Rep. Dennis Richardson on the economy

I will start this month’s important message on the economy with a story. It is about a farmer who desperately needed a good farmhand to help with the harvest. One young man came and interviewed for the job. The farmer asked, “What are your qualifications?” The shy young man quietly answered, “I can sleep when the cold wind blows.” The farmer didn’t know what to make of the young man’s curious reply, but since the farmer had no other options, the young man was hired.

Throughout the harvest season the farmer was puzzled by his worker’s answer on that first day they met. Nevertheless, the young man worked hard and that was enough for the farmer.

Unexpectedly, one evening when the Autumn leaves were falling, a cold northerly wild began to blow. It came suddenly, the first major winter storm. The farmer had been in town and as he rushed back to the farm the harsh winds were starting to howl. The farmer was in a panic. He quickly pulled on his heavy boots, grabbed his work coat and, as he rushed out the door, called to the young man, who was already in bed and fast asleep. As the farmer ran to the field where the tractor had been left to rust, it angered him that his young farmhand would sleep when there was so much to be done and so little time to do it.

The farmer cursed himself for not fixing the hole in the barn’s roof, knowing full well the rain and snow would soon come. He wished he had called ahead to tell his young worker to herd the animals into the barn when it was still light. On he trudged, in the dark with his coat pulled tightly and his head bowed into the wind.

Not finding the tractor in the field where he had last seen it, the farmer slogged his way to the barn. There he found inside, the animals all safe and secure. He found each stall supplied with clean hay; the leaky roof had been patched. In the shed was parked the tractor, dry and protected from the elements.

The farmer took off his hat and scratched his head in amazement. “Who could have done it?” Then, in an instant, he understood the young man’s curious answer, “I can sleep when the cold winds blow.”

The winter winds of America’s economy are blowing. On Friday, March 14, 2008, Bear Stearns, one of the largest stock and securities companies in America announced it was essentially insolvent. The stage was set for a stock market sell-off the following Monday that could have escalated into a panic not witnessed since the crash of 1929. Over the week-end, while Wall Street insiders held their breath, the Federal Reserve arranged for JPMorgan, Chase & Co., the U.S. banking giant, to offer a token $2 per share for Bear Stearns stock that would be paid in the form of a stock transfer–thus, JPMorgan would assume Bear Stearns, at a fraction of its book value, and for no cash. To enable JPMorgan to rescue Bear Stearns, a huge line of credit ($30 Billion), was promised by the Fed. and backed indirectly by U.S. taxpayers. JPMorgan accepted the week-end deal, and, after the take-over announcement was made, government economists joined the Wall Street insiders in holding their breath to see how the market would react on Monday’s opening.

When the opening bell rang on Monday morning, the Dow Jones Industrials quickly dropped 155 points; later, with the realization that the Federal Reserve and the federal government had no intention of allowing the sub-prime fiasco to take down the U.S. economy, the market rallied, and by the end of the day, instead of a crash, the Dow closed up 21.16 points. The following day, Tuesday March 18, 2008, the Fed primed the credit-availability pump by lowering its lending rates to banks by a whopping 3/4% (to 2.25%, which is 3 full percentage points lower than it was only seven months earlier). The stock market reacted by skyrocketing upwards by more than 420 points in one day.

To me the Federal Reserve’s aggressiveness in propping up Bear Stearns and knocking down interest rates confirms that the private bankers and economists who control the Federal Reserve System, in concert with the federal government, are determined to allocate any amount of money and do everything in their power to avoid a threatened economic crash and a worldwide Depression (with a capital “D”). Their quick thinking–by arranging the JPMorgan assumption of Bear Stearns–showed investors the federal government was willing to spend whatever it takes to keep the house-of-cards from collapsing. Investors rewarded such actions with the largest jump in the Dow in five years. Whether or not such inflationary strategies will work long term remains to be seen. It would be wise to remember, although the government and the Federal Reserve can react to economic situations they cannot always orchestrate them.

When the stock market opens on one day with a 155 point drop and closes the next day with a 420 point spike, and when Gold has soared to an all-time intra-day high of $1,033 per ounce on Monday, then drops $113 to $920 by Thursday, investors are frenetic and the markets are unpredictable.

