Monday, December 28, 2009

The Float

Bernie Madoff understood the concept of the float. He had fun with it for 30 years. A bank at any one time doesn’t have the cash to pay off all deposits and there is little worry that it will have to unless there is a run on the bank. What brought Bernie down was the fact the money coming in was less than the money going out.

Let’s travel back in time.

The FDIC insurance fund was established in 1934 to give the people confidence in the banks when there was none. If your bank had a good balance sheet that was up to par with Fed standards they were given the opportunity to become FDIC insured. Nine banks went under that first year, but that wasn’t close to the 4,000 that closed in 1933. The FDIC was pretty much collecting insurance premiums from the banks and paying out very little in claims.

Fannie Mae was created in 1938 to help stimulate the “depressed” housing market. Banks were not interested in investing in home loans. So this government program supplied the banks with federal money to finance home mortgages. Notice here too, the damage to the housing market had already occurred. Fannie wasn’t really sticking its neck out to insure the market.

Then we have the IRA retirement plans that started in 1974. These plans allow a wage earner to shelter income from taxes. Once you put it in the plan, it is no longer yours, the government tells you when you can spend it. Pay in hard earned dollars today and get back watered down whiskey when you retire.

Fast forward back to today.

If we examine the savings of our nation, It is somewhere around 20 trillion dollars. Probably between 8 to 14 trillion of that has vaporized. So going back to the Ponzi scheme, two things have happened that were not anticipated. The FDIC is insuring the bad decisions of bank managment, bank credit became very easy to come by. Also our government is insuring investors against loss for home loans that were written to just about anyone. It could be argued that the government programs encouraged this mess.

Madoff's Ponzi scheme collapsed when funds withdrawn exceeded those being deposited, and it ruined a great many people. Now we have a Ponzi scheme that depends on the Federal Reserve printing currency to cover the bad home loans and cover the failed banks. There is no concept that the Federal Reserve can run out of money or go to jail.

Now if we take this one step further, there was no excess money for Congress to spend during the prosperous years. But they found ways to increase spending. Now we have a financial crisis and funds are being found in abundance. We know that Congress never saved for that rainy day. Just look at the national debt at 12 trillion dollars. Do you get the feeling that somewhere along the line people are going to want real money, not this stuff that Bernanke is printing?

Presently if the dollar were to be revalued, 1:10 –--which seems pretty plausible, the government would be confiscating 90 percent of the savings of the people that have money, and issue a new dollar. Of course if you had no savings, you lost nothing. This could be the final game plan.

What you need to examine, is what would make banks lend again? There is no real profit incentive if the currency gets revalued every 10 years. There has to be a link to gold for real stability, but in lieu of that, you get very high interest rates to compensate for the risk. The real question to ask is how much of our retirement funds are really there? Since there is no real urge to spend it all today, the concept that half of our savings is gone is not apparent.

In just one day, the news of Madoff's failed escapades, turned millionaires into paupers. The sad thing is, they were millionaires until they were told otherwise. Their lifestyle underwent a drastic change. Bernanke and Geithner have tried to create real money out of nothing, trying to replace what has been lost. Money is usually a measure of a man's labor. Printing currency is not a measure of the labor used to build cars, bridges or produce food, no product was created. Its rightful name is counterfeiting

The government can't print gold and silver. I've given my retirement plan the boot. I'm going with silver from here on out, gold is too expensive. I might pay more in taxes, but you have to ask one question: "If toilet paper goes to $200 per roll, did you really enjoy a tax savings by shoving it into an IRA or 401K?

Saturday, December 19, 2009

The TARP Hoodwink

Here is a bit of pure speculation on my part. When Congress came to the aid of the banks with the TARP money, things were not quite as they appeared. At that time, bank accounts were Federally insured for 100K. A person with 20 million dollars in cash, would need 200 banks to deposit the cash for the FDIC insurance coverage. Most likely the 20 million was in one bank. What we could have been looking at here was the flight of big money out of the banks, not the small deposits.

Back in the 1980’s we had a bank called Continental Illinois that the FDIC deemed too big to fail. Here is an interesting link to that fiasco: Continental Illinois and “Too Big to Fail.” The Fed ended up covering all deposits to stem the run on the bank. Of course they ended up owning it in the end.

The FDIC has no problem coming to the aid of the banks. AIG (a non bank) was another story, a black hole for over 200 billion in TARP money. Now the banks have stabilized and the word is out, all of the banks "Too Big to Fail" are FDIC insured for ANY amount, no matter how large. The big money is returning back to the banks. The banks no longer need the TARP money and can return it to the Fed. This eliminates the TARP restrictions on large bank employee bonuses.

The banks are thumbing their noses at the FDIC, look at Citigroup’s stock offering the other day to raise money to pay off their TARP debt. The Fed previously gave them 25 billion dollars in return for stock valued at $3.25 a share. Then Citigroup goes out and issues 20 billion more of stock to pay off the TARP loan at $3.15 a share. What the government should have done was dump their shares before the Citigroup offering. Not only does the government now have a smaller slice of Citigroup, it is worth less on top of it. Doesn’t it feel like the Fed just got "had" by a used car salesman named “Slick?”

The whole thing smacks of a Fly-By-Night-Airline. Imagine your airplane flight landing at an airport midway to the destination and then the pilot passes the hat among the passengers for gas money? Here's a bank selling stock, to pay off a TARP loan! Is it because they’re broke????

"Too big to fail," is the Modus operandi for the Fed and the players know the rules to that game. The bankers get their bonuses and they did it right under our noses; irritating to say the least.

Friday, December 11, 2009

An Educational Letter From An Educator

The following email was sent to all of the Poway Unified School District Supervisors by Dr. Don Phillips Superintendent of Poway Unified Schools, November 16, 2009. It left me with a very heavy heart. This gentleman is fully focused on his job and what has to follow to accomplish his goals. It is a preview of what the schools in California have to deal with. These problems are not invisible and they are not going away. It is hard to address problems that the general public doesn't fully comprehend. Read and enjoy, it is well written.

Dear Staff,

As you know very well already, the Poway Unified School District has faced two years of extreme fiscal challenge. The nationwide recession has affected California more than most states and has led to dramatic cuts statewide to K-12 education funding. For the 2008-09 and the current 2009-10 school years, Poway Unified has been faced with budget shortfalls totaling approximately $48 million. To keep our district fiscally solvent, we have made spending reductions totaling over $22 million, meaning real cuts to personnel and programs. In addition to these spending reductions, we have applied one-time federal stimulus funds to balance the general fund, implemented state-approved flexibility transfers of categorical funding, and utilized voluntary salary rollbacks of 2.7% from most district staff members to address the remaining $26 million budget shortfall These strategies have allowed us to minimize class size increases through the retention of teaching positions, maintain programs for students, and retain many support staff positions.

Through it all, we have worked together to provide our students with the very best education possible with fewer resources. Few, if any, districts have had the can-do attitude to make this happen, and I feel honored to serve as superintendent in this amazing organization.

Unfortunately, our financial woes have not gone away, and economic experts are telling us that, while it took two years to reach this point in the recession, it will likely take five years for the economy to fully recover and for state funding to education to return to 2007 levels. Though some economists are declaring the recession has bottomed out, California’s very high jobless rate, the absence of major capital gains taxes on income, and the predictable lag in tax revenue that always follows an economic downturn all suggest a slow rebound for state tax revenue and therefore funding for K-12 public education.

The dismal state economic picture will sadly have an additional impact on the District’s budget for the 2010-11 school year. Our challenge is further compounded by the fact that most of the federal stimulus dollars, as mandated by law, must be spent by 2010. In effect, we are currently spending significantly more than our ongoing revenue would allow, given the use of one-time funding from various sources.

We currently estimate that PUSD will face a budget shortfall of approximately $17 million for the 2010-11 school year. This assumes that we face no additional budget cuts from the state, which is unlikely given that state tax revenues are already falling $5 to $7 billion behind the updated projections for the current fiscal year. The only helpful relief on the horizon is the possibility of a second wave of federal stimulus dollars that could be as much as $2 million, but this is just a possibility at this point.

These state budget cuts and potential loss of one-time federal funds place us in a most challenging position. Our programs for students, and staffing levels that have survived the last two years of cuts, are the highest priorities in our budget. Reducing any of these high priority programs will be most difficult. However, the size of these state cuts requires us to consider options we would never have considered before. We will need to make reductions at every level in the organization, and we will need to explore combinations of very difficult cuts to reach the needed $17 million in reductions.

Finally, as a school community we are going to have to make choices none of us like or feel are best for students. However, I am confident we will get through this period and continue to meet the educational needs of our students in the best way possible.

