Tuesday, April 21, 2015

Steak For Everyone

I barbecued a few steaks yesterday for dinner with creamed corn and boiled potatoes.  The can of creamed corn was about 79 cents and we used about 4 potatoes, figure 50 cents.  The three steaks (1.79 pounds) were $19.67.  You kind of have to wonder what does a whole cow cost.

There is something very political about this, a farmer can make a hell of a lot more money selling corn for ethanol that to farmers for feed.  I’ve heard that the government ethanol subsidy for production is about to expire this year, so maybe cattle prices can drop a bit if feed becomes cheaper.

Of course with the new $15 dollar minimum wage push, I guess that steak can be on everyone’s menu.  People are concerned because they can’t support a family on $15 per hour. And we are not even talking about saving for retirement.  In today’s world you have a choice, cell phone, cable, retirement, or steak.  And of course the average person will want them all but will settle for all but one--retirement.

A nice steak used to be very delicious.  And now as I reach retirement, I realize that the cost of the steak detracted from my enjoyment of it. Of course I have other worries.  My dentist says I could lose my teeth in 20 years if I don’t spend $8,000 on bone grafts.  I advised him that I probably wouldn’t be around in 20 years. My hearing doctor wants me to spend $4,000 an ear for hearing aids, and I mentioned that not being able to hear what most people were saying wasn’t worth a quarter of the price she was asking.

 From a humorous perspective, I look at all of the young people protesting for a $15 minimum wage and wondered where all of the silver foxes are when it comes to protests.  Its real simple, a walk to the bathroom is a major accomplishment in old age.

 So let’s get this straight. Ethanol makes my steaks more expensive.  Food stamps makes my steaks free.  Somehow I am missing something here. “Eat mor chikin”  is a reality check for people that have morals when it comes to gaming the system.

Friday, April 10, 2015

The Embezzler

I’ve written on this before, but this time we will examine another avenue of deceit. Imagine we have a billionaire with a very corrupt money manager embezzling his employer’s wealth. In most cases, neither party would probably spend more than a million a year. And if no one got caught, it would take 50 years to go through 10% of the billion. Basically you have two people that share the same billionaire lifestyle. The person being embezzled from has no idea of his losses until they are discovered; his death could trigger an audit that would discover the crime.

Pretty much when we get to wealth above a billion dollars, the owner has wealth that they will never even have the time to spend. That could be argued, especially if they get married to a real gold digger.

Now imagine the 9 to 5 worker that saves 5,000 a year in his 401k for 40 years. He now has a nest egg of from 500k to maybe 2 million. So if he started at 20 years old, that makes him 60. So he has about 7 more years before retirement. Notice one thing here, if someone has embezzled his savings, he still won’t know about it for another 7 years at the earliest.

Then if we reexamine Bernie Madoff, he only had a problem when the economy was in the tank. Incoming deposits couldn't cover his clients withdrawals. The Federal Reserve and Treasury will never have that problem.

Something else can happen that changes everything. Bankers loan dollars to investors in the stock market. A stock gets bought and the seller buys a Treasury bill. If the stock market were to drop a hell of a lot, the buyers would get margin calls they couldn’t meet. At this point, interest rates have to rise to attract funds for the margin calls. Sell Treasury bills to get the higher interest paid on the stock exchange to cover margin calls. The neat thing here, is that Joe Taxpayer gets to bail out the bank.

Remember back to when we were talking about the Billionaires and how little of what they had, they really used and about the retirees with all of their savings still 7 years out of reach? As long as you don’t need it, you would have no idea that it is already gone and spent.

Here is the simple math, the population as a whole decided not to consume 18 trillion dollars of their income so they could enjoy it at retirement. The government spent those dollars and consumed product that the population had made an effort to save, for retirement. Now as retirement rolls around, the retirees are starting to spend the dollars that they had saved in the past. There is only one problem, there isn’t 18 trillion dollars’ worth of product for them to consume. I would hazard a guess that maybe there is 4 trillion of product to match the 18 trillion saved for later consumption. As long as receipts exceed outflow from the fund, there is no problem. During difficult times, more people tap into their retirement funds. And as Bernie learned, it’s a game of musical chairs waiting for the music to stop.

Consumption is different at retirement. You have worked hard and saved for the golden years. The funny thing is, the government already borrowed the cash and consumed what you would want to purchase. 43 million people on food stamps is one a hell of a free lunch. Your money is safe, they can always print more. I'm wondering what sort of salad dressing goes well with crisp one dollar bills? Or whether a ten dollar bill has more flavor than a five dollar bill?