Sunday, March 28, 2010

Inflation Is The Name Of The Game, Tough Times Lie Ahead

People getting ready to retire have put about 17 trillion dollars in their retirement savings. Our government borrowed and spent 12 trillion of that. The banks have 4 to 8 trillion in bad real estate loans that the government will make whole again (roll the presses). This retirement money the government borrowed has been spent on consumption. Whereas the money from the sale of real estate was deposited in the home seller’s account. That money made from the real estate market is still in play—the house isn’t.

What does all of this mean? By saving money, you defer consumption to a later date. The government borrowed and spent it.  The IOU’s are there, but the option to consume 12 trillion dollars worth of product at a later date is gone.

There is no real problem yet, the people getting ready to retire are not going to withdraw the 17 trillion dollars all at once. We are probably looking at a 6 to 8% withdrawal rate per year for retirees. The unemployed/employed won’t be a replenishing source for these retirement funds because of the economy. In fact, they will be drawing down any saving they have available.

The country is producing less and spending down their savings. Forget the equity home loan. People are tapping their savings, mutual funds and stocks owned.

The stock market has been immune to this mess so far. The market keeps on going up. All the shares of a single stock are valued at the price it last traded at. Sounds a little like how it used to work in the housing market. So if you need cash to pay the bills, you sell the winners and keep the dogs, hoping that they too will turn around.

Bonds are another item of concern. Low interest rates are not what an investor wants. If you are buying a house, low rates are a good thing. The banks have been writing 30 year home loans at low fixed rates. Isn’t this what happened to the Savings and Loan’s of the 1990’s? They loaned dollars long term at low rates, when their deposits were short term. Rates doubled and depositors moved their money to a bank with a better rate. The net result, the Saving & Loans went to Hell in a hand basket. This time, it won’t be about interest rates, people will withdraw their savings to pay bills.

Two years ago, 60 percent of our taxes went to entitlements. What is it now, 120%, 160%, 220%? (Pick one, your choice) These created dollars are just as good as the ones I get from working 40 hours a week.

With Bernie Madoff’s Ponzi scheme, it was the lack of dollars to fund withdrawals that spelled the end. The government doesn’t have that problem; it can’t run out of dollars. The San Diego Union news paper was only a dime a few years back, now it’s 75 cents (that’s what I use to pay for the Sunday paper). Obama claims that health care costs are unfordable, well maybe that’s a result of printing too many dollars (AKA inflation). There are no COLA raises for Social Security this year, kind of makes you wonder. T Bone steaks at $9.89 a pound are a little unfordable for me, but they taste better than Obama’s health care. At least you get to spend your [hard earned \food stamp] (pick one) dollars on what you want, not on what the government says you need.

The sad thing that is no joke, the elderly are living on a fixed income. Tough times lie ahead, for everyone.

Thursday, March 25, 2010

Health Care a Government Time Bomb

If health care extends everyone’s life an extra 10 years, figure that could double the amount of money needed to fund Social Security. With a longer life, you’re probably going to consume more pills and Medicare. More exotic life saving operations will become available to extend our lives.

Cigarettes use to be the old equalizer. You paid into Social Security and at the same time, were taxed on every pack and died before retirement. This was the FDR plan. The planned retirement back then at age 65 sounded great. Most people didn’t live long enough to get that old, but it was a benefit worth contributing towards. It was tax dollars coming in and virtually nothing going out. Democrats view this from a historical point of view and remind everyone that FDR changed the way we look at retirement. In reality, it was a lottery ticket that had a very slim payoff. It brought in revenue. 

Kaiser Wilhelm II back in the 1889 offered the first government retirement plan. Retirement benefits were to be paid at age 70; average life expectancy was age 45. So the first attempt at a retirement plan was very well thought out as to the future entitlements to be paid out.

When FDR was president, there was no real income tax. Our government raised revenues from import duties, liquor and tobacco taxes etc.  Social Security was a successful attempt to register workers and tax them.  FDR gets credit for the benefits we pay out today. His actual plan was to raise revenue by taxing labor. How was he to know, that people would start to live longer, it had never happened before.