Now is the time for fact-based analysis, not rumor-based investing. As I stated in last month’s newsletter “Oregon, like the rest of America, is in a recession.” Housing, credit availability and auto sales are down, unemployment and the costs of gas, food and utilities are up. We all know how much gasoline has climbed in the past year, but think what it means worldwide for poor families around the globe to have grains increase 42%, oils increase 50% and dairy products increase 80% in just one year. As you read this newsletter hungry workers are rioting over food price increases. Millions of people are desperate for meager supplies of food that can no longer be afforded, and there is no end in sight. With India and China’s growing appetites and economies bidding up the price of most commodities, and with biofuel subsidization resulting in the loss of thousands of acres of American corn and grains from food production, it will take years for the markets to adjust.

What does all this mean for Oregon and for America? For one thing, the affects of declining investment returns, increasing credit costs and overly-generous annuity calculations will likely result in another PERS crisis. For another, I believe we will see severe ramifications from the drastic and unexpected price increases for gasoline, food and utilities. The Fed may have, at least temporarily saved the stock market, but most of us are more concerned about price increases that have drained each of our budgets. These price increases have impacted our budgets like sudden tax increases, yet, American consumers, in a stunned state of sticker-shock, have remained paralyzed like deer caught in the headlights. I believe that is about to change.

For instance, on March 24th, a breaking story brings to light the desperation of America’s independent long-haul truckers who are being bankrupted by escalating fuel costs. It is naïve to think America’s truckers will merely sit back and watch their incomes burned up with $4.00 a gallon diesel. Plans for a nationwide trucker’s strike are spreading across the country. Using the Internet and their C.B. radio network more than a thousand truckers, so far, have vowed to shut down their rigs on April 1st for a week-long wildcat truckers’ strike. If the idea of a national truckers’ strike catches on, there is no telling what the consequences will be to our fragile economy””including the stock market. With so much uncertainty, the economy’s future is precarious at best. The difference between a Recession and a Depression is the magnitude of economic decline. Whether we are heading into a deeper Recession or a Depression, one thing is certain, we would all be wise to assess our own situations, and lessen our personal vulnerabilities in case things get really ugly. This is a great time to (1.) stop incurring additional consumer debt, and pay off credit cards (when in a hole, stop digging), (2.) set aside a personal cache of cash (preferably 1-3 months of living expenses), (3.) store at least a 72 hour kit of food and water for every family member (preferably a 3 month supply or more). Now is the time to open our eyes, reassess our spending habits and, like the farmhand, learn how to sleep when the cold winds blow.

Sincerely,

Dennis Richardson
State Representative

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Posted by at 06:00 | Posted in Measure 37 | 11 Comments |Email This Post Email This Post |Print This Post Print This Post
  • Britt Storkson

    Good advice to be sure, Mr. Richardson. Rather than telling others how to order their lives how about doing your part as a state legislator and serve the citizens? Like how about making it easier to for us to pay off credit cards, save, etc.?
    A very significant portion of what the average worker earns goes to fund state government. How about not giving our hard earned money to illegal aliens? How about about ending corporate welfare. How about laws to end the practice of turning monopoly utilities into de facto taxing agencies?
    If you need specific examples of the above I can provide them as there are many. But you know what I mean.
    I’ll look forward to your reply.

    • DMF

      Not argueing, but please define Corporate Welfare for me.
      Thank you

      • Britt Storkson

        How is it ever right, just or fair to take money by force (taxation) from those who earned it and give it to those who didn’t earn it? That’s what we have for government nowadays. Social welfare is giving money taken by force from the working class and giving it to the poor. Corporate welfare is money taken by force from the working class and giving it to the rich. Sort of like a reverse Robin Hood.

        This last Oregon legislative special session the legislators couldn’t find the time to enact much needed accountability measures to protect schoolchildren from sexual predator teachers or to protect electric ratepayers from predatory practices. But they did find the time to give away $750,000 in corporate welfare.

        • dmf

          I asked because I’m a corporation and I have never had anything given to me by the government or the taxpayers, in fact they take it from me in the form of taxes. Certainly the corporation itself doesn’t pay but $10.00 a year, but the profits are taxed on my personal tax return at the rate of 25 to to 28 percent depending on the amount of profit. Sorry, I don’t call that welfare.

          • Britt Storkson

            To clarify not all corporations get corporate welfare. Even then I don’t have a problem with the corporations taking it. I have a problem with our “representatives” giving it to them.

    • MYA

      It seems to me sir that people need to prioritize better. Spending money you don’t have only perpetuates that negligent attitude that welfare-seeking americans have. You are exactly what the problem is, this is the land of the free. People came here so that they could make money, practice their selected religion, and seek other freedoms that socialistic societies could not provide. The government wasn’t created to be crutch for society. It was created, so that people could live in peace and have choices. The only way to help citizens in this country is by making them aware of their choices. Not giving, free money, so that they continue making the same mitakes that got us here.

