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Middle America; Going, Going, Gone:

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Good Morning Middle America, your King of Simple News is on the air.

For those of you who read this column on a regular basis or have read my book, you know that I predicted a recession by late winter of 2007-2008, nearly a year before it occurred.

I also predicted the housing crash nearly two years before it occurred and the immigration debacle a year before it made the back page. I do admit to buying one of the new crystal balls with H.D. Not really, I attribute the accuracy of these predictions to a darn good 8th grade math teacher and an inherited grasp of common sense.

There are those anointed talking heads on TV news and the financial programs who have continually denied that recession was a possibility. The main difference between them and me is that they make a lot more money for being wrong than I do for being right. But then, they are being paid to lie and I tell the truth for free.

Economics is easy if you reduce it to Mikeronomics. In recent days, Barrack Obama has infringed on my method by claiming to teach Obamanomics. But, like the talking heads, he has as much grasp of America’s economic woes as he does the formula for a new rocket fuel. As do his counterparts who wish to lead us to prosperity.

Let’s look at an example of simple economics; in this case, Starbucks with applied Mikeronomics. Starbucks has been making the news of late due to falling sales, falling stock prices, and closing stores. No one seems to understand how a viable company like Starbucks could be in trouble. But then, they failed to ask the King of Simple.

Starbucks could only exist in a particular time and place. In other words, lucky is better than good. Starbucks built up a business in high visibility locations that conversely have high overheads. When you build a business with a high overhead around a cup of coffee…that coffee is damn expensive. No other way.

So what happens to a business that sells expensive coffee when the economy tightens up? When discretionary spending is pinched? And, when in a blind taste test, McDonalds coffee wins? Sure, exactly what is happening to Starbucks, you begin to sink slowly out of sight. The business climate necessary for survival no longer exists.

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America in general is feeling that same pinch and like Starbucks, seems to be surprised. I also do Mikemathics to simplify macro-economic problems. If a Mexican auto assembly worker makes $1.25 an hour and a Detroit auto worker makes $1.25 a minute, which one can produce a car cheaper?

The former Big Three are still tying to figure out the answer to that question. And, while not down the drain, are certainly working on the issue from that end of the tub.

The Mexicans in the mean time are trying to determine whether a $1.25 per hour worker can compete with a $.30 per hour Chinese worker and are expected to have an answer later this year.

NAFTA and the World Trade Organization attempted to level the playing field for world commerce and both agreements are doing a commendable job of just that.

The concepts of both agreements were mathematically ludicrous, and regardless of which mathematical persuasion that you adhere to, these agreements double guaranteed the fall of Middle America.

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American manufacturer Dell Computers announced that it has entered into an agreement to purchase $52 billion in components from the Chinese over the next 24 months in an effort to cut costs. In the mean time the U.S. is in recession.

Once the playing field is successfully leveled and Middle America accepts their role as a true peon class, only then, will things start to get better for the Kings and Queens.

 

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Mike Folkerth is the author of "The Biggest Lie Ever Believed" and is not your run-of-the-mill author of finance and economics. The former real estate broker, developer, private real estate fund manager, auctioneer, Alaskan bush pilot, (more...)
 

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