While it is still early in the 2010-11 budget-building process, the financial picture does appear bleak. I provide this information not to alarm unnecessarily, but to share with you the size of the challenges facing our district and allow time to discuss and think about how we can best meet these challenges as an educational institution.


Tuesday, December 08, 2009

Can You Afford a Dentist?

I had a dentist appointment yesterday to get a tooth filled. This is a medical group office with three dentists and a dozen support assistants. So when I pulled in at 7:50 for my 8 am appointment the parking lot was pretty empty. I was figuring that I must have gotten the time wrong. But sure enough they were open.

My simple filling turned out to be a ceramic inlay with 2 surfaces. My share was $395 with insurance. They are up front with the costs, you pay first and then they do the work. I balked at the price (choked is a better description). I pointed out that I had already spent $1200 on one root canal and two crowns so far this year. The secretary doing the financing dropped the price down to $250 and let me use a $100 dollar off coupon they had sent me. Between me and my insurance, they got about $450 (the insurance paid $300).

So they "owned" me for two hours. During that time only one other patient came in to my area (there are 4 stations), and that was for an estimate. It was just me, the Doc and three hygienists. After they finished, I got up and went into the outer office and noticed that there were only two people waiting in the lounge. It saddened me, the lounge use to be full of people.

I should have guessed what was happening when I called for an appointment and they wanted to schedule it the next day (I need at least a week to mentally prepare for dental work). People are cutting back. It is all very invisible; you won’t read about it in the morning paper, but you will read it here. Save a dentist and "stimulate" the economy, go get that tooth filled.

Sunday, November 29, 2009

Dubai the land of Plenty

This city-state has to be the poster child for stupid opulence. Below is a picture of a British jet on a flyby over a man made island shaped like a palm tree, Palm Jumeirah. Real estate on that island isn’t moving as expected.

Believe it or not, there are three Palm Islands and another group called "The World."

Then you have the Dubai Ski resort. This kind of gives you an idea where the money, we pay for gas, goes.

How about the world's tallest building the Burj Dubai? Notice the foreground is a replica of Venice, Italy (to show it all would take another 15 pictures).

These things are visible, want to guess at what can’t be seen? The “Cash for Hookers Program," is working quite well in the Arab world; better so than the "Cash for Clunkers" plan here in the States. These girls are bringing our oil dollars back to us (God bless them).

Dubai is a house of cards. It is beyond being absurd. The UAE is stepping in to bail them out. (they had a change of heart) It tends to be obvious that something is out of whack from an investment perspective when you see a ski resort in the hot desert; it is not a mirage. The estimates are around 90 billion dollars to contain the damage (multiply that by a factor of 10 for a more realistic estimate).

Now if the Arabs have been storing their reserves in our banks--- and Ben has spent it all--- and they need to make a large withdrawal,- - - hmmmm.

The next time you go to get gas, think "Ski Dubai." You might mispronounce the word "Ski" and that is understandable.

Monday, November 23, 2009

Raising Taxes Generates Less Revenue

This health care plan being pushed through Congress is pretty much nothing more than a tax hike on the young paying for the benefits of the old. The additional funds raised and not paid out could be "borrowed" by Congress, just like our Social Security taxes were.

Look at the picture below. 23 percent of our budget is for Medicare, 21 percent is for Social Security, 10 percent is other, and interest on the debt is 8 percent. The only things Congress can "adjust" (cut) are the 21 percent for defense or the 17 percent of discretionary spending. Good luck there.

In the second chart look at the sources of income; Social Security provides 36 percent of tax revenues. Notice, the government is only paying out 21 percent in benefits to Social Security recipients; the other 15 percent is "budget money." Note: FDR claimed that Social Security would only amount to a 1 percent tax (Democrats seem to have a problem with math and that goes hand in hand with voters having a bad memory).

This is where the health care tax will be the new revenue generator. Just like Social Security was during the Great Depression. But this time it will back fire on them. Congress in its infinite stupidity thinks this will solve all of our country's budget problems. They raise taxes and the taxpayer gets “free” health insurance. But there is one little item, that right now is insignificant, but will rise up to bite them. It is the assumption that most families will continue to have two wage earners.

The government has failed to realize the game rules have changed. We are in a depression with high unemployment and decreasing tax revenues. Your dollar has to go further when you have less of them to spend. Government spending has to be cut drastically, how likely is that to happen? Many families now only have one wage earner and it looks as if it will get worse. The government needs to raise taxes by 25% and health care will do just that. The real health insurance costs are for those over the age of 60 and that program is already “funded.”

The younger generation may be able to beat this tax. When our son was born, I became Mr. Mom. My wife had a real good job and at the time, my real estate career wasn’t setting the world on fire. My wife wanted me to get a “real” job and put our son in day care. I mentally figured it out, day care would cost about $18,000 per year and gas to drive to my job would probably be $2,000 per year. Plus we would both have to do the cooking, cleaning and shopping; figure that has to be worth about $5,000 per year. Add it up and it totals up to $25,000 (after tax income) so in reality, you need to earn $30,000 (before taxes)to justify getting a job. On an hourly basis, that figures out to about $14.42 per hour (figure $15.50 if health insurance passes). Being a house wife, may be a big positive for family financing especially if the prospective employer is only offering $9.00 per hour.

Government health insurance would be one less worry for the wife and kids. The husband could come home for “lunch.” Their actual standard of living would be better than the family with two wage earners. The net effect of this health insurance could inadvertently reduce the number of working women (with young children), which would be a reduction of taxpayers paying into the system.

Any way you look at it, there will be more people “not working,” or working under the table. Social Security collections as well as the new Health care tax could probably decrease well below anticipated government expectations.

Tax increases did not work during the Great Depression, including the Social Security tax. I read history, I don't interpret it. Congress needs to share a cell with Bernie Madoff. They both played the same game, the only difference, Bernie knew his investors.

Thursday, November 19, 2009

Geithener Sends US Gold to China???

The IMF just sold 403 metric tons of gold, this amounts to 12,965,649 fine troy ounces. 200 tons of it went to "India." In order to sell gold, the IMF has to have an 85 percent approval of all of the members and from what I can surmise the US has about 17% of the voting rights, the toys were ours so no one objected to this transaction.

To the IMF and the countries of the world, gold has no real value. Each country can purchase gold from citizens with their own currency. It used to be that a currency was backed by gold and could be redeemed at the gold window. President Nixon closed the gold window for the US. So in essence, gold has little meaning as far as trade goes. With the financial markets, options can be bought to cover currency fluctuations. Gold has been removed from the equation.

One factor not often considered is that there are security considerations for storing gold. You have to keep it in a secure and controlled environment. In third world countries that is just about impossible. Several countries have “gold rooms.” This is where gold is stored in different locations around the world. So if the US was to transfer gold to Brazil in the New York office, it would go from room 10A to 12b. If the room 12b got filled up, Brazil would send a boat to pick up the surplus. This is how it worked when the world was on a gold standard; that all ended 35 years ago.

Figure that the IMF doesn’t deal in gold, it deals in currency. It loans money not gold. Gold is not a commodity that is useful in lending, it is not bad as collateral, but to a bank, it has to be sold for currency before they can use it. The IMF doesn’t need gold, it needs currency. Gold has no value to them. It is like a person in the desert with 1000 ounces of gold and no water, you can’t drink the gold.

I contend that the IMF never had any gold and doesn’t need any; it has no functional purpose to them. They have the rights to currency valued with gold for each country, based on their current conversion rate and that is all they need to operate as a bank lender. Our representatives at the IMF are Tim Geithener and Ben Bernanke.

So what are we looking at here? Figure that India was just the middleman. Let me suggest that China wanted some assurances that the money loaned to us was not just paper. I am suggesting that the US transferred to the Chinese 403 metric tons of gold as a down payment on our 1.5 trillion dollar tab with them. That figures out to be about a 10% 1% cash payment on debts owed. Can you imagine the headline “US gives China 12 billion in Gold.” Let’s face who else has 403 tons of gold and a need to back the paper they have already printed?

I could be dead wrong on this, but something smells funny here.

Monday, November 16, 2009

Unemployment, the Invisible Nightmare

A hat tip to Tyrone of the Housing Bubble Hall of Shame for this link to a time animation of Unemployment by county <--(Click on the "Unemployment" link to the Left, not the pictures below, to view) ------------------------------Before------------------------------------------------

------------------------------After (It ain't over yet!)---------------------------

Unemployment benefits have been extended to 99 weeks, (93 if you are in Kalifornia). If I was 40 years younger, I'd buy a surf board and a gallon of suntan oil.

You know times are tough when you hear on the radio that the Mexicans are sending money to the US for illegal aliens out of work.

