Monday, December 30, 2013

The Approaching New Year

Can’t quite figure out what is in store for us next year. Interest rates are a joke if you’re going to retire, and very reasonable if you want to buy a home. The Japanese stock market has doubled this last year, which isn’t bad. Our markets seem to be doing OK also. With all of the “Knowledgeable Experts” in the market, there is only one path and that is up.

The Motley Fool has sent me emails this year about the latest and greatest investment ideas. I never finished one of their links to the end. Whatever they are touting, they want about 20 minutes of your time to sell it to you (You are going to get rich and you don’t want to miss the boat on this spiel). Give me a break; if I spot a 100 dollar bill on the floor, I’m not going to point it out to everyone. People everywhere are selling a newsletters promising you unimaginable riches.

Headline today, “1.3 million people to lose their unemployment benefits,” sounds pretty spectacular until you realize that it’s for about 6 days—until Congress extends them. Currently there are 10 million people unemployed, and if you drop Detroit from the count, figure about 8 million. Of course the six million people that lost their health care through no fault of their own are not a news item, that’s just tough luck. And according to government statistics, they also all live in Detroit.

The Federal Reserve looks like it will curb quantitative easing. Interest rates could climb 100 basis points (%1.0). This could affect housing and payday loans more than anything else. It certainly won’t curb the borrowing in the stock or commodity markets. And if you're retired, the increased interest might buy a nice treat for your dog.

Robert Reich of Berkeley has been suggesting that the rich have been getting richer and that there is no trickle down into the rest of the economy. He could Reich/right. This could be a good thing. All of those dollars released into the economy went nowhere, except into the bank accounts of the upper one percent. There was no shotgun blast of new dollars into the economy with massive consumption. There is, however, another problem, kind of a time delay. The rich are mortal and die just like anyone else and the kids inherit. The expression “shirt sleeves to shirt sleeves in three generations” kind of suggests that the kids are going to spend the dollars. Three generations is a long time to wait, so grandpa gets to do some mountain climbing in his wheel chair.

When we talk about the government spending one half a trillion dollars on servicing the national debt each year, that is about 1/3 of tax receipts. To put it bluntly, we spend more on interest payments than we do on running the government. That’s pretty much why a paltry 80 billion in cuts can literally cripple the government. We are running on vapors. If you read the news, we have “emerged” from the “greatest recession” since The Great Depression. The EBT food stamp massacre at Walmart was just a glitch. But you must admit that food stamps have come a long way now and the name has changed to “Electronic Benefit Transfer.” Maybe it’s just my imagination, but it looks like a lot of the food stamp recipients need to go on a diet. Of course their Galaxy3 cell phone and their eight thousand dollars in tattoos make me wonder why they really need the food stamps, but I digress.

I think that people are fed up with government. Eric Snowden has become a national folk hero with his release of classified documents and revealing what NSA is doing to us. The thing most people don’t realize is that there are tremendous volumes of data collected. The government doesn’t even have the man hours needed to process the data. Of course once this is realized, why spend billions of dollars on this spy system just to get one possible terrorist? Why do I think that question will never be asked?

Health care is an issue that has no answer. Where to from here? I’m not really sure. People don’t need health care for their kids; they need it for their parents. Of course with the new program, your dad can go for the triple by-pass and your kids get to pay the bill. It’s not quite the program everyone had in mind, but it will work no matter how much you dislike it—the kids were only going to spend the premiums on drugs and sex anyways.

So, for the coming year what do we have? Whatever we had before, we still have, and Congress can’t take that away. The New Year brings in a suggestion of new consumption. The words “Fat and Fatter” come to mind. Colorado may add to the frenzy of food consumption with the legalization of marijuana— It will be known as "The munchie State." Even Chris Christie is dieting; I think that he realized that he is too fat to be considered a Republican. Look for the stock market to double, it’s the only game left in town; reality has absolutely nothing to do with price valuations. We have been told that the “Great Recession” is over, implying we are close to getting out of the woods. That's a relief, shopping carts don't push too well in the dirt, especially if everything you own is in one.

Since I am not selling a newsletter, I have very little to predict about the coming year that could make us rich. But here's hoping that the new year brings better times to all of us.

Happy New Year from our family to yours and God Bless everyone.

Monday, December 16, 2013

What do We Know about Obamacare?

Those that can’t afford insurance will have it provided to them at no cost. Those currently paying into a health care plan and not consuming health care will probably see rates at least double. Private health insurance covers your kids until the age of 26, which is no real out of pocket cost for insurance companies. It is a selling point to get a customer. Government coverage isn’t going to throw in the kids for free up to the age of 26. Net result kids start paying for health insurance at age 18. So if you’re female, unemployed, single and pregnant, guess what you just won the lottery; you become entitled to all sorts of benefits. Otherwise figure $4,000 a year from the age of 18 to 45 for something you will probably not even need; kiss good-by that 100K not spent on pizza, beer and backpack trips--you don't even get the chance to smoke it, but I digress.

Let’s face it, what sort of government produced product offered to the public is better than what the private sector offers? I can’t even think of one thing. If you are in the military, would you use a government made hand grenade? Private producers go out of business if what they are producing is crap, or if its overpriced.

The whole health care program sounds so neo-Nazi. Everyone has to sign up with the government. Of course, “If you like your present health plan, you can keep it.” The real issue here is how long you get to keep it--for.

The thinking that caught my mind the other day was what someone said, “If you can’t afford health insurance now, you certainly won’t be able to when this program takes effect.” We are not talking about people that need medical treatment that they can’t afford to pay for; we are talking about people who want to protect their family from unforeseen health events.

The real issue isn’t health care for you and me; it’s about health care for those that Congress says can’t afford it. It isn’t a new and cheaper plan, rather a plan where those that bought health insurance, now have to pay more for those that couldn’t afford to pay what was billed or to be billed.

The government needs to get out of health care for several reasons, they are inept, incompetent, and wasteful. The concept that it is cheaper to pay for healthcare as a group through government is a flawed concept. The plans to be put into play are “not for profit plans.” So there is no real incentive to hold down costs to manage the health care system, but there is one to hold down the prices doctors charge.

We will see the statistics over the coming months. How many people will enroll in Obamacare? --I think it will be abysmal. It is a little like the gay marriage thing, great press, but how many people took advantage of those rights 50, 100?? (nobody even cared enough to follow up on it) Those who cannot afford their present health care, need money for treatment (that they don't have) and it has nothing to do with insurance. The people who desire insurance as a protection against future loss need to rethink what they can expect to receive from this new government plan. Anybody who thinks a government plan would be cheaper and better than a private plan has rocks in his head. The incentive to save for retirement is gone, when those that spend everything now expect to get more later for having less.

The net result of Obamacare, is that it has poisoned the political arena. Plus its entire infra-structure is geared to determining who doesn't have to pay for it. Maybe we'd better pass that minimum wage of $15 per hour so the people flipping hamburgers can afford to pay the insurance part of Obamacare, not just enjoy the free entitlement part.

The hundred dollar Big Mac with fries and a coke can't be far away.

Tuesday, December 03, 2013

The Oriental Connection

Here is a little paragraph cut and pasted from Wikipedia:

On October 24, 2013, debt held by the public was approximately $12.122 trillion or about 72.8% of Q2 2013 GDP.[5][6] Intergovernmental holdings stood at $4.9 trillion (29%), giving a combined total public debt of $17.078 trillion.[5] As of January 2013, $5 trillion or approximately 47% of the debt held by the public was owned by foreign investors, the largest of which were the People's Republic of China and Japan at just over $1.1 trillion each.
Japan and China each hold over a trillion in our debt. If you can, picture some large building in each country that holds the notes of debt. That is literally what Joe Six Pack envisions when he read the above quote.

