The New Obama Work Week

Politicians always have our best interests in mind when they pass new legislation, but they always seem to screw things up and that is why we have the expression, “The road to Hell is paved with good intensions.”

Employers have to cover full time employees with health care insurance. The employer is kind of OK if he can keep his work force under 50 people. There are also other things that have to be covered for full time employee, so as an employer, if you can eliminate the full time employees, you limit your future liability.

For example take a small shop employing two full time employees and one part time employee. It's open 9 hours a day from 11am to 8 pm 7 days a week. In this case,there are two people working 40 hours each and one 32 hours.

Full time employees get benefits like vacation and sick time, where part time employees get zip. With the Obamacare perspective in mind, there is an alternate employer option to reduce having to participate in the plan. Employees who work less than 32 hours are not covered by the new health care plan.

So examine the schedule below, instead of two full time workers at 40 hours and one part time worker at 32 hours, we now have a new work schedule with 4 employees all working 28 hours a week. As far as the government is concerned, we have an additional person to boot, now employed. The trouble is, they don’t qualify for employer mandated health care. Some readers will jump on me claiming that this is such a small operation that the health insurance mandate wouldn’t apply. I will argue that this schedule could be used by Wal-Mart quite effectively. The new work week is only 3 and ½ days long.

Health care sounded like a great idea, but the end results are not the intended ones (full employment doesn't revolve around a 28 hour work week). Then on top of that, Congress wants to raise the minimum wage. It kind of makes sense, if you are getting the minimum wage now, the health insurance is free. Raise wages and the government will collect more taxes and you might not qualify for free medical. The 3 and 1/2 day work week should give everyone that wants a job, a shot at getting one. Problem solved!--- More money for working at a job you hate and less hours to boot.

Are We In A Depression?

I guess if you have to ask, the answer is no, but if you look around, things are quite a bit different than they were 5 years ago. The government now controls the banking industry, the bond market, and the real estate market. And of course, if it’s too big to fail, the government will manage that also. Not to mention that world currencies are a real mess getting worse by the day.

Interest rates are extremely low and there is no line of people waiting in line to borrow for new investments. There are a large number of companies and government agency’s floating new bonds at these low rates. And with low interest rates, savers are not flocking to banks to take advantage of the interest rates. In fact, the real question asked by the consumer, “Why save at these paltry rates when I can buy it now and enjoy it?” The concept consume later and enjoy the interest rate return is gone.

Real estate took off for a while when the money market funds realized that 20 percent down in distressed markets had a very high rate of return as a rental. That hole has pretty much been plugged. Rents can rise, but if the unit is not occupied 12 months of the year, the owner faces a decrease in rental income. Owners don’t set rental rates, available supply does ( i.e. the house could rent for 1,000 a month and be rented only 4 months out of the year, where the house renting for 800 a month might be rented for the full 12 months).

The stock market is truly the last game in town, and a very hard one to regulate from a government perspective. The money the Fed has been pouring into the real estate market and the Treasury market eventually ends up in the stock market. You sell a T-bill to the Fed at face and you get investment dollars that you can plunk into the stock market “for a real gain.” Faites vos jeux.

The real question not being faced is the misallocation of resources. Spending too much money producing or harvesting resources that are not needed, eventually leads to bankruptcy; is what can be considered a bubble. Are we talking about something tangible like real estate which every now knows was a bubble? Or are we referring to other things that show all signs of a bubble, like retirement benefits, and health care.

The government uses economists to project what the economy is doing. And from my opinion, an economist can explain why something happened in the past, but doesn’t have the foggiest idea of what it portends for the future.

The precious metals market displays the two sides of owning something. You either hold it in your hand, or somebody else is holding it in theirs. You can own the gold or the certificate, or you have ETF’s or street name stocks. At some point when everything gets marked to market for accountability, investors will find out that there are 1,000,000 ETF’s and only 100 actual items held in trust. I’m not sure how this will set with the investment community when it is realized. Common sense suggests that it is being abused on a large scale.