Saturday, November 07, 2009

The National Debt an Interest Only Loan

The good news is that the country can still afford to pay the interest on the national debt. Notice that it is also figured as a percent of Gross Domestic Production [GDP = private consumption +gross investment + government spending + (exports-imports)]. So as a percent of GDP, you have the ratio Debt to GDP. It kind of obfuscates the dollars and cents/sense.

The red check mark at the bottom of the chart points to the sentence; “The United States ranked as the 23rd-largest in the world as a percentage of GDP. It gives the reader the warm and fuzzy idea that 22 other countries are messing up worse than the US.

Here we are with visual aid number two. This shows standings according to public debt as a percentage of annual GDP. Japan is almost at the top, beaten out by the small country of Zimbabwe. Take your pick of whose figures work best for you. No surprise here, the US is way down the list, just like the claim from the chart above.

Look at the next chart below. Here the countries are listed by the dollar amount of external debt. The US is at the top. This is where you ask the waiter for your check and choke. What happened to Zimbabwe? Note that Japan is a special case. They have 7 trillion in debt but most of it is internal.

The last chart is more or less a financial report card for the major world players. Ireland looks like is has run out luck. As long as interest rates remain low, these governments can keep the punch bowl full.

Take away Australia, Hong Kong and the US, and the rest are members of the European Union that is tied to the Euro. Some of these countries have real good health care plans. It looks like it just gets put on a "bar tab" AKA National Debt.

Right now the US government doesn’t even have two pennies to rub together and they are busy printing money to stimulate the economy. By god, everyone will have a home, a car and health care ("A chicken in every pot and a car in every garage" sounds kind of familiar--Hoover comes to mind). Worry about getting a job after the handouts stop! Congress is in too much of a hurry to spend the country out of this “Recession.” It’s a little like dropping a frozen turkey into a hot deep fat fryer. You mise well attach a radio beacon to it, so you can track it, after lift-off.

Sunday, November 01, 2009

The Impending Banking Disaster

If we summarize the present banking problems (including Fannie and Freddie), it is pretty obvious that the Federal Reserve and Treasury have bought all of the bad housing. No depositor has lost a dime. The last 16 bank closings have had absurd balance sheets. Oddly enough U. S. Bank Corp took over the last nine closings. In my opinion, this isn’t really the time to expand your market share in the banking industry. The absorbed banks just might make U.S. Bank Corp too big to fail and I imagine any losses from the assumed loans are insured by the FDIC or put on the books at a marked to market value (some sort of "can't lose" deal).

If you simplify all of this, the FDIC is cashing out the failed housing loans written by the closed banks. Then they avoid further losses by folding the rest of the failed bank’s loans into the buyer bank.

In the normal market of the 60’s and 70’s, a home mortgage included a 20% down payment. So if there was a problem with the market, the bank was not out of pocket until the home values decreased 20%. With the 100% loan, the bank is the real owner of the property the minute the note is signed. With the drop in property values of 40%, the banks are left holding the bag. The words “Road Kill” come to mind.

The picture below displays the info on the last failed nine banks, assets to deposits should match in value. Some of the values are so out of whack, it questions whether or not you really need a book keeper to tell you that your broke!

Now we have a new FDIC ruling that commercial loans can be carried on the books at original price for bookkeeping purposes. They don’t have to be marked to market. I would call this “Creative Financing.” Common sense suggests that this is wrong, and I am just pointing it out.

If you thought housing loans were bad, commercial loans are toxic. If a 10 million dollar shopping mall goes into bankruptcy and is sold for 5 million, the buyer might only have to come up with a 5% down payment (250K--- insurance companies do this all the time). So to the person with an expiring lease can probably get a real rent reduction by switching malls. What happens next? Retailers vote with their feet. The irritating thing here is that more commercial property falls into bankruptcy. It’s not a fast process; it will take about 5 years (In our area, this was evident 2 years ago). So I guess we have a head start. I just don’t know if winning a bankruptcy race is the sort of race we really need to win.

So far there have been 116 banks that have failed this year, 10 times more could fail over the coming year. Transferring the assets from small banks to larger banks, doesn’t make the problem loans any more secure, it just passes the problems into the future.

It is very comforting to know that the FDIC has everything under control--We get to watch them paint themselves into a corner.

Wednesday, October 28, 2009

Obama Joins Hoover's "Success"

Let’s see, if you follow government suggestions, you get paid for it. Buy a home and get $8,000. Trade in a clunker and get $6,500. Just how many people weren’t going to buy without the stimulus? I is kind of hard to say. But the suggestion is there: “Do what the government tells you, and be rewarded.”

The question arises, did this action bring new people into the market or make those wishing to buy a little less hesitant? Probably all that happened is that sales for later in the year were accelerated into now.

Where did the money come from to pay these people who bought a car and a home $12,500? Don’t feel bad, I don’t know either. Let’s face it, crashing an airliner into the world trade center for 90 virgins in the afterlife has the same sort of ring to it, the only drawback to this analogy, is the religious zealot after the fact, is not going to be whining about non delivery of the 90 virgins. You can manipulate people to get a desired reaction, but the expected results don’t necessarily follow.

I remember reading somewhere that: “The government cannot give to anybody anything that the government does not first take from somebody else.” Common sense just doesn’t go far now days. I think we need to go back to the days where you had to be a land holder in order to vote, these people have always had a vested interest in the United States.

There comes a point to where thing start to get absurd and I think we are there. The question is out in front of us: "Where are these funds coming from?" Most people in the country could care less, their answer, the funds are coming from the same place they always came from.

This closing picture is not a political statement, but rather a reflection of the times, Herbert Hoover back in history was a success story without a rival in today's world. The trouble is, he was in the wrong place at the right time, and that could be Obama's plight.

Obama may end up taking the blame just like Hoover did.

Sunday, October 18, 2009

"Let Me Be Perfectly Clear"

In a Democracy, who provides better service, private enterprise or government? It sure as hell isn’t government. They are the biggest bureaucratic waste of time and taxpayers money. The government cannot do anything efficiently or cost effectively.

Obama accuses the health insurance industry of being deceptive and dishonest. I think it is the other way around. If this field was so lucrative in profits, there would be far more insurance companies offering services. The suggestion of government insurance pretty much puts these private companies out of business.

This health care plan won’t cover people who don’t work ( I didn’t say unemployed, there is a difference). Obama talks about the 43 million people not covered, well, they feel they don’t need it and spend the money on other things. If the worm turns, forget the other things, you will now spend it on health insurance, it will be taken out of you pay check. Then there are the 40 million people in this country illegally, they don’t need to qualify, the hospital emergency rooms will still take them.

Health insurance is relatively cheap if you are young and it gets progressively more expensive as you age. At age 65 it could be unfordable if you have retired, but that’s where the government plan kicks in. At this point, you are talking about insurance that even the insurance companies will not write without extremely large premiums. They know what their costs are, and they know what profits are. If you can keep costs and profits in reasonable perspective, you will succeed and survive. These health insurance companies seem to be doing OK.

The only real hang up we have is people don’t want the insurance until they need it. And when they need it, it is too late; the insurance companies don’t want them. Notice if you are in good health, an insurance company will offer you insurance at reasonable rates. At about the age of 55, rates start to rise and could be considered unfordable by low income workers. The individual has the option: is the 200 dollar premium per month worth it or do I skip health insurance? On a statistical basis, 8 out of 10 people without insurance, don’t get nailed and have a free ride, the other two pay the piper.

What Obama’s plan does, is get rid of the free ride. Everyone pays for health care. All of the people that didn’t pay into health care and never filed a claim now have to pay into the program.

It sounds great when government touts that the employer pays half of the Social Security tax and the employee pays the rest. If you are self employed, you get to experience the full reality of that, you pay both parts. The government wants to tax us another 20% of our earnings for health care and the employer gets to pay half. An educated guess is that 80 percent of what is paid out from premium payments, will be paid to those over the age of 65. And they already have Medicare. This health insurance program will be used TO FUND A PROGRAM ALREADY IN PLACE.

With private health insurance, your age and health determine your rates. With the government plan everyone will probably pay the same rate (keep it simple stupid). An insurance company knows down to the dime how much its needs to charge to make a profit, otherwise they face financial ruin. Does this sound like a government approach to problem solving? I doubt it.

Can the government allow private insurance to exist if everyone under the government plan pays the same rate? If they did, the insurance companies would cherry pick the young with a very good rate and the government would be stuck with the dogs. If I can’t short Bank of America or Citi Bank stock, without government changing the rules, you can see the hand writing on the wall – those thieving insurance companies need to go.