How about if we look at it in a different perspective. We spent a lot of money buying cell phones and other goodies in those countries, and the people we bought it from are coming over here and are buying real estate. So let’s do some back of the envelope math. Figure that we bought two trillion dollars of product made over there. And that everyone in China and Japan that made 10 million dollars wants to buy a home in California. If I’ve done the math right, that’s about 200,000 homes. But if we want a bottom limit, we need to figure the number of homes that could be bought if the Japanese or Chinese entrepreneur only had one million dollars, and we get 2 million homes. So we end up with a range of homes purchased, for cash from 200 thousand to two million. The thing you need to realize, is that the money we spent and can’t pay back to China and Japan,--and we are laughing about it--, has already been safely salted away (they bought US property).

Where is the bottom line? Who gets the last laugh? And the real question, who pays the piper for all of the future inflation from the tremendous cash infusion? Of course, I have to wonder, how our two trillion dollar debt with them, doesn’t drop a tad when everyone from the Orient buys a home in California?

Do you get the feeling that there is a lot of economic information out there that is very insignificant until it suddenly becomes significant? The Federal Reserve balance sheet from financing home loans comes to mind. It’s a little like selling invisible gold fish, nobody complains until they understand that they have been had.

Of course, there is a saying in California, “You can check in, but you can’t check out.” It could be true, I haven’t tried to move since coming here.

I'm waiting for Obama Tax Insurance--you get to keep more for earning more! Why does that seem so absurd?

Tuesday, November 26, 2013

Gold and Silver, the "Hidden Assets"

Lately I’ve had a few comments about the “New Paradigm,” claiming gold and silver are throwbacks to a long gone era that is no more. Also tossed in for good measure is the idea that we don’t need them anymore, civilization has progressed to credit and debit cards and real money, as such is unnecessary. And then there is the comment that we would run out of real money if our currency had to be backed by gold and silver.

There are two different issues in play here, and this is where the real problem lies hidden. Gold and silver coinage go back thousands of years, and the reason they were so successful, is because government had no control over the metals. They could tax and get payments, but they could not spend more than they took in. The real nemesis to currency is the politician and the financing of their political promises.

From early times, they resorted to clipping the edges of the coins and substituting other metals. In my lifetime our silver coinage was replaced in 1965 with nickel on copper. In 1984 the copper penny became a zinc and copper sandwich; the copper in the penny was worth more than the penny.

When the politicians break the bounds and restrictions that gold and silver impose on their currency, there is no limit to what a government can afford to purchase. And then it’s only a matter of time before people accept inflation as part of life. The neat thing about inflation, are the pay raises. People who started out at $2 an hour in 1970 are now making $12 an hour; success at last! The trouble is, the $2 in 1970 probably bought a lot more than the $12 does today. Plus, the politician doesn’t have to raise taxes; you make more, you pay more—how neat!

Government coinage backed by gold and silver prevents the politicians from printing dollars. The Eurodollar which is not based on gold or silver has a similar problem. These countries can’t print more Euros without the approval of all nations in the Common Wealth. The currency is destined to die unless the politicians can remove the restrictions on printing more Euro’s. Europe’s politicians have promised much and can’t deliver without control of the purse strings.

I have to laugh when people say the government has to print more dollars because there are more people now. All currency does is transfer your work unit into a common unit of measure in our case called a dollar. A farmer grows a thousand bushels of wheat and converts them to dollars and buys what he needs or wants. Everyone who works receives entitlement receipts according to their effort and skill. They could be paid in chickens and pigs. The thing that makes currency work, is that it is more convenient and speeds up commerce to a very high degree. When a government prints “extra” dollars (spend more than they raise in taxes or borrowing), the product purchased is pretty much confiscated from the economy.

Purchasing gold and silver is not going to make anyone rich. It is only a way to preserve your buying power into the future. It pays no interest and is immune to inflation. The reason you would buy it, is because you understand the dynamics of counterfeiting; it’s a tax on everyone using the currency. The real worry with the accelerated printing in many countries, is the necessity to ban gold ownership. The politicians cannot pay the bills and inflate the economy if the citizens refuse to use the currency and buy gold instead.

What we saw happen to the banking system in Cypress is one possible outcome that no one liked; losing 40% of your savings over 100k kind of sucks. Whatever the outcome, as a rule of thumb, an ounce of silver is about one hour’s wages and an ounce of gold is the equivalent of one week’s wages.

The neat thing about owning physical gold and silver, is that some hacker on the internet can’t spend it, the government can’t tax it, transferring it is not a taxable event, and it is invisible if you want to claim government benefits. When's the last time you have seen on a financial application, "How much gold do you have buried in the back yard?"

My gopher knows.

Sunday, November 17, 2013

Our Government Has Destroyed Compound Interest

To quote Albert Einstein, “Compound interest is the eighth wonder of the world. He who understands it, earns it ... he who doesn't ... pays it.” But there is one caveat, only as long as the return rate is reasonable. As interest rates approach zero, there is less and less incentive to save for the future.

Banks can’t really function at very low interest rates, most of their borrowers are short term and most of their loans are long term. In the early 1980’s the Savings and Loan industry wrote 30 year loans at 6% and saw all of their short term depositors withdraw their money and put it in the money market funds at 9%. Old Bill Seidman got the S&L’s out of trouble at a cost of several billion to the taxpayer.

It becomes extremely difficult for insurance companies and retirement plans to fulfill promises made to people 20 years ago. Their projected income streams from anticipated rates have dropped drastically. If you examine the rule of 72 where one divides the interest rate into 72, the resulting number is the number of years it takes to double the principle. CalPERS is still claiming an 8.5% return on their investments which would indicate that the funds principle would double every 8.4 years if left untouched. Of course if we assumed a 3% return, that would be 24 years and if we went to 2% figure 36 years. So it isn’t hard to figure out that CalPERS is probably miss stating their returns on equity, hoping that interest rates begin to rise drastically. At the current interest rate returns, their past funding projections made 20 years ago will leave them broke inside of 12 years.

What are we left with? Retirement plans that won’t even be able to pay back what the retirees put into them and a national debt payment that will consume all of our income taxes paid-- just to cover the interest.
The real issue with very low interest rates, is that there is no incentive to save money for retirement, especially if there is inflation. In fact low interest rates will probably stimulate the average person to consume beyond their means and pay the money back with inflated dollars later.

One peculiar thing is that gold and silver are no longer just commodities. The person who chooses to possess gold and silver coins, is not losing much in interest. Short term bank deposits are paying ½ of 1 percent a year—the interest on 50k for a year won’t even buy lunch.

The stock market seems to be the last game in town to play right now. Where else can you put your money and make a dollar? Of course, at one time a dollar would buy 4 packs of cigarettes but I digress. There doesn’t seem to be any risk, the DOW continues to surge higher. Everybody is going to get rich, Oh goodie, I can hardly wait!

Compound interest was a tool used by private citizens to enhance their retirement years. The present interest rates sound very depressing to people about to retire, but let’s play the government game. Reduce your registered cash in the bank. Keep it in a safety deposit box and have a couple of co-owners (like your kids) who can empty it out if you check out early. File for disability before you retire, it increases your Social Security benefits. If you “deplete” your savings, you probably qualify for SSI in California. If you’re married and can get better benefits being single, claim being single, the bureaucrats only want proof of a marriage license if you want spousal benefits. It’s no crime to “think” that your husband is dead and you don’t know who the new guy in the house is. That’s an extra $40 of food stamps a month right there.

