At What Rate Is Ethiopia Booming?

• The IMF Vs. Ethiopia
• Alternative Methods Of Measuring Economic Growth

" If all economists were laid end to end, they would not reach a conclusion." -George Bernard Shaw

Ethiopia is clearly booming, not only the Ethiopian government but the IMF and other institutions seem to agree. What they aren't agreeing on is the math, The Ethiopians claim double digit, while the IMF says growth is in single digits. What surprised us is the fact that both sides agree on inflation numbers, but cant agree on growth numbers. We are certain that both sides use calculators, what seems to confuse us is, how each side is using the calculators.

Governments all over the world never seem to tell the truth, be it economic data or anything else for that matter. Therefore making business decisions based on GDP numbers is a fallacy, even doctors were advertising cigarettes half a century ago.Therefore you have to close the textbooks, and find alternative methods to measure economic growth or at least be able to conclude if an economy is expanding or contracting. Before continuing we find it useful, you the dear reader understand how modern economies are measured.

What Is GDP?
Gross domestic product (GDP) is the market value of all officially recognized final goods and services produced within a country in a given period. In the year 2002, Ethiopia produced goods and services worth about $8 billion, today in 2012 it is estimated that number will reach close to $50 billion. GDP is calculated in the following format.
GDP= Private consumption + Investments+ Government spending+ (exports-imports).
There is a flaw in that calculation already, if you happen to wonder whats wrong with it just give us your undivided attention. In the wake of the financial crisis, The GDP of United States fell dramatically, to counter this decline in private consumption, investments, export, and, import, the share of government spending rose substantially. Soon after the administration of Barack Obama claimed economic growth, but it was a fallacy. The United States government was spending more money in unproductive places like sending unemployment checks, feeding 47 million hungry souls that cant feed themselves, and a trillion dollar or so is allocated for empire building thru the military industrial complex. And also the government was bailing out companies the free market found to be weak and unnecessary. While everything was crumbling in the GDP formula, government spending went up, and according to the government that's growth. We say its a form of enriching the wealthy,and encouraging reckless behavior at the expense of the poor.

We happen to be suspicious of governments, it doesn't matter if they are playing with statistics from Washington D.C, Beijing, or Addis Ababa. Politicians sugar coat everything, its just what they do, part of the game to get re-elected or stay in power. If we can't trust or use GDP to guide us or help us to know economies health, then what can we use to figure out if the economy is in the hospital on life support or dancing at the disco? We are glad you are asking dear reader, we ourselves were convinced by the late prime minister Meles Zenawi's growth numbers, and even concluded to relocate to Ethiopia. But then we reminded ourselves the numbers were being massaged from Addis Ababa. So, we were forced to use alternative ways, we thought that would be difficult to manipulate by statisticians.

Energy 

Modern Economies need energy as input for production. If demand for energy is increasing, and more importantly energy consumption is increasing, it won't be a sin to assume economic activity to be expanding. Take a look at the following charts, it shows Ethiopia's energy consumption.

The next chart shows Ethiopia's Petroleum Consumption

Pay attention to the year 2000, it seems like magic happened in Ethiopia. All of a sudden, the nation began consuming energy. Something else happened during the beginning of the new century, take a look at the following charts. It shows energy consumption for the United States.

The Next chart shows petroleum consumption for the United States

Energy consumption decline began at the turn of the century for the United States. We can also say the American empire began its downtrend by welcoming the 21st century. When a recession hit the states after the dot.com bubble in the year 2000, the central bank lowered interest rates. People who lost millions speculating in internet companies, immediately shifted to the real estate sector encouraged by low interest rates, and phony growth took place until the mother of all bubbles busted in 2008. Do we think the American economy will revive, we don't think so. But does it matter what we think, we don't think so.

Banking

If blood isn't flowing properly in ones body, we doubt one can live properly or even exist. Same goes for capitalism, If loans aren't being paid back, its like blood clogging in ones body. In the United states over 500 banks have closed doors since 2008. Don't believe us just check the list for yourself at the following site. http://www.fdic.gov/bank/individual/failed/banklist.html

On the other hand Ethiopian banks even though smaller in numbers haven't lost a dime let alone fail. Year after year since the year 1995, banks have reported record profits each year signaling transaction volume increase. We aren't sure if Ethiopian bankers are smarter than western counterparts, but clearly we can tell the boom cycle to be in favor of Ethiopia and the bust to be for the Anglo-Saxons.

Government Spending

Where is the money? Is it being used to bailout oligarchs? Or feed hungry people? Not that there is anything wrong with that, its just isn't productive. Or is it being spent on the military for wars? To us that sounds like the U.S, but the Ethiopian government when seen from far it seems like its spending its money from whatever source it gets it from on productive base. We aren't denying the existence of 5-10 million poor souls in Ethiopia who are dying of hunger. But in economics you always face choices and have to choose the least ugly one. Its impossible to do many things at once because resources are limited. What we assume is the government of Ethiopia chose the following principle, Give a man a fish and you feed him for a day. Teach a man to fish and you feed him for a lifetime. Therefore its spending money on building roads, dry ports, dams, railroads, industrial zones, and schools. Just as the United States did in the 20th century when it began industrializing. On a positive note around 35% of Ethiopia imports have been capital goods for the past few years. These are tools and machinery that are used to build modern infrastructure to accommodate a modern economy. Thus we clearly see a trend, that the Ethiopian Economy is saying goodbye to agrarian mentality and welcoming industrialists. Give us a break dear reader, nothing happens overnight.

Cargo Traffic

In the developed world investors that don't trust government data look for market signals. As the world is more interconnected more than before the flow of trade matters. If Chinese import declines, most likely Australians' export declines. If Chinese export declines, most probably United States is importing less. Thus if you are independent thinker you might want to learn about the Baltic Dry Index.