At the end of WWII, we now had penicillin and other miracle drugs. The retirement laws didn’t change, but the length of life changed. All of a sudden entitlement got a tad bigger. From there more and more got added on to the benefits. Government entitlements in FDR’s time were about zero, today they are about 60 percent of the declared budget.

Then we went to Medicare in1965. The quadruple bypass, Knee and hip replacements and kidney transplants were not even thought of. Modern medical science took huge leaps. Now Congress has passed health care. The question arises, who is stupid enough to believe that we can pay the bill as a country?

The US can reasonably afford to start retirement benefits at age 75. And probably be able to come up with $5,000 per year in Medicare payments for ages 65 on up. Reality has to set in or we will be taught a very severe lesson. There is no free lunch, the elderly will expect the government to fulfill their desires at the expense of the young taxpayers as promised . Of course we all get old so it equals out doesn’t it? We will all eventually get to feed at the trough, won’t we?

Yesterday Social Security announced that the fund will pay out more this year than it takes in. Last year, it was stated that this present condition would not occur until 2016. Hmmmm.

This was part of their news bite:
Its so-called balance is, in fact, a history of its vast cash flows: the sum of all of its revenue in the past, minus all of its outlays. The balance is currently about $2.5 trillion because after the early 1980s the program had surplus revenue, year after year.
Congress spent that money and gave the Social Security people an IOU certificate. Bernie Madoff was doing OK until people wanted cash, he didn’t have it, he had spent it--our government is in the same boat. Think I am kidding?  Here is a link Link A hat tip to Cancel our Debt Blog

We have proof that the money was collected and proof that it was borrowed and spent by Congress.  Plus we have a bunch of Social Security employees that claim the fund has money; "We have all of these Treasury certificates-------------"  (God help us!)

Our new health care entitlements program could consist of one pack of Roll-aids and a tube of Preparation H. The thing that irritates me, is that we might have to wait in line to get it.

Saturday, March 20, 2010

Private Insurance Rates, Measure Reality

A private insurance company has to charge rates that allow it to survive and show a profit to shareholders. Right now profitability is around 6% (one earthquake could turn that negative). As businessman starting up a venture, you want to see at least 12-20% profit. Otherwise put it in the bank and let the bank take the risks. Health insurance sucks as a business venture. A home builder can make 200% so why sell insurance?

Not only do insurers face very low return on equity, any State or Federal legislation could put them out of business. When Insurance companies raise rates, they are showing you the reality of health care costs. Obama is blaming the insurance companies for making health care unaffordable. Is home owner's insurance unaffordable? How about automobile insurance? These insurance carriers have scores of accountants using actuary tables to figure their bottom line daily. In order to survive, they have to charge accordingly.

What do you get with a government health care plan? As with any part of government program, there is no financial responsibility. Our government can’t even balance their own budget. The European health care plans are smoke and mirrors. They don’t charge their citizens the true cost of the insurance, they tack it on to their national debt. Plus there is no competition and a surgeon with a lot of experience can’t charge more than one out of med school.

In this country, a lot of our doctors, new to open heart surgery, get to practice on Medicare patients. Then they move on to cash paying customers. Many doctors won’t take Medicare patients; the government reimbursement rates are too low. Of course a doctor that knows how to play the game could abuse a Medicare patient by sending them  in for 10 different tests and make a pretty good return. This type of doctor, will send a cab to your door to pick you up.

Unlimited health care is unaffordable with any private insurer. It is not any more affordable as a government run enterprise. In Great Britain, the waiting time for surgery is now down to ONLY 18 weeks. It’s kind of like being told you can use the bathroom once every three days; can you wait that long?

The reason a lot of people like Obamacare, is that they know the government has no way to figure the actual costs. The plan will trim a half trillion dollars of benefits to Medicare that the government has been picking up and add it to the premiums to be paid by the wage earners health plan.  Isn't that slick!

