Greece will default, maybe not today, but it is only days or weeks away. Odious Debt, a concept suggested in a 1927 treatise by Alexander Nahum Sack dwells on the principle that debt accumulated by a Sovereign Country doesn’t have to be repaid if it was borrowed for use that did not benefit the State and its citizens. With that in mind, all banks need to think twice about whom they loan to.
Right now Greece has problem borrowing money, the rates are outrageously high, and they are a bad credit risk. But what happens if they default? The bonds at that point probably go to about being worth 10% of face value. The Greek government could redeem those bonds at 10 cents on the dollar. Not a bad deal. Of course, the question comes up; do they really need to redeem the bonds at 10 cents on the dollar? Probably not.
Then after the default, their credit rating might surpass that of Iceland.
The world banks want their loans to be repaid. Better terms and more years to pay doesn’t make the debts any more manageable. The debts will not be paid. But that concept eludes our international bankers. This is just hanging paper, over a bad financial transaction. There comes a point when kicking the can down the road no longer has any appeal, it ceases to ameliorate the problem.
Greece has arrived at its final destination. Repudiation is the next step and from there, better times for the country. The repudiation pretty much ruins anyone with retirement savings, they are gone. Everyone gets to start over again. If you are 75, the idea might not be greeted with much enthusiasm.
After Greece defaults, the game is pretty much over. Do we cover their debts to keep the financial ball rolling? If so, what stops the rest of the PIIGS from queuing up?
Of course, could it be, that maybe the bail out money being used to finance Greece’s bailout, is from the funds deposited by the USA in the IMF? Why do I get the feeling that the answer is yes? Maybe, because the Germans have no desire to finance the spendthrift Greeks?
The headline could read “Bernanke Finances Greek Bailout.” Of course I could be wrong. It is all Greek to me.
Tuesday, June 28, 2011
Sunday, June 19, 2011
Military Spending Cuts—Why?
A lot of newspaper talk revolves around the cost of the wars in Iraq, Afghanistan and in Libya. Congress wants to cut military spending so they can keep the social programs of entitlements running at full bore.
There are two things to look at here. The billions we are spending on the wars are not being spent in those countries, but rather in the US. We build weapons and tanks for deployment by the military. Secondly there is an obsolescence factor for many weapons. The Napalm produced for the Vietnam War is still hanging around leaking, presenting a nightmare disposal problem. I’d hazard a guess that the missiles we fired on Libya had a “use by date” that had expired (this eliminates a potential disposal problem and justifies the reordering of replacement weapons).
The Kennedy moon program was on par with military spending, the money was spent on research and production in the private sector and it stimulated the economy. Critics often point to the space craft on the moon being worth 2 billion dollars. Not quite, it took two billion dollars to put them there.
Right now in simple terms, our government has three spending modes, administrative costs (running the government), two transfer payments (Social Security, Unemployment, Medicare) commonly called entitlements, and third, discretionary, spending (military, infrastructure, scientific research etc).
Administrative spending won’t be cut much, unless they cut a department or two ( offhand 9 or 10 come to mind).
Of the three types of spending, entitlements (non discretionary) are just a redistribution of wealth to people for consumption. These payments stimulate the economy the least.
Discretionary spending is where we get the biggest bang for tax dollar spent, and it’s all “optional.” A strong defense and a solid infrastructure have a definite return for the average citizen and is a necessary expense, but of course, here is where the first cuts come. In the future, we will have to tolerate bad roads and lousy government service. Funding will not be there for it. Honk your horn before you drive into a pot hole.
Military spending is an exceptional economic stimulus, but it does have one drawback, it is not for private consumption. You might want a wide screen TV, but not a Bradley Tank; it wouldn’t fit in the garage, plus it gets lousy gas mileage.
The government interest expense last year ($413 billion) is close to what we budgeted for defense ($515 billion). The current Congressional goal is to cut spending and at the same time continue borrowing. How does that work? Why not just stop borrowing? It’s a little like using a pay toilet that has no toilet paper. The solution to one problem creates another.
New technological advances don’t come from Social Security and health care entitlements. Investing in our future has to do with the youth of our country. Entitlements are benefits that should be the first things to be cut in the government budget, not the last. Congress is eyeball to eyeball with the silver foxes. What will happen to military spending and other government research? Sadly, it is all about votes. Maybe that’s why Congress and the President like to play golf, if you lose your balls, you can always buy more.