The thing that irritates me, is that it appears to be against the law to make a profit in this country (if you sell health insurance). Our Fuhrer has stated that the insurance companies are overcharging us.

I think that this guy we call president is too arrogant. This is a Democracy. It’s not his playground for solving social problems that we cannot realistically pay for.

Addendum added 10/19/09:

A government health care plan is an ambitious idea. I have no problem with the concept. The problem I have is with the excess reserves collected. Our government and its present finances are like a cocaine addict asking for $2,000 for “doctor bills.” It is obvious where it will be spent, just like our Social Security taxes were.

Social Security contributions currently are being paid out as fast as they come in. There are no excess unspent funds like there were in the past, to use in the budget. If this health care plan gets passed, figure that 10% of the funds will go towards health care and the other 90% will go towards” your account.” This means, Congress will write an IOU and spend it on the budget. It’s a little like promising your son a Corvette when he graduates from college and when the day arrives it turns out to be a Ford pickup.

The health care issue is not quite what it appears to be. Just use Social Security reserves as a measure. Congress has spent the reserves, they are gone. Your benefits come out of tomorrow's tax collections.

Monday, October 12, 2009

We're Broke, Let's Write a Check

Congress is out trying to save “The American Dream,” of home ownership. The suggestion that everyone should own their own home is probably left over boilerplate from some old real estate ad. The American Dream has turned ugly. Long ago banks demanded 20 percent down payments and it worked splendidly. Today’s younger generation has had no real reason to save money. It was sign here, and move in or drive it away. Everyone that wanted a home, got one (or two). Housing right now is kind of like a hot potato toss. Uncle Sam gets to catch the hot ones. So it is pretty obvious, the no money down home loan is still available. Our government doesn’t care about the quality of the new loans. They are more interested in having these loans serviced (by someone with a pulse) for the next 20 years.

Here is where the dream turned into a nightmare. Our government didn’t squirrel away any money to cover this big mess; it was assumed that it could never happen. For the last 35 years our country has spent more than it collected in taxes, by dipping into the Social Security tax fund. The money has been spent and we have the IOUs to prove it!

Our retirement funds are doing exceptionally well. Most people I know, can’t afford to retire, so withdrawals are not a real problem yet. On the other hand, there are banks that are too big to fail and ones not so big, 98 so far this year have failed. The FDIC is almost out of insurance funds. On top of that, Freddie and Fannie are about to go nuclear and ballistic at the same time.

Then we have these two white knights (Nothing racial here, the black knight was generally the bad dude) coming to our rescue. Ben Bernanke and Tim Geithner show up with a check book and pen. This is an absurd con game. And to give it some credibility, you hear a "Car Salesman Close" from Congressman saying, “We are robbing from future generations.” You can’t steal from people that haven’t been born yet, it is impossible. The funds are bogus. Ink and paper are no substitute for real tax dollars. It kind of reminds me of a Herman cartoon where the little kid is up at the blackboard adding the numbers 2 and 3 together. His answer is about 10 digits long and he turns to the teacher and asks her “Where do you want me to put the decimal point?”

Where did this two trillion dollars in bailout money come from? It didn't come from taxes. It has to be some sort of a magic show. Look for it, coming soon ----to a theater near you ---“Inflation Nation.”

Monday, October 05, 2009

The Depression Has Been Delayed

The first installment of this blog came out in May of 2006. There were no real perceived problems, just suspicions. Now we have progressed three years into this morass. Each step forward seems a little more encumbered.

With the bank failures, our government claims many banks are too big to fail (a bank with an office in every state seems to fit this profile). FDIC insurance has covered all bank losses so far. For some odd reason the FDIC now wants to collect 3 years of premiums from the banks in advance. The bookkeeping instructions for carrying this on the bank books, is what could be politely labeled “creative financing.”

With unemployment, those no longer looking for work or those working part time are not counted. And unemployment insurance has just been extended to 92 weeks. If you are lucky/ unlucky enough to have joined the unemployed, you have just won a two year vacation from Uncle Sam. Ski the winter in Colorado giving ski lessons and relax in the summer in Malibu busing tables at night (On the unemployment forms never check working out of state or mail the form back with an out of state postmark). I do recommend the season pass at Vail--great skiing, and the ski bunnies are cute.

The Federal Reserve is keeping home loan rates low by buying all T-bills presented for redemption by the market. Congress is curious how much money the Federal Reserve has on the books dealing with securities it is holding as collateral. Freddie and Fannie figure into this mess. Just how is the paper carried and on whose books? At what point does a home foreclosure become bank owned real estate? And at that point who’s books carry the asset? Hint, it’s probably not the bank.

None of these actions appear to be any sort of real solution, but rather a method to keep the game going. Each in their own way is becoming a larger problem. And then someone chimes in “Bernanke was slow to act, but his actions saved us from having a Great Depression.” That is a professional car salesman close if I ever heard one.

What we need to realize, we still haven’t arrived to our unplanned and unscheduled destination, “The Great Depression.” Government intervention has slowed down the process. It could take four years to get there not three as I had anticipated. Nobody is throwing in the towel yet, and we need millions of people doing so, not just one or two of me.

It is very easy to point to state budgets and look how much they are short this year alone. They can’t run on deficits like the Federal Government. How can state tax collections for next year exceed this year’s? When you think about it, common sense doesn’t cost anything, how come Congress can’t see the light of day?

Just ask yourself one question. If the government's crystal ball didn't see this coming, how come it has all of the answers now? I'm pretty well fed up with this government snow job.

On another note, Google has cut me off from posting pictures unless I agree to terms written back in 12/13/06. I haven't clicked to agree on it, only because it is back dated 3 years. I did have three visuals for this article, but I modified it to leave them out. I think that Google is becoming a hard ass, there is no option to deny, only the yes button if you want to upload pictures. Not sure what this means. Bear with me for now.

Sunday, September 27, 2009

Will We Stop 1929 from Repeating?

The Great Depression was a financial event. There was no war, earthquake or hurricane. The financial system ruptured and just about died. People stood in line to withdraw their saving from the banks. Thousands of banks collapsed. People, worldwide, lost their life savings. It was contended that the runs on the banks are what brought the system down. Upon closer examination, it’s easy to extrapolate the banks eventual demise from the poor economic conditions. The money borrowed could not be paid back by the unemployed. Many people were forced to live off of their savings (if they had any left).

In order to stem bank runs, the government came up with FDIC insurance. The Glass Segal act put this into effect January 1, 1934. This was after the horses escaped and the barn door was locked. If your bank met muster, you qualified for insurance and if it didn’t, you were toast. It didn’t cost the government a dime.

Let’s bracket that date January 1, 1934; either 100% of the population had collectively lost 80 percent of their wealth, or 80 percent of the population lost everything and 20 percent lost nothing. Almost everyone fell somewhere in-between the two categories. There was an obvious destruction of savings that was catastrophic in nature. This money wasn’t destroyed; it had been spent very foolishly over the previous 10 years on consumption. If you paid one million dollars for a dog or a wedding, you got your money’s worth, although I would argue that.

Fast forward to today. Bank deposits worldwide are insured. No one has lost a dime. The last part of the Kondratieff wave has to do with the contraction of the money supply and the repudiation of debt. The US Treasury is expanding the money supply while debtors have no problem walking away from their obligations. The most important thing to realize about the last part Kondratieff cycle is the end result. It destroys the obscenely rich and returns financial systems to a more normal functioning state. Bernanke is trying to preserve the status quo. The Fed is going to print us into prosperity.

Food prices have double this year. It is a little hard to see in some cases, the giant size potato chips bags, now fit in a lunch box. And then there is the specter of deflation. Autos and homes are just not selling.

Even if you have a job, your wages are not increasing, but your cost of living is increasing. So you dip into your savings, which seem to have lost a lot of buying power. Maybe that’s what deflation is all about, you spend until you are broke and then do without.

In 1930 there was no money to short the dollar on a carry trade. Bernanke has fixed that (it’s a little like a bank selling hand guns in the main lobby). The World(and probably Goldman Sachs) has shorted the American dollar. After getting rid of our clunker, we can now drive to the poor house in style. It kind of sets your mind at ease, doesn't it?

Saturday, September 26, 2009

Squirrel Economics 101

The following article may look familiar to some of you, it is a reprint from exactly one year ago today. I thought it worth repeating for those that missed it.

Imagine a group of squirrels saving nuts for winter and depositing them in a bank (one nut one credit in their account). Let’s imagine that a truck pulls up and helps themselves to 80 percent of the nuts. The bank now has a problem. It can’t cover all of the deposits. But notice, if there isn’t a run on the bank, there is no real problem. Squirrels are depositing and withdrawing nuts with no problem.