   

The index measures the demand for shipping capacity and demand for shipping varies with the amount of cargo that is being traded in various markets. We aren't trying to scare you but world trade has collapsed, there isn't much to move across the seas, at least that's what "Mr. Market" is telling us. Unfortunately there isn't any index to tell us for cargo traffic in Ethiopia, but we have heard few things lately. First the Ethiopian government is building dry ports inland to ease the congestion in Djibouti, second Ethiopian Airlines is buying cargo Boeing planes, third Ethiopian Shipping lines is expanding its fleet by buying eight vessels from china, and last not but least Ethiopian Airlines is building what it claims to be the worlds largest cargo terminal. Forget about the accuracy of growth numbers, you will never know the exact number. We hope we are saving you a headache dear reader, next time you won't need to argue if Ethiopia is growing at 7% as IMF calculators say or 11.7% as the regimes calculators suggest. Ethiopia is growing, but we don't know at what rate, we aren't as smart as you think. We barely can pass math class, let alone use calculators. Our thinking goes like, if our leaders and masters can't agree on math, but the world listens to them, then what makes our thoughts and ideas invalid?

Regards,
Eskinder Haile  

Nuro Lemin Tewedede? Part 2

• The U.S following Zimbabwe's model
• History of banking in Ethiopia
• The rise of the free market, downside of the Derg regime, and the cause of Inflation In Ethiopia

 The Zimbabwe model

Its has been about ten days since we posted the first part of why we think life is getting expensive in Ethiopia. Its too much going on around us, life in the west as a student can be crazy. Professors barely teach you, but then assign you tons of homework, papers, etc. We aren't complaining but we are hoping this can pass us as a good excuse for taking to long to publish the second part. Mean while there has been a lot going on in the western hemispheres finance world. The Federal Reserve which is the central bank of the United States have decided to keep interest rates between 0 and 0.25%. It wants commercial banks to borrow money from the central bank basically for free, in the hopes that commercial banks can lend to consumers at cheaper rates. Instead the banks get the money and buy government bonds that earns them what is considered risk free 2% return. Americans have borrowed for so long and consumed so much in the past, there credit cards have maxed out. Its time to repay their debts not borrow more, Its time to save not spend, therefore the banks are scared to death to lend more money. Politicians and main stream economist still think they can meddle and fix the issue, we doubt they will achieve anything. Whats even more shocking is that, at the last meeting the federal reserve decided that they will be printing $50 billion per month for unknown period of time. That's insanity, we suspect they must have hired someone for consultation from Zimbabwe's central bank. This new money is most likely going to end up in speculators hand driving up prices to a new level. Therefore if you are sophisticated put your money in the stock market, if you aren't buy as much properties as you can. Lets explain residential properties have become so cheap and affordable, its a no brainier thanks to record low mortgage interest rates. In the states what matters when someone is buying real estate is the mortgage payments not the price tag of the property. Since the reality is record low mortgage rates housing in the states hasn't been this cheap in a long time. We aren't financial advisers but we have noticed a window of opportunity. The financial crisis has destroyed many peoples credit history, turning them to renters instead of owners. Demand for rental units has been going up ever since, alongside with increasing rent price. If you are someone with a credit score of 620 and have 3% down payment saved up, U.S department of housing and Urban development is ready to help you buy your dream property. If mortgage payments are cheaper, but rent is getting expensive we are certain you can make a buck. If mortgage rates keep going down you can refinance, or if the federal Reserves dream comes true and inflation goes out of hand, and they finally decide to raise interest rates , you will be safe because you have locked your mortgage at record lows for 30 years.

History Of Banking In Ethiopia

Modern banking in Ethiopia was introduced in 1905 when emperor Menelik, and representative of the British owned national bank of Egypt reached an agreement. At first the emperor didn't accept the idea at least not until the British begged the Patriarch of the Egyptian Orthodox church to sell the idea to Menelik. By February 16, 1906, Bank of Abyssinia was inaugurated as the first financial firm in Ethiopia. How did Britain used Egypt to expand fractional reserve banking? We knew you would ask. Egypt tired of the rivalry between the two oldest civilization over the Nile decided to end Ethiopians threat of diverting the river. Hence it invaded Ethiopia expecting an easy win, instead Egyptian Army was crushed in 1876. Thereafter Egypt declared bankruptcy and soon after fell in the hands of its creditors, the British.

Haile Selassie Regime 

During Haile Selassie's regime private banks flourished and most were foreign owned. Access to capital led to the formation of factories, commercial farms, and other industries.There was even a stock market then, a prime example that used the stock market to raise capital is Anbessa City bus. Sometimes we wonder where Ethiopia would be today if the free market was never interrupted by central planners.

The Derg Junta

The downside of the Derg began almost as soon as it over threw the Haile Selassie regime. After assuming power, it nationalized every sector of the economy. From the many few banks that existed, to only three state owned banks. Instead of letting the invisible hand allocate scarce resources, the Derg commanded the economy. Problem was more and more money was being spent on the military, leaving no money or fewer resources to the average citizen. In addition almost all industries that were run by the Junta were never profitable, destroying the cash in circulation. There was no productivity in the economy, we weren't alive then dear reader but we can imagine cash was hard to come by. Forget inflation or life being expensive, you would be lucky to get basic items the government was rationing.  

EPRDF Regime

By 1989 communism was for the history books, so was the Derg Junta. The Ethiopian People Revolutionary Democratic front, led by the late prime minister Meles Zenawi assumed power in 1991. Leaving the politics  for the world improvers, we will analyze the economic policy that is contributing to the double digit inflation. Despite been known for its communistic ideology at its roots, the party found itself in a world without the Soviet Union. Thus the closest model they can mimic was China. The government spends money on public goods, while a combination of state owned and private industries produce the goods. But first there is damage control which is steering the command economy to a free market. Once the country was stabilized from the transition of power and capitalism was allowed, private banks started opening their doors for business after a long vacation. And for every choice you make there is a consequence or opportunity cost. We suspect the following to be the cause root of inflation or the unintended consequences of choosing some form of capitalism.