So from a government perspective, do you inform the public or misinform the public as to the status of the economy? I think most will agree, that misinformation is the best route, otherwise real information makes consumers more aware and more cautious in their spending. And in the end, being negative about the economy can project itself and make things even worse.

The question you need to examine very carefully is; “Do you believe what the government is telling you about the economy is truthful?” It really doesn’t matter what your answer is, you could have cared less about what government thought when times were good. Let’s face it, we haven’t experienced times like this in our lifetime and our government claims the economy is doing fine. Go figure!

Idiots Are In Control

I’m amazed when grown men sit down trying to end the civil war in Syria and expect Bashard al-Assad to clear out and turn the country over to someone else with a gun. The US had a civil war and there were about a 750,000 deaths. Civil wars end sooner or later, they run out of grave diggers.

We have a President that thinks a minimum wage of 10 dollars per hour will solve the problems food stamps and unemployment insurance couldn’t cure. The people in China building our cell phones get 60 dollars a week. It kind of makes you wonder, if we are paying too much for flipping hamburgers. We certainly have no way to off-shore the restaurant business.

If you’re in Mexico assembling wide screen TV’s at 60 cents an hour, any job in California is a step up. No wonder we have an immigration problem, Mexico has a wage problem. 10 dollars an hour is heaven, Obama has become the patron saint for illegal aliens.

Obama’ wife thinks that modifying the school lunch program to make it healthy will keep kids mean and lean. The only problem, if it doesn’t taste good, you’re not going to sell many school lunches. Net result; satisfy your customer or go out of business. It is irritating to see trash cans filled with perfectly good food in the name of bureaucracy. The kid doesn’t have to eat the apple; it just has to be on his tray for the school to be up to government standards. The supermarket down the street sells lots of greasy chicken. If you do the math, a trash can full of chicken bones weighs a lot less that a trash can full of uneaten fruit.

Obama just praised CVS pharmacy for discontinuing the sale of cigarettes. The government can screw up my animal fat fried French fries (because they are unhealthy) and at the same time tax me to death if I want to smoke cigarettes. If the government was to ban cigarettes, people would be healthier and live longer, which is ultimately bad for the Social Security fund and bad for government programs that depend on the cigarette taxes. My guess is that CVS figured out that at $6 dollars a pack, the kids would rather smoke dope, and the only other people with money were the elderly buying prescription drugs.

"Obamacare" is turning into one of those nightmares with subtitles like, “What voter did you piss off today.” It’s nice to know that the government needs a lot of young people signing up to pay for all of the old farts already sucking money out of the plan. One is buying “insurance,” and the other is receiving “benefits.” My doctor really likes me, I’m 67 and have private health insurance; he mentioned that he doesn't take Medicare patients anymore (and didn’t elaborate why), but he was firm and meant it.

Ben Bernanke’s last week in office, brought up the image in my mind of a teacher passing out stick matches in a day care center, one to each kid. Everyone was happy they got one and that he was leaving.

Janet Yellen and Jack Lew are Obama’s picks for the Fed and Treasury, the new Laurel and Hardy of Wall Street. Why do I get the feeling that neither one has a restroom key?

The national debt is up for a vote in Congress soon. It kind of reminds me of a turkey farm I use to fly over years ago in Greeley Colorado. There were about 6,000 baby turkeys in a huge greenhouse like enclosure about 600 feet in length. It was heated by two gas heaters, one at each end. I had just taken off the runway when one of the greenhouses caught on fire. The wind had extinguished the lit flame on the one burner and over a long length of time,the unlit gas reached the other burner, all hell broke loose. The smell of burnt hair was overwhelming as I flew through it. What it demonstrates, is that under the right conditions the unexpected can be quite disastrous.

There is a fine line between unintended and unexpected consequences. Congress is full of unintended events. Unexpected events are a surprise to everyone. Fortify your nest egg with a little physical Platinum, Gold and Silver.