Right now, even Suzi Orman is suggesting ways seniors invest more aggressively for retirement. They need to take more risk to avoid losing their principle. I tend to agree with her, but I think the logic is flawed. The government is our biggest risk. This Ponzi scheme cannot continue forever.

I’m suggesting that silver and gold need to be considered as options in any retirement plan, and I am not selling a newsletter. I believe that silver is a better buy right now and I like it because 1000 ounces is kind of heavy about 70 lbs., so it is rather awkward to steal. But gold and platinum are other options of purchase.

The thing I like, is that the government can’t print gold and silver, so if they need more money, they can print it (debauch the currency) or tax your earnings or tax your home, but precious metals are invisible.

So here we are with a very realistic bit of theory from Einstein about compound interest. It kind of makes you wonder, who’s in charge? We know who gets to pay the bills.

Sunday, November 10, 2013

The Economist, the Modern Fortune Teller

Newsrooms everywhere are consulting economists to get insight into the economy. Sounds logical, but is it realistic? The study of economics is not a science. It can be grouped in with other college classes like Fine Arts and Psychology. There is a quasi-science part to it that is similar to fire department forensics where the cause of a fire is determined after the fact. Economics is basically the study of theoretical models and by using them, try to determine what may be in store for us in the future by studying history. What it boils down to, an economist can explain what happened to the economy in the past using models and defend their argument. That is the only real part about economics, it explains the, who, what, why, when and where of past events.

The words “economy” and “economist” seem intertwined and they are not. The economy is the “here and now of how life is treating us.” Today’s economist is trying to figure out how to predict successful financial pursuits and avoid the black holes that are out there; and if he was any good at it, he would be fantastically rich.

When Congress decides to curb coal burning or the addition of alcohol to our gasoline, an economist can explain why China is buying our coal and why beef prices are rising. Notice however, economists do not have any real insight into the future. It is a little like a chess game, neither player is going to move into danger intentionally, the errors will be made from a lack of foresight into what other unknown items may be in play.

Our economy is in a state of flux, moving and connecting in different ways and changing imperceptibly to where it is barely noticed. The people in charge, Congress, collectively as a group, have an economic IQ of zero. They are all dependent on local groups in their State getting them reelected. So keeping the economy going, involves very little if any economic theory. A Congressman’s job is to spend your tax dollars and give his voters the most bang for their buck.

The real issue for the reader is to realize that there are three different outlets for information on economic theory that will be important to your future; the government, the news sources, and blogs. I severely question government sources, for one reason, governments always paper over bad news for the simple reason, the public reacts negatively to bad news. As for the news sources, there is a time lag, they only print what has already happened. The third group, blogs also have issues, you can shop for a point of view that agrees with your own.

Of the three, blog reports seem to be able to connect the dots that involve economic theory. If I use the Real Estate bubble as an example, I was considered dead wrong for 6 years and friends I knew avoided that topic with me. It’s very hard to be wrong for 6 years only to be proven right later.

So let’s boil it down to its essence. Economists as a whole, pretty much agree that the present government deficit spending cannot continue for much longer; it is a bubble. Printing money, whether done by a counterfeiter or the US government produce the same result. Product was consumed with no work effort. Congress has no real conceptual view of economic theory relative to butter or guns; all they want are satisfied voters.

So when you see some Economist being interviewed on TV, think to my example of a forensic arson investigator being asked about the future fires he may be investigating. He is an expert only on the fires that have happened that he has examined.

Remember the joke about three economists in one room with 5 different opinions? It’s not the 5 opinions that bother me, it’s the one that the media chooses to print— the nation is starved for good news and good news sells. Fortune tellers are a dime a dozen and they have a knack for telling you what you want to hear, it puts bread on their table.

Below is something that has nothing to do with the above, but having a picture or two in the blog adds a little color

While cleaning my desk, I found an old 1928 one dollar bill and thought I might share this old silver certificate with you and match it up with a newly printed note.

The newly printed dollars make no reference to being backed by silver or gold. I guess the "In God we Trust" on the back of the "newer" dollars was added as a hope and a prayer that all of this doesn't go up in smoke.

Sunday, November 03, 2013

Entitlements the Unwritten Bill of Rights

I hear time and time again that health care is no longer affordable. I don’t see it. Go back 100 years to 1913 did anyone complain about health care being unaffordable? What has changed over that time are the amount of different services that are now available that weren’t back then. The real truth to the matter is that today’s patient wants all of the services available but doesn’t have the means to pay for them all. You kind of have the ability to pay, if you are willing to do without something else that you usually consume. We are not discussing health care insurance, only the cost of general health care treatment.

Have you ever taken a pet to the vet for treatment? You get an itemized list of procedures that can be performed and the cost before anything is done. You choose the amount you are willing to spend first, pay it and the vet does what is requested of him. It is considered inhumane for our health institutions not to treat a patient because of a person’s lack of funds. You can see how such a philosophy preached as a business model would have a veterinary clinic facing bankruptcy their opening week.

Then we have 40 million people on food stamps and some Congress man stands up and says a family of 4 can’t feed themselves on a food stamp budget of $668 a month. So if we eliminate food stamps to 40 million people, will we have 40 million funerals in the following year from starvation? I think not. There might be a hell of a drop in cigarette, alcohol, drugs, cable TV and cell phone consumption. These food stamp allotment quota settings are kind of like a bill of entitlements to the poor. Have kids don’t get married and you are entitled to a bigger share. Dad can come home on the weekend and be with the kids if he isn’t starting another family on the other side of town.

Then on top of that the government claims the health insurance companies are gouging us and making huge profits. There wasn’t one peep about auto insurance premium prices being too high. And no one complains about the millions of people driving with no car insurance. When the health insurance companies go out of business, you’ll realize how bad a government plan can be run when there is no financial accountability (they don’t have to make a profit).

The real issues with government programs are not about affordability, it’s all about entitlements. Those that can afford to pay, will pay more and get less; those that can’t afford to pay, will get something for nothing.

I’d like to point out that my prediction that the health insurance companies would drop individual policies back in October 28, 2012 is now happening nationwide. An insurance company can’t make money insuring people with a preexisting condition.

I predict that Obamacare has less than 6 months before it is considered a hot potato by even the Democrats. We have created a Medicare monster of free health care entitlements for the poor and those gaming the system while at the same time this new tax will enrage the young voters of this nation. From the time I was 20 until the time I was 55 and got company health insurance, I probably spent about $800 on doctors, and most of it was for eye glass prescriptions. So I had 100K left over to spend on other goodies during those 25 years.

The real issue is, nobody in government is paid to think, if they were, they’d be out of a job. 40 million people on food stamps is beyond being absurd, and a health care system that is free to everyone pleading poverty? Has anyone figured out who is paying the bills? Maybe it’s about time we tarred and feathered a Congressman or two. Of course if we told them it was part of their Congressional health care plan, they'd probably all want the procedure performed.

I'm going to miss the Aflac duck commercials

Sunday, October 27, 2013

The Health Care Application

I was just surfing the net and went to the web site to see what all the talk was about lately. That site referred me to the California web page which caught me a bit off guard with the length of the application.

Then from there, we go to the application for the first person and that is three pages plus. And if it is a 4 person family, there are a lot more pages to fill out---18 of them. I don’t see anyone wanting to fill this information out unless it is money in their pocket. Why even bother?

Page one, "Are you pregnant?"

Page two informs you;"If you don't file taxes, you can still qualify for free or low cost insurance through Medi-Cal."

Page three; "Do you have a job?"