Banking

Toady in Ethiopia there are a total of 15 private banks and 3 state owned banks. Assuming we all have agreed how banks operate all over the world, can you imagine how much money it has been created since Dashen, the first private bank became operational in 1995? To refresh your memory of how banks make their money across the planet, we will repeat ourselves. Its called Fractional Reserve System, which is a form of banking, in which a bank holds a tiny percentage of total deposits. For example say Abebe walks in Dashen bank and deposits ETB 1000, he then goes to continues his daily life. Mean while Dashen Bank hopes Abebe doesn't come back anytime soon to withdraw his deposit. As it is the case in Ethiopia, the national bank acts as a regulator (central bank) and demands Dashen bank to keep 10% of Abebes deposit calling it the reserve ratio. Which leaves Dashen bank with ETB 900 for its banking activity mostly for lending. Since Dashen is the only bank in town various people would need its services for different purposes. If the bank can manage to find nine other souls to lend ETB 100 each too, that would increase the money supply by 900%. As long as those nine souls spend the money inside the country in whatever form, demand for whatever goods or service the money they borrowed is chasing will sky rocket. So far a total of 18 banks are playing the game in hundreds of millions of ETB using the fractional reserve banking model, and almost all have been profitable to date. If that's the case, unlike the Derg that squandered money to the military, the free market is now allocating capital for productive use. Other wise how are the banks making money, unless most of their borrowers are repaying their loans? If there wasn't any profit to be made, we highly doubt the number of banks would reach 18.

Infrastructure

In order for free markets to function well, its is required that a country is up to date with its infrastructure. Ever since early 2000's the government has been building roads at unprecedented rate across the country. To build you need tools and human labor, which for the most part weren't utilized in the country for long time. What was once idle labor, is now working and earning an income. We doubt the average worker earns millions but we can assume he has now some money in his pocket that he/she didn't have before. When poor people first earn money they don't spend it on luxuries items instead they prefer to eat better. Previously either food aid or kolo was feeding the majority, would it be a sin to assume now they can afford one full meal per day? And also don't forget the construction sector. The real estate boom in residential, office buildings, Industrial parks, hotels, universities, health centers, dry ports, railway, dams etc are being built now. Directly and indirectly millions are earning some money from this activities.

Remittance 

The Dollars, Euros, and Pounds, the diaspora has been sending to help family members has been increasing year over year. This is a double edge sword, it can be good and bad. Good because many depend on this as their sole income, which then enables them to feed themselves. Bad because this isn't money earned by producing a good or service. There was no cost at the receivers end, he/she isn't simply replacing the cost of production of a good or service. Its new money that's entering the economy, which forces the national bank of Ethiopia to print 17 ETB for every $1 received.

The collective income of the millions that are employed alongside the remittance have a huge impact on a small economy like Ethiopia. If we aren't mistaken the economy just doubled within the past five years and now stands close to $50 Billion. But also, Microsoft founder Bill Gates is worth $50 billion, but imagine this, if he spent $5 billion per year, five years from now he will be worth $25 Billion, We don't think Bill Gates would be happy with that. That means on average the Ethiopian economy was generating $5 billion additional worth of production per year for the past five years. If we are lucky enough like S.Korea, China, Taiwan, Brazil, by 2018 Ethiopia's Economy could be producing $75 billion or a Trillion Birr worth of goods and services. Unless we produce more and flood the market, we wont be able to afford much of anything. A classic example is cement, when we left Addis Ababa in 2002, a bag of cement was no more than 50 ETB. As soon as the country began building the necessary infrastructure to accommodate a modern economy the price of cement hit the roof to 500 ETB. We also recall there were only 3 state owned cement factories that couldn't satisfy demand. Today there are 15 more cement factories flooding the market, when the newest factory was inaugurated in February 2012, the price of cement collapsed to 160 ETB. To us, it seems like the Ethiopians are demanding a lot of stuff but aren't yet producing enough to satisfy the demand that exists. Too much money for a small economy chasing few goods. Classic definition of inflation we would say.

Regards,
Eskinder Haile
 

Nuro Lemin Tewedede? Part 1

•  The basics first and the jargon's later...
• In order to understand why inflation is in double digits in Ethiopia, it is important to understand the monetary system of the World and its history

Dear reader we want to start by apologizing first. When we left Addis Ababa, Coca cola was only ETB 1.50, the Chinese Just began building the ring road, we were spending precious time playing soccer with our comrades, going to school, or anything imaginable you would think a 12 year old would be doing. Give us a chance dear reader as we have a lot to say on the Ethiopian Economy, what we have to say might be a little different as many of you are use to reading content from endangered species. As we promised we will start with the basics and answer few questions.

1. What Is Economics?

 Economics is the study of making choices, in simple terms that is. As humans we have unlimited wants, but mother nature have limited resources. What do we mean by that? Well dear reader, don't we all want to go to the best schools, drive the best car, buy the luxuriest house on the bloc etc..? We do but for the majority of us our resources are so limited many of our wants are just dreams, therefore forcing us to make choices.


    2.  What is Inflation?

Inflation is a rise in the level of prices of goods and services in an economy over a period of time.Which leads to a decline in your purchasing power, in which case you will need to ditch your wallet and switch to alternative methods to carry more paper money.


  3. What Causes Inflation?

Inflation has many different causes for too many different reasons. In our case we are just concerned as to why Ethiopia is experiencing double digit inflation, that has not been experienced in the history of the nation, or at least since the country's statistic agency learned how to count. To understand inflation its a must to know how money is created and ends in our pocket. I am sure you wonder where money comes from, dear reader hope we haven't lost you yet. You have probably said my job provides me with the income "Duhhh", how about this, have you wondered where your job got the money to pay you? Again you might say "Duhhh" and respond from its client. You might be a nerd and you are really wondering how the company in the first place got the money to provide its goods or services. You might say hmm probably it raised capital from shareholders or borrowed money from the bank. So where did the shareholders or the bank get the money? OK dear reader we aren't here to make you think too much, that's our job and we hope one day we will use it to change our country.