The Stock Market Disconnect

Most people do not understand the relationship between a company and its stock. When a company first enters the stock market with an IPO (initial program offer) they usually issue a fixed amount of shares. In a simplified model, say a widget company wants to raise money. It has two paths to choose from, a loan or sell stock ownership. Usually the company has already exhausted its credit with the banks. So in an IPO the widget company decides to go public. They want to sell shares, but they also want to retain ownership. So they draw up a charter and issue two million shares. Only one million shares will be sold. The owners get the other million. At this point the widget company enlists a brokerage house to go public.

After the initial IPO sale, a new party enters the mix, called the transfer agent. This is the institution that keeps track of who owns the stock from then on. So if you were to buy 100 shares of IBM today, you are not buying them from IBM, you are now buying them from a broker on the stock market. He is selling shares owned by someone listed as an owner by the transfer agent.

Just because you initiate a sell order for stock does not mean that there is a buyer on the other end. Many brokers are “Market Makers.” They buy and hold until a buyer comes along. So if no one wants to buy Widgets at $10, the market maker will buy at $8 or $9, and you guessed it, sell at $11 the next day.

A lot of stocks pay a dividend and this to a large extent determines the price people are willing to pay for them. Since every stock listed has to put out a 10K financial statement each year (called a red herring for obvious reasons), there is a second way to determine stock value. Divide the number of shares into its stated net worth to arrive at a fair market cash value for the stock. Another way to evaluate the price of a stock, is the price to earnings ratio called P/E. During normal times a P/E ratio from 5 to 10 would be considered average. IBM selling at 179 has a P/E of 11 and pays a 2% dividend; Google selling at 1,121 has a P/E of 32 and pays no dividend. So from examining these two stocks, it isn’t hard to figure out that the buyers and sellers pretty much determine the price they are willing to pay for a stock. During the 1970's a P/E of 4 wasn't uncommon for a car company.

Notice that in the real world, 20 percent ownership of the company stock gives full control, not the 51% common sense suggests is needed. Why? -- because in most company votes, the stock owners split down the middle or don’t vote. This pretty much explains how the 10 percent lunatic fringe element gets to elect our President every 4 years.

There is one other thing to point out, and that is taking possession of your stocks or leaving them with your broker in what is called “street name.” Ordering out a certificate usually costs about $25 and takes about a month to get it. That can be a real hang up if you are a day trader. The other method is to leave it in street name with your broker. He actually holds the stock and your account with him, reflects your holdings. The thing that aggravates me is the fact, if you were to buy 100 shares of Google and keep them in street name, there is nothing to stop your broker from loaning your share to another customer (for a fee) who wants to short Google (sell without owning it). It’s kind of like during the banking crisis when I was shorting Bank of America, somebody else owned it, I borrowed it and shorted it. It’s kind of like supplying the rope for your own hanging. The neat thing about having the certificates, reminds me back to the crash of 1987, everyone was waiting in line to get into the Charles Swab brokerage to sell their street held stocks. There were no lines at many brokerage houses if you showed up with a stock certificate and wanted to negotiate a sale.

What we need to realize about the stock is that it is entirely separate from the company it represents. The transfer agent is as close as you get to the company (unless you attend a shareholder meeting). Good dividends paid by the underlying company and their earnings help support stock prices. The price to earnings ratio gives the buyer some measure of how fairly priced a stock is.

There are stock market experts everywhere today, and as long as the market goes up, who needs to pay for market advice? It’s not like stocks are going to drop in price. It hasn’t always been this way, I can remember a goofy little plaque on my broker’s desk in the early 1980’s of a cartoon character holding a sign saying “DOW 2000.” I can remember asking him, “Do you think it will ever get there,” and we’d both laugh. Back then a company could announce a cure for cancer and the stock would drop 15 points, go figure.

If we were to examine the dynamics of a future market crash, things change somewhat. Instead of rising prices and increased expectations, it is a rush for the exits. Good stocks are sold to raise cash and the dogs are held in the hopes that they will come back. The main thing to realize in a crash, is that the values of the stocks are being re-determined and almost all, invariable will be undervalued by quite a bit. In a panic, there is the creation of “air pockets,” where there are no bids for a stock offered for sale. The market makers have closed up shop because of the volatility. You could conceivable bid a dollar a share for Google and get it if it was offered “at market,” and you were the only bidder.