In this little example even if there was some form of bank insurance, what ever it was, it could not replace the nuts (their winter food supply). The amount left for all of the squirrels is pretty much set to the 20% remaining plus net deposits made until winter. In this case, there is no inflation (you cannot print the squirrels food supply). The squirrel has no idea of the life or death consequences of what the bank has done until winter arrives (retirement).

The real estate market is the truck that pulled up to our personal savings and looted the bank. In this case, we have government insurance to “make us whole again.” The money taken was spent. Notice that every dollar deposited had to be worked for (a squirrel nut).

Labor created some product. By not consuming this nut and saving it, you were putting this towards retirement consumption. The money from the boom (real estate loans) was spent on many lavish toys and is forever gone. Now we have financial institutions with only 20% of capital left. In actuality, there is only 20% of product produced left (the nuts). The rest has been consumed. It is rather academic whether or not the government prints more money to make us w(hole) again.

We have a choice, leave the banks with the 20% which will buy the 20% of produced product left or we print enough money to restore everyone’s bank balance.

I am sure this little analogy could get me shot again or could be picked apart easily. I present it as an illustration of how money relieves us from the bother of having to barter for services and goods. Once you accept the convenience of money vs bartering, the concept of just printing it, is the equivalent to stealing.

So if you are a squirrel, “It’s grab your nuts and run!"

Tuesday, September 22, 2009

The Time Lag Factor

A majority of people don’t really anticipate time lags. The results of Congressional legislation usually takes anywhere from 2 to 12 years to really take effect. Our leaders suggest that we have hit bottom and are rebounding out of the recession. I really have to wonder about that!

Legislators in Georgia a while back passed a law against unfair lending. The net result of the law, was to shut down bank lending in the state. The banks didn’t want the hassle. Congress passed a law for writing off farm machinery in a five year period. Hummer sales exploded for three years. Not quite farm equipment, but it qualified for the deduction.

A lot of times, the net result of a given action has very unexpected results. The UN taught people to farm in Africa 30 years ago and how to use fertilizer. It seemed like a real success story. People came to the area and the population exploded and things were fine for a while. The one thing overlooked was the need for firewood for cooking fires. 15 years later, there were no trees and the rain fall erosion turned the fertile fields into gullies and the population either starved to death or moved on.

When we examine cause and effect, there is a time lag between the two. Easy home loans created a speculative bubble. What we are looking at are the unintended consequences of economic forces that have a time lag built into them.

We do know that the Congress of the 1930’s figured that they had a chance to stop a lot of this stuff we are experiencing from ever happening again. Of course we were far wiser and knew what we were doing so, we changed the rules back to make the game better. After changing the rules in the early 1990's, things worked marvelously, everyone got rich. But then Bear Sterns had a small problem. The Nemesis from the 1930’s reared its head, with the same time lag.

Our government has initiated several programs to save the economy, from spending money that is nonexistent, to printing money to give to banks that has been lost through bad investments. I suggest that there is a time lag. What has been done will take several years to be “appreciated.” It’s a little like giving you underage girlfriend a girdle to hide her pregnancy. You haven’t altered the outcome----only made it more of a surprise.

Wednesday, September 16, 2009

The Obama Magic Act (Tax Increase)

Congress over the years has passed Medicare and Medicaid. There was no real funding for it. It was for the “greater good” which is quite questionable when funding wasn’t really taken into consideration. Now the government realizes that they can’t keep it funded much longer (a jar of Geritol and a tube of Preparation H just won't cut it).

Most of the people from the age of 18 to 45 will pay less in actual health care costs than what they would have paided into health insurance (by several thousand dollars a year). Today, the WSJ ran an article on “Mandated Health Insurance Squeezes Those in the Middle.” A Mr. Norton, in Massachusetts (where health care is mandatory) can get a $2,000 deductible per person for his daughter and himself for $464 per month or $5,568 per year. His words were, “This is insurance you can’t possibly use.” His solution is to pay the $1,000 dollar penalty for not being insured.

Obama is right when he says this new health insurance program will not increase our debt, it will lessen it. The younger generation will pay in $5,000 per year and get very little in benefits (do you wonder why?---they don’t get sick much). Here is the kicker that Obama mentioned. Everyone has to be enrolled. Otherwise people would only enroll when they were sick. That’s why insurance companies don’t cover pre existing conditions. You are covered if you sign up before you need it, not after. And you hear the whine; that’s unfair.

Another thing to review about our health care in the United States; it is the best in the world. The more skilled of a doctor you are, the more you can charge. If you are incompetent, you will be sued out of business.

State run health care plans have nothing to do with a doctor’s skill or experience. It is all customer count, procedures performed and pills prescribed without cost accountability. Three fourths of our country (18 to 55) can say no to health care costs if they rise too high. The other fourth doesn't have to. Kind of neat to be the latter group, isn’t it?

What everyone needs to realize, we are not being sold health care. Those (the young) who will be paying it will benefit very little. It is a tax. It will be used to keep the government from going bankrupt in the near future. Congress has abused and spent/consumed the Social Security Trust Fund. IT IS GONE! Obama desperately needs new tax revenues. The health care plan is the bait. It is a plan to generate new tax dollars. Our kids get to pay for it, thinking it is health care.

As a side note, maybe we ought to send Obama to Afghanistan in search of Osama. After a couple of months of listening to him, the Taliban would probably surrender and accuse us of Obama-boarding. His constant television ramblings irritates me no end. Put a sock in it. I would suggest, anyone with all the answers is part of the problem.

Wednesday, September 09, 2009

1929 Depression With a New Ending

You’ll notice that this blog's name has the year 2006 in it, which seems somewhat dated. Many times readers have suggested that I change the year until I get it right.

From reading the personal accounts and tragedies of that time, the most impressive but elusive thing, is the time line. From a historical point of view, we refer to the Great Depression as an event of 1929. There was no depression in 1929. Things were still swinging. Granted Florida was already a basket case, but the rest of the country didn’t have a clue that something was wrong. Then, the stock market crashed in October of 1929. It wasn't until 1931 and 1932 that people realized things were real bad and then they got progressively worse into 1933. From there, there was no argument, we were either in a depression or you were a pretty blond, married to a Rockefeller.

The concept that the people back in 1929 were aware they were in a depression is a false assumption. In November of 1932 when Roosevelt ran for office, there was no argument that things were bad. Right after being sworn in 1933, FDR declared a long bank holiday and a thousand banks never reopened.

Obama appears to be our Hoover. Hoover was quite intelligent and no dummy when it came to running the government. FDR pretty much continued the programs he had put in place. The "New Deal" was new hope, a wish and a prayer, government programs that did little. The war brought us out of the depression.

Today's problems are similar to what confronted Hoover. He faced the frustration and the inability to control what was happening next. Back then, the voters felt misled. Things had gotten increasing worse, not better. There was the constant government banter that things were getting better.

This is an economic problem that can get a lot worse with more political intervention. There is no government solution. The time line to get out of this mess is quite a ways away. Hoover had 4 years and it took another 6 under FDR before we "turned the corner." Add 10 years to 2006 and you have a more realistic view of when this "Full Feature Film" will end.

Will we be ready for a "New Deal" come next election? People are already tired of hearing that the recession is over. Poverty is reality without the politics. Optimism is certainly not in the wind. Uncertainty is what the world is about.

This is playing out a little like the "Wizard of Oz," only this time when you click your heals together three times, you wake up broke, wishing you owned a home in Kansas.

Friday, August 28, 2009

The Federal Reserve's Madoff "Manuer" Maneuver

I was just cleaning up my upstairs office and ran across some correspondence I wrote to Mr Greenspan at the Federal Reserve warning him about the future housing and banking crisis. It was written in 2005, 6 months before I ever even thought of writing a blog. Double click the picture for a larger view.

Here is the letter I got back. I was rather disappointed that it wasn't from Mr Greenspan himself. But it was read and answered by someone in his organization. Everything was under control as far as they were concerned.

My main point in running these two letters was to demonstrate, that this train is set in its direction and is not going to stop. The hand writing is on the wall, all I did was point it out.

Look at the table below, here is where things look very out of whack with our national debt.

How do you explain 4.785 Trillion dollars that are part of our national debt that is held by the Federal Reserve? Is this the total amount of extra printed money stuffed in mattresses around the world? I can see where the rest of the world got their money to buy our debt, but come on, what product does the Federal Reserve make that earned it almost 5 trillion dollars to purchase our Treasury's? Question two; do they get paid interest on those holdings with our tax dollars? It looks like a lot of smoke and mirrors. I guess with this "robust" economy, there is so much smoke; they can cut down on the number of mirrors.

