Friday, January 18, 2008

The Road to Hell is Paved with Good Intensions

Congress is trying to rustle up a tax break for everyone to help stimulate the economy. I thought it was too much spending that got us into this mess. Government tax receipts for this year are certain to be less than those for last year. Why give it back? Carry it forward and spend it next year.

They want Bernanke to lower interest rates so people can refi their houses. The fact that a lot of homeowners paid too much for their home, doesn’t enter into the equation.

Then there is universal health care. It isn’t going to get cheaper because of government legislation. The irritating thing is the word “universal.” It’s kind of like the car dealer walking up to you and saying, “Will this be cash or do you want to finance it?” He is trying to close the deal. When you buy the concept “Universal” that means “Everyone deserves it.” In my opinion if you can’t afford it, that’s just too damn bad. I’m no goodie-two-shoes, life is tough and life is unfair. You want the BMW and no health insurance, live with it. There are tragic exceptions to this all of the time, but that is life. We have to make choices about what we want to consume in life, because of one basic fact, we can’t afford everything. Congress doesn’t understand that concept.

Social Security is a huge government commitment. Benefits are tied to inflation. It’s amazing how low inflation is (insert horse laugh here). I guess if you are too old to drive, the cost of gas doesn’t enter into the equation. You need to be over medicated just to fill your tank.

A lot of what is going on in Congress revolves around pure stupidity. Stupidity is a little like dynamite; it doesn’t take much to do a lot of damage. The government faces decreasing tax revenues because of the shrinking economy. Nothing has been saved up from the good years. Congress just spent more because it was there.

The idea that we can spend our way out of this mess boggles the mind. It’s kind of like mixing Preparation H with salad dressing so it tastes better. You know what you want to do, but you are starting at the wrong end.

Copyright 2008 All rights reserved


Anonymous said...

This situation is like putting a frog in a pot of cold water and slowing boiling the water. Each step of the way, bit by bit, the ultimate end will be a recipe for hyperinflation.

Jim in San Marcos said...

Hi Daltica

Good material in your link. You could be right. I tend to think that we will have severe deflation to start. But in order to pay all of the transfer payments (SS SSI Medicare etc) we will get to warp speed 5 and go to places never before explored.

Sadly it doesn't look as if anything will stop it. I hope I am wrong.

Sackerson said...

Jim, I hardly know where to start, but I'll try.

First, congrats on the dynamite and Preparation H cracks: a touch of humour is always helpful in a disaster.

Next, I am often struck by the harshness of American comments about the less fortunate. The USA is, I believe, essentially a Christian country, yet attempts to alleviate the condition of the poor are often condemned as wet Democrat thinking or worse, crypto-Communism.

That's not to say that I believe in the endless expansion of Medicare (or the NHS in the UK). As my doctor friend says, it's not the National Health service but the National Sickness Service. Surely the point is not to become sick.

But there's lots of factors in that last, and some are not the patient's fault. For example, poor diet in early childhood may make the child permanently more vulnerable to disease. Statistically, poor education, low pay, ill health and higher mortality are all related, together with a mess of other negatives such as mental problems, crime, child neglect and abuse.

I'm very conscious of the fact that "trying to solve the problems" becomes a great industry for bureaucrats, politicians and swindlers; but I don't think we can just say F the poor. Is there room for creative thinking here?

And then you open another can of worms, this time the massive waste of energy on cars as a form of mass transportation.

Boy, do we have a lot to debate!

Care to come over to Bearwatch and work through the issues? If so, I could add you as an author to the blog.

Anonymous said...

Okay, so this current mess was caused by people spending beyond their means (and mortgage brokers drooling to help them!)... and the president thinks the solution is for people to spend more?

That must explain why the savings account that my wife and I have managed to grow is being torpedoed monthly by Bernanke's interest rate cuts. He doesn't want us to save it, but spend it!

When did the president become such a fan of irresponsible spending?

Mr. Sackerson, not all of us Americans are quite so harsh on the poor or "soon-to-be-poor". I doubt there are many people who choose between a BMW and health insurance; the choice of lately has been between gasoline, electricity (especially here in deregulated Texas) or health insurance.

Anonymous said...

Dear Jim:

The Wall Street Boys & Girl really did it this time. They spared no one (UBS, etc.) When do I get my 800.00 dollar check? If by March, then happy days are here again! I will be able to get 10.5 "free" fill ups for for 10.5 weeks at the local Shell station. Talk about wealth transfer. Well at least we know that it will be repatriated to bail out "Citi". Brother can you spare a dime? Dear Jim, what will I do when I have spent the 800.00?