What one needs to realize about the stock market crash in 1929, is that it was a financial liquidation disaster. It was the investors who held the stocks that were taken out and shot, not the companies themselves. We could be approaching another such event. The stock market reminds me of the Real Estate market of 2006. That million dollar house is still there, but it sells for a lot less now. Our government was able to keep that bubble pumped up with government financing. Will there be another stock market crash? Of course, and the effects will be invisible. Google and IBM will still be there; only the price per slice will be different. Of course after eating steak all of these years, you might gag on the switch to hot dogs.

Effectively, the stock market is the only game in town not under government control. Many different companies produce marvelous products and have stocks you can invest in. Don’t get wrapped up in what they make, and buy the stock for that reason. If they don’t know how to run their business, they could become the next General Motors.

So now you know the difference between the stock, the company it represents and the stock market. The one thing we haven’t discussed is the fact that a person can make just as much money in a market going down as well as one going up. I asked my broker once how come he didn’t recommend shorting stocks and he replied, “Being negative about the market is bad for business.”

The easy way to make a million dollars in the stock market, start out with several million--it works every time.

The Fed Quantitative Easing and Interest rates

A while back, someone pointed out that if homes were selling like hotcakes when interest rates were 6%, there shouldn’t be any inventory left at 4%. As it is, housing is not as robust as it was in the boom days. Bernanke said that the Federal Reserve would curb their buyback plan of 80 billion a month of Treasury’s and mortgage backed bonds.

Let’s use the back of an envelope and do some computations on the Feds involvement in Real Estate. Figure that they dropped about 40 billion per month buying real estate mortgages. If we calculate the number of homes that could be bought, figure the low end price of 200k and a high end of half a million. So the range of home loans purchased by the Fed is from 200,000 cheap ones to 80,000 expensive ones. The November real estate report calculated that 4.9 million homes were sold in the span of a year nationwide. The wild thing that I haven’t verified is that they claim 7 out of 10 buyers paid cash. If that is true, 1.47 million homes needed financing. Extrapolating the Federal consumption of Real Estate paper, on a yearly basis, we get a range of 1.4 million to a little over a half million homes financed. Take out for a down payment, and it kind of looks like the Fed is the market maker for Real estate loans.

The banks do not want to hold low interest bearing real estate loans and I don’t blame them. It puts them in the position of borrowing from their depositor’s short time and loaning it out long time. The Fed on the other hand, in theory, has no problem holding a low interest rate loan for 30 years. The printed dollars come back to them in monthly payments and in the end; it is a zero sum game.

This whole QE problem which some refer to as QEternity, has robbed the silver foxes of their retirement interest. While at the same time our youth are scratching their heads over the big deal that everyone use to make about compound interest being the 8th wonder of the world. Put money in the bank and save it? Why bother? My credit card pays me 2% interest for spending money and that’s more than the bank pays for saving it. We are living with the “I want it now” generation.

The young are not going to put money in the bank long term, but there is still one game in town going strong –the stock market. People with 401K’s can save on income taxes by putting money away for retirement. Where are these money mangers putting the funds? The stock market.

What needs to be realized is the fact that there has to be a correction of sorts. There is no incentive to save for a “rainy day.” If quantitative easing were to end, where does the money come from to finance the next real estate purchases? I’m not about to give anyone my savings for 30 years at 2% interest.

Many things revolve around interest rates; bonds, real estate prices, pension funds, national debt, bank rates, commodity futures, credit card debt and stock market margin to name a few. What we do know is that interest rates should rise if the Federal Reserve stops its quantitative easing. Risk would reenter the market and interest rates would reflect the perceived risk. The net result, the investor would reallocate their financial resources to take advantage of the markets. Change the rules and the game changes. The real estate recovery would probably hit the skids. A doubling of interest rates would trash the bond market and the interest on the national debt would approach one trillion a year. Commodity futures would cost more with higher interest rates, and the stock market would not be the only game in town anymore. Retirement funds heavily invested in long term bonds and real estate would be toast. Banks would be willing to pay more interest on savings which would be a boon to retirees, and credit card debt could become a lot more expensive. This could lead to a drastic drop in consumer consumption.