Most people could probably afford health care if it was a priority. A priority is a new shiny car, two packs of cigarettes a day and a twelve pack of beer (this would vary, pick your own items). The kids get cereal and a bag of candy. The government figures it this way, everyone will have to pay for insurance or be fined. That way you can’t wait until you are sick to subscribe. So before you get your paycheck, the government is going to take out one pack of cigarettes and a 6 pack of beer every day and two car payments per year. What's  Joe Six-pack's reaction?  The kids get to eat their cereal with water and he cuts back on their candy, clothing, school supplies and they walk to school. Plus he drops his auto insurance. The good news is that if you work under the table, like selling drugs or hooking, you are considered  poor, and qualify for free health care.

I listened to Obama’s speech today and couldn’t believe the rhetoric. Here is an excerpt from it:

At the heart of this debate is the question of whether we’re going to accept a system that works better for the insurance companies than it does for the American people -- (applause) -- because if this vote fails, the insurance industry will continue to run amok. They will continue to deny people coverage. They will continue to deny people care. They will continue to jack up premiums 40 or 50 or 60 percent as they have in the last few weeks without any accountability whatsoever. They know this. And that’s why their lobbyists are stalking the halls of Congress as we speak, and pouring millions of dollars into negative ads. And that’s why they are doing everything they can to kill this bill.

I try to avoid political comments and have been neutral on Obama up to this point. But this President is a Beet Head.  You don’t shoot the messenger. You can bet your bottom dollar that whatever the insurance company deems reasonable for premiums, keeps them in business and no government can do it for less.  

I think this President has an  ego to feed; he wants to write some history. The trouble is, if this passes, we might have a Constitutional convention to rewrite our constitution. There are enough states riled up  about this to make it happen, and that might not be a good thing. The government  printed a ton of money and gave it to their cronies on Wall Street (900 billion dollars). Now Obama complains that it is un-American to make a profit. But threaten to go broke, and they throw money at you, just ask AIG. On the other hand, let's go get those robber drug companies, Rah, Rah, Rah!

This government health care plan is what I have referred to in the past as the "Disneyland Plan."  You have no problem getting in, but the length of the lines for each ride are a joke. Grab a number and wait.

Wednesday, March 17, 2010

Health Care Math, Obama Style

Obama says we have 40 million people without health care and he wants to give it to them, by giving it to us (the taxpayer). My employer and I pay $400 dollars every two weeks for health insurance, that’s $10,400 per year. Multiply $10,400 times 40 million people and you get $416 billion dollars to insure them at my level. Let’s cut the estimate by 50% to 200 billion dollars a year. Figure that there are 150 million workers working. Divide the 200 billion by the 150 million workers. The additional revenue needed from each and every worker would be $1,333 on top of what they are already paying for health insurance.

Remember the 40 million people without insurance will pay nothing into the pot, they can’t afford insurance. So in order to fund this, the workers would have to kick in $1,333 to maybe $2,666 extra per year.

Our government in the past has been known to buy toilet seats for $1,000 and hammers for $800. The idea that government health care can be cheaper than the private health care we already have, is absurd, to say the least. To claim it will pay for itself boggles my mind.

There isn’t much math or thinking that went into this, it makes you wonder about the quality of our educational system and how it has prepared present day voters for the real world. If we cut the educational budget by 50%, that ought to double the number of Democrats in the voting system, given time (that worries me).  Our kids have to be taught, there is no free lunch, even though schools do have a free lunch program.  In order for government to give someone a dollar, they have to take it  from someone else.

If you do the math, the Congressional way, it's a little different. They already know that tax receipts for last year are down 40% (an educated guess on my part) and they need money, bad. Take the $10,000 per year in health care payments per employee and multiply it by 150 million workers. Whadaya get? 1.5 trillion dollars! Do you understand why Congress is so interested in passing the health care bill?  You think they will spend it on health care? Obamacare will be a box of band aids and a bottle of aspirin. This health care legislation is a tax hike of “Titanic” proportions----where’s an Iceberg when you need one.

