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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.

 

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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.

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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.

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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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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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