      • Sybella

        I agree with your statements except for one thing. I think you have it backwards. The government uses the poor as a crutch to validate their purpose. That sucks

  • Steve Plunk

    Let me start by expressing my deep appreciation for Rep. Richardson. I truly believe he is one of the good ones in the legislature.

    As a trucking company owner I see those high fuel prices and understand why some want a strike. The problem with such a strike is it doesn’t target the cause of discontent. The truckers will suffer, the shippers will suffer, and the receivers will suffer. The oil producing dictatorships will not and the speculators will not. The strike, for those reasons, will not happen.

    Now if Rep. Richardson would like to help those truckers who move nearly 90% of Oregon goods then perhaps look to suspending or reducing the weight mile tax. Spread the pain around to the state government. That weight mile tax equates to at least a 71 cent per gallon fuel tax which is on top of the 24 cent a gallon federal tax. So nearly a dollar a gallon is government imposed. Thanks. My federal tax rebate won’t make much of dent in that.

    I also get to pay registration fees every year of about $2000 per truck and a federal excise tax in August of $12,000. They get me every way they can.

    Rep. Richardson’s story should not only apply to the American consumer but also to the state government. Feeling rich the Democrats funded new programs and raised budget of existing ones with no regard of the potential risks. Now with revenues likely to fall they will squeal as tough budget cuts and “draconian measures” must occur. I will shed no tears for the incompetence of liberals and the RINO’s who aid them.

    Heavy regulatory programs will create the same kind of harm as heavy spending. When things are going well it seems easy to ask Detroit automakers to adhere to new regulations but now with times turning bad those once easy new rules could kill them. Thanks again Dems.

    Rules making logging more difficult will now burden the wood products industry enough to bankrupt many. Land use rules drove up the cost of housing that lead to a mortgage meltdown. Rules for gasoline mixtures drove prices up. Regulations have made it difficult to secure natural gas sources. Salmon regulations have hurt the hydro electric capacity and driven up prices. What part of rising costs has government not had a hand in?

    To be honest the only interest government has had in economic development over the last twenty years is in how to increase it’s own revenues from that growth. That sort of attitude from those we elect or hire to run the government must change. Instead of seeing economic growth as government growth the should instead see it as their obligation to allow people to succeed even if they get no piece of it.

    The government has become the neighborhood mafia Don. The government chooses who will succeed and who will fail. Those who succeed must pay to do it and those who don’t pay face the consequences. There are favorites and nothing is done without tribute. The government must wet it’s beak “just a little” at first but soon is a blood sucking parasite that can’t be shed.

    Bear Stern’s failures impact on the market would have been massive but what impact has runaway spending by city, county, state, and federal governments had on the economy and what will they do to lessen the impact? What will the government do to tighten it’s belt and prepare for the when the cold wind blows? Well it’s already blowing and they haven’t prepared at all.

  • steve

    While I appreciate Rep Richardson’s piece, I have to say that greedy attitudes that plunder at the expense of the little guy are to blame more than anything. See the link below for a story in today’s business section of the Oregonian.

    http://www.oregonlive.com/business/oregonian/index.ssf?/base/business/120658650589950.xml&coll=7

  • Bad Boy Brown

    I find this all very interesting, but quite frankly if most people followed the financial markets for the past 12 months, they would already know all of this and a lot more.
    The IDIOT GOVERNOR and the worthless LIEBERAL LEGISLATURE don’t get it and never will; when it comes to fiscal responsibility. They are still spending millions on a state economic development bureaucracy that has almost nothing to show as results for the past 20 years. ODOT has dozens of engineers on staff – yet they haven’t built any roads of consequence in over a decade. I could go on, state department by department and list many other costly mistakes this state makes every day. Bottom line is that Oregon has lots of money going out with little to show in the way of results.
    Frankly, until such time as a serious recession hits these people badly, and the public sees that government is not cutting back in any meaningful way will any real change come to Oregon.

  • Steve Plunk

    Well said Bad Boy Brown. I would differ on one point, I believe ODOT actually has THOUSANDS of engineers on staff. All managers, designers, department heads, field inspectors, and maybe even receptionists are engineers. Funny thing is they farm out most of the work to former ODOT employees now working as consultants. It’s a great scam, work a few years at ODOT, make the rules so complicated no one can understand them, retire and consult, profit. No one complains since it will be their turn some day.

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