Tuesday, December 30, 2008

This is a water tower and private residence on the coast of Washington.

Wednesday, December 17, 2008

Tuesday, December 16, 2008

J.M. WILLIAMS and Associates, Inc



I am a small business owner who also happens to be an architect and engineer (AE). AE’s identify problems and then find solutions. We also recognize that problems are often times related, and finding the solution to one problem may result in eliminating or minimizing other problems.

My perspective of the current economy comes from someone who is; a small business owner, employer, home owner, head of a family, member of a small community who works in a larger city and who does work nationally and internationally, someone who works with other companies, families and individuals, and is involved with the conception of construction and growth, and an individual who typically works 60 hours a week.

There appears to be a number of apparent problems affecting our current economy;
1 The housing loan crisis
2 The credit and lending crunch
3 Failing industries such as the auto manufactures
4 Reduction of the work force
5 Foreign production
6 Personal credit
7 Energy dependency
8 Declining markets
9 The cost of healthcare
10 The tax system in general
11 And the lack of faith and hope in the economy

What are possible solutions? Keep in mind there are usually more than one solution to any problem. The best solutions are typically the least expensive, the most simple and most direct.

1 The Housing Loan Crisis
Just as the high tech stocks were over priced and required an adjustment in the market, so is the housing and real estate market. In both cases everyone knew values were over priced and would eventually require an adjustment.

The other issue was how certain loans were structured. Many loans required refinancing after 5 years in order to have an affordable payment. This only worked if the economy is growing and values are increasing so equity can be justified. Values were artificially high, allowing the loans work. People also speculated in this market. When supply caught up with demand the economy slowed and the system failed, which obviously was going to happen from the get go. These high risk loans should never have been made to begin with.

Historically we have worked, saved and then purchased. Creditors have created a system where the current generation can now purchase and then pay over time, at greater expense. This isn’t necessarily bad as long as the terms are fair and the economy stable.

Should taxpayers bail out the people who made these loans? No. Should they receive help in order to be able to keep their homes? Yes.

The housing loan crisis is just that, a crisis just like an earthquake or other natural disaster. In a natural disaster an individual’s home may be destroyed. Hopefully they have insurance to help cover the cost of rebuilding, but not everyone does (or the insurance money may be inadequate). Just because the home was destroyed it does not release them from having to pay the original mortgage. By building a new home they would then have two mortgages (which many could not afford). The federal government steps in and declares it a national disaster. The mortgages are combined into a new low interest loans.

Why can’t the existing troubled loans people now have be refinanced into a special, fixed low interest loan and extend the terms from 30 years to say 40 years? This would help to keep property values higher and also allow people to stay in their homes. People are healthier now and live longer than they used to. This would give them a payment they can afford, which is their main concern. Thirty year loans and other proven types of loans would still be available for the wise.

2 The Credit and Lending Crunch
There are developers, builders and individuals who are in a position to build new residential or commercial projects. They are stable and under normal conditions would be able to qualify for a loan. The problem is that no one is lending money. If these people can’t get financing then not only are their businesses hurt but so is the entire construction industry. The construction industry is the largest industry and ultimately affects the rest of the economy. No one can borrow money as a result of the housing crisis. Solve the housing crisis and this problem would solve itself. If the federal government is going to bail out anyone, one of the best uses of the money would be to provide loans for new construction (and not allow banks to sit on the money or use it to purchase poor investments). If banks are unwilling to loan, then the federal government should make money available for lending. This would not be a bailout, but a sound business solution (lending money to qualified borrowers), boosting the construction industry and in turn everything else.

3 Failing Industries such as the Auto Manufactures
Should the federal government bail out the auto manufactures and other industries? Again the problem is the inability to borrow money. Businesses require credit. If they don’t have credit available then it is very difficult to function. Money should only be lent to companies that have a successful business plan and will be able to pay it back, with interest. In those cases there should be a ceiling on salaries and only after loans have been paid back in full should corporate executives receive bonuses and then only if they are profitable. Businesses that are failing and will continue to fail for whatever reason should be allowed to fail or be bought out by competitors.

4 Reduction of the Work Force
This was a problem we heard a lot about just a few years ago. We have a growing elderly population and fewer young people. Companies couldn’t find workers to hire. Why don’t we hear about this problem any longer? The reasons are because of outsourcing, foreign production and immigrant workers (legal or illegal). These may have been short-sighted solutions.

Most customer service takes place in India and the Philippines as well as other countries. Architects, engineers and designers have also out-sourced the production of their work to these same countries. The same is true for many other industries (such as clothing, etc). As these jobs left, so did the paychecks.

Products and services need to be produced or provided cheaply, quickly and correctly. Usually 2 of the 3 qualities can be achieved, but rarely all three. People want it; better, faster and cheaper. Other countries are successful with cheaper, but it’s not always faster and seldom better or correct. To compete we need to provide better products, better services, new products, create new sectors, etc.

5 Foreign Production
Foreign production has always been a concern. There are pros and cons. If items can be produced for less money elsewhere, then consumers benefit. The down side is the loss of jobs. Without jobs there isn’t money to buy products. A fine balance is required. I recently attended a solid surface product show. Historically it required giant conference space, building after building. Last year it was reduced to a corner of one building and most of the suppliers present where from other countries. Even some of the products with American brand names were actually fabricated in other countries. Industries left the United States without us realizing it, (plumbing fixtures, electrical fixtures, steel and other building products). The result, fewer jobs, less money, lost taxes, etc

What portion of our domestic companies are owned or partially owned by foreign interests? What portion of money spent in the US stays in the US?