There is only one market that the Federal Reserve has not insured—the stock market. So if QEternity continues, we can see Google stock hitting $15,000 a share. Of course you say it could never happen, well, Ben Bernanke’s financial shenanigans remind be of John Law and the Mississippi bubble of 1720 in France (which wasn’t really a bubble); read up on it if you think $15,000 a share is excessive.

What we can realistically state about our present financial government solution to our present dilemma, is that it is not self-sustaining. A long term Federal Reserve bailout is only manipulating the financial structure in ways that affect those about ready to retire or are already retired. Basically Congress has no idea on how all of this Federal Reserve money fits in with their budgets, but it appears to work splendidly.

Presently gas pumps will accept $20 bills but not $50 bills. It takes $62 dollars to fill my tank. Do you get the feeling that the $100 bill is the new “$20” that you use to use? Of course it’s not inflation, let’s blame the Arabs,---and we are not even buying their oil, go figure!

Paying for "Affordable Health Care"

When you hear the words “Affordable Health Care,” no two people are going to be envisioning the same thing. We have health care, but we don’t have health care with unlimited funding. Affordable health care is a political rally point, it means something different to each age group.

Insurance is a method used to cover unforeseen events in our life. A group of people realized that they needed fire, life, car or health insurance, and as a group would figure out the cost that all of the members would bear to help the unfortunate ones. This isn’t something you could purchase after the event occurred. But if the rules were to change, to where you could file for insurance after the fact, it becomes rather obvious, that each and every person in the plan would never draw more than what they put in. The insurance becomes meaningless, it fails to offer the protection desired.

When your health care costs exceed your ability to pay for them, health care is no longer affordable. The purpose of insurance is to avoid being put in this situation. There comes a point in many people’s lives, where the cost of medical treatment is not justified because the high cost of the treatment outweighs its short term benefit (with or without insurance).

What we need to realize is that health care is not really that affordable, it never has been. Once we destroy the insurance aspect of it with a government plan, paying extra doesn’t entitle you to more; it is expected of you to pay more if you earn more. And conversely paying less, is an "entitlement" if you earn less.

I have a solution that is a thousand years old and might not be received well. How about if everyone over the age of 18 has to pay two month’s wages in taxes each year or work for two months for the government? Rome built a very extensive road system using this tax plan. Notice you can’t plead poverty; you show up for work or pay to have someone work for you. This would be quite fair, working people today pay taxes well into May of each year.

Everyone has the right to enjoy living in this country; and if you don’t have the dollars to pay your fair share of taxes, the Federal Government could\would make it possible for you to physically work off your debt. The thing that makes me chuckle, is the fact that the people who can’t afford to pay for health care, have given our government the information necessary to implement a "labor in lieu of taxes," plan. Kind of reminds me of Roosevelt's Social Security plan that laid out the infrastructure for an income tax that was eagerly and immediately leveled at the Hoi Polloi.

Let’s get rid of the free ride, everyone will pull on the rope, so we as a nation can benefit. Of course those that still think that “This is still the greatest nation on earth,” don’t need to pull on the rope--they're probably too busy smoking it. I’m just not sure who we are fooling here, nobody wants to pay more taxes and everyone would like unlimited health care. But would they want to work an additional 2 months for guvernment health care? Prosperity isn't what lies around the corner, Reality is lying in wait.

The Approaching New Year

Can’t quite figure out what is in store for us next year. Interest rates are a joke if you’re going to retire, and very reasonable if you want to buy a home. The Japanese stock market has doubled this last year, which isn’t bad. Our markets seem to be doing OK also. With all of the “Knowledgeable Experts” in the market, there is only one path and that is up.