During the renaissance era, the Medici in Italy were a dominant merchants of their time. They were so profitable, they began to lend their savings or extend credit to customers. Since they used their hard earned money, they demanded interest on the funds they lent out. Banking as we know it was born, and the Medici family became so wealthy, Soon the Italian city states were borrowing cash in the form of bonds from the family.

By the 19th century most of Europe's finance was dictated by the Rothschild family. Mr. Mayer Amschel Rothschild, a German Jew began banking in Frankfurt in the early 1700's. Later he would send his five sons across European cities to establish branches and expand business. It is widely believed that the Rothschild family spread fractional reserve system which 99% of banks across the world use today.


  4. What is Fractional Reserve System?

 It is a form of banking, in which a bank holds a tiny percentage of total deposits. For example say Abebe walks in Dashen bank and deposits ETB 1000, he then goes to continues his daily life. Mean while Dashen Bank hopes Abebe doesn't come back anytime soon to withdraw his deposit. As it is the case in Ethiopia, the national bank acts as a regulator (central bank) and demands Dashen bank to keep 10% of Abebes deposit calling it the reserve ratio. Which leaves Dashen bank with ETB 900 for its banking activity mostly for lending. Since Dashen is the only bank in town various people would need its services for different purposes. If the bank can manage to find nine other souls to lend ETB 100 each too, that would increase the money supply by 900%. As long as those nine souls spend the money inside the country in whatever form, demand for whatever goods or service the money they borrowed is chasing will sky rocket.


It is widely believed after being so successful in Europe, the Rothschild smelled yet again another opportunity. This time they wanted to expand across the Atlantic in the newly born nation of the united states of America. If you have read the federalist papers which were a collection of essays promoting the soon to be constitution of the new nation, you would have noticed Alexander Hamilton's strong position on establishing a central bank. Despite strong resistance from the other founding fathers like James Madison and Thomas Jefferson fearing corporate influence and the destruction fractional reserve system brings. In order to establish "financial order and credit to the new nation and individuals" argued Alexander Hamilton a central bank was a necessity. To open its doors for business the new bank required $10 million in capital, of which the U.S government would purchase $2 million worth of shares. Raising a rhetorical question, the opposition camp asked where would the U.S government come up with $2 million? Hamilton was quick to respond and proposed the U.S government to borrow the $2 million from the soon to be bank. If the bank was looking for capital to establish itself, how would it lend to the U.S gov? We suspect the clever Rothschild family to supply the seed money. This isn't science fiction by the way dear reader nor a conspiracy theory. Alexander Hamilton was chosen the first U.S secretary of treasury and the rest was history as they say.

Oh emama Ethiopia we haven't forgot you, nor so far blamed anyone for your double digit inflation. We were just trying to understand the concept of money, so we can try to understand why doro (chicken) carries a Coach purse in the streets of Addis Ababa. That's how a dear friend of ours explained what inflation meant to him. In part two we will focus entirely on the Ethiopian economy and will try to answer why there is inflation, where is it coming from, is inflation telling us something and many more.

Regards,

Eskinder Haile

Economic, Geopoltical, And, Revolutionary Cycles

    Nature has its own cycles. That is why we have different seasons occurring at a predictable rate. As this is the case with nature, economics is also part of nature. Economics deals with human behavior and we humans are part of nature. So if economics is part of nature, can we predict economic activity? The answer is yes, because most things in nature have a life span. If we can then, we also can see its effect on geopolitical issues by collecting data, using history, and, past economic performance; we can forecast future economic activity. Just as the weather man uses data and pattern to predict if tomorrow is going to rain or snow, some economist can do the same and be able to see if there is a recession/depression or growth in the near future.    

    In the United States for example depressions tend to occur every eighty years. In the 19th century financial panics occurred frequently and often because life expectancy was low. In the modern economy we have to adjust economic patterns to a higher living standard. In a modern economy like the United States, new generations come along about every 40 years and move up on predictable family cycle of earning, spending, and productivity. These people then do predictable things as they age from entering the work (age 20) to getting married (age 26) to having kids (age 28-29) to buying starter homes (age 31) to second homes (age 37-42) to peaking in spending (ages 46-50), then peaking in saving rates (age 54) and net worth (age 64). Most European and developed countries are peaking in demographic spending trends along with the U.S and that is one reason there is a global down turn. Japan saw its population peak in 1989 and since then the Japanese economy has been in a downward trend.The west and most of Europe saw its demographic peak around late 2007-2008 correlating with the global down turn that we are witnessing today.
    
    The main cycles that are driving 21st century politics are the following.

•  250 year Revolutionary cycle
• Geopolitical cycle
• Commodity Cycle

   Within a 500 year mega innovation cycles we tend to get two 250- year revolutionary cycles. This cycle creates a new environment for technologies to continue to advance human progress through more advantageous organizations at the broader political and business levels. The following are some examples.

• The protestant revolution in the early to mid 1500's. It promoted work and saving ethics.
• The American, French, and, Industrial revolution. It occurred mid to late 1700's.
• Today we are the early stages of the powerful 500 year cycle. In which we could see the second American Revolution, and, in the emerging world, this should mean the fall of corrupt, dictatorial regimes. 

    The geopolitical cycle occurs every 32 to 36 years, we tend to see alternating periods of 16 to 18 years of the general geopolitics trends are first favorable and then unfavorable. The following are some examples.

• (1966-1982) unfavorable cycle. Cuban missile crisis, Civil right movement, Vietnam war, JFK and Dr.King assassinated, worst inflation/recession.
• (1983-2000) favorable cycle. Peace and prosperity, soviet collapse.
• (2001-2018) unfavorable cycle. 9-11, Iraq-Afghanistan war, economic collapse, Arab spring, and more chaos to continue till 2018.