Jim in San Marcos said...

Hi Sack

I don't think that I am being rough on the poor. In the last 100 years, medicine has come a long way and most people have access to basic care whether they can pay for it or not. My uncle, a doctor died in the 1930's from a puncture wound, penicillin hadn't been invented.

The government (us the people) have limited funds. The idea that we can fund everything that we would like to have is unrealistic and rather myoptic.

Solving one problem often creates another. We are living longer because of health care advances. This alone has double Social Security budget. As you live longer, you have needs for more complicated surgery.

If you have ever taken a pet in for surgery at the vet, the reality of available resources is your first consideration. Can you pay for the procedure? You pay up front

This is not an issue over neglecting the poor. It is one of limited resources. If you’re running for political office, catering to the poor will get you votes.

You’re right it is a can of worms. There are several issues at play. I try to keep my articles short, and it sometimes conveys the wrong impression.

Thanks for your comments

Jim in San Marcos said...

Hi Anon 6:09 & 6:21

It's going to get worse. At least we can make decisions on what bills are necessary to pay. We have limited funds (a reality factor missing in our government).

The $800 dollar refund covers the increase in cost of gasoline. The bad thing is that the government has less real money to spend this coming year.

Thank you both for your posts.

Anonymous said...

>> “Everyone deserves it.” (Health care)In my opinion if you can’t afford it, that’s just too damn bad. I’m no goodie-two-shoes, life is tough and life is unfair.

Does anybody here believe if this guy had a young child dying from lack of health care cause he couldn't afford it that he would be dispensing the tough love.

Jim in San Marcos said...

Hi Bob16

On a personal level you are right.

A government can't cover 100% of everything. Just because they want to, does't make it possible. Reality involves making difficult decisions. Some people will tragically fall by the wayside.

I wouldn't hesitate to spend every cent in my savings and yours to help my son if needed.

Anonymous said...

While I agree with you on most of what you wrote, I disagree on health care. I believe that a wealthy, civilized society should not stand by while people starve in the streets, nor while they suffer from a lack of basic health care.

Yes, those who are more affluent (whether through personal merit or fortunate circumstances) will, and probably should, enjoy a better diet, better housing, and better health care. But we, as a society, should ensure that those who are less affluent (whether through personal failures or unfortunate circumstances) receive some reasonable minimum diet, housing, and health care.

By the way, I am not talking about those who choose between the BMW and health insurance. I am talking about those who must choose between eating and antibiotics, basic dentistry, surgery, etc..


Sackerson said...

It may be to do with how the money is spent. Perhaps we need to address quality of life issues - and accept that mortality is inevitable. Could money saved on painful, frightening and fruitless last-ditch procedures be better spent on early intervention for many others?

"Half of the lifetime medical expenses the average American incurs are incurred during the final six months of life. One reason for this is that, unlike many other advanced nations, American society has not yet accepted the idea of keeping someone suffering terminal or catastrophic illnesses comfortable at home rather than in a hospital. Our mind-set is to automatically pull out all medical stops - even if that means literally torturing loved ones during their last few months of life."

Ben Carson "The Big Picture: Getting Perspective on What's Really Important in Life" (p.253)

Anonymous said...

Jim, is this it for the stock market?
I guess what I`m trying to say is, in your opinion, have we crossed the threshold to a "bear" market?

Jim in San Marcos said...

Hi Kibitzer.

What you suggest is a grand endeavor, but I don't see it working very well. I'm not sure how true it is, but I read somewhere that only 1/3 of the people in the US have ever been to a dentist. You cannot force people into healthy lifestyles. Old age does it for them.

The amount of taxes our government can raise and that we as people can afford to pay is finite. We can choose what to spend it on. We cannot have everything that we want. The money is just not there for it.

We can't pay for the programs we currently have in place. So it is really academic whether they pass health care legislation or not. I am only pointing out the government folly that, they can do more with less.

Thanks for your comments

Jim in San Marcos said...

Hi Sack

There is another issue that I didn't bring up. All the free health care dispensed in the country's emergency rooms is shutting a lot of them down. Two hospitals in LA went out of business last year.

Jim in San Marcos said...

Hi Annon 10:31

I don't see a bear market yet. A good 3,000 point drop could usher it in.