There are two things to look at here. The billions we are spending on the wars are not being spent in those countries, but rather in the US. We build weapons and tanks for deployment by the military. Secondly there is an obsolescence factor for many weapons. The Napalm produced for the Vietnam War is still hanging around leaking, presenting a nightmare disposal problem. I’d hazard a guess that the missiles we fired on Libya had a “use by date” that had expired (this eliminates a potential disposal problem and justifies the reordering of replacement weapons).
The Kennedy moon program was on par with military spending, the money was spent on research and production in the private sector and it stimulated the economy. Critics often point to the space craft on the moon being worth 2 billion dollars. Not quite, it took two billion dollars to put them there.
Right now in simple terms, our government has three spending modes, administrative costs (running the government), two transfer payments (Social Security, Unemployment, Medicare) commonly called entitlements, and third, discretionary, spending (military, infrastructure, scientific research etc).
Administrative spending won’t be cut much, unless they cut a department or two ( offhand 9 or 10 come to mind).
Of the three types of spending, entitlements (non discretionary) are just a redistribution of wealth to people for consumption. These payments stimulate the economy the least.
Discretionary spending is where we get the biggest bang for tax dollar spent, and it’s all “optional.” A strong defense and a solid infrastructure have a definite return for the average citizen and is a necessary expense, but of course, here is where the first cuts come. In the future, we will have to tolerate bad roads and lousy government service. Funding will not be there for it. Honk your horn before you drive into a pot hole.
Military spending is an exceptional economic stimulus, but it does have one drawback, it is not for private consumption. You might want a wide screen TV, but not a Bradley Tank; it wouldn’t fit in the garage, plus it gets lousy gas mileage.
The government interest expense last year ($413 billion) is close to what we budgeted for defense ($515 billion). The current Congressional goal is to cut spending and at the same time continue borrowing. How does that work? Why not just stop borrowing? It’s a little like using a pay toilet that has no toilet paper. The solution to one problem creates another.
New technological advances don’t come from Social Security and health care entitlements. Investing in our future has to do with the youth of our country. Entitlements are benefits that should be the first things to be cut in the government budget, not the last. Congress is eyeball to eyeball with the silver foxes. What will happen to military spending and other government research? Sadly, it is all about votes. Maybe that’s why Congress and the President like to play golf, if you lose your balls, you can always buy more.
Sunday, June 12, 2011
What Lies Ahead?
Don’t look for housing to rise out of the ashes and get back to 2006 production levels any time soon. The housing bubble was all about greed. Getting a bank loan, was robbery without a gun. While the drunken real estate orgy was in full swing, nobody bad mouthed bankers by calling them banksters. In this country, making a lot of money is a sign of intelligence, inversely, poor people are considered stupid. So if you are poor and not stupid it has to be somebody else’s fault.
From there we could claim that the large unemployment numbers are the result of the poor economy, but the problem is far bigger. The Information Age has bloomed and left many people unemployed. Back in the early 1900’s banks employed thousands of accountants to tally their books from day to day. The invention of the Burroughs adding machine made about half of the banking work force redundant.
In the early 1900’s, the agrarian (farming) economy employed 41% of the population. By 1930 it had dropped to about 21%. The mechanical combine harvester and the tractor changed farming forever. At the same time, the assembly line production increased worker efficiency and output. It was this shift in technology that added to the unemployment of the Great Depression.
Today, one computer and an excel work sheet can eliminate the bean counters in a large retail firm. Stores no longer need to check the shelves when ordering inventory. Theirs scanned sales totals give them the numbers for their replenishment orders. The gas and electric companies don’t employ meter readers any more, each residential unit is in direct communication with the utility. Today we have 20 million unemployed people that need to be retrained, in order to secure a new job. For a lot of these people, their old jobs no longer exist.
There is a question to ask yourself when you go into a retail store,” How many of the items on the shelf are made in the United States?” A future Smoot-Hawley type tariff could be used to entice offshore American corporations to return to the USA to produce their wares. Of course your flat panel TV produced in the US would be of low quality and probably triple the price of anything made in China.
Over a span of 60 years, the shifting of American production overseas has been so gradual that it was not noticed. The companies that used to be US based, don’t need the added aggravation costs of health care and retirement benefits. They can survive very well outside the US. These labor jobs are not coming back.
Bernanke’s quantitative easing is a method of paying back for what we have already borrowed; with no tangible results that I can see. Whereas government program to improve the infrastructure of the country (roads, sewage, etc) would be a positive step in the right direction. Plus it would be something that they have to do anyway no matter what the economy is doing.