Sunday, August 23, 2009

Leave the Bar of Soap on the Ground

The bad news is that they just yelled “Fire!” in the movie theater, the good news is, there are now seats available. Want to buy a home or a car? Boy, do we have a deal for you! Officials have just declared that the recession is over. Just think about it, the government never knew we were even in one until it became so damn obvious. Now they claim we are out of it--Just who is out of what?

Over consumption got us into this mess. Now, more government spending is the solution? It’s kind of like giving a guy with a broken leg, a second set of crutches so he can move twice as fast.

Here is the latest release on Unemployment figures and it is not good. Add SIX PERCENT to those values to reach more realistic figures.
Then we have the foreclosure reports nationwide. The shading colors dress it up a bit. Compare the unemployment statistics with the foreclosure map. The two together suggests that the problem has some size to it. It could be argued that the foreclosure data is not as current as the labor statistics, which would add more rain to the parade.

Let's color everything from 8% on up as distressed.Here is what it should look like (you know things are getting worse when you need fewer different colored crayons). This problem is not going away. Many state budgets are in a financial crisis. Tax bases are shrinking while expenditures are increasing.

As for a gauge of where we are at, our leaders in Congress appear to be mixing Preparation H with AstroGlide. The thought that they claim to know what they are doing, bothers me.

Wednesday, August 12, 2009

Abstraction Deception

Kind of a weird title, but there is a Political game being played with your mind and here is how it works. Visualize a pencil and a pen. We can put these two items in a group called “Writing Instruments”(notice that a can of spray paint could be considered a "Writing Instrument"--it's in the group by default). Abstracting up another level, the "Writing Instruments" are also in a group called “Communication Media.” We could still be talking about pens and pencils, but the last layer of abstraction also would include TV's and Radios. As one abstracts upward, the groups encompass more items. I am talking about a pencil which I visualize as green; you might see a red one without an eraser. The Senators talks about “Writing Instruments." Congress passes a bill on “Communication Media.” The voter thinks he is choosing between the different colors of pencils. Everybody believes they are on the same page and that is the farthest thing from the truth.

Now let’s visualize some basic health items; health insurance, hospital costs, Doctors compensation, Nurses salaries, insurance company rates, drug company prescription charges, these are the pencils and pens. Let’s group them all together and call it “Health Care.” Then from here we have items not mentioned that fall into the "Health Care" level group; "Government Health care for the retired" and :"Government support for hospital emergency room services." There could be more, but we’ll take the three items and abstract it up another layer and call it; “The Great Health Care Reform.”

What is ticking people off, and they might not know why, is the fact that the people pushing these arguments seem somewhat logical but you know something isn’t quite right. Everyone is talking pens and pencils (health insurance) and the Congress is trying to pass Communication Media (The Great Health Care Reform). The terms "Health Insurance" and “The great Health Care Reform" are used interchangeably. If you buy onto the "Health Insurance" plan, you have just inadvertently signed up for the "Health Care Reform". They are not one and the same. You have been abstracted to a higher level without realizing the shell game in progress.

What Congress knows, is that the socialized retirement plans called Medicare and Medicaid are gigantic black holes. They cannot be funded at the promised rates. Congress is talking about low level items like "Health Insurance" with very little abstraction and then switches to labels like "General Health Care"--used in the high abstraction layer. This Health Care plan, is a very big item that covers a lot more than just Health Insurance. We are being sold a pig in a poke. It's kind of like falling in love with the girl of your dreams, only to find out that she needs another 40 grand to make the sex change operation complete. The question comes to mind "Is it time to cut and run?"

As a post note, if you ever want to read a book that will change the way you think, I recommend "The Tyranny of Words" by Stuart Chase. It was written during the Great Depression. It deals with abstracting to a higher layer. I guarantee once you read it, you will never lose another argument (unless it's with your wife).

As a second post note; some people reading may think that I am just being a hard ass on health care, that is not the case. My mother died of cancer at the age of 54 and had a hospital bill of over a half million dollars (hard money 25 years ago) (my dad had to sue the insurance company to get them to pay the bill). My Dad at the age of 81 (believe it or not) had a triple heart bypass which he survived only to be paralyzed from the shoulders down, by a blood clot. From there he was in the intensive care unit of the rehab wing of the hospital, in physical therapy for 4 months until he passed away. Since he was a World War II prisoner of war, he had free medical. I can’t imagine how much that must have cost the VA. Sadly, we have to admit that the government can't solve all of our problems, we have to learn to accept the reality of old age with responsibility.

Monday, August 10, 2009

Concepts 101

Lately you hear in the same sentence:” We need health insurance, and everyone knows that the present health care system needs to be fixed.” Let’s break it down into two parts. We probably all need health insurance as we grow older. Very few will need it while they are young. Old age leads us to the second half of the sentence. “Everyone knows that the present health care system needs to be fixed.” What idiot can’t figure out that there is no way we can pay for the free health care plan for the over 65 crowd already in place? It is impossible!

The initial concept behind Social Security was everyone contributed towards their own retirement. Look at it from a Congressional point of view. Everyone pays more in taxes and Congress can spend more now. All of the Social Security money has been spent. The new concept is; the kids pay for mom and dad’s retirement through the SSI tax. If you think about it, the real bill that Congress passed was a law that stated the children have to pay their parents retirement income while they are still alive. Your parents don’t have to feel uncomfortable asking you to support them, the government is the intermediary.

Basically the present Medicaid and Medicare programs will fail miserably unless we can tax those who use very little in benefits to insure those that will be using a lot of benefits. Just imagine if everyone over the age of 75 needed $100K worth of health care a year. Who’s your doctor going to treat, the kid with an earache or the 75 year old gentlemen that needs a double hip and knee replacement? The present health care for those over the age of 65 will bankrupt the country; it needs to be cut drastically. Ask a Congressman, how will doing that get them re-elected? So that will not happen, ever!

Tomorrow there is going to be another one of those informal town hall meetings over health care presided over by Obama. This should be a very controlled agenda. The Democrats want to push “health insurance” and combine it with “Medicare and Medicaid.” If I was to write the bill, it wouldn’t be a thousand pages long, it would read: "If mom or dad gets sick the kids have to pay the bill, no matter how much it is."

Look for some key items tomorrow at the town meeting. A large American flag, references to patriotism, and “Doing what is right.” This town meeting will deliver a message, but I think the real message will be after the meeting. People are tired of being manipulated by the press. The real issues are not being questioned by the news media.

Everyone needs health care, the question arises, as we progress into our older years, is the present system really viable for the country? Congress has realized that it needs to be fixed. The concept that it is unaffordable is of no concern to our elected officals. Keep quiet and get re elected to Congress. Go figure

Wednesday, August 05, 2009

Cash for Clunkers

Starting with some trivia, back in the 1930's a little man rose up to save Germany from Communism with Socialism. He put in motion a car company called Volkswagen which translates as "The People's Car." You may have noticed one or two of them on the road. The picture below may suggest what the future has in store for us.

-----------(Satirical Rendition of Batman’s nemesis, The Joker)---------

Let’s see now, your car isn’t worth $1,000 and you can turn it in and buy a new car and get a $4,500 rebate. I wonder if the $4,500 is considered a down payment? Then the dealer is going to drain the oil on the clunker and then add Liquid Glass to it and run the engine until it freezes up. In essence, the government has destroyed the low end of the car market. The new minimum price for a used car is now $4,500—do you wonder how I arrived at the figure? Plus why do we have to destroy vehicles that have real value as spare parts?

California still offers a plan where you can get $1,000 for a clunker that can’t pass a smog check. Of course the only way to get it to fail the test is to disable one or two spark plugs (sshhh). Business has to be slow at the smog return window.

Charity car donations have gone to hell. The services they provided have vaporized (things like food banks and soup kitchens). They don't even need the volunteers anymore, they have nothing to hand out.

I’m not ready to turn in our 95 Dodge Caravan and have them pour Liquid Glass in it. It has another 50,000 miles in it. Why not let anyone that wants a car get the rebate? Not everyone bought a gas guzzler.

Most of those clunkers are probably paid off. Let’s give these new car owners some real debt to help "stimulate the economy" (force them into bankruptcy????). Now, the car buyer has a new car for a couple of months or until the repo man discovers the vehicle's location.

Lost your home and have clunker? Relax, trade up to a new Ford Camper, courtesy of our government. Thank the "Klunkers" in Congress for your new "Mobile home." The great thing with this rebate program, if you keep on the move, you don’t even have to worry about making the payments.

Do you get the idea that the "Fog a Mirror" Real Estate Loan Game works quite well when applied to other products?

