and they cite the old Schumpeter saw that “creative destruction” is a necessary part of  boosting free market capitalism by chipping off dead wood and letting new sprouts grow.

Sounds good, but the fact is that the LBO raiders of the 1980s were not out for the betterment of mankind. They were out to make zillions of bucks, regardless of whomever paid the real price in layoffs, shattered lives and the like. This is apparently what Romney was up to, despite his unprovable claims that he “created” 100,000 jobs. NPR has knocked that one down, noting that Bain never kept track of such things, so how would Romney know?

Another point comes up in a Sunday Washington Post article by William D. Cohan a former finance executive with Merrill Lynch and Lazard Freres who wrote “Money and Power: How Goldman Sachs Came to Rule the World.” He says that Bain and Romney not only played the LBO game, they did so ruthlessly, even by private equity rules. “In my experience,” he writes,”Bain Capital did all it could to game the system by consistently offering the highest prices during the early rounds of bidding — only to try to low ball the price after it had weeded out the competitors.” This practice led to an industry-wide mistrust of Bain — that it couldn’t be held to its word.

If so, that suggests some bad things about Romney, who is devoutly religious. But this is not to put down entrepreneurship among aspiring politicians.

For another style look at U.S. Sen. Mark Warner. Back 30 or so years, he parlayed his experience as a young Capitol Hill aide and knowledge of federal communications law to rationalize the rising cellular telephone business. One thing he did was organize auctions of bandwidth needed for the telephones. That way, a company with rights to bandwidth in Phoenix could add to its local area by swapping its bandwidth in a place such as Buffalo to a firm that wanted to expend there.

Besides sorting out bandwidth, Warner also helped create telecom giant Nextel which is now part of Sprint. He also formed Columbia Capital, which financed the high tech boom in Northern Virginia in the late 1990s. He ended up with at least $200 million in personal wealth. He’s also a Democrat.

So, who do you think has created more jobs? Mark Warner? Or Mitt Romney?

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Thumbsucking, Richmond-style

Posted on January 15, 2012 by Peter Galuszka| Comments Off

By Peter Galuszka

The incredible, shrinking Richmond Times-Dispatch offers a lot less to read these days. Under  the leadership of Publisher Thomas A. Silvestri, many staffers have been fired to boost parent firm Media General’s top line. The effort hasn’t been entirely successful since its stock, once around $65 a share, is now a little better than $4 a share, admittedly better than the near buck a share low of a couple of years back that brought MEG close to delisting on the Big Board.

So, the TD tries to get around its dearth of real reporting by getting Richmond’s pooh-bahs to write tomes in the “Commentary” section about what a great job they are doing. These, coupled with Silvestri’s unfailingly sunny and typically mindless columns boosting the Confederate Capital, make for a more amusing section on Sunday mornings than the funny pages.

This Sunday’s section was kicked off by Eugene Trani, the fireball, former president of Virginia Commonwealth University. Trani is famous for growing VCU from a Tier Two commuter college to something aspiring to greatness. He bulldozed block after block of Richmond’s downtown to expand the university and make it more of an economic driver.

Now retired, Trani heads Richmond’s Future, which the TD describes as a “forward looking regional think tank.” That, in itself is an interesting choice of words. If it were “backward looking,” we’d be in more of a heap of trouble than we already are.

After a couple of years of heading Richmond’s Future, Trani has used the group’s mostly corporate funding to finance studies by a Federal Reserve economist and a VCU assistant professor. Together, these reports try to rate the Richmond SMSA, which Trani meticulously explains to the dullards among us, against 10 other SMSA around the country to see where it stands. Good and bad, it turns out. Second in per capita income and sixth in annual employment growth  compared to places such as Jacksonville, Fla. and Salt Lake City.

Writing in the TD, Trani claims  that it is important to know where Richmond  stands against other similarly-sized city. I looked thoroughly through his article to find more of a “so what” but couldn’t find it.