The Motley Fool has sent me emails this year about the latest and greatest investment ideas. I never finished one of their links to the end. Whatever they are touting, they want about 20 minutes of your time to sell it to you (You are going to get rich and you don’t want to miss the boat on this spiel). Give me a break; if I spot a 100 dollar bill on the floor, I’m not going to point it out to everyone. People everywhere are selling a newsletters promising you unimaginable riches.

Headline today, “1.3 million people to lose their unemployment benefits,” sounds pretty spectacular until you realize that it’s for about 6 days—until Congress extends them. Currently there are 10 million people unemployed, and if you drop Detroit from the count, figure about 8 million. Of course the six million people that lost their health care through no fault of their own are not a news item, that’s just tough luck. And according to government statistics, they also all live in Detroit.

The Federal Reserve looks like it will curb quantitative easing. Interest rates could climb 100 basis points (%1.0). This could affect housing and payday loans more than anything else. It certainly won’t curb the borrowing in the stock or commodity markets. And if you're retired, the increased interest might buy a nice treat for your dog.

Robert Reich of Berkeley has been suggesting that the rich have been getting richer and that there is no trickle down into the rest of the economy. He could Reich/right. This could be a good thing. All of those dollars released into the economy went nowhere, except into the bank accounts of the upper one percent. There was no shotgun blast of new dollars into the economy with massive consumption. There is, however, another problem, kind of a time delay. The rich are mortal and die just like anyone else and the kids inherit. The expression “shirt sleeves to shirt sleeves in three generations” kind of suggests that the kids are going to spend the dollars. Three generations is a long time to wait, so grandpa gets to do some mountain climbing in his wheel chair.

When we talk about the government spending one half a trillion dollars on servicing the national debt each year, that is about 1/3 of tax receipts. To put it bluntly, we spend more on interest payments than we do on running the government. That’s pretty much why a paltry 80 billion in cuts can literally cripple the government. We are running on vapors. If you read the news, we have “emerged” from the “greatest recession” since The Great Depression. The EBT food stamp massacre at Walmart was just a glitch. But you must admit that food stamps have come a long way now and the name has changed to “Electronic Benefit Transfer.” Maybe it’s just my imagination, but it looks like a lot of the food stamp recipients need to go on a diet. Of course their Galaxy3 cell phone and their eight thousand dollars in tattoos make me wonder why they really need the food stamps, but I digress.

I think that people are fed up with government. Eric Snowden has become a national folk hero with his release of classified documents and revealing what NSA is doing to us. The thing most people don’t realize is that there are tremendous volumes of data collected. The government doesn’t even have the man hours needed to process the data. Of course once this is realized, why spend billions of dollars on this spy system just to get one possible terrorist? Why do I think that question will never be asked?

Health care is an issue that has no answer. Where to from here? I’m not really sure. People don’t need health care for their kids; they need it for their parents. Of course with the new program, your dad can go for the triple by-pass and your kids get to pay the bill. It’s not quite the program everyone had in mind, but it will work no matter how much you dislike it—the kids were only going to spend the premiums on drugs and sex anyways.


So, for the coming year what do we have? Whatever we had before, we still have, and Congress can’t take that away. The New Year brings in a suggestion of new consumption. The words “Fat and Fatter” come to mind. Colorado may add to the frenzy of food consumption with the legalization of marijuana— It will be known as "The munchie State." Even Chris Christie is dieting; I think that he realized that he is too fat to be considered a Republican. Look for the stock market to double, it’s the only game left in town; reality has absolutely nothing to do with price valuations. We have been told that the “Great Recession” is over, implying we are close to getting out of the woods. That's a relief, shopping carts don't push too well in the dirt, especially if everything you own is in one.

Since I am not selling a newsletter, I have very little to predict about the coming year that could make us rich. But here's hoping that the new year brings better times to all of us.

Happy New Year from our family to yours and God Bless everyone.

What do We Know about Obamacare?