The aspect of whether we are facing inflation or deflation has been a rather active topic on this blog lately in the remarks section. I didn’t get a pay raise this year (government pay freeze). My wife got a 10% pay cut and all of our household bills went up (gas, electric, water cable and trash). My son’s tuition went up $1,200. If this is deflation, why am I paying more and getting less in return? The real irritating thing about the increase in the water bill was we had to pay more for consuming less (there was a push by the utility to conserve water and they accomplished their conservation goal). Unfortunately they didn’t sell enough water to cover the fixed costs, so we got a rate increase. This points out the vulnerability of large companies trying to down-size from a drop in consumer consumption. Fixed costs don’t disappear overnight.
I went to Starbucks this morning for a large Coffee (It’s probably been about 4 months since I was last there). The price has gone from $1.80 to $2.15. At the Supermarket, my favorite candy bar is still the same price, only it’s about half the size it used to be. Gasoline has dropped 15 cents this month (of course it’s still a dollar more than it was last year).
So what lies ahead? Hard times. Of course, that doesn’t sell newspapers does it? Don’t expect a government solution; our government is a consumer of wealth, not a producer. We are earning less, spending more and getting less in return. I guess inflation is when the size of the product you buy stays the same, and the price increases. Deflation must be where you (cough, cough) get less for the same price ;>)
From there we could claim that the large unemployment numbers are the result of the poor economy, but the problem is far bigger. The Information Age has bloomed and left many people unemployed. Back in the early 1900’s banks employed thousands of accountants to tally their books from day to day. The invention of the Burroughs adding machine made about half of the banking work force redundant.
In the early 1900’s, the agrarian (farming) economy employed 41% of the population. By 1930 it had dropped to about 21%. The mechanical combine harvester and the tractor changed farming forever. At the same time, the assembly line production increased worker efficiency and output. It was this shift in technology that added to the unemployment of the Great Depression.
Today, one computer and an excel work sheet can eliminate the bean counters in a large retail firm. Stores no longer need to check the shelves when ordering inventory. Theirs scanned sales totals give them the numbers for their replenishment orders. The gas and electric companies don’t employ meter readers any more, each residential unit is in direct communication with the utility. Today we have 20 million unemployed people that need to be retrained, in order to secure a new job. For a lot of these people, their old jobs no longer exist.
There is a question to ask yourself when you go into a retail store,” How many of the items on the shelf are made in the United States?” A future Smoot-Hawley type tariff could be used to entice offshore American corporations to return to the USA to produce their wares. Of course your flat panel TV produced in the US would be of low quality and probably triple the price of anything made in China.
Over a span of 60 years, the shifting of American production overseas has been so gradual that it was not noticed. The companies that used to be US based, don’t need the added aggravation costs of health care and retirement benefits. They can survive very well outside the US. These labor jobs are not coming back.
Bernanke’s quantitative easing is a method of paying back for what we have already borrowed; with no tangible results that I can see. Whereas government program to improve the infrastructure of the country (roads, sewage, etc) would be a positive step in the right direction. Plus it would be something that they have to do anyway no matter what the economy is doing.
The aspect of whether we are facing inflation or deflation has been a rather active topic on this blog lately in the remarks section. I didn’t get a pay raise this year (government pay freeze). My wife got a 10% pay cut and all of our household bills went up (gas, electric, water cable and trash). My son’s tuition went up $1,200. If this is deflation, why am I paying more and getting less in return? The real irritating thing about the increase in the water bill was we had to pay more for consuming less (there was a push by the utility to conserve water and they accomplished their conservation goal). Unfortunately they didn’t sell enough water to cover the fixed costs, so we got a rate increase. This points out the vulnerability of large companies trying to down-size from a drop in consumer consumption. Fixed costs don’t disappear overnight.
I went to Starbucks this morning for a large Coffee (It’s probably been about 4 months since I was last there). The price has gone from $1.80 to $2.15. At the Supermarket, my favorite candy bar is still the same price, only it’s about half the size it used to be. Gasoline has dropped 15 cents this month (of course it’s still a dollar more than it was last year).
