Wednesday, April 27, 2011

The Health Care Train Wreck

Government health care for retirement is not very well thought out. Some of us have already had a dry run with an aging parent or grandparent.

For example, a married couple that retire at age 65 with 300K of savings in the bank probably have at least $12,000 apiece or $24,000 total per year to live on from Social Security. The government health insurance provided for seniors would probably cost about 8 to 12 thousand per person per year for a private plan of equivalent value. To say the least, it would be unaffordable to most retirees. The government insurance is real, but invisible to the recipients. Uncle Sam pays all.

Let’s go forward 10 years to age 75. At this point, a lot of retirees are ready for a rest home and these homes charge a minimum of about $4,000 per month per person. So with a married couple, that’s about 100K a year (the 300K in savings will go fast). Someone unfortunate enough to come down with Alzheimer’s disease, figure about $8,000 a month in a rest home (100K per year). Studies have shown that during the last months of a person’s life, they could rack up 180k in medical bills (in intensive care). The government gets to pick up the tab here too.

Social Security was a lottery ticket, when it was implemented. Everyone paid in but very few lived to collect. Living to age 65 today, is almost a given. Now, we have Medicare and Medicaid added on to retirement benefits. Where are the government funds coming from to pay for future elderly health care? Ask one question, how much in total did the retirees pay in taxes over a life time? Does it warrant the government payments being made in their behalf?

How much longer can the game go on? Entitlements already exceed tax collections. Who do we "throw under the bus," our kids? How about a Democrat or two?

Saturday, April 23, 2011

Inflation Defined: Government Printing Of Currency, In Lieu Of Taxation

Here are a few pictures of hyper inflation in Germany from the 1920's. We are not talking gold and silver here, just paper money.

We are not quite here yet. Toilet paper rolls are one inch shorter as are boxes of Kleenex. $3.99 for 10 ozs of potato chips rubs me the wrong way!

Let the Treasury print two trillion for next year and we will be here.

From there it is all downhill. Kiss your retirement savings good-by. Of course this can't possibly happen to us. This only happens in third world countries!

The picture below shows you what real money looks like. The government can coin it, but it can't create silver coins with a printing press.

The Silver dollar currently is worth about 40 dollars. The 50 cent piece is a twenty dollar bill. The silver quarter will buy lunch for two, and the minuscule dime will buy a gallon of gas. But hasn't gas gone up in price???

Ask yourself one question, if silver coins have held their value so well over time, why aren't we still using them? To quote Shakespeare's Hamlet; "Therin lies the rub."

Sunday, April 17, 2011

Taxing the Rich

The Democrats want to tax the rich. They are going to repeal those tax cuts given to the rich by the Bush administration.

The concept of being rich to the voter is something entirely different than what Congress is talking about, but they’re not about to correct Joe Six-pack's misconception. The average person envisions a rich person as someone with gobs of money that doesn’t have to work. So go ahead and tax the rich bastards. The trouble is, this is not the group Congress wants to pick on.

In order to pay taxes, you have to have earnings or a big healthy retirement plan. You can’t really tax a millionaires savings to death. Three million in the bank might return 30K a year but the taxes are a measly 4K.

The people the Democrats are targeting are the high wage earners and families where both the husband and wife work. Many of these people run businesses that have employees. If their future taxes increase, they will contemplate moving offshore. So we have more taxes and Obamcare for this group of rich people. If you’re an employer, it really puts a crimp in your bottom line. From off shore, the employer gets to keep the $12 profit per shirt and claim a modest one dollar profit as a jobber supplying imported product to the US. Notice how the taxes and labor costs drop out of the equation. I don’t think Congress can assume that rich people are stupid and are going to wait in line, to pay the new taxes.

The Democrats don’t need to tax the rich; the inflationary spending policy of Congress (printing money) does a superb job. Anyone with a savings account has lost 30% of their purchasing power over the last 10 years and we are liable to lose another 30% before the next election. That gentleman in the example above with three million in the bank now has the buying power of 1.5 million and he hasn't lost a dollar, kinda sucks doesn't it?

This snowball started rolling down the hill way back in FDR’s time. Very few people lived to collect Social Security at age 65 back then. Social Security in the beginning was a carrot on a stick. In today’s world, we either need a longer stick or a hell of a lot more carrots.

So rally around the Democrats, they are going to tax the rich and big corporations (who also pay no tax, the consumer pays it, it’s in the price tag). They are going to save Medicare and Medicaid for the elderly and keep those nasty Republicans at bay. “Nobody gets thrown under the bus.” Just love these analogies. Does Congress have a waiting list for people to be thrown under the bus?

