Sunday, March 19, 2017

Political Thoughts to Ponder

Why does taxing the rich seem so righteous while taxing the poor seems unjust? In ancient Rome, every man owed a month of labor to the State each year. There was no discussion of not being able to pay the tax, but there were discussions on how to buy your way out of it, like hiring a laborer to do your month.

The other day on the news I heard one commentator express their dissatisfaction with giving the rich a tax break. Imagine giving a rich person who pays a million dollars in taxes a 100K tax break. What is wrong with that? Give him a 10% break, and make him feel good. There ought to be some point to where there is a maximum tax on earnings. Put it at 5 million dollars limit on taxes over a lifetime for every taxpayer. Congress has the power to tax, so we know that will never become law.

Then the talk about health insurance. I hear claims that 14 million people will lose their coverage right away. My guess is that these are people under the age of 35 for whom the government mandates have insurance. The health insurers may feel that they have lost 14 million meal tickets, but there is no massive loss of coverage by repealing Obamacare. Most were forced to buy it and they didn’t want it to begin with.

The part of Obamacare that is not insurance, is for previous conditions. If you were too cheap to buy health insurance when you didn’t need it, and now you wish you had it. Or if you feel the emergency room is your free health care provider, then we are talking Obamacare. This is not insurance, insurance is bought to protect you or your family from a future unexpected financial loss.

For most people, going to the ER, is financially painless; they bill you. Many ER units all over the country are closing, they are financially unprofitable and are operating at a loss. I went to the ER one time and after a 6 hour wait got treated and the bill was humongous. I’ve also gone to an Urgent Care unit, and got immediate treatment (after I gave them a credit card). Cost was reasonable. Quite a difference.

Donald Trump has the votes to repeal Obamacare, but might not have the votes to modify it. Kind of makes you wonder. Do we really need government bureaucracy in health care? Think of one thing that government can do better than private industry? The only answer you’ll get is: “Spend more money and get less value in return.” Our government doesn’t make airplanes or hand grenades for a very good reason, the quality would suck.

I remember sitting in a dental office 40 years ago, for a filling, and the dentist came out into the waiting room and ask this hippie to open his mouth. He told the guy that it would cost $250 to fix his tooth and if he didn’t have the cash, he wanted him out of the office because he was tired of working for free. The guy left. I was his next patient and the VA was paying for my work. I don’t like to go to the dentist anyway, and all I could imagine in my mind was a filling in every tooth whether it needed it or not. It turned out OK, two fillings, my imagination is my worst enemy.

The politicians are pandering to the masses. They point to our kids and tell us that we need to do more for them. Food stamps and school lunches allow family resources to be spent for other items like Beer, Cigarettes, Cell Phones, wide TV’s, Gambling and Cable TV. I went to other kids houses as a kid and was confounded when they opened the refrigerator and you would see: two cans of beer, a package of hot dogs and a half gallon of milk and nothing else—no munchies. My parent’s fridge had so much stuff in it that you might not find what you were looking for without spending a lot of time moving stuff around.

The new mission statement in town (i.e. President Trump) is to spend the “average” taxpayer’s money more responsibly. The key word is “average.” These taxpayers want government without the “free ride crap.” You might call it tough love, but they do not want to pay for Welfare Freddie’s 12 pack of beer and cigarettes. The new focus IMHO is on showing the average tax payer that they can expect a better return of value on the taxes they have paid. Of course, if you are a Democrat or a Socialist, this is utter hypocrisy.

Saturday, March 04, 2017

The Economic Conundrum

If I have it right, government interest rates are around one half of one percent. The banks are paying the same. When you examine it, why in the world would anyone put money in a bank for retirement? The incentive is not there.

Then at the same time a homebuyer can purchase a home with little down and at an interest rate of 4 percent for 30 years. With core inflation at 2 percent (by government accounting calculations), the banks are netting about 2 percent on a home loan. Do you wonder where the banks get the money to loan? Individual deposits are considered by the bank as short term accounts, while home loans are long term commitments. As rates rise money moves to the higher interest rate, like it did in the 1990 and brought about the Saving and Loan collapse.

My experience with age, shows the home I grew up in rising from $27,000K in 1964 to 125,000 in 2004. A brand-new car in 1969 was $3,000 and in the year 2000 about 20k. And I can bore you with cigarettes at 23 cents a pack in 1962 and $4.50 in 2000.

CalPERS the California Public Employees Retirement System has lowered their estimated return to the retirement fund this year from 7.5 percent to a projected 7 percent over the next 3 years. The Mercury News claimed that they are lucky if they are earning six tenths of one percent on their investments. The state of California has to make up the shortfalls for the pension fund which is around 100 million this year. The trouble is, the accountants misplaced a couple of zeros that could bankrupt California’s budget.

Then we have the Fed raising interest rates. With a national debt of 21 trillion dollars, a quarter point increase in the interest rate increase jacks up the governments annual interest payments by about 52 billion dollars. The yearly budget for California is a little more than three rate hikes. We are not talking nickels and dimes here.

What can we discern from all of the information presented? We can probably infer that in 40 years everything will have increase in value or cost by a factor of 10 and maybe higher to even 20 times its cost today. Calculated inflations rates will be hopelessly grossly understated because of Congress linking benefits to the rate of inflation. Our interest rates will be determined by the government’s ability to make the payments on the national debt. Rates higher than 8.5 percent make our government insolvent.

Our retirement income programs are in a horrible state with the very low interest rates that have been experienced over the last 12 years. Their failure was the inability to see the Fed’s pushing interest rates to zero. All sorts of insurance companies are at risk here also. The interest received on premiums held by them, helped them give you a better deal on car, health and life rates. And that’s gone away.

Here is where the conundrum lies. The rule of 72 says that if you divide the interest rate into it, you get the number of years for your dollars to double. Right now, that is 144 years. My rule of inflation, states that the cost of everything will increase by a factor of 10 in 40 years and you can bet your bottom dollar on the certainty of that happening.

It is pretty easy to guess that all sorts of taxes will increase. A majority of if will be in the increased cost of the item. Also, look for a decrease in welfare payments; nothing in, you get nothing out. In turn as wages increase, so does the amount the government collects in taxes.

We cannot wait 144 years for our money to double, so the bank and retirement options are toast. Can we wait 40 years for the cost of everything to rise out of sight? Yes, and we even might be around for another 20 years to really enjoy its effect over our wonderful golden retirement years. Tragically it’s about that time that you will realize that old people are invisible; either that or they have all died off and I wasn’t informed of the fact.

The big picture: our financial system was built and modified enough to fail miserably sometime in the near future. Telling anyone will not stop it from happening, but later on in life when they issue you a tube of Preparation H, a tube of Denture Grip and a rocking chair, you will know I was right. You will be “Rockin 'round the Clock,” having no memory of what was done to you financially.