Friday, July 31, 2009

The Depression Has Been Canceled

I think President Hoover ran on a slogan “A chicken in every pot and a car in every garage.” So with the new car rebate program in full force, it’s just a case of which comes first the car or the chicken. We have an old 1995 Dodge Caravan that qualifies. I can’t sell it for $2,000 because no one has two grand lying around. Now the government wants to give me $4,500 for the Caravan so I can buy a new car.

The odd thing, this program is to replace clunkers that get bad gas mileage. The damn thing is, the Caravan gets 25 miles to the gallon which is 3 better than my newer fuel efficient Mazda 626. I guess this is where the chickens come in. If you are stealing them, you want to make as little noise as possible. I wonder if Volkswagen is on the clunker list?

Then we have the meeting of the big three; The President, a Harvard Professor, and a police officer. The Harvard Professor was instructing Obama how to kick in the door if he gets locked out of the White House. And the cop was suggesting what not to add to the word “mother” when greeting a police officer, answering a burglary call. Going to the White house for one can of beer has to be some sort of punishment.

It could be just my imagination, but have you noticed that Obama is always standing in front of one or more American flags? It kind of reminds me of a little man who wrote Mein Kampf, he always had a flag behind him. Plus the President’s face is popping up on every magazine I subscribe too, why?? Let the girl he married enjoy his face; give me and my magazines a break.

If we travel back to the Hoover administration and also to FDR; Government did not get us out of the depression. They made it last longer. They raised the taxes of every worker with the promise of Social Security retirement. There was no income tax back then for the masses.

When the government calculates who pays taxes it always comes out to be the rich, Social Security isn’t even considered, that’s a “retirement plan.” They have been spending this non tax for regular government and handing IOU’s to the Social Security Fund. This new health care will be the same sort of tax. Most people from the age of 20 to the age of 60 will end up paying $5,000 a year into it and maybe have a boil lanced or a cut stitched up. Free medical will raise about 1.5 trillion a year for the government to spend if everyone is working.

With this new clunker rebate program, it looks like we will all be working for a car company.I don’t think that the guy managing the rebate plan for clunkers could get a ride on the short bus, they might be dumb but they’re not stupid. We are financing more debt unless the purchaser can pay cash for the balance. This plan works for all the wrong reasons. It’s a little like mixing Viagra and Ex-lax. The results are guaranteed, the order isn't.

Wednesday, July 22, 2009

Health Insurance An Abused Concept

The basic concept of insurance is to provide immediate coverage that you will pay for, over the life of the policy. It is a zero sum game. The subscribers pay all costs insured as a group.

When someone says 45 million people don’t have health insurance, that is a misnomer, they are self insured. A self insured person is not going to visit three different doctors and have three blood tests as Obama suggests. But if you have health insurance, the health care system will rip your ass with three doctors and three blood tests. It might be long and drawn out, but it’s covered by your insurance. The doctors know how to ride this pony all the way to the bank.

Then there is liability and lawsuits. Most Congressmen started out as lawyers—hmmm. No reason to mess with liability limits, is there? Lawyers work on commission, don't they?

The irritating concept of this health care plan is the concept that 45 million people can’t pay for health care. Look at it this way, 300 million people can’t afford to pay for the coverage being promised. Will we ever really pay for it, or will it become part of our ever growing national debt?

The concept not perceived as real, is that health care treatments have progressed into an area to where the procedures due to their complexity are virtually unaffordable. A liver transplant can cost millions. Daily cancer injections can run $2,000 per shot and a premature baby 200K.

If you were to go out and buy a life insurance policy, a one million dollar policy might run you say $4,000 dollars per year. If you wanted a policy for 100k it should cost $400 per year. This concept is used with many different forms of insurance like Fire, Auto and Homeowners policies. The risks are predetermined and you pay accordingly. Notice you have the option to buy it; it is not forced on you. Insurance is a concept that allows you to cover now what you can pay for later, not what you can foist off onto government without the intent of every paying.

If you want to force insurance on someone, how about making it auto insurance. Over 50 percent of LA drivers have no insurance, “they can’t afford it.” Health insurance is a noble idea, but it is not a practical concept in a Democracy. Of course if you are talking Socialism, then there is no argument, we all deserve the very best. When you get to that point you are gaming the system. Medical treatment with new modern technology is not affordable for most of the human race and never will be. Our resources are finite, and government distribution of them, doesn’t make them go any further. People don’t go to medical school for 10 years just to work for the government; a high school education is all that's necessary.

The concept of living longer during retirement is now a very attainable goal. The idea of the world being populated by nothing but old farts chasing young tarts with a bottle of Viagra is a rather novel one. Modern medicine can enable us to live longer. We can die of other diseases later in life and rack up even more medical bills to boot (a catch 22). At some point we need to realize that socialized medicine puts an unfair burden on the young people just entering the work force.

This seems like a stretch for an article on the Great Depression, but we can’t afford the Medicare\Medicaid plan now in force for the old, coupled with Social Security. It is bankrupting us. It time to wake up and smell the financial ruin we are creating. There is no need to make the problem bigger.

We need health care and we need to be able to afford it as individuals. The government should keep out of this. If the government was to “Health Care” General Motors, we would all want BMW’s. In reality we’d pay for the BMW and end up getting something that would sound like a lawn mower and fail a smog test.

Monday, July 20, 2009

How Much is Too Much?

The National debt is at least 10 trillion dollars. Today pundits are suggesting that it may cost us the government 24 trillion dollars to cover the banking mess, which figures out by their calculations to $80,000 per each person in the US.

Obama-our-mama is suggesting that we will have to spend a trillion a year extra to stimulate the economy, add another 4 trillion (4 year term). Then there is health care, figure another two trillion. So we have 10 +24 +4 +2 for a grand total of 40 trillion dollars. If interest rates go to 10 percent, there is no need for math. An empty gas tank is an empty gas tank, you walk.

The interest on 40 trillion dollars at 5 percent is 2 trillion dollars a year. We can’t possibly pay the interest let alone pay on the principle.

I do not get this Trillion here, Trillion there routine. Our government doesn’t have a trillion dollars in taxes coming in, in a year. We do have some Federal Reserve nut running around saying that this is an approach that has never been attempted and has a good chance of working. The words "Pipe Dream" come to mind.

My only question is this, why do we have to spend to keep this mess going? Let it fail. The poor have nothing to lose except their government check. The drug trade in this country could collapse from that alone. Big conglomerate shopping stores would go broke and Mom and Pop stores would rise up. There wouldn’t be ten restaurants on every block, people would take time to go home and cook.

This administration and the one before seemed to think that we can pull money out of a toilet. These Candy-Asses in charge have no concept of the mind boggling amounts of money they are trying to spend. They are nothing more than drug addicts that need their fix today. Tomorrow is another day. Keep the game in play. They will ruin us.

This can’t last much longer, maybe two or three months. How many American dollars do you want if they are going to triple the amount in circulation? Look for a collapse in the Chinese banking markets (they are on a roll like we had here). From there, the house of cards will fall. Paper money is backed by faith. When faith fails, gold, silver and your wife’s smile are all that is left. I rest my case.

Sunday, July 12, 2009

And You Thought It Couldn’t Get Worse!

California has gone to Hell without the hand basket (they never bought one). The State government is broke (through no fault of their own). You could admonish them for not saving for that rainy day, but hell, it never rains here! Of course what can you expect from the legislature; more taxes or more motel sex? You need a 2/3's majority to raise taxes. Does the motel have a pool?

California is issuing funny money to pay their bills. The Banks stopped cashing these warrants Friday. They are not cash and there is a part of the US Constitution that says:
No State shall enter into any Treaty, Alliance, or Confederation; grant Letters of Marque and Reprisal; coin Money; emit Bills of Credit; make any Thing but gold and silver Coin a Tender in Payment of Debts; . . . ..
Of course the fly-boys running the government are stating that these certificates are securities and need to be treated as such. They are going to sell you a toll booth to go with the bridge you just bought. Most vendors servicing the State will stop delivering product for good reason. Instead of taking a roll home every week, State workers will now be packing toilet paper in their lunch box for personal use.

In theory, a warrant has to be discounted to raise cash today. The trouble is, it might be 50 cents on the dollar. Many people in this State live from paycheck to paycheck. It kind of makes you wonder what happens to them.

Someone sooner or later will latch on to the idea of buying these warrants at half price and paying their property taxes with them. The last thing the state needs is this stuff coming back at them. It’s like a snake eating its own tail.

Then there is the rumor that the Governator is going to sell Boardwalk and Park Place . . . . and as we pass GO, Obama is going to give us a $200 stimulus package . . . . . .It kind of has the feel of a Parker Brother's board game.