    

      Last but not least is the commodity cycle which occurs every 29-30 years. Agricultural products, oil, gold, silver etc.. tend to deflate in prices on a 29-30 year cycle. The following years are years commodity prices peaked and started a downward trend. 1834,1864,1892,1920,1951,1980, and, 2008.Countries that are sensitive to commodity prices and, are dependent on commodity exports might see a continuous political turmoil. Today we see the Middle East, a region that depends on oil exports in a revolutionary path; we can connect this to the three cycles as one of the main reasons as a source of instability. What makes this an exciting decade is also the fact that commodity cycles are topping as well, where by 2012 oil prices could collapse and be below $20 per barrel despite the demand from the emerging world.
    

    According to this cycles, these century should be the time where we can witness a new world order.  If the forecast for oil prices do come true I’m afraid we will continue to witness civil unrest in the middle east. Especially countries like Iran, Saudi Arabia and Venezuela, unless they diversify their economics now, we shouldn’t be surprised if their people rise up against their respective governments. To recap we are seeing some fifty million productive citizens retiring in the U.S, therefore saving instead of spending. As well most of Europe and developed countries are peaking demographically. At the same time, in the very near future commodities should deflate in prices. This will directly and indirectly impact commodity sensitive nations. The three cycles are somewhat colliding in which we might experince short term pain, but in the long run we humans will continue to progress and make the world a better place.

Obama Care And The Simple Facts Why It Would Fail.

In March 2010, Congress passed and the President signed into law the Affordable Care Act, which puts in place comprehensive health insurance reforms that will hold insurance companies more accountable, lower health care costs, guarantee more health care choices, and enhance the quality of health care for all Americans. It makes insurance more affordable right away by providing small businesses with a tax credit to provide coverage, and in 2014, by providing tax credits to those who need help in buying insurance -- representing the largest middle class tax cut for health care in history.The Affordable Care Act is projected to reduce premium costs for millions of families and small business owners who are priced out of coverage today.  This could help as many as 32 million Americans who have no health care today receive coverage.To help lower costs, the Affordable Care Act:

• Sets up a new competitive private health insurance market – through state Exchanges -- giving millions of Americans and small businesses access to affordable coverage, and the same choices of insurance that members of Congress will have.
• Holds insurance companies accountable by keeping premiums down and preventing many types of insurance industry abuses and denials of care, and ending discrimination against Americans with pre-existing conditions.

 
     Even though many find it comforting, the fact the United States passed a universal healthcare, there are many that wonder how we are going to pay for it. First, Washington spends everything it collect in taxes, second it borrowes from citizens and spends that as well and, it also borrowes from foreign governments, banks, and investors just to keep the lights on in washington dc. The U.S. government now owes foreign governments and investors a total sum of $4.47 trillion. Of course the largest creditor is China, holding $1.15 trillion in U.S. Treasuries, Nor should it come as a surprise that Japan, the UK, and OPEC nations also hold huge amounts in the following amounts $890.3 billion, $295.5 billion, and $218.8 billion. Soon after Mr. Obama took office, the budget deficit went out of contol, and the nations debt increased to unprecedented levels. Which forced the president to setup a bi-partisian commision to analyze the nations debt/deficit issues and to recommend solutions. And the following is what the commison said and titled its report " Moment Of Truth".

     "Our nation is on an unsustainable fiscal path.  Spending is rising and revenues are falling short, requiring the government to borrow huge sums each year to make up the difference.  We face staggering deficits.  In 2010, federal spending was nearly 24 percent of Gross Domestic Product (GDP), the value of all goods and services produced in the economy.  Only during World War II was federal spending a larger part of the economy.  Tax revenues stood at 15 percent of GDP this year, the lowest level since 1950.  The gap between spending and revenue – the budget deficit – was just under nine percent of GDP. Since the last time our budget was balanced in 2001, the federal debt has increased dramatically, rising from 33 percent of GDP to 62 percent of GDP in 2010.  The escalation was driven in large part by two wars and a slew of fiscally irresponsible policies, along with a deep economic downturn. We have arrived at the moment of truth, and neither political party is without blame.Economic recovery will improve the deficit situation in the short run because revenues will rise as people go back to work, and money spent on the social safety net will decline as fewer people are forced to rely on it. But even after the economy recovers, federal spending is projected to increase faster than revenues, so the government will have to continue borrowing money to spend. The Congressional Budget Office (CBO) projects if we continue on our current course, deficits will remain high throughout the rest of this decade and beyond, and debt will spiral ever higher, reaching 90 percent of GDP in 2020. Over the long run, as the baby boomers retire and health care costs continue to grow, the situation will become far worse. By 2025 revenue will be able to finance only interest payments, Medicare, Medicaid, and Social Security. Every other federal government activity – from national defense and homeland security to transportation and energy – will have to be paid for with borrowed money. Debt held by the public will outstrip the entire American economy, growing to as much as 185 percent of GDP by 2035. Interest on the debt could rise to nearly $1 trillion by 2020. These mandatory payments – which buy absolutely no goods or services – will squeeze out funding for all other priorities.Federal debt this high is unsustainable. It will drive up interest rates for all borrowers –businesses and individuals – and curtail economic growth by crowding out private investment. By making it more expensive for entrepreneurs and businesses to raise capital, innovate, and create jobs, rising debt could reduce per-capita GDP, each American’s share of the nation’s economy, by as much as 15 percent by 2035.  Rising debt will also hamstring the government, depriving it of the resources needed to respond to future crises and invest in other priorities. Deficit spending is often used to respond to shortterm financial “emergency” needs such as wars or recessions.  If our national debt grows higher, the federal government may even have difficulty borrowing funds at an affordable interest rate, preventing it from effectively responding.  Large debt will put America at risk by exposing it to foreign creditors. They currently own more than half our public debt, and the interest we pay them reduces our own standard of living.  The single largest foreign holder of our debt is China, a nation that may not share our country’s aspirations and strategic interests. In a worst-case scenario, investors could lose confidence that our nation is able or willing to repay its loans – possibly triggering a debt crisis that would force the government to implement the most stringent of austerity measures. Predicting the precise level of public debt that would trigger such a crisis is difficult, but a key factor may be whether the debt has been stabilized as a share of the economy or if it continues to rise.  Investors, reluctant to risk throwing good money after bad, are sure to be far more concerned about rising debt than stable debt. In a recent briefing on the risk of a fiscal crisis, CBO explained that while “there is no identifiable tipping point of debt relative to GDP indicating that a crisis is likely or imminent,” the U.S. debt-to-GDP ratio is “climbing into unfamiliar territory” and “the higher the debt, the greater the risk of such a crisis.”