Remember at that point everyone will short the market and it will go up and do the impossible. Ruin everyone it can.

Click on Market Ticker for stock info. Denninger has a flair for shedding light on the market.

Sackerson said...

I've been following a prediction made by Robert McHugh in July last year: he said the Dow wou;d drop to 9,000 either in nominal terms or as measured against gold. We are already very near that point.

Peter Schiff made a similar prediction in his book ("Crash Proof"), saying that the Dow would fall 30% from its end-2006 point, though in his case he didn't hedge his bet by including a reference to the price of gold.

I feel we have been falling since 2000, and up to now it's been disguised by accelerated monetary inflation. M3 (in the Uk, M4) doubled and so did house prices; now the nominal prices are falling amd the low tide is revealing the detritus under the waves.

Anonymous said...

Jim I took your advice and checked out the Market Ticker website, then I went to their forum site, and in the "breaking news" department they were talking about the CFC deal "blowing up" on some news they found on the Wall Street Journal website today.
Jim do you think that CFC can be allowed to go bankrupt? And if so, do you think that this could panic the stock market?
Being a novice, please excuse this stupid question, but are the people on that Market Forum "day traders"?
Thanks for the link Jim. (even though from what I can tell, that guy over there seems to think the market is going to go down)
Anon 10:31

Jim in San Marcos said...

Hi Sack

I saw his report and don't really know how to interpret it.

Dow 9000 doesn't really mean that much. If the DOW 30 stocks each went up one dollar that would be 30/.123 which equals 243 points. The .123 is the Dow divisor.

So a drop of 3,000 points would be the equivalent of 3,000 x .123= 369 divide that by the 30 industrials and you have a $12.30 drop in the average DOW stock.

Even though a 3,000 point drop would be a minor drop in stock value, it would panic Wall Street. The real drop would be in the tracking indexes.

Jim in San Marcos said...

Hi Annon 1:45

I think that Denninger is a day trader. He's in my links list under "Market Ticker." I would guess that some of the people in the forum are also day traders. It is possible to do this for a living, but I highly advise against it.

His breaking news in the forum has some good stuff. They have been ahead of the news on Countrywide.

AS for Countrywide going BK, I think that's pretty much a given. B of A paying $7.16 a share is laughable.

The real issue here is the 6 million home owners that send in their monthly mortgage checks to them. Their loans could go into default because no one is there to post the payment. That's already happened to a mortgage management company in New Jersey I believe.

6 million homeowners going into default through no fault of their own could be a nightmare. So it looks like B of A will have to take the baton pass, the price is still negotiable.

Scott said...

>>This is not an issue over neglecting the poor. It is one of limited resources. If you’re running for political office, catering to the poor will get you votes.

People running for political office who cater to the "don't spend any of MY tax dollars on THOSE people" will also get you votes.

Like you said, we all have to make choices. Spending $10B a month in Iraq would certainly go a long way towards covering basic health care for those who can't afford it.

The countries that do this so far manage to afford it, based on the choices they make as to what's important. Maybe once we start valuing people as much as our Hummers and big screen TV's, we'll start making better decisions at the national level.

Jim in San Marcos said...

Hi Scott

I have no disagreement with that.

The thing to look at is what each does for the economy. Any payment to an individual by government is pretty much a transfer payment. It does nothing to stimulate the economy.

Whereas if the government spends money on a jet fighter, moon shot or war materials, this lubricates the private enterprise system and stimulate employment.

To oversimplify it, a dollar spent on private enterprise will return as a tax dollar. Where a transfer payment is gone.

Free health care has trashed the Canadian medical system. I can't imagine waiting two years for a heart by-pass operation.

Another issue to consider, I don't mind spending your money on this, its mine that I want to keep.

Sadly, there isn't a real solution to this issue. If we chose to give everyone a free car instead of Health care, everyone would want a Mercedes. So if cost isn't the final qualifier for the product, a long line will be the result.

Your endeavor is quite noble, I don't mean to belittle it. Thanks for your comment

Scott said...

Are you saying that a government payment to a healthcare provider or dentist that an individual who normally wouldn't go doesn't work it's way back into the economy the same way a payment to a company for a jet fighter does? Admittedly on a smaller scale, but it still puts the money back into the economy.

Ideally, they'd put blocks on the top of our 1040's that we could mark for the various cabinet level agencies that we'd like to support and the sum total would be the total amount of the budget that each section had. Those who support universal health care would feel good that that's where their money was going, while those who would rather build jet fighters can also feel good knowing that their money went there. Truly more democratic, but it would strip the politicians of so much power that we'll never see it happen.