And that is the problem. Richmond’s business elite has been staring at its navel for a long time. There has been study after study trying to “benchmark” the city. Consultant James A. Crupi, who does a lot of thumbsuckers for the Fortune 100, did a study in 1993 that found that Richmond is a “glass half-empty.” He returned in 2007, funded by Greater Richmond Chamber of Commerce money, to find that Richmond had somehow transformed itself into a “glass half full.”  What that means, I have no idea.

There are other groups trying to get a real bullseye on Richmond. There’s something called the Capital Region Collaborative that promotes navel-gazing on a regional basis. Its ranks are fed from something called “Leadership Metro Richmond” which trains “leaders” to be big shots among the corporate salons and, of course, participate in and cheerlead Crupi and Trani style reports.

OK, fine. But so what? Trani says Richmond should boost its base in logistics. No brainer, there. Greatly expanded Ft. Lee is a dominant defense supply area and Richmond has a great central-location on the Mid-Atlantic coat. Too bad its tiny seaport was so badly managed that it has all but shut down. Richmond also should boost science and math studies, like every other burg in the U.S.

And, there’s something called the Commonwealth Center for Advanced Manufacturing, which is a multi-university and community college effort to take advantage of a new Rolls Royce plant east of Petersburg.

Small problem, there. The Rolls Royce plant was originally intended to build  parts for engines for corporate jets. The 2008 global financial meltdown, and  the bad judgment of big U.S. corporate titans to fly corporate jets to Washington to beg for Congressional bailouts, chilled that market.

Now, the big facility underway is looking for other markets. One hope had been making engines for the new F-35 joint strike fighter for the Air Force, Navy and Marines. That’s something anti-spending hawk U.S. Rep. Eric Cantor, a key player in the Richmond elite, pushed mightily although the Pentagon said it had another supplier and didn’t need more engines from Rolls. In any event, it won’t matter. Reacting to Republican anti-spending fanatics, President Obama is likely to cut back on the F-35 program.

These are small details, however. The reality is that no matter how much the Tranis and Crupis look into their crystal balls, Richmond’s economy is still pretty much dominated by electric utility Dominion, packaging maker MeadWestvaco and cigarette giant Altria, whose primary products are lethal and which moved its headquarters to Richmond after being pretty much thrown out of New York City. The region was badly hurt when mass retailer Circuit City self-destructed from bad management and chip maker Qimonda went under, with thousands of jobs, because of bad local markets.

Yet another firm went under, too, during the 2008-09 recession, mortgage lender LandAmerica. Interestingly, Trani was a director of the firm and, in that capacity, is a defendant in a lawsuit that alleges that he and others failed in their fiduciary duties because they took decisions that resulted in the collapse of the firm and major losses for investors.

The Richmond newspaper, naturally, doesn’t hit that one too hard. Instead, Trani, rather than a professional journalist on staff, will be writing a series of reports about his new think tank and where he thinks Greater Richmond rates and should be going in the Greater World.

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Posted in Budget, Demographics, Economic development, Economy, Education (higher ed), Energy, Land use, Money in politics, Planning, Politics, Regulation, Technology, The Economy, Transportation

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Lots on the Virginia Defense Chopping Block

Posted on January 9, 2012 by Peter Galuszka| 3 Comments

By Peter Galuszka

Barack Obama’s nearly $500 billion in budget cuts are certain to impact Virginia.

It’s only fair, of course, that if Obama is going to join the chorus of (largely Republican and often hysterical) budget cutters, then the military should be included. After all, we haven’t even begun paying yet for the wars in Iraq and Afghanistan even if the former was unnecessary and disastrous. Everything else, aid to the poor, education, medical care, is on  the block.

Most of the cuts appear to be aimed at the Army and Marine Corps, which did most of the fighting in South Asia. Perhaps that makes sense since there’s no similar war on terrorism on the horizon, not that one might be easily foreseen.

But there are some major, big ticket items whose value might be questionable. None is used directly by the Marines or Army and
some have a major footprint in Virginia.

Topping the list is large, nuclear-powered warships. These, of course, are made at Newport News shipbuilding, which is the only yard in the country capable of making nuclear-powered surface warships. It makes its fair share of submarines, too.

