Ethanol Dosen't Work

Looking at the price of gas dropping, I was wondering if we could get rid of the 10% ethanol additive. It costs more to add it to our gas. Plus when you make ethanol out of corn, it is the steaks and hamburger we eat that cost more. The idea of raising food to make gasoline is an absurdity in and of itself.

Economically on the financial, there are a lot of people getting subsidies for making ethanol for gas.
From Forbes 4/20/2014 “It's Final -- Corn Ethanol Is Of No Use”

In 2000, over 90% of the U.S. corn crop went to feed people and livestock, many in undeveloped countries, with less than 5% used to produce ethanol. In 2013, however, 40% went to produce ethanol, 45% was used to feed livestock, and only 15% was used for food and beverage.

In 2014, the U.S. will use almost 5 billion bushels of corn to produce over 13 billion gallons of ethanol fuel. The grain required to fill a 25-gallon gas tank with ethanol can feed one person for a year, so the amount of corn used to make that 13 billion gallons of ethanol will not feed the almost 500 million people it was feeding in 2000. This is the entire population of the Western Hemisphere outside of the United States

Kind of tear jerking, but it does explain why I can’t afford to buy steak anymore. Why should the price of oil dictate the price of beef? We use to eat beef every day, now we eat chicken every day and I am starting to get used to it.

The big thing about ethanol in your car, is that it reduces the miles you get per gallon. Plus the caustic effects of alcohol on your fuel system eats the hell out of the plastic fuel lines.

Then I thought, how did we get to be using ethanol? Congress comes to mind. It was supposed to curb our dependence on foreign oil imports. What we are really experiencing is the “unanticipated” consequences of that program. Any red neck farmer knew right away that his corn was worth a lot more to the government as a gasoline additive. Chicken feed is still chicken feed.

On a personal level, I’d like to see some deflation in beef prices, and the easiest way to do it is at the gas pumps. Let’s put the ethanol genie back in the bottle. I wouldn’t mind getting a half gallon of gin with every gas fill up (instead of being put in my tank)—I could give the bottle to the guy on the freeway with the sign “Will work for food.” That would certainly put a glimmer in his eye. Of course the way Congress works with subsidies, maybe they will get General Motors to make a car that runs on pot. The neat thing about a car that runs on pot, is that when you turn it on, you’ll immediately forget where you were going.

Somehow Congress has figured out what we need and passed a law to protect us from ourselves. Maybe we need to smoke some dope to understand where they are coming from. Sanity seems to be the issue, lead poisoning could be the problem or a pretty good excuse for what they have already done.

The Middle Class Redefined

Government and Politicians always discuss the writ of passage in becoming part of the middle class. We hear it all the time “Everyone needs to be able to have a shot at joining the middle class in this country.” Boiled down into simpler terms, the poor are offered the opportunity to become rich albeit not rich enough to be in the “Tax the rich group.”

It’s a little like the “red neck” jokes. You know you’re not middle class if you get paid the minimum wage. Usually “flipping hamburgers” is substituted for “minimum wage.’ In reality, it doesn’t matter what the minimum wage is raised to, you are still flipping hamburgers. So if the wage is raised, it is still not enough and never will be no matter how high it is raised. The minimum wage will not support a family of 4, it never has and never will, but by God the bleeding hearts on the nightly news think that this is rank with injustice.

Owning a home and two cars with the bank and no savings also is not middle class. You look good, but you’re only two paychecks away from divorce and being homeless. You have all of the trappings of having made it to the middle class and as far as the government is concerned, you are a poster child for the poor who are looking in the window.

IMHO the real middle class comes from a three generation mix of one family, the grandparents, their kids and their grandkids. And the whole thing is predicated on the fact that the grandparents have enough savings to weather the storms of their children. Marriage tends to give the unit structure.

The government is selling the idea of education as a writ of passage into becoming middle class. The same thing happened after the civil war, you became an independent share cropper, working for yourself. And ended up owing your soul, to the company store for forever and a day, and they didn’t care if you were black or white, money is money.

So when Obama gets up and wants a college education for everyone, to allow graduates the ability to join the middle class, how is that going to work? The student loans are a debt that will never be paid by over 70 percent of the applicants. They will never earn enough to pay the debt and support their children at the same time. Notice a college education does not come with a guarantee of a better job with higher pay when you graduate. Especially if you are majoring as a librarian, astronomer, historian or any other degree in liberal arts. Nobody is claiming that the dream won’t work for you, but the odds are stacked against you.

We need to recognize what politics considers the “Middle Class.” It is a carrot on a stick. It is an abstract place we all want to be, and frankly I am only getting there now, when I am almost too old to enjoy it.

It was the middle class that fought England for our freedom from unjust foreign taxation in 1776. Fast forward to today, and we still have someone taxing everything, but there is no foreign power levying usurious taxes an ocean away rather it’s our own Congress. “Middle Class” is a Congressional euphemism for tax payer. You cannot tax the poor, they make too little, you cannot tax the rich; they’ve already paid the tax on what they have earned.