Anonymous said...

Hi Jim:

First time poster and I love your ironical writing style. In fact, I'm passing up on a powerwalk this morning to sit on my bum at my computer while loving it with my high-fructose corn syrup pastry and my high-sodium bacon. Why exercise and eat healthy when my self-created diabetes and high blood pressure/heart disease will be treated by Medicare for 30+ years in retirement, paid for courtesy of my grandkids and great-grandkids? They'll surely be paying for the housing debacle, so why not the entitlement tsunami?

Jim in San Marcos said...

HI Annon 7:54

Welcome aboard.

I think typing qualifies as exercise.

Jim in San Marcos said...

Hi Scott

Another way to look at it, Government pays for stuff with confiscated money (taxes). Private enterprise has to earn their money by producing something.

Some government spending mimics the private sector, like defense contracts. Transfer payments like paying a medical bill go directly into a bank account. At that point you are no longer producing a product, you are consuming resources.

Anonymous said...

So Jim..with what is happening in the economy what are your suggestions for being best prepared for going through a recession? Should big purchases (cars, appliances) wait or is it best to get them now?
Also with inflation or deflation will that affect big purchases?

Scott said...


As much as I love reading what you write because you really have a knack for simplifying some complex financial transactions for the rest of us to understand - I can't help but think you're oversimplifying this:

Some government spending mimics the private sector, like defense contracts. Transfer payments like paying a medical bill go directly into a bank account. At that point you are no longer producing a product, you are consuming resources.

If I'm reading you right, the guy who works at the defense contractor plant will spend his paycheck, thereby boosting the economy (no argument with that statement and I hate that we're losing all our manufacturing jobs as well). But you're completely discounting that the nurse or x-ray tech also takes their paycheck and spends it to the benefit of the overall economy as well. It doesn't just get parked in a bank account somewhere.

Also, perhaps if we hadn't taken out all the Medicare and SS money in exchange for IOU's to build things like fighter jets, we wouldn't be having such an issue now with those upcoming payments

Jim in San Marcos said...

Hi Scott

I'm leaving some stuff out. In second semester economics, they get into private investment and product production verses government spending and how they relate to stimulating the economy. Private sector spending has a 4 times multiplyer. Government spending has about a two times multiplyer. You are pretty much counting how many people the dollar touches as it trickles down in the economy.

So if you can accept that on faith, Private sector investment is a better stimulus to get the economy going. Government spending doesn't have the same bang for the buck. Transfer payments like SS have no bang at all.

Scott said...

I don't accept that on faith, and I'm frankly surprised that you do either.

$100 spent with the jet manufacturer gets divvied up between the mechanic who installs the electronic component and the supplier who produced it, also paying for the labor and materials.

$100 spend at the doctor's office also gets divvied up between the X ray tech and the manufacturer of that machine, along with the labor and materials the manufacturer spent to produce the instrument.

Transfer payments like SS have no bearing on the discussion of government paid medical versus insurance paid medical. The only difference is that we've cut out the requirement for the insurance company to generate a profit for the shareholders, which was covered in first semester economics.

Anonymous said...

Question: Can Countrywide still go bankrupt even with the planned BOA purchase in the works?

Bernanke has knocked our savings acount interest down quite a bit and Countrywide is/was offering a fantastic rate of 5.65% last week on CD's. In the time it took me to open an account and shift the money (mere days), their CD rates dropped to 5.45%, then 5.25%, then 5% and now 4.75%!!! In less than one week. In todays paper they were advertising the 5% rate which isn't even available.

What's happening and should I keep my money away from Countrywide savings accounts? They are FDIC insured.


Jim in San Marcos said...

Hi Scott

The focus of the article is the governments bid to stimulate the economy.

The multiplier effect has to do with economic theory that would bore most blog readers to death. That's why I suggested you accept it on faith. Basically a $100 dollars spent in the private sector will produce $400 in payroll. The same amount spent by the government will produce $200 in payrolls. What is happening, the money goes from the worker to buy an item that is produced by another worker who in turn gets a wage who in turn spends it on a product etc.

The average tax payer is paying taxes for services, like roads, police, fire etc. Transfer payments are payments of your money to people who produced nothing in order to receive them. If they are eating your lunch for free, it's you that's stimulating the economy not them. You pay the tax, they enjoy the benefit.