What bothers me about the form, is the fact that you're not buying health insurance, you're documenting that you don't have the funds to pay for it. I've never had any trouble buying something I wanted. You usually want to know the price before you buy. I walked into a service station one time to get a tire repaired and the guy pulled out a notepad and started writing down all the charges and by the time he finished, the total was $24. Further down the street, another mechanic looked at me in the eye and said, "Pay me what you think it is worth." I got the tire fixed and paid him $15.

After you submit all of this information they will present you the monthly cost of your plan. You're not going to be able to tell them you don't want it because it costs too much. They have your name, Social Security number, cell phone number and the address of where you live. You will get the bill if one is generated. With the system armed with all of that new information, you could get nailed for wants and outstanding warrants, alimony and all sorts of other goodies. Do you get the feeling that the government is not being very transparent with this program? Put another way, are we being conned?

It kind of reminds me of when FDR started the Social Security retirement plan. Before that time if you owed taxes, they had no way of collecting; they didn't even know who you were. With the Social Security tax, they got your employer to deduct it from your wages before you got paid. From there taxation became a lot simpler for the government to execute; the employer had to follow the government directives.

So here is what it boils down to. If you don't have insurance, they will withhold the (Bronze, Silver or Gold--your choice) amount from your paycheck and you will have to fill out a form each year to get a refund for overpayment. Why do I think this will happen about April 15th every year?

The real question for this year, Can half of the people filling out the form complete it correctly enough to apply for benefits successfully? It sounds like a very simple task doesn't it? This is the real hurdle not fully comprehended or anticipated by the government bureaucrats.

As a post script, I don't have to worry about Obamacare, I'm 67 years old. The youth of this country (those from the age of 18 to 45) are going to enable Congress to kick the can further down the road with a whopping $4,000 a year tax increase. Call it whatever you want, the Supreme Court got it right, it's a tax.

Sunday, October 20, 2013

Obama Care---Do the Math

Let’s just figure out, who is in a hurry to sign up for Obamacare? If you are at high risk from a previous or current health condition, chances are any insurance is unaffordable and this would supplement what health care you currently can afford. If you are currently collecting food stamps, we can assume that health care premiums are not a high priority from a budget stand point, but if it is free or highly subsidized, you mise well apply for it.

There are three health plans, Bronze, Silver and Platinum. If we look at the Bronze plan, it’s about $150 a month and there is a $5,000 deductible (the figures on this are all over the map, its a little like buying a car). If you’re broke and on food stamps, where does the $5,000 come from for the deductible? Better yet, where does the $150 a month premium come from?

So the flood of people that will sign up for health insurance, need help in paying for what they are already receiving. When you hear someone say, “I can’t pay for all of my medications and treatments, I need health insurance,” forget the words health insurance, they are past that. They need a government subsidy. The real definition of insurance is to pay over time for an event that may occur that you could not afford to pay for in a very short time. The idea that if you can’t cover the cost of your health care, the government should step in to make up the difference, is not what insurance is all about.

A majority of people who are uninsured and not sick, are in no real hurry to sign up for health care. Maybe it will be like taxes, the employer will withhold the monthly premium charge from your paycheck. Of course if you don't have a job, that's the least of your worries. Got Health Insurance?

Monday, October 14, 2013

The National Debt Disconnect

Many people are trying to attract the public's attention to the dangerous size of the National Debt. The trouble is, it doesn’t seem to be working. Congress has a big brouhaha every time it comes to raising the debt ceiling. It eventually gets raised and business and life go on as usual.

The real problem, is the disconnect between the average person and the national debt. The country has always functioned as expected and this debt has never interfered with day to day existence. If interest rates rise, the consumer knows they will pay more for borrowed money. If inflation increases, people are prepared to pay more for groceries. Big deal if Congress raises the debt limit, they’ve been doing it for decades. Many people in Congress have warned that the county could go bankrupt if steps aren’t taken to curb current spending and they have been feeding that “rant” to the public for years. None of the dire predictions has come true, so why even listen to these worry warts? You certainly won’t get elected to Congress promising your constituents a half a loaf of bread, when they expect a seven course meal.


The average person has no idea or can even envision the net effects of government insolvency nor do they even care. Their group solution would be; “Do what you did before to keep the government going, only do more of it.” Government Bankruptcy is so far from their real world of football, work and raising a family that it borders on absurdity. People look at government sequestration and the budget cuts, and are really surprised how much gets cut when you try to cut the budget by 80 billion dollars a year. Everyone get indignant when Congress shuts down the parks and monuments for lack of funds. And if lawmakers attempted to cut anyone’s benefits, God help whoever made the attempt.

The Tea Party Republicans are coming to the conclusion, they have nothing to lose by standing firm. If the Hoi Polloi can’t comprehend government Ponzi financing, then let’s take the government down the hard way and end the Mickey Mouse bookkeeping. It’s the Democrats that have the most to lose; the 17 trillion dollars of paper IOU’s (already spent money) could go poof because of a stalemated Congress. Wimpy ain’t going to bum another hamburger for payment later. As with any Ponzi scheme, there won’t be anything left for either party to give away.

A government collapse is similar to taking an airline flight. You wouldn’t get on a plane if you though there would be problems. Many years ago, my dad got caught on a flight that landed in Amsterdam. The airline had gone broke between stops. The pilot had to pass the hat for gas money among the passengers just to get to London. In this example the solution was simple, but it gets a tad more complex when the organization that supports and issues the currency, is insolvent.

The National Debt is like a giant candy store. The kid buying the candy has no concern over how the store owner runs the business. Therein, is where the problem lies.

Sunday, October 06, 2013

The Art of Compromise

I get a little fed up when I hear the President say no compromise on the budget. They are going to wait for the Republicans to cave in and agree to what they have offered. Rumors abound that, the Speaker of the House, John Boehner said that he would never let the Congress go so far as default on the national debt. Then you hear the Democrats state like a litany; "This will hurt the Republicans real bad when it comes election time."

Think about it for a minute. Any horse trader has enough smarts not to divulge his settlement terms. So if Obama thinks that Boehner is going to blink, he’s miscalculated. Another thing why would the Republicans lose votes? Voters, who want to give money out to every bleeding heart cause, don’t typically vote Republican.

We’ve had about 4 days of this mess so far, and if you listen to the Democrats, this is just horrible for the country. It’s as if we have been suffering through this for months when they describe the fallout. You’d think that half of the kids on the free lunch program have starved to death by missing 4 meals. A lot of government employees have been furloughed, but when things get back to normal, these people will get paid for the days they didn’t work --can you beat that?

Then if Congress lets this go on for two more weeks, we hit the debt ceiling. At that point it is no longer Democrat against Republican, it becomes a discussion on how many fairies can dance on the head of a pin. The concept borders on folly, but everyone is playing the game; “If we don’t write another IOU, the full faith and credit of the USA will be ruined.” How many free hamburgers does Wimpy get to eat with a promise to pay at a later date? This is what kicking the can down the road is all about, avoid the reality of spending beyond our means.

Is there a deal to be made where both parties can show that they got something in the bargain? Most probably. But if there is no compromise, both sides end up with nothing. In this case, both sides loose the ability to buy something with nothing while getting thanked by their constituents for doing it.

One thought to consider; the people with a solution for every problem, are usually a major part of the problem. Here’s hoping they can get together and come to a compromise.

Below is a picture that seems fairly straight forward until you realize that when you borrow money, they charge you interest. You could say from here, it gets real interest-ing. Kicking that can down the road is looking better every passing day. That doesn't say much for facing up to reality.