The U.S.S. Gerald R. Ford, now under construction at Newport News, costs about $13.5 billion. The nuclear-powered aircraft carrier can carry about 100 aircraft and is due in service in 2015. It has created thousands of jobs in the Tidewater area, but it has some question marks.

For projecting power, there’s nothing better. The aircraft carrier came into its own in World War II, replacing the battleship as the fleet’s most important surface vessel. For a half a century aircraft carriers have  been the most visible part of the Navy, although nuclear-powered submarines have much more stealth firepower.

During the most recent wars, the limits of aircraft carriers became evident. Its short-range aircraft were hard-pressed to sustain strikes within land-locked Afghanistan unless the Navy could organize complicated aerial refueling.

The most likely enemy of the future is China, and maybe Iran. The Chinese have been experimenting with a new ballistic missile whose major task is to explode on the crowded, munitions filled decks of American aircraft carriers. The missiles could hit targets 2,000 miles away. That would keep Navy strike aircraft about at the limits of their range.

Another big ticket item is the Air Force’s F-22 Raptor, a sleek-looking stealth jet fighter. Langley Air Force Base, has a number of F-22s which are designed as interceptors. Unfortunately, they were planned to counter advanced Soviet jet fighters and are somehow jobless since the Soviet Union doesn’t exist anymore. They proved useless in fighting Saddam’s forces in Iraq or the cave-dwelling Taliban in Afghanistan. They cost
$150 million a plane.

That’s also the approximate price tag for the F-35, a new jet fighter that is capable of hovering and taking off vertically. It had been planned for the Air Force, Navy and Marines, but faces cuts as planners wonder if updated but older model  F-15s, F-16s or F-18s can continue doing the job just as effectively.  The F-35 already has been a pork barrel item since Virginia politicians lead by House Majority Leader Eric Cantor wanted Rolls Royce to be the second maker of its engines. Rolls’ American operations are based in Virginia, which explains Cantor’s pork. The Pentagon was perfectly happy with a sole engine supplier (not Rolls). Now, a lot fewer F-35s may be built which will impact both Langley and Oceana Naval Air Station. Meanwhile, unmanned drones are coming into their own as powerful and much cheaper alternatives to traditional military aircraft.

It isn’t clear whether the many high tech, military software firms in Northern Virginia will be cut back. Apparently, Navy SEALs based at Little Creek and Dam Neck will be boosted given Obama’s plan to keep a
keen counter-terrorism force. SEAL teams, however, are few in number and don’t use many resources. Their impact on the Virginia economy is probably limited to bar tabs during Happy Hour on Shore Drive.

In any event, defense will be cut and Virginia is going to feel the pain.

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Virginia’s Defense Industry Might Survive the Cutbacks

Posted on January 7, 2012 by James A. Bacon| 5 Comments

Norfolk naval base

How will President Obama’s proposed defense cutbacks affect Virginia? It’s too early to say for sure but Bill Bartel with the Virginian-Pilot says there is reason to think Hampton Roads will fare well.  The new strategy, he writes, cuts the Army and Marines but “puts a greater emphasis on mobile platforms such as Navy ships, smaller elite units such as SEALs, and more high-tech defense systems.”

The Pentagon stresses the need to protect access to the “global commons” of the world’s sea and air routes that are crucial to world commerce, which would require the maintenance of a strong Navy. Defense officials say they want to maintain 11 aircraft-carrier groups and ships that provide strong ballistic missile defense capability. A prominent role for Naval Station Norfolk would seem assured. One red flag, though, is the Pentagon’s strategic emphasis on countering China in the Far East. Might that necessitate the shifting of a carrier group from Norfolk to the Pacific?

Given the continued reliance upon special forces, the Navy SEALS base in Virginia Beach should remain intact.

Although Bartel did not address the impact on Northern Virginia, the Pentagon’s future emphasis on cyber warfare and computer network defense would seem to play to that region’s strengths in Information Technology. The Beltway Bandits may have to adapt, but they will find uses for their talents.