From a personal standpoint, the title, Middle Class means you have made it. The importance of the title means you feel somewhat obliged to pay taxes. The Middle Class is beginning to comprehend the new economic order; the poor deserve more of the wealth generated by the middle class. The real reality is a little like forcing a hooker to give discounts to the poor; she won't have her heart in it, let alone her body.

The Zero Interest Rate Policy (ZIRP) Sucks

I feel like kicking a big rock every time I remind myself that short term interest rates are so low and that the interest on your principle is absurd; you cannot afford to reasonably expect to live off of your retirement savings. Realistically many retirees have saved a million dollars for retirement when interest rates were a lot higher. But at 2 percent interest, that nest egg returns about 20 thousand a year. At 8 percent, it would be about 80 thousand dollars.

Then I read a current CNBC article that stated that; “If you invested that $24,000 at 8 percent for 30 years, it becomes $91,000.” At the present ½ percent interest using the rule of 72, it would take 144 years to double your dollars and you are not even close to the $91,000 figure. So there are two trains of thought running here, before and after government intervention.

You have to ask one question, why are rates so low? The main reason, there is too much money in the banks and not enough people with good credit that want to borrow it. You can lower rates in the expectation that people will borrow. But the government cannot force people to take out loans. The net effect is like pushing on a string.

The housing market has not rebounded with the lower interest rates in California. People are still trying to sell crap shacks for 400K. One problem now, the banks don’t want to hold on to paper with low interest rates. Why? If rates go up they have to pay depositors on a monthly basis, whereas they are locked into a low loan rate that is fixed for 30 years. You can get an MBA in Stupidity if you are a politician, but not as a bank manager.

The government has to get out of the loan market. Of course you have to realize how they financed all of the real estate sales for the last 7 years. What happens is this; the Treasury issues four to eight trillion dollars of 30 year securities that are purchased by the Federal Reserve Board. So in 30 years, the securities mature and the Federal Reserve gets its dollars back. In the meantime, the Treasury has the funds to sell and finance property to everyone who has a pulse. Sell the defaulted property and support the artificially high real estate prices. What we can figure right now is that the Federal Reserve has between 4 and 8 trillion dollars’ worth of notes from the Treasury for real estate loans. Since the Fed turns over all interest on its transactions, a lack of interest generated means that there is nothing to transfer and at the end of 30 years. They don’t have to make money to stay in business. The notes will be redeemed and it will be a zero sum game.

What has happened in the meantime, retirees are screwed out of their real interest income. If the government was not in the mix, interest rates would not be at their current low rates. Housing prices on the West coast would have collapsed. And the market would have gone back to more normal interest rates. Bad loans would be bad loans and money would be lost, not guaranteed by the government. Risk would again be part of the market.

High risk loans at exorbitant rates are still around quite prominently. Just look at credit card debt. Credit cards offer cash loans at 25 percent. Your monthly interest rate is determined by your credit score. Bad credit, just how bad do you want the money? We are not talking 15 percent interest here, higher.

The banks are in the loan business and there are areas where they get a decent return. Government guaranteed student loans at 6 percent and credit card debt starting at 6 percent on up to 36 percent. The student loan borrower cannot default and the total amount is guaranteed by you guessed it, We the people.

But wait a minute, the super low rates allow Congress to borrow more without having to raise taxes. So let’s see now, the money that government is borrowing is for consumption. These are dollars that the private industry would use to invest in the future.

What we can deduce at the present time is that easy money at decent interest rates funded a real estate bubble. We still have bubble prices and very few buyers, real estate is no longer the road to fabulous wealth. We also know that buying T-bills or putting your savings in a bank is a losing proposition. We can pretty well tell where the dollars are not going. Bubbles are created when too much money is invested in the wrong place. It is called misallocation of resources.

Where are the next bubbles? Third world economies? The stock market? The health care market? Student loans? Credit cards? Cell phones? Solar panels?

Its only when a bubble bursts that it is realized for what it is. The last people in, are left holding the bag. The neat thing about bubbles, you can only see them in the rear view mirror.

The one thing not fully understood by those in charge, is that economic theory can only be used to explain the "Why" of what has already happened. It doesn’t work when applied to controlling future expectations. New economic policies force people to change their investment strategies in ways to maximize gain that aren’t necessarily prudent or productive. And that changes the expected results.

When Suze Orman tells seniors to avoid the bond market because it is a lousy investment that pretty much says it all. Interest rates are the key to a healthy economy. The reward for saving money has to be present for future investments. The more the risk the greater the return. You have a problem when all risk returns the same gain low gain; people vote with their feet and their pocketbooks.

It looks like the stock market is the last game in town. And there is only one difference with this game, it is out of the realm of political control and comprehension. The Government is not coming to your aid if the market collapses. But hey, the game is just starting, markets are on a new swing upward. Faites vos jeux! ---This could be a year to remember, unlike any other in recent time. The trouble is, after it is over, you might just want to forget what happened.