     So knowing for fact the federal government can't afford anything, let alone universal healthcare, it seems illogical to take the bill for the pubilcs health. Therefore when we add the facts and some logic, it seems the federal goverment is hungry for a healthy power, not the peoples health. Even though the facts exist, the other side argues how some unfortunate souls are being denied of care, the cost, and use Micheal Moores' example "Cuba" to convince us, The Affordable Care Act will be a success story. With no disrespect to Mr. Moore, lets figure if thier argument is valid by asking few questions.


Are Health Care Costs Soaring?
You cannot judge the “cost” of something by simply what you spend.  You must also judge what you get.  People generally just want to pay 1950 prices for 21st century health care. They want the latest pills, techniques, therapies, and highly skilled labor that would make today’s health care seem like science fiction a few years ago.


Is Canadian Drug Cheaper?
The general story is how you can buy many drugs in Canada cheaper than you can buy them in the US.  We have a partially free market in the US where drug companies spend a ton to develop new wonder drugs, much of which is spent to satisfy regulatory requirements.  The cost of this development is called a “fixed cost.”  Once it’s developed it does not cost that much to make each pill.  That’s called a “variable cost.”  If people only paid the variable cost for each pill, the whole thing would not work.  The drug company would never get back the massive fixed cost of creating the drug in the first place, so no company would try to develop one. The Candians have socialized medicine and they bargain as the only Canadian buyer for drugs, paying well below normal costs.  Drug companies that spent the enormous fixed costs to create new miracles are charging a relatively high cost in the free and still largely competitive world to recoup their fixed cost and make some profit.  But socialist societies like Canada limit the price they are allowed to charge.  The US-based company is then faced with a dilemma.  What Canada will pay is not enough to ever have justified creating the medicine.  But, once created, perhaps Canada is paying more than the variable cost of each pill.  Thus, the company can make some money by also selling to Canada at a lower price; as it’s still more than it costs them to make that last pill. Drug companies in general sell their products to Canada at low prices, making a little profit, and reducing slightly the amount they need to charge us.


 Does Socialized Medicine Works In Some Places?
Socialized medicine has never been truly tested.  Those who claim socialism’s success have never seen a world without a relatively free US to make or pay for their new drugs, surgical techniques, and other medical advancements for them. Citing the Nordic countries as examples for   temporary success of free health care can't be used as an example because that can't be applied no further than a state like Rhode Island. The Nordic country’s so called“success” is going to be played out how "Japan Inc" was going to take over the world, as their changing demographics change their fantasy .


Is Socialized Medicine Better Because Their Cost/GDP For Health Care is Lower?
Measuring cost/GDP is inaccurate as it leaves out most of the cost, the cost of lower GDP growth. Countries with larger government sectors generally seem to experience slower GDP growth.  Many of the countries we are being compared with come from, healthier cultures than ours. If Americans more often go for Micky D's, Of course our cost/GDP will be higher. If we change our system to socialism, but these habits don't change, our costs will still be higher.  So will Washington then come up with diet and exercise laws?


Can Public Option Co-Exist with a Private Option?
Part of the current administration’s plan is to add a public option for health insurance.  That is health insurance provided by the government .They claim the public option can co-exist fairly alongside private health insurance, increasing competition and keeping the private system honest.The regulator cannot be a competitor at the same time, It cannot compete fairly while it owns the armed forces and courts.  Finally, it cannot be a fair competitor if when the “public option”  can’t pay its bills the government implicitly or explicitly guarantees its debts. The first thing the government does is underprice the private system. They will underprice private enterprise by chargingless to the purchaser of health insurance, not by actually creating it cheaper.  Who makes up the difference?   if you pay taxes, you do.  The government can always underprice competition, not through doing things better, they never do that, but by robbing Peter to pay for Paul.  Once the government discovers it cannot win, it changes the rules.  You see, the government has the power to legislate, steal, imprison, and even kill.  Those are advantages most private firms do not have.


We Can Have Health Care Without Rationing?
If you have a material good or service, like health care, that is ever increasing in quality, and therefore cost, there is no way everyone on Earth can have the best at all times,It’s going to be rationed by some means.  The alternatives come down to the marketplace or the government.  To choose between those alternatives you judge on morality and efficency.There is no system that provides for unlimited wants with limited resources.  Our choice is whether it should be rationed by free people making their own economic calculations or by a bureaucracy run by Congressional committee. Free people making their own choices tend to consume what they value above price.


Is Health Care is A Right?
This is more philosophy than economics. Listing rights generally involves enumerating things you may do without interference "the right to free speech" for example or "illegal search and seizure".This are protections, not material goods.  Material goods and services must be taken from others, or provided by their labor, so if you believe you have an absolute right to them, and others don’t choose to provide it to you, you then have a “right” to steal from them.  A great example of why the “right” to health care makes no sense is as follows.  Did you have a right to chemotherapy in 1600 AD?  Then, did you have a right to it the moment some genius invented it?  You did not pay for the research.  You did not make the breakthrough.  Where do you get the right?  How did it come into existence for you the moment somebody else created these things?  I’m confident that you cannot have rights to material goods that don’t exist, and I am certain that the moment some genius, business, or even government brings them into the world your “rights” do not suddenly improve.