The implication of Bartels’ article is that traditional Army and Marine bases may suffer the biggest cutbacks. That may spell bad news for Quantico. While the defense cutbacks clearly do put Virginia’s economy at risk, there is reason to hope that the impact will be modest.

– JAB

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More Hypocrisy from Philip Morris USA

Posted on January 3, 2012 by Peter Galuszka| 9 Comments

By Peter Galuszka

Tobacco has always been a powerful industry in Virginia since the days of the Jamestown colony. It is no less influential today as Henrico County-based Philip Morris USA and its parent firm, Altria,  constantly play shell games about the hazards of their products.

Just before Christmas, and right in time for the 2012 election year, Altria trotted out a new Website called “Citizens for Tobacco Rights” that seems designed to tap some of the anti-government, anti-regulation fervor of the Tea Party movement to boost its top line.

The company says that it is offering the Website so that smokers know their rights. It has a virtual smorgasbord of information about taxation, local and state laws limiting smoking and other government efforts to somehow restrict tobacco use, which is one of the largest health issues in the U.S. and kills a about 400,000 every year.

Yet what makes this new Website peculiar is that it goes against Altria’s low-profile public image that the firm has been trying hard to invent since it was one of four cigarette makers dunned for $206 billion by 46 states in 1998 because of health risks.

Philip Morris, consequently, started including health warnings about its products in four-color paper flyers and also on its Web page. In 2008, the firm split itself into two parts. Philip Morris International, based on Lausanne, Switzerland, was free to make cigarettes with several times the addictive nicotine and tar content as ones made in the U.S. and market them vigorously in the Third World where people might not understand the link between cancer, lung disease and other ailments and smoking.

Philip Morris USA, on the other hand,  took a far more benign approach, and from its new headquarters in Richmond, clung to a gradually diminishing base of smokers while telling them they really shouldn’t smoke. As it states on its Website: “PM USA agrees with the overwhelming medical and scientific consensus that cigarette smoking cause lung cancer, heart disease, emphysema and other serious diseases in smokers. Smokers are far more likely to develop serious diseases, like lung cancer, than non-smokers. There is no safe cigarette.”

The statement is on one part of the corporate Website. For an entirely different view, click on the new “Citizens for Tobacco Rights” page on the same site.  You get the impression that ordinary cigarette users are having their God-given rights trampled upon by nefarious do-gooders and government regulators. Let’s wave the “Don’t Tread on Me” flag. Invite Sarah Palin to speak.

One can only speculate on why Altria is trying this gambit at this particular moment. The obvious reason is that the firm’s propagandists want to tap the Tea Party sentiment to boost sales. In 2010, Altria Group reported net revenues of $24.3 billon, a 3.4 percent increase over the previous year.

The firm complains that it has been under heavy pressure since federal excise taxes were boosted in the late 1990s and many states and localities have banned cigarette smoking in public places. One is New York City, where city officials and not easily impressed with corporate money and from which Altria retreated its headquarters to Richmond. Another reason for the Web page could be that it’s been a long time since the 1998 health settlement and people tend to forget.

In Virginia, Altria is considered a sacred cow. It employs about 6,000 people and is one of the leading donors to universities, the arts and research. Its impact is especially strong in Richmond, where it operates its last large cigarette manufacturing plant in the country and funds everything from chairs at Virginia Commonwealth University to the Richmond Symphony.

Don’t think that the largesse doesn’t come without strings. When an artist wanted 400,000 cigarettes for a piece of artwork that was to be displayed at the Virginia Museum of Fine Art, Philip Morris said no even though it is a major sponsor of the museum. VMFA public relations people were careful to play that one down.

The new Website underlines, once again, the hypocrisy and contradictions of Philip Morris USA and Altria. Its ploys to encourage people to stand up for their rights while warning them its products kill are beyond routine cynicism. As it has since 1609, Virginia just plays along.

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Posted in 2012, Agriculture & forestry, Consumer protection, Economy, Environment, Federal, Health care, Public safety & health

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Still Honoring TJ’s Tradition of Indebtedness

Posted on December 30, 2011 by James A. Bacon| 6 Comments

Experian's map of 10 Best (blue) and 10 Worst (yellow) average credit scores for major U.S. metros.