Sunday, September 29, 2013

New Retirement Concepts of Taxation

I figured when I retired, I’d have my home paid off, 300k in the bank and $1,200 in Social Security in monthly income.  Part of my retirement was going to be from my nest egg of 300K.  I had figured that I should be able to get about 8 to 10 percent on my invested savings; figure about $2,000 to $3,000 per month.  I accomplished my goals, but that 300K in the bank now only generates about $400 per month.  So basically, I’m not retiring.  I like my present standard of living and I still have my health.

The government has two ways of taxing; the obvious one, earnings and the not so obvious, savings. There are two basic categories of voters; those with savings and those with none.  If you have nothing, you are only taxed when you earn a paycheck or buy something taxable.  These people have support life-lines like Social Security, food stamps, health care and supplemental SSI---any wonder why they vote Democrat?

Inflation is a despicable invisible tax on savings.  Every "debt ceiling" dollar printed today over time, will make your hard earned savings put away today, worth a lot less in the future.  Notice that if the government wants to borrow money, they have to borrow from people who have money.  That sounds obviously simple, but it escapes most people; if you have nothing, they can’t borrow from you.  Now there is also a third method of taxation that involves controlling the interest rates on bonds.  Bond rates are normally a function of risk.  The more risk, the higher the rate.  But if the government comes in and takes the risk out of the market by guaranteeing the loans and printing as many dollars as necessary to do it, they can keep interest rates extremely low. And no, they are not giving the banksters free money, they are just making good on the bad loans made to Joe Six-pack.  In essence Joe Six-pack borrowed your money in the bank and spent it on a house and now can’t pay it back. All the government did was pay off his non-performing loan and keep the bank from collapsing due to gross incompetence and mismanagement.

By controlling the interest rates in this new fashion, many silver foxes can’t retire because of the lack of generated interest income.  Instead of 30K interest on their nest egg of 300K, they get 5K.  Any way you look at it, the retiree is losing 25K a year.  I think this is why the investment in housing rentals has skyrocketed.  300K invested in the housing market should return more than 5K a year and 24K wouldn’t seem unreasonable.  The only trouble I see with this, the home is not easily convertible to cash if circumstances of old age dictate it (waiting for the market to come back might not be an option).  Notice however, if you give the house to your kids in a trust with the rent payable to you for life, future rest home expenses couldn’t claw back on the principle invested in the home that was given to the kids.

This present administration's new approach to economics and finance, has one problem, the economy is not reacting as anticipated.  Retirees have a lot less money to spend and students have a lot more (As long as they’re students).  There are few high paying jobs, the kids are moving back home and rentals go unrented. New cars are selling at a good clip, nothing down and you pay the sales tax of 10% before you drive out. Try and sell a used car; find someone with $2000 in the bank to purchase one.  People are trading in their old cars because they can’t afford to get them repaired.  Do the math, $1,800 for a new transmission or $800 “drive out” for a new car? Rumor has it you can get a free cell phone when you sign up for food stamps. In the 1930's they didn't have food stamps, they had soup kitchens--but I digress.

So, to tie up the loose ends, what happens next?  The government has taken away my independence by robbing me of the interest I anticipated in retirement.  Of course they will blame it on “Wall Street and the Banksters” who are just as abstract as the name “Uncle Sam”—these imaginary individuals offer us a focal point for our anger and are not people you can grab by the neck and choke some sense into.  In the coming weeks Congress has to face the budget bill, the national debt ceiling and a President with a super-sized ego that refuses any compromise. The President wants to tax the rich; you know, the people like you and me, who saved $100 a month for 40 years.  The neat thing if the government comes to a stop, they can’t spend any more of what they don’t have. And that sounds very weird. Plus, if you think about it, whatever they were spending, really wasn't theirs to spend anyways.

Obama kind of reminds me of the guy rowing a boat as fast as he can. Someone asked him where he was going and he said “I’m not sure, but we are making very good time!”

Monday, September 16, 2013

Will We Stop 1929 From Repeating

Here is a reprint of mine from a few years back, that is still relevant.

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.  We can now drive to the poor house in style. It kind of sets your mind at ease, doesn't it?

Wednesday, September 04, 2013

An Inept President Trying Cover Up The Mess At Home

Turning on the news, everyone is talking about bombing Syria for gassing 1500 people.  No American lives were lost and we were not threatened.  If China wanted to gas some people, we wouldn’t budge a whisker.  The real question to ask here, is why we would mobilize the full resources of the United States to strike someone who can’t bother us if we leave them well alone. Their ties to other countries could envelope us in war on a larger scale. PBS news reported today that Russia supplied Syria the chemical weapons.  That should be enough reason to back off.

We have problems in the US that make Syria look like small potatoes.  The city of Detroit has been destroyed and no bombs were dropped.  Our infrastructure is falling apart, our educational system is pathetic, and more young people are killed each year in Chicago than were gassed in Syria.  Nobody called an emergency session of Congress to fix any of that.
The odd issue with Syria is the adrenalin rush of each reporter and Congressman interviewed on the issue.  The seriousness and the importance is stressed ad nausea; its all about votes and selling newspapers.    Our journalists are selling us down a river of no return with the war on Syria because its good copy.  We are going to try to kick some butt. We are going to pick on the smallest kid on the block (that makes us the bully on the block to the Arab world). My question, "Why take any action?"

No boots on the ground, but how do you get control of Weapons of Mass Destruction that have been produced?   Do you ask Al-Qaeda  to load them on a truck and drive them to the nearest United Nations station?  The level of responsibility lies with the provider of the weapons, not the end user.

The Obama administration is using Syria as a magician’s ruse of miss direction.  Focus your attention on Syria forget the real  economic mess at home.  The national debt, quantitative easing, inflation, unemployment and Obamacare are all coming to a head.     We need to get our country moving economically and that is not happening.  How does foreign policy fix the guy without a job?  The part time high school jobs at McDucks are all gone. And guess what, the people that got those jobs, complain that they can't live on those wages.  The high school kids probably wish that the "Whining Hamburger Flippers" would FOAD so they can earn enough to buy a new I-Phone for their senior year.

This mess in Syria could get out of hand very easily.  It takes a great man to back off and only a fool to kick off a war.   The news services are  all aglee  at selling us down a river of no return with the war on Syria--readership will triple. Here is a famous quote from Herman Goering one of Adolf Hitler’s minions from Nazi Germany.

Naturally, the common people don't want war; neither in Russia nor in England nor in America nor, for that matter, in Germany. That is understood. But, after all, it is the leaders of the country who determine the policy and it is always a simple matter to drag the people along, whether it is a democracy or a fascist dictatorship or a Parliament or a Communist dictatorship. ... [V]oice or no voice, the people can always be brought to the bidding of the leaders. That is easy. All you have to do is tell them they are being attacked and denounce the pacifists for lack of patriotism and exposing the country to danger. It works the same way in any country.

I'm not sure how this will turn out, but I think a few Congressmen may read this blog. Lets get our nation working in good form before we try to fix the rest of the world.  Our problems come first, the rest of the world can wait.

Friday, August 30, 2013

How to Start a World War

Syria seems like a cake walk after Iraq and Afghanistan.  But there are a few things different here. Iran and Russia are backing Syria.  Go ahead and fire a few missiles into Syria.  It’s a little like your neighbor beating his wife and you decide to empty your handgun into his home to get him to stop. It isn't going to end there, now is it?

Since there is a little bit of a time delay before the strike, Iran and Russia have the time to move a few armaments to Syria for its defense.  It’s a little like Spain before WWII.  Everyone got to test their new weapons. Iran feels threatened because of the US’s position on nuclear weapons as well as Israel’s threat of a first strike.