Friday, July 03, 2009

The Funnel Effect (Reprint Feb 2007)

People are waiting for real estate to fall flat, and there is going to be a long wait. Not that it won’t happen, it’s almost a certainty that it will. But by the time it does come to fruition, it will be a moot point.

Here is a concept, let's call it the "Funnel Effect." Individual items drop into the funnel and combine with others. As they drop through this funnel as a group, they become more concentrated.

The easiest way to view the funnel effect is from bad housing loans, Visa and Master Card accounts. If you are a credit card company or a real estate lender, these problems are quite apparent; they could have hundreds if not thousands of people in a distressed state. This funneling effect of each individual, demonstrates what happens higher up in the retail/wholesale chain. We have consumers all over the world that purchase goods and carry on with their lives. When the economy starts to go bad, we have a situation where many people cannot manage to live in their accustomed manner and cut back on consumption in some form or manner.

Using a Starbucks Coffee Shop or Home Depot, the Funnel Effect (lack of consumption) would be reflected as a drop in sales. Individuals decide to spend less or not pay for an item like real estate taxes. Notice, that these choices of not to consume or pay a bill, converge into a group category. Housing funnels into lenders who made the loan. Bankruptcy’s funnel into credit card losses for the card issuer. The real estate tax base funnels into County Governments and School Districts.

Each home owner facing foreclosure will fight hard to survive and keep his house. What will happen, will be the funneling effect of their lack of consumption. They may go into foreclosure, but the lender's pain is far more evident earlier on, than the individual homeowner.

The thing not realized until it’s too late is that government expected receipts are projected out several years. In a declining market, this optimistic view of the future can lead to severe cutbacks in government spending. It's kind of like hitting a brick wall at 60 miles an hour. The wall wasn't there a minute ago.

Our government is the ultimate “Canary in the Coal Mine.” The City of San Diego is a deer in the headlights!

Monday, June 29, 2009

Is Madoff Worse Than Bernanke?

A reader emailed me a question the other day. I decided to post the answer I sent to him.

Why bond price go up when Fed buys bonds?

There are two things going on here. The Treasury issues and sells bonds and the Federal Reserve is in charge of the currency. The Treasury borrows money and the Federal Reserve exchanges like for like.

At a Treasury auction, the buyer is a person or institution with savings to purchase the bond. The purchase removes money from circulation (the government is going to spend it) The selling process is an auction. If there are more buyers than bonds, the price for the bond increases and in lock step, the interest rate decreases.

The other thing happening is when the Federal Reserve buys a bond. The Treasury prints the paper and the Federal Reserve pays for it with printed dollars. In this simplified form, it is a zero sum game and makes no real sense. Why would you create it and then sell it back to yourself?

These two things seem unrelated but carry it forward one step. If China decided that it wanted to sell the bonds it holds back to the US and there were no buyers, the bonds would drop in price until they found a buyer. If say, a previously issued bond was at par and paying 4% interest was offered for sale, and buyers demanded 8%, the bond would drop in value by 50%. This would be very observable to the buyers at present Treasury auctions and they too would want 8%. So the Federal Reserve is buying these bonds at par as they hit the market. The net result is an increase in the money supply. This action guarantees the value of all previously sold Treasury issues. Note, the investor pays in real dollars and gets back printed ones. Since all dollars are alike, we have more dollars chasing the same amount of goods.
[End of email]

I think what we need to look at here is values. Madoff got 150 years in prison and he is 71 years old. So he will be 221 years old when he gets out(I'll only be 212). I think that a 30 year sentence would have kept the judge from looking like an incompetent idiot. You do have to ask yourself, if Bernanke buys enough US Treasury's from China, does he get the same treatment? Of course if Madoff's sentence were to be adjusted for inflation, he just might be free in 10 years.

We are next in line to lose our savings by inflation and no one will go to jail, go figure!

Wednesday, June 24, 2009

Government Inflation

In California here, there was a 13% increase in sales tax. They raised it a penny from 7.5% to 8.5%. Doesn’t seem like much but none the less it is 13%. Vehicle registration fees rose from .65% to 1.15% of value. That’s pretty close to a double of 100%. On top of that there was a $1.50 increase in tax on a pack of smokes. Figure about a 40 percent increase there.

For simplistic purposes (for which I deserved to be shot) assume that the cost of government has remained about the same (as has a pack of smokes)(try to keep a straight face). Back in 1964 a pack of cigarettes cost 25¢ and minimum wage was $2.00. If you do the math, one could buy 8 packs of cigarettes for one hours labor. Let’s progress forward to now. Cigarettes are $5.50 a pack. Extend out the 8 packs per hour and we arrive at $44 dollars for an inflation adjusted minimum wage. This calculated wage is more than most people today are making per hour, so it seems pretty absurd.

What we are looking at, is forced inflation by government legislation. Our wages are not increasing, and at the same time, more of what we have earned being taken away from us in the name of taxes. These are just some of the visible taxes. There are a lot more that are hidden (home construction fees/taxes come to mind).

The funny thing is, I would consider it an act of decency to ban smoking all together, rather than to tax it to death, and at the same time ban any form of gambling like the state lottery. Nobody has accused any legislative person of late, as having some sort of moral fortitude let alone a backbone. They don’t want to get rid of the smoker or gambler, they just want to tax their addiction and benefit from it.

Where do we go from here? Is a pack of cigarettes worth $5.50 a pack and is the fair minimum wage $44 per hour. I seriously doubt it. Something is wrong; our wages are not fitting the tax structure in place. I get the feeling that a pack of smokes hasn’t really gone up in costs, but the consumer hasn’t caught on to the inflation aspect of it yet.

I wonder what free health care will do to the price of cigarettes? If the cigarettes don't kill you the taxes will.

Thursday, June 18, 2009

Let's Tax the Poor

This phrase you hear from Congress all of the time “Tax the rich.” What does it mean? It certainly doesn’t refer to the person who has 10 million in the bank and who doesn’t work. They are talking about wage earners who get paid a lot.

The really weird thing is, 40 percent of the population pays no tax at all. They get to live here free (they don’t make enough money to pay taxes). The highest wage earners pay most of the taxes (god bless them).

Has anyone ever said, screw the taxation system and let's have everyone pay two month’s wages or work on a government chain gang to satisfy your government obligation? I do not get this “tax the rich” solution. If you are truly rich, you don’t need to work and what taxes are you going to pay?

People get rich in other countries and move here to retire. We are not taxing them or any of the truly rich.

If you are poor, you get a free health care, free food stamps, free college education, and free welfare. You don’t have to pay your fair share. Let the rich pay your bills.

Congress is so set on helping the poor. Everyone needs to pay into the system, tax wise. 40 percent of the population paying no taxes is absurd. Either pay with cash or labor.

Let’s tax the poor and not feel guilty. We have taxed the rich enough already; all they do is move to a country with a lower tax base. We need revenue from those who are a captive audience. The poor are the people who get the greatest return. It doesn’t cost them a dime to live here.

Of course, if your neighbor can't pay his mortgage, Congress will help them with that also. Do you get the feeling that deadbeats, have a lot of political pull? I can't quite figure that out! It has to be my money they are spending; they don't have any that they can call their own.

Why should some people get a free ride just because they claim that they can’t pay for it? Rome built its roads with labor from people that had no money to pay tax.

Saturday, June 13, 2009

We're Not Out of the Woods Yet

This Blog tries to keep out of politics mainly because both sides think that the other side is the problem. When you think about it, without the other party being there, you have no one to blame the mistakes on.

Every four years we elect a president. About half of the voters get their choice of who gets the office. After elected, the President gives a couple of speeches and then settles down to the job of running the country. Then after about two years in office the press usually starts whining that there haven’t been enough Presidential news conferences.

This President’s plans may or may not work; only time will tell. But there is one thing that is very irritating; this guy will not stop talking. He has a solution for everything. Most probably, if he were to stop explaining what is being done, we might interpret things for ourselves and come to the “wrong” conclusions.

Can you imagine getting on an airliner for a cross country flight and have the pilot on the intercom talking to the passengers for the whole flight? Even if there was nothing wrong, you might question the pilot's mental state.

Presidential speeches use to be rare enough to where you would take the time to listen to at least part of it. Does President Obama think he has a captive audience and can talk his way out of this mess? Haven’t we had one too many press conferences? Is this going to be one never ending pep rally? He reminds me of the construction worker who leans on his shovel when he talks.

I'd really like to turn on the TV and not get a Presidential briefing on how great the economy is doing (he'd be playing golf if that was true). It’s illuminating to hear the President say, “We aren’t out of the woods yet.” It sets my mind at ease to know, it's not a train tunnel that we're in.