We need new industries or to improve existing industries in order to provide new jobs and new wealth. Some to consider are; alternate energy, better buildings, improved health and medical, better cars, security, etc. “Nothing is done now that wont be done better in the future.” – Earl Nightengale. Financing must be made available for these improvements. We need to invest in our future.

6 Personal Credit
Personal Credit has been too easy to get. How many of us have fallen into the trap (and yes it is a trap), of buying too much on credit. We rack up credit card bills and soon find ourselves stuck with an interest rate of 30%! The interest is so high that there is almost no hope of ever being able to pay it off. We can only make the minimum payments. For many the easy way out is to refinance our homes and pay the credit cards off as part of the refinancing. In reality we are just moved the debt into a 30 year loan. Others have paid off one credit card with another credit card? Isn’t this credit trap just another form of slavery, financial slavery? How shocking is it to now hear that some of these credit card companies are in trouble? The interest rate on credit cards needs to be regulated.

7 Energy Dependency
Everyone is aware of our dependency on foreign oil. Isn’t it interesting how there was an energy crisis and shortage of fuel which resulted in higher gas prices, but now with the economy suffering the cost of fuel has dropped. It is apparent that fuel costs can easily be manipulated by foreign companies. They were testing the waters to see how much we would be willing to pay. The media speculated on higher prices and low and behold there they were. With the drop in gas prices we should be more motivated than ever to develop alternate energy and to develop our own reserves now knowing how easily we can be manipulated by these foreign companies. Some of our cash shortage may be attributed to the profits that go to foreign corporations. If you want to see where the world’s wealth is being spent, simply look at the amount and scale of construction in Dubai and the future plans and what is already taking place in China. (I have heard speculation that China will build four cities the size of Manhattan).

There is no doubt that we are part of a new global or world economy. The problem is that we are no longer in the drivers’ seat. We may not even be in the vehicle?

We need to develop our own natural resources’, responsibly, and develop alternative energy. Utility companies could use some competition.

8 Declining Markets
An economy thrives when there is growth. Some countries are experiencing a negative population growth and with it a negative economy, as our population ages we need to be receptive to foreign visitors and new immigrants. We need to maintain our infrastructure, build new buildings, maintain or replace existing structures, develop new markets, continue to increase the standard of living, etc.

9 The Cost of Healthcare
The healthcare in this country is some of the best in the world, so I am told. I currently pay the cost of healthcare for my employees as well as for all of their family members. It is a huge cost to the company, but is much needed and appreciated. If all companies did the same then more families would have proper coverage and there would be money available to drive that industry. Because it is a large burden on businesses, there should be better tax incentives for companies to participate in such a program. The cost of healthcare should have some regulations to control costs. There should be incentives for preventative medicine.

10 The Tax System in General
As a small business owner there are always certain clients that don’t or can’t pay their bills, or accounts which we can only collect part of what is owed. The cost of doing business is always increasing while the amount people are willing to pay for services and products is always diminishing. It isn’t a perfect world and only those that own or run a company know these things. Every time I feel like I have some profits to spend and can purchase something new for the company or myself, I realize that a large tax payment is again due. A lot of small businesses fail because they can’t keep up with taxes. Companies that do survive often times just barely survive and live from check to check. Most company owners love what they do, so they keep doing it and can never really get a head. Small companies struggle to have the money to pay for benefits and higher wages. This has been my experience in an industry that provides services. Maybe it is easier for a company that provides products? The tax system needs reform when in comes to small businesses. A flat tax seems to be the most fair, where everyone pays the same percentage. If someone makes more, they pay more. If they make less, they pay less. If companies weren’t taxed, companies could spend more and individuals would make more. Churches thrive on 10% tithes.

11 The Lack of Faith and Hope in the Economy
Prior to a presidential election there are always reports of a troubled economy. The reports surface and blame is placed on the current president in order to help elect a new president. This year because of the items already mentioned, there really was reason for concern. The President Elect ran a campaign of change and hope. “Yes we can.” Do I agree with the President Elect’s policies? Time will tell, but I do agree with change, and hope.

The economy only functions if there is faith and hope in it. During the great depression the administration hired Napolean Hill, a successful business man and motivational speaker to instill hope in the American people. He ran a secret campaign in which several newspapers and radio programs across the country agreed to report on positive news and to minimize the negativity that was predominately reported. As people started to dwell on the good, optimism grew as did the economy.

Most people have a tendency to exaggerate things. It is seldom as good as they say, and it is seldom as bad as they say. People usually over react to the news they hear. In a slow economy and even in a recession or depression, some people still make a lot of money. Life goes on. I don’t understand economics, but I do understand how fragile it is and the fine balance it requires. It is currently out of balance and is undergoing a global adjustment or transformation. If we didn’t have the media to constantly remind us of how bad things are, would most of us even know we’re in a recession? Can the economy be manipulated as easily and as quickly as gas prices have been?

It has always been wise to live within our means, not to go into debt and save for a rainy day. On the other hand, as my wife often times reminds me by quoting, “Money, pardon the expression, is like manure. It’s not worth a thing unless it’s spread around, encouraging young things to grow.” – Dolly Levi, Hello, Dolly!

There has to be a balance.