We’ve meddled in Iraq, Libya, Egypt, Afghanistan and all we have done is taken a stable government which  never even had a hope of being a Democracy, and destroyed the institutions that could keep order.  Afghanistan will be like Viet Nam.  200,000 immigrants will be moved to the US. Otherwise they will be executed when we leave.

If Obama launches a missile attack, I fully expect a reprisal attack on our vessels in the Mediterranean.  And I would expect that the launches would be from Syrian soil, but not necessarily by the Syrians.    The question you have to ask, do our naval ships carry gas masks?

The people in the Arab world are very poor.  They want a reason for why they live in poverty.  The answer is, the Great Satan is extracting from their labor the wealth that would have been theirs.  Any military  success by Syria against US vessels, could rally the Arabs and make shambles of  governments in the region.
 What we need to realize here, is that we are at a point to where we could start WWIII.  And without using any gas, 4 billion people could starve to death in a nuclear winter, because some US President had a red line that was not to be crossed.  Give me a break. War is about killing people.  If you're not any good at it, you lose.

Sunday, August 25, 2013

Restaurant Menu Prices 1938

I was searching through some picture albums of my parents from way back and ran into some restaurant menus  from the depression era of late 1930's.. The first 3 pictures are from the Manhattan  Restaurant


The Second menu (three pictures) is on the Union Pacific Railroad from 1937 somewhere in Wyoming.

This last menu is from the Hotel Windermere in Chicago 1937.

Double click on the images to see what the prices were back then.   Did you notice that the Manhattan offered a broiled (Whole) lobster for 65 cents?  In today's world, you'd be lucky to get half a lobster for $30.  Bear in mind, the people that read these menus in real time are probably dead by now.

The pay raise that everyone gets each year because of inflation is just an allusion. Look around, the new hires are starting out a few pennies less than what the seasoned workers are making.  The neat thing about inflation is that Congress doesn't have to raise the tax rates, you earn more, you pay more.  That's the real difference between the Democrats and Republicans; print as you go verses pay as you go.

The real odd thing is that the average person does not connect the dots. The relationship between government spending and inflation does not exist. Rumor has it, we've always had inflation-- I guess we're supposed to get used to it.  My wife bought a new battery and asked me to guess how much she paid for it, and I said $40.  Her answer; "That's the price you would have paid 20 years ago, the battery was $100."

Let's see, I'll have the broiled lobster with coffee and a slice of cake--that's about 85 cents total, plus 15 cents for a tip.  The trouble is, 76 years of inflation have raised the prices a tad.


Sunday, August 11, 2013

MY Way Or The Highway

Newspapers around the world report how Russia granted Snowden political asylum for a year snubbing President Obama.  That’s really not the case.  In order for Snowden to get to his destination in South America, he pretty much has to ride on an airline.  The airline will have  to make one stop for fuel in Europe on the long haul to his destination.  Obama probably directed FBI or CIA to detain and search aircraft leaving Moscow and capture Snowden.  If you know he’s going to be traveling in a few days, it’s no real effort to search about 5 or 6 aircraft a day.  The US in a foreign country  no less, stopped a flight bound to Cuba just to check to see if  Snowden was on board.  Obama got too demanding with Putin.  Snowden has to leave Russia so that the United States could capture him when the plane lands to refuel.  What a joke! All Putin did by granting him temporary asylum, was give Snowden a better chance at making it to his destination. The kid hasn’t violated any Russian laws, why should Russia be responsible for his return? It was the Chinese that dumped him on their doorstep.

Then we hear something I could not believe. Obama said; "Nobody is more offended than me by some of the anti-gay and lesbian legislation that you've been seeing in Russia," he added. "One of the things I'm really looking forward to is maybe some gay and lesbian athletes in bringing home the gold, or silver, or bronze, which I think would go a long way in rejecting the kind of attitudes we're seeing there." 

As far as governments go, Russia can do whatever they deem correct, gay people don’t reproduce and spreading HIV isn’t a good thing unless you have Obamacare. Why should the government support a way of life that produces no offspring to benefit the future of the state?  And at the same time their sexual actions endanger the regular population and deplete health care resources.  What is the US -- the land of the free or the land of the Gay?  Look for Obama’s new promotional souvenirs  for the Moscow Olympics, jars of Vaseline with a picture of your favorite gay American gold medal winner on the back—ought to be a real collector’s item.

Then there is Obamacare.  Whatever gave the President the idea that once he snuck his health care thru Congress, that from then on, it would be business as usual?  This guy might know how to play checkers, but this is a chess game.  Congress is now like a wasp nest that he stuck a stick in. Wait till the masses figure out they have money for health care or car insurance, but not both and they don’t get to choose which one they pay. 

To add wood to the fire, he stated the other day;  the idea that you would shut down the government unless you prevent 30 million people from getting healthcare is a bad idea." And that "Republicans have determined that they don't want to see these people get healthcare."

 It implies, we as a nation don’t have the real money to spend on it and raising the National Debt will solve the problem. It’s similar to the car insurance and health care choice for the poor, only with the government, they get to have both even though they can only afford one. 

 In the Middle East, the Arab Spring, the promise of Democracy promoted by the US is a miserable failure. It has turned stable governments into war zones. Anyone care to vacation in Libya or Egypt?  How do you give Democracy to people that have to steal just to survive?  Idealism doesn’t put food on the table, pimping your sister or killing your neighbor’s dog does. I remember trying to give Viet Nam Democracy, looks like our government didn't learn much from that lesson.

Then there is the idea of amnesty for 10 million illegal immigrants (30 million might be a more correct figure).  Do we really need 30 million more registered Democrats in the country?  When the country was founded, the voters had skin in the game, they were land owners.  I’d like to see the right to vote determined by the amount of taxes paid.  The more you pay in taxes, the more votes you get.  Let the people who pay the taxes determine how the taxes are spent.  Funny, that doesn’t seem to support our present day concepts of how Democracy should work, but it seems very logical just for its long term survival (Alexis Tocqueville's book written in 1835 "Democracy in America" comes to mind) 

The only thing I see with the Obama Presidency is a man whose actions declare “My way or the highway.”  You are either with him, or in his way.  If you listen to his rhetoric, he’s going to solve world hunger give us universal health care and give the world Democracy.  We all have dreams; reality is when it comes time to pay the bill.  Obama has triumphed over everything, except for those “Damn Republicans.”  And it looks like he’s about to get his comeuppance, it’s  time to pay the bills.

 Shades of paranoia, I’m getting ready to hit the publish button and I can visualize in my mind, a drone locking onto the meta-data in my cell phone—nah, that’s still a few years away—I hope.

Sunday, August 04, 2013

The Student Loan Bubble

Students are offered college tuition loans guaranteed by the Federal government. Some students have anywhere from 150k to 300K in loans.  If the student pays it off in 10 years, that’s about $1,820 to $3,640 a month for 10 years.  When they graduate, they will need an 80 to 100K beginning wage job. If they can’t find one, there will be 12 to 24k of interest accrual each year that payments aren’t made. This interest turns into principle when added to the loan, so a 150k amortized over 7 years at 8 percent with no payments made turns into $257,000.  And if we calculate the same for 300K, you get a new loan amount of $514,000.  If you are unable to find a job, just the monthly maintenance to keep the loan amount from increasing is $960 a month on the 150K loan—double that for the $300K loan.