Those that can’t afford insurance will have it provided to them at no cost. Those currently paying into a health care plan and not consuming health care will probably see rates at least double. Private health insurance covers your kids until the age of 26, which is no real out of pocket cost for insurance companies. It is a selling point to get a customer. Government coverage isn’t going to throw in the kids for free up to the age of 26. Net result kids start paying for health insurance at age 18. So if you’re female, unemployed, single and pregnant, guess what you just won the lottery; you become entitled to all sorts of benefits. Otherwise figure $4,000 a year from the age of 18 to 45 for something you will probably not even need; kiss good-by that 100K not spent on pizza, beer and backpack trips--you don't even get the chance to smoke it, but I digress.

Let’s face it, what sort of government produced product offered to the public is better than what the private sector offers? I can’t even think of one thing. If you are in the military, would you use a government made hand grenade? Private producers go out of business if what they are producing is crap, or if its overpriced.

The whole health care program sounds so neo-Nazi. Everyone has to sign up with the government. Of course, “If you like your present health plan, you can keep it.” The real issue here is how long you get to keep it--for.

The thinking that caught my mind the other day was what someone said, “If you can’t afford health insurance now, you certainly won’t be able to when this program takes effect.” We are not talking about people that need medical treatment that they can’t afford to pay for; we are talking about people who want to protect their family from unforeseen health events.

The real issue isn’t health care for you and me; it’s about health care for those that Congress says can’t afford it. It isn’t a new and cheaper plan, rather a plan where those that bought health insurance, now have to pay more for those that couldn’t afford to pay what was billed or to be billed.

The government needs to get out of health care for several reasons, they are inept, incompetent, and wasteful. The concept that it is cheaper to pay for healthcare as a group through government is a flawed concept. The plans to be put into play are “not for profit plans.” So there is no real incentive to hold down costs to manage the health care system, but there is one to hold down the prices doctors charge.

We will see the statistics over the coming months. How many people will enroll in Obamacare? --I think it will be abysmal. It is a little like the gay marriage thing, great press, but how many people took advantage of those rights 50, 100?? (nobody even cared enough to follow up on it) Those who cannot afford their present health care, need money for treatment (that they don't have) and it has nothing to do with insurance. The people who desire insurance as a protection against future loss need to rethink what they can expect to receive from this new government plan. Anybody who thinks a government plan would be cheaper and better than a private plan has rocks in his head. The incentive to save for retirement is gone, when those that spend everything now expect to get more later for having less.

The net result of Obamacare, is that it has poisoned the political arena. Plus its entire infra-structure is geared to determining who doesn't have to pay for it. Maybe we'd better pass that minimum wage of $15 per hour so the people flipping hamburgers can afford to pay the insurance part of Obamacare, not just enjoy the free entitlement part.

The hundred dollar Big Mac with fries and a coke can't be far away.

The Oriental Connection

Here is a little paragraph cut and pasted from Wikipedia:

On October 24, 2013, debt held by the public was approximately $12.122 trillion or about 72.8% of Q2 2013 GDP.[5][6] Intergovernmental holdings stood at $4.9 trillion (29%), giving a combined total public debt of $17.078 trillion.[5] As of January 2013, $5 trillion or approximately 47% of the debt held by the public was owned by foreign investors, the largest of which were the People's Republic of China and Japan at just over $1.1 trillion each.

Japan and China each hold over a trillion in our debt. If you can, picture some large building in each country that holds the notes of debt. That is literally what Joe Six Pack envisions when he read the above quote.

How about if we look at it in a different perspective. We spent a lot of money buying cell phones and other goodies in those countries, and the people we bought it from are coming over here and are buying real estate. So let’s do some back of the envelope math. Figure that we bought two trillion dollars of product made over there. And that everyone in China and Japan that made 10 million dollars wants to buy a home in California. If I’ve done the math right, that’s about 200,000 homes. But if we want a bottom limit, we need to figure the number of homes that could be bought if the Japanese or Chinese entrepreneur only had one million dollars, and we get 2 million homes. So we end up with a range of homes purchased, for cash from 200 thousand to two million. The thing you need to realize, is that the money we spent and can’t pay back to China and Japan,--and we are laughing about it--, has already been safely salted away (they bought US property).