My gripe is with the government. They have promised to pay out $5 when they only have $1 in the kitty. They can promise all the free health care and Social Security they want. They just can't deliver, the money isn't there.

Hope that makes the theory part clearer.

Jim in San Marcos said...

Hi Annon 7:02

Countrywide bank is FDIC insured so there is no problem with your money there that I can see. The Sunday paper listed them as the highest rate payer today. A famous quote of the 1930's was "I'm not interested in the return ON my money, but the return OF my money." The insurance works, but it could take a couple of months to get your money back if there was a problem.

I think that Countrywide has to remain solvent until it can be transfered over to someone else. That would be my hope. It would keep things simple. That doesn't mean it will happen. BofA has lots of wiggle room.

Sackerson said...

I understand there may be limits to what FDIC can do:

zgirl said...

In regards to Countrywide, they are actually advertising "how to maximize FDIC coverage" (I posted screen shots & links in my blog). Amazing.

Other banks shut down recently have been covered to the limits, but some folks with deposits over the FDIC limits lost money.

zgirl said...

In regards to health care - universal coverage would be a disaster in America. We are the land of opportunists; our culture worships the making of money. Doctors in socialized medicine countries make half what American doctors do. We already have GP shortages because doctors go into higher-paying specialties. To some extent, our high prices are CAUSED by insurance. Universal coverage without cost containment would be a train wreck, but American consumers are not ready for - and not likely to accept - the kind of rationing necessary to afford universal care.

As long as the consumer is removed from the cost of an item - whether a house or a doctor's visit - the price will climb. For cars and houses, consumers buy on monthly payment and they don't care what the actual purchase price is, as long as they can afford the payment. In health care, we buy it in bulk through insurance, and focus on the monthly premium. We don't know what it costs to walk through the door at the ER, and we don't care. That's a recipe for price inflation. Universal coverage would make it worse.

Jim in San Marcos said...

Hi Zgirl

We think a lot alike. I gave you a link.

The site is: Better Than Nothing

You might want to add an email to your blog profile, it comes in very handy now and then.

zgirl said...

Hi, Jim, Thank you. I've added the e-mail link as suggested. Thanks!

ProblemWithCaring said...

In my opinion if you can’t afford it, that’s just too damn bad. I’m no goodie-two-shoes, life is tough and life is unfair. You want the BMW and no health insurance, live with it.

I agree.

But 1) "affordability" itself is a construct of (economic) policy.

If you can't afford a house don't buy one - well, Yes! But what if the house was never worth its “value” to begin with? What about a college education? Does it really cost a school $47000 every year to "educate" each and every bright 19 year old? And what about treatment for hypertension, diabetes, HIV? Should one just risk death and disease every day because the profit premium on medicine, which cost pennies to make but Americans a hundred dollars to buy, prohibitively high?

Lots of things in this country are simply overpriced and that is a societal concern, because it is de facto social policy – implemented in order to ensure wealth and health stays concentrated in the hands of few at the expense of the many.

2) History has shown that there are ways for governments to use minimal involvement to mitigate widespread societal calamity (in health insurance, in education, in criminal justice, etc.)

And while I agree that policy should always aim small - if only to reduce the effect of its unintended consequences - the notion that man can not look after man, citizen is not responsible for citizen, and humanity, equity, and fairness are all futility, I think, is a pretty much what keeps America from solving ANYTHING - and continues to regulate even our most manageable of policy concerns into the realm of intractability.

ProblemWithCaring said...

also love the blog BTW....

Jim in San Marcos said...

Hi Problem with Caring

This issue could be broken down into a political side, an economic side and a philosophical side.

The politician buys votes. There isn't a problem they can't solve, just vote for them.

From an economic point of view, we can afford Social Security or Health Insurance. We can't afford both and logic dictates that we will not make the choice of one over the other.

From a Philosophical point of view, I have read discussions on how government should help the poor, that go back 300 years (John Law comes to mind but as you get older, things start to run together so I might have a name wrong here). The thing to realize here is that if it is such a simple thing to do, why hasn't it been accomplished in that length of time.

The only conclusion you can come to is that people want cheap government and they also want to keep as much of their earnings as possible. Once you see the abuse of the systems already in place, the less you want your money in the pot.

The problem is very complex. I wrote another 4 paragraphs, but I deleted them, no need to get long winded on this, its a subject with a lot to it.

Thanks for your comments