Now picture how the economics work for an institution of higher learning.  They need students that can afford a 2 to 4 year degree.  They are not promising jobs, they are promising an education to get you a better job (this is the most important sentence, and nobody really comprehends it-- a college degree does not mean more pay, it implies it).  With a lot of two year schools, the education received wouldn’t buy a cup of coffee, but the dollars the student spent are real.  The school needs students, and a lot of ”would be students” don’t have the dollars to attend.  Here is where the school will offer services, free of charge, to help you finance your education with them.
Don’t be surprised to read about the divorced mother of two who signs up for the 2 year dental technician course for $12,000,  graduates only to find out she can’t get a job with her new training. She still has the 2 kids and now in addition, 12K in school debts.  If she’s flipping hamburgers, her hours will probably be cut because of Obamacare, and her wages will be garnished to pay off the student loan. FYI,  that trade school is still turning out dental technicians by the 100's ---financing is in place for your future degree.

Our youth has been told  that  a college education guarantees a better paying job.  Students with large student loans will have to look at the bottom line before they accept a job—it might not pay all the bills.  There is always the chance your girlfriend will have just as much debt as you do. 20 years ago, the consensus was  a person with a college degree would earn a half million more than the guy without one  (I sure hope that amount has increased somewhat).

The choice for a graduating senior in High School is obvious; flip hamburgers, or get that college loan and go to college. The real irony, is that you get the loan, and the education, and then you learn how to flip hamburgers for the rest of your life.  Not every college degree is in demand. Plus you might not want to work in Butte Montana or in Detroit Michigan.
The student debt bubble could be deflated if Congress would allow students to file for bankruptcy on the ridiculous amounts loaned to them.  It’s a noble gesture to offer everyone the money to pursue a college education. It’s insanity to think that most will have the opportunity let alone the desire to pay it back.   The underwriters of these loans are turning our kids into indentured servants. If you can’t afford something you do without---what if the government offered guaranteed loans on lottery ticket purchases?  I'd love to have sold the guy that thought up the student loan program a toll bridge or two.

We saw how free money caused a real estate bubble.  When that bubble collapsed, bankruptcy was a way out of a bad mistake.  Right now, the student loan bubble is fueling the economy ---1 trillion dollars’ worth of consumption so far and Congress is still pumping air into it. Can we count on these college grads to be consumers when they graduate?  Will they be too busy paying back their loans or fighting to keep their wages from being  garnished?  
Everyone at the age of 20 has dreams of success and wealth. The rest of the world will play on those dreams, they are a vulnerability. Two kids a wife and a house payment are a reality,  and there isn’t much room for a large student loan.  The more bills you have, the less you sleep at night. A college education could become your worst nightmare.  We can be very sincere when we say;  “The road to hell is paved with good intensions.”   Another 10 years of these super fantastic student loans, and one will  need a Master's Degree to get a job cleaning toilets or a PhD to flip hamburgers.

As a post script, you can always move to Australia and forget about the debt. Being broke and having a new start will work miracles on your state of mind and you'll sleep a lot better. Now might be the time to invest in surfing posters about Australia and New Zealand for the dorm room.  However, it wouldn't surprise me to see them distributed free of charge, with a visa application for the Down Under, printed on the back side. No "go figure" on this one, we saw it coming and did nothing.

Wednesday, July 31, 2013

Fine Line Between "Administrative" and Congressional Law.

Congress passes our laws and most people think that whatever the government directs them to do is the because of   laws directly passed by Congress.  That’s not quite right. Congress creates an executive Agency and that department writes rules or codes which when issued become what are called CFR’s (code of federal regulations) or administrative laws.

For example, Congress created the Department of Agriculture.   The Department of Agriculture is part of the administrative branch of government; it is under control of the President.  So when Congress passed the Healthy Hunger-Free Kids Act of 2010. It directed the USDA to establish nutrition standards for all foods and beverages sold to students in school during the school day.  They did that, no big deal.  I’m sure several food nutritionists got together and put together a school lunch menu and considered it a done thing. At that point, whatever they wrote became an administrative law. Then Obama’s wife came out with the ideal school lunch menu that included whole wheat and other items that you couldn’t even get a kid to eat at home.  One phone call, and guess what your kids get for lunch now? --and it’s the law.
Then there is the Treasury Department, more specifically, the IRS, another department controlled by the executive.  “Kill all Tea Party applications” isn’t written anywhere in the laws, but hey, the applications are not going anywhere soon. Did they violate any law, probably not, they get to write the laws they need, to function as directed by Congress.  Our representatives gave them the power to create administrative laws that many people believe border on being extremely arbitrary and harsh.

We are surrendering more of our freedom with each government agency created. A government agency can create a directive that will have the full force of law until it is challenged by a court of law. Recently the Mayor of NY City, had the Board of Health approve a regulation limiting soda sizes. That was an “Administrative Law.”  The court overturned it stating that the mayor’s ban on sugary sodas of more than 16 ounces was a violation of executive powers.
I’m not so upset about the delegation of authority to a Federal agency, but some of these departments have run amok.  Just getting your kids to eat the food served at home is a real challenge. Why screw it up with whole wheat? School lunch sales are down quite a bit for kids not on the subsidized lunch program. It’s McDucks if you have cash or the school cafeteria for the free lunch. When I was a kid, the school would send a proposed food menu home for the parent’s approval.  The current message I get; the American public is too stupid for their own good and some government created Agency like the Food and Drug Administration will save us from ourselves.

I use to love McDonalds French fries made with real animal fat, they were delicious.  Some pencil pusher in the FDA wrote a directive that ruined French fries forever. Even our fast food is now “Politically Correct.”

Here is a real test, make a peanut butter and jelly sandwich using whole wheat bread.   Woof it down. Do you think you’ll ever want another one of those? If you say yes, that’s probably a good indication that you need to cut down on the amount of weed you’re smoking. Gimmie my white bread and greasy (animal fat) French fries, freedom tastes better without government regulations. Our fast food is now terrorist friendly—no pork fat—Go figure!  I guess we want them to live longer also.

Saturday, July 20, 2013

The Coming Pension Disaster

Detroit bites the dust and the one question that no one will bring up, is; “Where is the money coming from to pay the city’s promised retirement benefits?” 10 cents on the dollar won't cut it. This bankruptcy is the biggest so far; $20 billion give or take 4 billion. About 12 billion is for retirement benefits. The city looks like a bombed out war zone. The real estate tax base is gone. Many other cities nationwide are in similar financial peril and on the verge of insolvency.

Here is what happened in Prichard Alabama in 2009 with their bankruptcy. The retirement checks stopped when the money ran out. Click on this LINK for the full story. Note that the court demanded that they start contributing 16 million to the retirement fund and they had no money to do so. Where the judge thought they would pull the money from, is beyond me.

Several issues are at play here. How do you sue a city that is broke and collect real money rather than a judgment? The state is not obligated to pay city debts. And you can’t sue the state anyway. What happens to the people who were collecting retirement and health care benefits? The Stockton bankruptcy from a year ago is still in limbo this year. California law, states that the city’s retirement funds are exempt from the Federal bankruptcy court proceedings. Notice that CalPERS has a vested interest in this ruling, they’re holding a sizable portion of city's retirement funds. The Federal bankruptcy court wants all of the city's assets on the table. Can State laws rewrite the Federal Bankruptcy Code? Federal law should override State law. It could be a moot point by the time it gets out of the courts; we’ll all be dead by then.

The Pension Benefits Guaranty Corporation (PBGC) was created by Congress as a backup retiree plan for failed private pension plans. Unfortunately for the city of Detroit, the key word is "private," "public" won't qualify. This little unknown government entity is already on the hook for 26 billion dollars more than they have in collected premiums. The listing below displays the present top 10 of failed pension plans now on government life support.