Where is the bottom line? Who gets the last laugh? And the real question, who pays the piper for all of the future inflation from the tremendous cash infusion? Of course, I have to wonder, how our two trillion dollar debt with them, doesn’t drop a tad when everyone from the Orient buys a home in California?

Do you get the feeling that there is a lot of economic information out there that is very insignificant until it suddenly becomes significant? The Federal Reserve balance sheet from financing home loans comes to mind. It’s a little like selling invisible gold fish, nobody complains until they understand that they have been had.

Of course, there is a saying in California, “You can check in, but you can’t check out.” It could be true, I haven’t tried to move since coming here.

I'm waiting for Obama Tax Insurance--you get to keep more for earning more! Why does that seem so absurd?

Gold and Silver, the "Hidden Assets"

Lately I’ve had a few comments about the “New Paradigm,” claiming gold and silver are throwbacks to a long gone era that is no more. Also tossed in for good measure is the idea that we don’t need them anymore, civilization has progressed to credit and debit cards and real money, as such is unnecessary. And then there is the comment that we would run out of real money if our currency had to be backed by gold and silver.

There are two different issues in play here, and this is where the real problem lies hidden. Gold and silver coinage go back thousands of years, and the reason they were so successful, is because government had no control over the metals. They could tax and get payments, but they could not spend more than they took in. The real nemesis to currency is the politician and the financing of their political promises.

From early times, they resorted to clipping the edges of the coins and substituting other metals. In my lifetime our silver coinage was replaced in 1965 with nickel on copper. In 1984 the copper penny became a zinc and copper sandwich; the copper in the penny was worth more than the penny.

When the politicians break the bounds and restrictions that gold and silver impose on their currency, there is no limit to what a government can afford to purchase. And then it’s only a matter of time before people accept inflation as part of life. The neat thing about inflation, are the pay raises. People who started out at $2 an hour in 1970 are now making $12 an hour; success at last! The trouble is, the $2 in 1970 probably bought a lot more than the $12 does today. Plus, the politician doesn’t have to raise taxes; you make more, you pay more—how neat!

Government coinage backed by gold and silver prevents the politicians from printing dollars. The Eurodollar which is not based on gold or silver has a similar problem. These countries can’t print more Euros without the approval of all nations in the Common Wealth. The currency is destined to die unless the politicians can remove the restrictions on printing more Euro’s. Europe’s politicians have promised much and can’t deliver without control of the purse strings.

I have to laugh when people say the government has to print more dollars because there are more people now. All currency does is transfer your work unit into a common unit of measure in our case called a dollar. A farmer grows a thousand bushels of wheat and converts them to dollars and buys what he needs or wants. Everyone who works receives entitlement receipts according to their effort and skill. They could be paid in chickens and pigs. The thing that makes currency work, is that it is more convenient and speeds up commerce to a very high degree. When a government prints “extra” dollars (spend more than they raise in taxes or borrowing), the product purchased is pretty much confiscated from the economy.

Purchasing gold and silver is not going to make anyone rich. It is only a way to preserve your buying power into the future. It pays no interest and is immune to inflation. The reason you would buy it, is because you understand the dynamics of counterfeiting; it’s a tax on everyone using the currency. The real worry with the accelerated printing in many countries, is the necessity to ban gold ownership. The politicians cannot pay the bills and inflate the economy if the citizens refuse to use the currency and buy gold instead.

What we saw happen to the banking system in Cypress is one possible outcome that no one liked; losing 40% of your savings over 100k kind of sucks. Whatever the outcome, as a rule of thumb, an ounce of silver is about one hour’s wages and an ounce of gold is the equivalent of one week’s wages.

The neat thing about owning physical gold and silver, is that some hacker on the internet can’t spend it, the government can’t tax it, transferring it is not a taxable event, and it is invisible if you want to claim government benefits. When's the last time you have seen on a financial application, "How much gold do you have buried in the back yard?"

My gopher knows.