So what lies ahead? Hard times. Of course, that doesn’t sell newspapers does it? Don’t expect a government solution; our government is a consumer of wealth, not a producer. We are earning less, spending more and getting less in return. I guess inflation is when the size of the product you buy stays the same, and the price increases. Deflation must be where you (cough, cough) get less for the same price ;>)
Thursday, June 02, 2011
The Kondratieff Wave Revisited (reprinted)
I'm suffering from a little bit of writers block, here's a reprint from October 2006. The historical quote below, sounds a bit too familiar.
A while back, in May, 2006 I covered the Kondratieff wave and it seems to be more to the point as time goes by. Below is a link to a history lesson that's well worth reading.
The Kondratieff Wave
This gentleman's theories were published in 1925 way before the Great Depression. Here is a quote from the link, dealing with "The Autumn" just before "The Winter," labeled Depression.
These cycles tend to be about 60 to 70 years long. If you think about it, everyone that was about 30 years old during the last depression is no longer with us. The group memory of the past depression is gone and most of the financial shenanigans going on, are "new" in our mind's eye.
The point about perceiving a depression, is that its only visible in your rear view mirror. The investment trusts that collapsed in the 1930's seem very similar to the index funds and derivatives of today.
As a post note: don't link a Depression automatically with deflation, hyperinflation is also an option. The Federal Reserve (with today's powers) and absurd national debts were not part of the mix way back then.
A while back, in May, 2006 I covered the Kondratieff wave and it seems to be more to the point as time goes by. Below is a link to a history lesson that's well worth reading.
The Kondratieff Wave
This gentleman's theories were published in 1925 way before the Great Depression. Here is a quote from the link, dealing with "The Autumn" just before "The Winter," labeled Depression.
Excesses of an unpopular war, along with fiscal liberalism, cause popular reaction toward stability or normalcy. A mood of isolationism permeates . The plateau period generally lasts seven to ten years and is characterized by selective industry growth, development of new ideas ( both technological and social ) and a strong feelings of affluence, terminating in a feeling of euphoria. The inflated price structure from the primary recession, along with the desire for consumption, produces a rapid increase in debt. Eventually, wealth consumption expands beyond all practical limits, and economy slips into a severe and protracted depression.
These cycles tend to be about 60 to 70 years long. If you think about it, everyone that was about 30 years old during the last depression is no longer with us. The group memory of the past depression is gone and most of the financial shenanigans going on, are "new" in our mind's eye.
The point about perceiving a depression, is that its only visible in your rear view mirror. The investment trusts that collapsed in the 1930's seem very similar to the index funds and derivatives of today.
As a post note: don't link a Depression automatically with deflation, hyperinflation is also an option. The Federal Reserve (with today's powers) and absurd national debts were not part of the mix way back then.
Saturday, May 21, 2011
The Village Idiot
Right now we have political unrest in the Arab world. Our President tends to interpret it as a move towards Democracy. Last month Obama pumped 100 missiles into Libya to speed up the process. The people in Libya don’t want Democracy; they want to be rich like the American tourist who visits their country. Wealth is Democracy to them. Expect nothing more than a regime change, there is no middle class to sustain a Democracy. If we really wanted to to exercise our military might in a constructive way, why not in Somali? That country has a thriving Pirate and hostage program (600 hostages and growing). Our country is paying millions in ransom fees and here we attack a country doing nothing more than selling us oil?
There is one true Democracy in the Middle East, Israel. A country with a population of about 7.5 million people, surrounded by 40 million Muslims and Arabs who want the Jews dead or gone. Here our President stands up, and tells Israel “return the land to the Arabs.” The Grand Wizard has spoken. Israel is our only true ally in the Middle East. What is macho Obama thinking?
The Arabs want a piece of our Democracy, just like everyone else; a Mercedes and several young wives and that is as far as it goes. The Muslims offer the “Pilgrim Economy Package,” an explosive vest and 70 virgins in the afterlife. The plan has been pretty successful; sex sells, people are going to pieces over it. The Arabs negotiate using the principle “What’s mine is mine, and what’s yours is up for discussion.” Real compromise isn’t an option using that modus operandi. Obama's going to give the Middle East Democracy (yawn) (rah! rah! rah!).
The President’s foreign policy has been defined by a lack of direction. Oddly enough, the news media has kept silent. They give him air time and offer no hint of criticism. Here is a guy blaming our problems on 100 dollar a barrel Arab oil when the problem is a government printing too much currency. Our 14 trillion dollar national debt is what makes gas four dollars a gallon. I guess the press figures that they will document how deep Obama can dig this hole.