According to Dr. Ron Paul, "The insurance industry has been lobbying for mandated coverage for everyone. Imagine if the cell phone industry received such a gift from government? If government were to fine individuals simply for not buying a corporation’s product, it would be an incredible and completely unfair boon to that industry, at the expense of freedom and the free market. Yet this is what the current healthcare reform plans intend to do for the very powerful health insurance industry.It is sad to think of the many creative, free market solutions that government prohibits with all its interference. What if instead of joining a health insurance plan, you could buy a membership directly from a hospital or doctor? What if a doctor wanted to have a cash-only practice, or make house calls, or determine his or her own patient load, or otherwise practice medicine outside the constraints of the current bureaucratic system? Alternative healthcare delivery models will be at an even stronger competitive disadvantage if families are forced to buy into the insurance model. And yet, the reforms are sold to us as increasing competition.What if just once Washington got out of the way and allowed the American people to come up with alternatives to our broken system? Then the free market, not lobbyists and politicians, would decide which models work and which did not.Unfortunately, the most broken aspect of our system is that Washington sees the need to act on every problem in society, rather than staying out of the way, or getting out of the way. The only tools the government has are force and favors. These are tools that many corporations would like to use to their own advantage, rather than simply providing a better product that people will willingly buy. It seems the health insurance industry will get more of those advantages very soon". In the very near future, if the media headlines are screaming, hospitals being crowded or interviewing people complaing about the quantity and quality care they are recievieng, don't be surprised. Even if the United States declares bankruptcy, you could just lay back sippin' whiskey because you have read this and have prepared.

Markets, Geo-politics Crisis, & Women

Why are we flirting with markets, politics, and women? We barely slept and we probably don't have any idea about women. But we do think we have found something in common in between Markets, Politics, And Women. More on that below, lets first check the markets.

Globally markets are flying high, with few exceptions like China. The Shanghai index has been on downward trend lately, maybe that's why we are suspicious of the middle kingdom. Elsewhere markets seem to be getting high, not because there is a real recovery in the economic front, but there seems to be a heroin dealer out of Washington D.C. It ain't the guy that promised you change, this dealer is bold, seems smart, like a geek you know, at least we thought so. His name is Ben Bernanke chairman of the the most powerful institution on planet earth, the Federal Reserve. He is in charge of our money the mighty dollar, that's the cheap heroin he supplies to the connected few. Since the financial crisis erupted he has been printing, printing, printing dollars debasing the currency calling it quantitative easing. Why is he doing such a foolish thing? Well a lot of dollars have been destroyed by bank failures, foreclosures, bankruptcies, unemployment, and people are saving for a rainy day. Meaning when people stop spending for whatever reason money circulates at a slow pace, its a threat to the system the authorities claim. We try to remind them its capitalism as if they would listen to us, creative destruction we say, they tend to like the creative part of capitalism but not the destruction. Good luck to them, Mr. Market is doing its job flooding us with foreclosures, firing excess labor, restructuring the economy and the feds are fighting it. Someone has to benefit from the money printing though, off course the elites on wall street are still paying bonus in billions while main street is on food stamps. Trouble is Mr.Bernanke has no interest in the common man, he careless if your grocery bill is going up or if it is getting harder to fill up your gas tank. What he do care is about the bankers safety, see back in 1913 the federal reserve system came into existence with a sole purpose to save banks no matter what. Its a private corporation owned by few thugs that you will never see. We suspect few banks own some shares, just in case your still wondering why they saved wall street but not you, we are giving you a hint, re read the last sentence.

On the political front we aren't seeing much difference nor action. Bribes seem to be normal like food stamps and unemployment checks so that the mass can stay happy with no thoughts of revolution on mind. On the other side of the planet some governments are in turmoil. We aren't surprised by the fact its happening, as we will explain why. But we thought the ignition to the revolt in the middle east would be lower oil prices, rather than Ben Bernanke. So we procrastinated waiting for the down cycle in oil prices to begin so we can warn you about the upcoming/ongoing Geo-politics crisis. Our expectation was as the baby boomers some 50 million strong heads welcome their golden days, the ripple effect of their retirement was to be felt in the economy. One key area we suspect is oil, as these inhabitants take a break from 9-5 hustle, demand for oil should go down. So we previously thought lower oil prices coupled with weak global economy would be the ignition for a revolution in the middle east. Instead Mr Ben Bernanke could be the one that sparked the Tunisian and Egyptian revolution. See many emerging economies have their currency tied to the dollar, so when Ben fires the printing press and devalues king dollar, these linked currencies react without market forces and create havoc for local economies. Those fresh dollars end up in the hands of the connected few whose goal is more profit. Lately the smart money has been flowing to commodities and precious metals. End result of Ben print policy has led to global food inflation to accelerate to 25% year-on-year basis by the end of 2010. Previously we have mentioned how developing nation citizens commit half of their income for their stomach. Off course they are going to be angry and revolt from the dumb policy of the federal reserve. To quote directly from a book we read few years ago;

" We tend to see alternating periods of 16 to 18 years when the general trends are first favorable and then unfavorable. We experienced a favorable cycle from 1983 through 2000. The Unfavorable cycle began in 2001 and will continue into 2018-2019. We expect world events and terrorism to get worse, not better. We expect the commodity bubble to first create higher tensions in the middle east, and then its collapse to create greater problems for North America and Europe."

That view incorporated with our firms view of lower oil prices in the near future, we as well expect more chaos, wars, collapse of governments in the middle east. Other countries like China & India might fight for resources, Mexico vs. Cartels, Iran confronting Israel, North Korea collapsing, and historians fighting for more ink. We wont  be surprised if there is a revolution here in America.
 