We are spending 1.5 trillion more dollars than we take in, in taxes. If we cut out discretionary spending and the military, this budget could work. What’s left, is the money needed to service the national debt, Social Security, Medicare and Medicaid. And look out, here comes Obamacare entitlements.

People are beginning to realize that the budget has grown absurdly large and is very unrealistic. In Congress it is business as usual. By God, we are going to tax the rich and raise 50 billion. Of course we’ll need to raise the national debt limit up another trillion dollars. Do you get the idea that Congress is doing something incredibly stupid? Of course, it appears to be working so why worry.

Saturday, April 09, 2011

Congressional Logic: Insanity Mixed With Self Importance

Congress almost shut the government down because both sides couldn't come to an agreement over a 40 billion dollar cut in the budget. That's hard to fathom let alone comprehend their thinking.

The pie chart below shows how much government took in taxes in 2010, $2.162 trillion dollars.

Now look at how much they spent, $3.456 trillion dollars. Our government almost got shut down over some petty change issue?? Spend $3.456 trillion and the taxes received were $2.162 trillion; hmm where did the extra $1.3 trillion come from??? It must have been a loan! No thought of cutting here.

Uncle Sam paid $413 billion in interest on the national debt in 2010. Figure the government is paying 3% on funds borrowed. What would happen if interest rates doubled to 6% like they have in Greece? A possible jump from $400 billion to $800 billion in interest charges doesn't even faze those in Congress. $413 billion dollars in interest, is paid out each year. How many taxpayers does it take to pay, just the interest?

Somehow, the phrase "penny-wise and pound-foolish," seems to have lost its meaning. The $1.3 trillion dollars borrowed is real, in the sense that it is gone. What would be the monthly repayments on $1.3 trillion dollars borrowed for 20 years? Of course, if you don't plan to pay it back, who cares? That appears to be the way Congress plans to handle it, and that's insane. It's kind of like trying to retire on the bonus dollars you get back from using your charge card.

Last week's Congressional Brouhaha,(to paraphrase Shakespeare from Macbeth) was, "a tale told by an idiot, full of sound and fury, signifying nothing."

Friday, April 01, 2011

The Impending California "Bankruptcy"

State employees want every dollar promised to them and nothing less. California has one minor problem, a lack of funds. In the past when times were good there was always a way for the States to generate new funds with bonds and fee hikes. Adding to this deep pockets concept, the Federal Government doesn’t need a balanced budget, they can print dollars. Everything can be funded-----Right??? To the average voter, the lack of funds is a political, rather than fiscal issue. In reality, it is the other way around. It’s a fiscal issue, at the State level that is getting worse.

The Damn Republicans are tightwads and don’t want to spend the money. The Democrats are sobbing die heart liberals that are going to save mankind. Take either side, it makes no difference. Notice though, lack of legislative funding will terminate State government worker paychecks in a rather sudden way. They might keep police and fire departments running, but for how long. Who pays for the gas in the squad cars and fire engines? The Police in Illinois can’t use State credit cards for gas purchases. Stations refuse to honor them; the state is considered a deadbeat.

Governor Brown of California wanted to have a special election for raising new taxes and the Republicans wouldn’t go for it. The previous governor (Arnold) tried it and it went nowhere. Can you envision a line of people, enthusiastically waiting to vote to raise their taxes in a special election? You have to be smokin' something for that to seem half way real.

The 25 billion dollar shortfall for California’s budget could be more like 65 billion—it depends on who is doing the books. All of the accounting tricks are starting to unravel. The people running the government are people just like you and me;-----understating the bottom line isn’t really lying. I suspect that current tax collections for next year’s budget have already been spent in this fiscal year (a minor bookkeeping anomaly).

What happens from here? California is broke; it can’t pay all of its bills. Of course the concept means nothing to the average citizen. It has never happened before in our life time. To most people, it is an impossible event, it can’t happen. “Where is my paycheck!” will be the cry from State workers. And from there, the real world will be seen again as it is, for the first time in 80 years. The option to pass a bond issue, and kick the can down the road another 4 years, is over. The shortfall of 25 billion has already been spent and we only have 3 months before the new fiscal year begins and California has to have a balanced budget.

If there isn’t enough money to go around, then who gets paid by the State? The bigger question, who doesn’t? The answers will be forthcoming-- from who-- well, that’s hard to determine, but you can bet your bottom dollar that it involves a lawyer.