Saturday, March 13, 2010

Taxation and Our Government (Reprinted)

Here is an edited reprint from  August 12, 2006. Back then, what I was suggesting, seemed absurd to a lot of visitors to my blog. Today, it seems to fit in line with last week's news of  Kansas City's massive school closings.

Every day you hear some Congressman talking about taxing the rich, and more welfare reform for the poor. If we go back in history to the times of Rome and Greece, every male owed one month of labor to the state. The state did not classify people as poor. You either came up with someone to work for you or you did the month of labor.

Now let’s advance several thousand years. Today in the US, we have the rich, the middle class, and the poor. We know the poor don't pay much in taxes. The middle class is the real bread winner for the government. Then we have the rich. They don't really have to pay taxes either. Once you make the money, you can't be taxed on it a second time. We do have people that make over $100,000 a year working two and three jobs with the wife's wages added in, and these people are considered the rich that need to be taxed, neat huh?

Another item to consider is real estate taxes. Real Estate is visible wealth and is taxed as such. So if your house value triples in price, your house taxes also jump--California is an exception. Prop 13 limited the increase to a small yearly amount based on purchase price. That’s little consolation if you bought in the last two years. Notice that it is the Want-To-Be-Rich group of home owners that pay a disproportional part of their income in real estate taxes. And hey it’s all tax deductible. But lose your job and have no income, deduct it from what?

Back in the 1920's local governments had been spending their new found wealth. Then in the 30's with the collapse of housing, the tax base for local communities collapsed. Schools closed because they couldn't meet the payroll. Here is a quote from "The Great Depression"  pg. 93 by David Shannon.

People never enjoy paying taxes. With the lower incomes of the depression came widespread demand for retrenchment and lower local taxes. Indeed, many citizens and property owners were quite unable to pay their taxes at all.

Since a large part of the revenues of local government is spent for public education, it was perhaps inevitable that the tax crisis should produce cutbacks in the schools. Many communities decreased their school spending severely. In effect, they passed the burden on to the teachers, the students, or both.

So we have the rich, the middle class, and the poor. The only ones that have lost their way are the middle class. These are the people about to enter a new world, called bankruptcy.

Another compounding factor back in the 1930's was the legislative stupidity that figured "If you raise taxes and fees, it will bring in more income." Well, to their surprise it brought in less. Unfortunately, intelligence is not a prerequisite when running for public office.

Saturday, March 06, 2010

Our Economy is in Recovery Mode?

When you think about it, unemployment insurance gives people a way to purchase items and continue life and at the same time stimulate the economy. What they buy determines who will stay employed. So if you are buying a TV or a toaster, someone in China gets to keep their job.

Most of what we consume is made in a foreign country; clothing, appliances, cosmetics, footwear, car parts, tools. We still produce our own food, autos and housing. And “by God everyone deserves to own their own home” ---and we know where that went. Now we have cash incentives to buy homes, cash for clunkers, and the old standby, food stamps for those with no cash at all.

Right now the United States is a service economy. We don’t make ANYTHING! It is not hard to figure out our economic future. Our manufacturing base moved off shore because of the cheaper labor. There is little or no incentive to move back to the US, either. The US consumer is addicted to cheap foreign products. How do we stimulate our economy by buying stuff made in Asia? How can we compete against countries that have no health insurance or retirement benefits or unemployment insurance? Imported goods have to rise in price, in order for domestically produced goods to be profitable. The real question is: what sort of industrial production is going to come into play to put people back to work?

“Buy American” might be the final solution. Congress is doing their part (printing money); it now takes eighty US dollars to buy a barrel of oil when it used to take thirty. Put another way, the thirty dollars you put in your IRA 20 years ago won’t even buy half a barrel of oil today.

The President and his men are claiming that we are in a recovery. Bernanke is claiming that we averted a great depression. It's what people want to hear, but sadly it isn’t based in reality. Their solutions are most probably part of the problem. It’s a little like a hooker with VD; you keep quiet about medical problems, it’s bad for business.