Monday, April 23, 2012

Will We Stop 1929 from Repeating?

Here's a blog post from June 9. 2009. Things haven't changed much, or have they? The reference to clunkers had to to do with the cash for clunkers program. As for Potato Chips, they cost even more now.

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?

Copyright 2012 by Jim Brubaker

Saturday, April 21, 2012

Qualities of Leadership

I can’t figure it out. A bunch of our Secret Service guys, down in Colombia, have an adult party with some fast women (on their own time). 12 people stand to lose their jobs over sex. Here is what temptation looks like:

Palin gets her undies in a knot over being scoped out by one agent on face book. Normally the Secret Service is invisible, just like a waiter is, in a restaurant. He’s there but he isn’t. That agent posted her pic with him in it and in essence is saying “hey look at me, this is my job.” Everyone strives for a little recognition .

I think that the Republicans have blown the whole thing out of perspective. Fox News has gone ballistic. It reminds me of Inspector Renault’s remarks in Bogart’s classic Casablanca movie when informed that gambling was going on in the casino “I’m just shocked" and then someone hands him his winnings. I can remember back to Bill Clinton and Monica. It ruined TV for months and did absolutely nothing to the Democratic Party. Obama is going to suffer some political damage over this, but if he handles it right, it could work out in his favor. There is no need to make the Secret Service the scape goat over this. The political damage has been done, Obama needs to stand up and take the hit, the buck stops with him. These are good men; they work hard, are well trained, and need some support if they mess up. Bawl them out for the balling they did and tell them to get back to work. Showing that you care about 12 people that are pretty close to you, tells a lot about a person’s character. Maybe that’s what leadership is all about.

Copyright 2012 by Jim Brubaker

Sunday, April 15, 2012

Ron Paul Are You Listening?

This isn’t an endorsement; rather it’s an attack on both the Republicans and the Democrats. We have a President that has split the country with his health care program. Don’t assume that the ones disagreeing with him on health care are the ones that didn’t vote for him. Then we have a Republican Mitt Romney that makes 21 million a year who was governor of Massachusetts and seems to like universal health care. Why is he even bothering to run? This is the Republicans knight in shining armor? It’s kind of like his first Crusade, he’s not sure who he’s going to vanquish, but he’s polished up and ready to go. Get the dragon ready.

In several elections in the past, a third party candidate has thrown the election to the incumbent. Ross Perot comes to mind, and everything that he ran on and claimed would happen, has happened. (He lost to someone who forever changed the concept on how to enjoy a good cigar)

The real thing to look at here is if Obama wins, we have a "TV personality," with a captive audience, who will lecture us for another 4 long years, on what we are doing wrong (yawn). If Romney wins, he’ll be blamed for the impending financial disaster. From there, the Democrats would stand to win the next election no matter what.

I don’t see Mitt Romney being the right Republican choice for President. What voter wants to give his vote to the guy who already has everything? (“Vote for me and I’ll let you wash my Yacht”). In a depression, not too many folks are inclined to vote for a rich Republican.

Normally, I vote Republican except when there is an incumbent. My grandfather gave me some advice, “Never change horses in mid-stream.” So if the Supreme Court, votes down the health care bill, I’d feel safe with Obama at the helm. It’s not like he is steering the boat, but we can let him take the blame for what Congress has done, and will do over the coming 4 years.

There are two people out there, well known enough to run as independents, Ron Paul and Chris Christie, (governor of New Jersey). Ron Paul is a voice that talks common sense; he is addressing the national debt as a real issue and no one is really taking him seriously. Chris Christie is producing results that are working for his state. I don’t see either of them on the ballot. Maybe it is time for a third party. This is one time, where many voters might entertain voting for an Independent, it might not be viewed as “throwing your vote away.” Do we dare confront the Democrats and Republicans? I don’t care to vote for either one of them, they have blamed each other for all of our problems.

Do we vote for the Used Car Salesman or the guy with the Yacht? Not much of a choice is it?

Copyright 2012 by Jim Brubaker

Saturday, April 07, 2012

The Call to Tax the Rich- Inflation At Its Best.

I’ve written on this topic several times, but I guess I need to write it so I sound less Republican. The Democrats always want to tax the rich at a higher rate and it makes some sense, the rich need their status quo and their assets protected against theft from the poor. So part of the cost is justified in increased police protection (Now you know why the police will show up in Beverly Hills in 5 minutes whereas in Watts maybe the next day---after the sun comes up).

But when we examine the playing field with a magnifying glass, things look a tad different. To the average person, a rich person is someone who doesn’t have to work for a living. The rich people Congress is pointing too, are wage earners, who work for a living. For the most part its dual income households or movie stars, sports players, book writers (we are not talking millions of people). When you delve into the realms of business, and professionals like doctors, these people can cut their own paychecks down to size. Then they pack the rest into their LLC or their retirement fund. Everyone tries to avoid paying taxes, it isn’t a rich thing, some people are just better at it than others. On a historical note, higher tax rates don't necessarily lead to increased revenue. See chart below.

The fundamental difference between Democrats and Republicans, on taxing the rich, is that the Republicans know the futility of it and the Democrats exploit the “tax the rich” ploy to raise votes from those who are disenfranchised from wealth (too poor to afford a pot to piss in).

The real bothersome thing about the call to "Tax the rich," is the enormous amount of money spent yearly servicing the interest on the national debt. That money could have been put to better use if we didn’t have the debt. So is taxing the rich an answer to our government’s tax revenue problems? Or is the interest on the national debt a problem that Congress thinks will go away? Why not spend down the debt? Of course, the truth is, Congress has never seriously contemplated paying off the debt, just make payments.

The Republicans and the Democrats are fighting it out on the Hill. But in the meantime, the Federal Reserve is printing dollars to conveniently pay the bills when tax receipts fall short. Inflation is not meant to be a tax on the rich, but it taxes anyone with a long term savings plan. So with the funny money printing, who is the government taxing? Answer: anyone with money in the bank. What is the current rate of taxation (inflation)? Answer: 10 to 14 percent. How many years before you lose 90 percent of the buying power of your savings? Answer: 6 to 8 years (or less at current printing rates).

So let’s see, a money market IRA is paying .03 percent interest and a 5 year renewable is paying 1.3%. A silver fox with 250K in an IRA and getting ready to retire is losing about 25K to 35K per year, just to inflation. Current interest rates are set by government intervention. If we were to take that 250K and assume an 8 percent return, then the retiree is foregoing about 20k in interest income per year courtesy of Uncle Sam (They're going to save the poor underwater home owners with low interest rates). So those silver foxes that saved their hard earned dollars are losing about 50k in purchasing power on a 250k nest egg every year. This isn’t really a loss, it is a tax, and the neat thing is that the government doesn’t have to collect it. It’s the new government plan to save our financial system better known as SOS (Screw Our Seniors). And for seniors who complain, there is the FOAD option. This government confiscation of our savings through inflation, is invisible to our youth. The young, see a bunch of old people barely making ends meet, and think to themselves, ”They didn’t save enough for retirement.”

Reality is a Case of Corona, a full tank of gas, a pack of smokes and a large pizza. Total cost $100. If your 85 years old, put it on your Master Card. Bernanke and Geithner have your card covered, just ask B of A. Tip: avoid the green bananas and buy the grandkids anything and everything they desire.

Copyright 2012 by Jim Brubaker