Are you still with us? Great, if you got to this point, you are either really interested, or just waiting to hear what we have to say about women. We seem to think of women as politicians, they like to talk a lot, and at times they are complicated as the markets. Why are we rumbling about women? Lately we have been entertaining our brain about a women we met in our dream. It was a quiet place just us and her, having a great conversation, that we fell for her instantly not just because of her looks but the beautiful mind she was equipped with as well. If a chemist was around he would conclude a great Ionic bond. All of a sudden this women disappeares from our view, leaving us with suspense. To this day it seems as if it was real, but it was just a dream, because if it was real, the chemist would be correct. Like Ionic bonds would attract to each other, this women would sacrifice anything and put the effort to form a bond. As far as we can remember in our dream she left us wondering, once we woke up, we were mad. We couldn't understand why dream women would promise us the world, and leave us? If she was running for election, no one would vote for her. She seemed too smart to be a politician anyways. If she truly meant what she said in our mini conversation, why act otherwise? Also we had hard time figuring her out, it was as if we were forced to comprehend those complex securities wall street was bundling up and selling to dumb investors that almost brought civilization to its knees. Maybe her sophistication is whats driving us nuts, because we make our daily bread by simplifying sophistication in the market place. But we can't do that to a women or can we? We don't know, no expertise when it comes to romance. Our mind is always following the smart money, So here is a question to the gentlemen, pimps, and the players, we figure they would have a P.H.D in this matter. If this was indeed real should we follow up with this women or forget and move on?

The Greater Fool. China Inc

America welcomed Mr Hu a few weeks ago, if you aren't familiar with that name, well his the the Barack Obama for the peoples republic of china. Oh wait! Mr Hu was never elected by the people, therefore it makes our comparison somewhat stupid. I doubt the word election exist in the Chinese dictionary. Any how Mr Hu runs the show in Beijing, while Obama works hard to bring change from Washington DC. Lets refresh your memory dear reader, while back we said thank you keep the change. By the way do you feel any change? Last we checked there is 30 million or so unemployed, food stamp recipients rose to 43 million, interest rates still close to zero. Net result Main street down wall street up! Before we lose our track lets get back to the dragon thats threatening to break the eagles' neck these days.

Ever since Nixon's visit and reform of economic policy that began in the early 70's the middle kingdom, China has become a workshop for the world and source of cheap labor. This might have made few think "heaven and earth was made by God, and everything else was made in china". This led china to accumulate worlds largest foreign currency reserve, overtook Japans spot as the second largest economy, and steal the fame from Germany to become the largest exporter. Since there isn't much to take from the Americans, there was rumors the Chinese flag was flying over the treasury department, while Obama and Hu were having a magnificent state dinner at the white house. The cost to host Mr Hu? No worries that also is taking care of by the Chinese latest report from papers indicate that,

China has lent more money to developing nations than the World Bank in the past two years, the Financial Times newspaper said Tuesday, underlining Beijing's ambitions to increase its global influence.

China lent at least $110 billion to governments and firms in other developing countries in 2009 and 2010, surpassing the $100.3 billion by the World Bank, the newspaper reported.

We figure they would also lend to bankrupt empires. Maybe Chinese flags were really flying over the treasury department.

Even though china has achieved miracle growth since the 70's, we are afraid, the red hot economy might take a break. Even when the whole world is depending on china to bring life back to fragile world commerce, I think a huge surprise is awaiting the mass that believes in the hype that china inc will continue to prosper and save the planet. So what possibly could be wrong with the Chinese economy? Too many reasons to list, but will put what we believe pose a huge risk and threat to the dragon.

• 60% of economic activity is derived from construction activity. Since local commie bosses are rewarded to generate growth at whatever means, real estate has been their prime target. which is causing a huge boom and unintended consequence. If you thought Americas real estate bubble was a disaster, read the next line.
• Current construction of commercial real estate stands at 2.6 billion sq. meters (30 billion sq ft). Enough to give every Chinese a 5 foot by 5 foot cubicle.
• In the wake of the financial crisis, the authorities rolled out a stimulus package worth 50% of GDP. What were the commies smoking? We don't know Its a mystery.
• Income per capita is roughly $8000. Average condo price is $100k. Cling Cling! that suppose to be a bell ringing. Remember Sub-prime mortgage?
• Debt fueled asset purchase= Speculation & Bubble. Credit excess is historic.
• Inflation is running at 7.6% on a six month basis. In China people spend 50% of their income on food. Whereas in the U.S only 9% is spent on food. Therefore developing countries tend to be sensitive to inflation. For authorities in Beijing social unrest is unthinkable.
• The procrastination to raise interest rates by the peoples bank of china is fueling too much speculation in a hot real estate market. The biggest mall in the world is in china, tallest buildings are being built in china. Guess what? The mall is empty and most buildings aren't occupied either. That is on top of many condos that are held by investors that sit empty waiting for the next sucker.

Why Do we say China Inc is the greater fool? Well there are more sorry realties for the middle kingdom like regional airports being built for one flight per day. But we do feel we have given you enough reasons and probably bored you to death. Oh almost forgot that we can also use history as our guide.

• In the late 1980s, Japan appeared invincible -- just as China does now.
• In the late 1980s, Japan was buying up U.S. assets (and global assets in general) left and right -- just as China is now.
• In the late 1980s, Japan was striding atop the world as wielder of a "new model" that was supposedly more "long term," and thus superior to America's messy bickering democracy -- just as China's smoothly autocratic "getting things done" model seems superior now.
• In the late 1980s Japan was ramping up a truly massive -- and to the world's eyes incredibly impressive -infrastructure boom, just like China is now.
• In the late 1980s, America was in trouble, all eyes on the huge deficits being run up by the Reagan administration, with grateful Americans noting Japan's willingness to load up on U.S. Treasuries.
  
  
  By 1989 Japan inc was fiction, as their real estate bubble popped. Because It was a phony growth it depended on the next great fool to flip a property, just as the case is in china inc now.
  How can you profit from the coming mini collapse of China Inc? You are asking to much dear reader.
  
  
  Regard,
  Eskinder Haile