James A. Bacon

It’s basic economics: Consumer spending drives the American economy, accounting for 70% of GDP. One reason the United States economy is in the doldrums is that consumers can no longer sustain the borrowing binge that propelled the economy during the 1980s, 1990s and 2000s.

In “Boomergeddon” I predicted that the savings rate would return to historical levels from the near-zero rate that prevailed before the recession as Americans worked to mend personal balance sheets and Boomers got serious about saving for retirement. Alas, I was wrong. I under-estimated the extent to which Americans were addicted to Mass OverConsumption. After rising to around 5% for a couple of years — better than before the recession but about half of what is needed — the savings rate dipped back to the 3.5% range in the months before Christmas. That gave a temporary boost to the economy, but it means Americans have a long way to go before restoring their personal fiscal health.

I also underestimated the polarization, myopia, self delusion and craven cowardice of our rulers in Washington, D.C. — and that’s saying something because I cut them little slack in the book. Given the pathetic performance of Congress and the Obama administration in closing the budget gap, the country now is hurtling toward Boomergeddon on an accelerated timetable. When I was writing a year and a half ago, I risked branding myself as a scare-monger by suggesting that the federal government would go into default within 15 to 20 years. Today, that’s the optimistic scenario! A year ago, it seemed ludicrous to compare the U.S. to Greece. Today, it’s apparent that Greece is a dress rehearsal for the collapse of Euro-styled social democracy and, soon thereafter, of the U.S. welfare state.

As individuals, we are helpless to change Washington. The main question worth pondering is where best to locate ourselves to ride out the coming calamities. I would say New Zealand — but that tiny country won’t be able to accommodate more than a couple million of the world’s economic refugees, which rules out most of us. That means picking a place in the U.S. If you’d like to live in a locale with still-functioning state and local governments, then you might consider one of the states with AAA bond ratings. Of course, as argued on this blog with some frequency, Virginia’s premium bond rating is built upon a rickety foundation of out-of-control federal spending that cannot long continue.

Which brings us back to consumer spending. Another indicator worth examining is the credit-worthiness of the population. Are there meaningful geographical differences in how responsibly Americans have prepared for the future by spending less, saving more and repairing damaged personal finances? All other things being equal, populations with higher average credit scores will be better situated to ride out the depression that will ensue from federal default.

Experian, the credit report company, has compiled the average credit scores for 143 metropolitan areas across the U.S. The worst credit scores (the yellow dots in the map above) are concentrated in the Gulf Coast from Texas to Mississippi, with Myrtle Beach, S.C., and Las Vegas thrown in for good measure. Gambling and credit don’t mix? Who knew?  Conversely, the best credit scores (the blue dots) appear not in the nation’s wealthiest metro areas but in a tight cluster within the Midwest, primarily Wisconsin, reflecting no doubt the frugal propensities of the Germanic-Scandinavian populations that predominate. Wausau, WI, with an average score of 789 on a 330 to 830 scale, has proven more immune to the siren call of Mass OverConsumption than any of the other 143 largest metro areas.

And how about Virginia? The national average score is 749. Metropolitan Washington scores 766 (29th best nationally), Roanoke scores 752 (64th) and Richmond scores 750 (71st). Norfolk scores 740 (89th), dragged down no doubt by all those drunken sailors. Virginians are not the worst spendthrifts in the country, but we’re definitely upholding the tradition of Thomas Jefferson who, like most other members of the planter class, died with massive debts.

Bottom line: Virginian consumers are as over-leveraged and addicted to debt as other Americans. When governments around the world go into default, banks take massive hits on their government bond holdings, credit tightens and interest rates rise, Virginia’s consumer economy will offer no safe haven from Boomergeddon. Spending will decline, sales and property tax revenues will plunge and state/local governments will have no choice but to slash spending in turn. There will be no succor for the weak.

Have a Happy New Year. Boomers, enjoy the last few years of prosperity you are likely to see in your lifetime.

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Posted in 2011, Demographics, Economy

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