After the American Airlines bankruptcy goes final, there could be another 10 billion added to the PBGC's unfunded obligations. And of course General Motors pension liabilities could add another 25 billion to that total. Employee retirement benefits were really what GM’s initial bankruptcy was all about—and that 25 billion hasn’t gone anywhere, it’s still there (sshh--that’s a secret).

Basically what we are coming down to is hundreds of retirement funds are underfunded by large amounts. Many of these plans were doomed to failure. Cities choose to grant increased retirement benefits instead of wage increases. It looked great on the books and didn’t show up in the city budget like a wage increase would. And this is coming back to haunt them. The laws are in place to protect the retiree. “By God, they have to give me my pension, I earned it!” The only trouble is, passing a law guaranteeing benefits, in no way creates the funds for the check to be written. No money in the city coffers makes any court award meaningless.

Surfing Google for answers, I ran across a plethora of government abstracts dealing with the PBGC. I don’t pretend to have understood half the government double talk, but it is obvious from all of the interaction, the Congress and the Department of Labor are well aware of what is going on. This is a high traffic issue with little mention in the press.

In the future, it could be very upsetting to be a retired GM employee and find out that they were now covered by PBGC. They’d think; “Well I still have my Social Security to add to my GM retirement” ---- In all likelihood, the PBGC might deduct their Social Security benefits from their proposed GM pension benefits. Government programs promise you more, by giving you less.

The interesting thing to note about the future failure of government retirement plans, there is no news coverage. They haven’t happened, so there is nothing to report. Where will the money come from, to pay these debts off? Will the Pension Benefit Guarantee Fund be expanded to include government retirees? The Fanny and Freddie bailout fiasco comes to mind. I guess what’s good for GM, is good for America. I seem to have heard that before -- somewhere.

Let the bankruptcy festival begin. Government employees were promised “Surf and Turf,” and it looks like they’ll be lucky to settle for chipped beef and gravy on toast-- better known as “SOS” in military circles. I was dumbfounded to learn that a fireman I indirectly know,  is retiring at age 50 on 100K a year. Reality is right around the corner here –somewhere—  The joke when I went to high school was, If you can't find a real job you can always work for  the government. That has changed quite a bit in the last 40 years. We'll have to wait and see how this plays out in the courts, the winner could end up being the biggest loser.

Saturday, July 13, 2013

Poorly Thought Through Concepts

Many people in the United States think it would be great to give the rest of the world Democracy. Right now, millions of Egyptian Muslims are rioting, who by just voting and winning one election, think that the army has ripped Democracy away from them. If you are uneducated poor and starving, you cannot afford Democracy, it has no meaning. It’s a little like a terminally ill person winning the lottery, the money means little. Democracy has nothing to do with winning an election and then telling everyone around you how to reproduce, live and worship. Hmm— on second thought I could be wrong on that---

Obamacare for everyone including those with extreme health issues and no insurance sounds very noble. There is one problem, Health insurers have figured out that really sick people don’t work, so if they drop individual policies, they eliminate those people who could be their greatest liability. And of course, if the health care insurers raises rates too high, they will be banned from selling insurance—kind of reminds me of the quote “Please Brier Bear, don’t throw me in the Brier patch.” Employers have figured out that keeping the number of employees under 50 does have advantages. And of course keeping the work week short, under 30 hours, keeps benefits low. How all this will help a hamburger flipper get health care coverage escapes me.

Feeding the worlds starving masses seems very noble also. The trouble is if the world population increases another two billion---then, people have to starve and die, in order for your family to have the food they need to survive. Our world is a little like a fruit fly experiment, where you enclose one banana and two fruit flies in a beaker and watch what happens. You end up with a beaker of fruit flies and no banana (assuming the flies are not gay).

Many think the burning of fossil fuels is having no environmental impact on our world. But the catastrophic weather of the last year or two has been very unsettling. Let’s hope it’s part of a cycle that is over for now. We can ban the burning of coal, but we can’t stop the mine owner from selling his coal to China. Also, the idea that the government subsidization of the production of ethanol is going to solve the oil shortage, doesn’t really work. A gallon of gas with 15% ethanol doesn’t produce the gas mileage of the real thing. It does however raise the price of beef (corn fed cattle may be a thing of the past). Converting food to ethanol, to burn in an auto and paying people extra to produce it, is only something that the "Sad Sack" group in Congress could think up.

The thing not realized with all of the above mentioned, is that we have created ways of life that revolve around models that have worked well for us in the past, like the phrase; “Real estate will always go up in value. “ What most people haven’t realized, is that the game is changing, but our thinking hasn’t. It’s often repeated; ”The USA is the greatest country in the world.” It was at one time. Repeating the phrase doesn’t validate it; but repetition is a form of personal validation, and it works quite well. We don’t consider ourselves as fruit flies, but what the rest of the world does, could finish off the banana. Everything is inter-related. The new phrase to repeat is; “Technology will save us.” Start repeating it! If you don't like that phrase, try this one; "I am not a fruit fly." Repetition will be our salvation ;>). Enjoy the banana.

Saturday, June 29, 2013

Who Pays Taxes, Is The Real Game

Buy a house, for 600k in California pay a property tax of $6,000 a year. Buy a car for 40K. Pay $4,000 in sales tax. Buy $10,000 of taxable goods add on another $1,000. Income tax on 100K add on about $18,000. Social Security and Medicare, add about another $10,000. Then there is a gasoline tax, telephone tax, electricity tax. The tax people pretty much know where you live.

So for a 100k salary, with husband and wife working, looking at the chart below, after taxes, you’ve got 71K. Subtract the other items on the list and what’s left over---about $6,000.

Figure the same scenario for a family of 4 with one wage earner making 50K. No new car, figure same amount on taxable goods of 1,000, zero income tax. Rent payment figure $20,000, no health or student loan. Take off 3k for utilities, forget car insurance and figure 4 k for gas and car repairs. The same 6k as rich people for food. No day care, the wife doesn’t work. Spending money after expenses is about 10K. The $10,000 is almost illusionary for this group, going to the dentist or one car accident  is all it takes.

Surprisingly the third group living at the poverty level on my spread sheet seems to have the ability to get by almost as well as the middle group earning 50K. Food stamps are a big item, as well as one adult being able to stay home to manage the children without having to pay for day care. With the medical benefits, there is almost an assumed incentive for larger families.

What can we learn from all of this? First off, I should probably be shot for the quite arbitrary excel spread sheet. I kind of modeled the spread sheet to my family even though we don’t have expenses for student loans, car payments or day care. Of course having a son going to Berkeley is kind of a wash. The thing that impressed me was the realization, that 100K of income in California is not upper middle class.  Let's face it, what do I have left to put in the bank for retirement? Our family's current earnings feel good only because we can remember making a lot less in the past.

When I was an engineering student, many a time we took a napkin and with some rudimentary drawings, we arrived at answers that pointed to problems that were not apparent. It’s obvious to me that in order to save more for retirement, there isn’t much left that our family can cut. It also appears, that many people in this country will when given time figure that health care and car insurance are not a necessary thing. This is probably where Obamacare will crash and burn on the economic highway. It is obvious that Congress needs to raise taxes, and I cannot afford to pay more, to support those now paying less. How do we as a nation determine what is each person’s fair share of taxes? Let's tax those that pay no taxes now and cut off benefits to those that have not paid taxes. The damn thing is that won't float, no Democrat would  ever get reelected. Go Figure!  I'm really getting tired of the free lunch program.  This country was founded on "Pay as you go," not,--- "Uncle Sam will pay, if you're too poor."