His domestic solutions are part of our present financial crisis. Government health care is a noble concept, but there is no way, we as a nation can afford it. Social Security and Medicare have grown to an unmanageable size. Now Congress is haggling over increasing the debt limit by 2 trillion dollars just for this fiscal year. The size of the increase is mind boggling, but I guess that is of no concern to the media, it’s not news.
I get the feeling when listening to Obama that he is talking down to us. We are children that need his guidance. This beet-head needs to be called out on the carpet. His policies are incredibly expensive and poorly thought out, considering the current economic conditions. How can he presume that government has access to unlimited resources?
I saw a license plate frame the other day. On top it said “Your village called.” And on the bottom it said “Their Idiot is missing.”
Receiving the Nobel Peace Prize for winning a Presidential election, should have been a clue. We can put our minds at ease now; the idiot is no longer missing (and that’s only the good news). Our newspapers are curiously silent, apparently Obama can do no wrong.
There is one true Democracy in the Middle East, Israel. A country with a population of about 7.5 million people, surrounded by 40 million Muslims and Arabs who want the Jews dead or gone. Here our President stands up, and tells Israel “return the land to the Arabs.” The Grand Wizard has spoken. Israel is our only true ally in the Middle East. What is macho Obama thinking?
The Arabs want a piece of our Democracy, just like everyone else; a Mercedes and several young wives and that is as far as it goes. The Muslims offer the “Pilgrim Economy Package,” an explosive vest and 70 virgins in the afterlife. The plan has been pretty successful; sex sells, people are going to pieces over it. The Arabs negotiate using the principle “What’s mine is mine, and what’s yours is up for discussion.” Real compromise isn’t an option using that modus operandi. Obama's going to give the Middle East Democracy (yawn) (rah! rah! rah!).
The President’s foreign policy has been defined by a lack of direction. Oddly enough, the news media has kept silent. They give him air time and offer no hint of criticism. Here is a guy blaming our problems on 100 dollar a barrel Arab oil when the problem is a government printing too much currency. Our 14 trillion dollar national debt is what makes gas four dollars a gallon. I guess the press figures that they will document how deep Obama can dig this hole.
His domestic solutions are part of our present financial crisis. Government health care is a noble concept, but there is no way, we as a nation can afford it. Social Security and Medicare have grown to an unmanageable size. Now Congress is haggling over increasing the debt limit by 2 trillion dollars just for this fiscal year. The size of the increase is mind boggling, but I guess that is of no concern to the media, it’s not news.
I get the feeling when listening to Obama that he is talking down to us. We are children that need his guidance. This beet-head needs to be called out on the carpet. His policies are incredibly expensive and poorly thought out, considering the current economic conditions. How can he presume that government has access to unlimited resources?
I saw a license plate frame the other day. On top it said “Your village called.” And on the bottom it said “Their Idiot is missing.”
Receiving the Nobel Peace Prize for winning a Presidential election, should have been a clue. We can put our minds at ease now; the idiot is no longer missing (and that’s only the good news). Our newspapers are curiously silent, apparently Obama can do no wrong.
Friday, May 13, 2011
The Abstractification of the American Mind
We have names thrown at us every day. Big Oil, The Bankers, Wall Street Barons, The Rich, Democrats, Republicans, Liberals, Conservatives and the list goes on.
We are looking at abstract names for groups of things, not individual items. This analogy will make more sense, if we picture ourselves making cookies in the kitchen. These cookies are going to be very different. We might use a hubcap as a cookie mold for making Democrat cookies. Follow me here. For Republicans, we might use a Jello mold. What we are doing is taking a container and stuffing it full of cookie dough and the shape represents our visualization of the group we are talking about.
There is where the problem lies. If the two of us were both discussing Democrats, the only part of the concept we share is the word. I’m using a hubcap as a mold for Democrats while you may be using a mop bucket.
Let’s make up a group. Combine Banker and Gangster and you get Bankster. For this cookie mold, I will use a cigar box and lace the cookie dough with bullets and a couple hundred copper pennies. Someone else may choose to use a chamber pot for a cookie mold mixing in expensive cigar butts and a 100 or so Mercedes car keys. We both end up with a cookie, with the same name, but mine won’t have that hint of ammonia fragrance. The thing to realize here is that we are talking about imaginary groups or abstract concepts. We created a container in our mind, given it a name and stuffed it full of cookie dough and whatever else suits us. The guy next to you is doing the same thing.
So when we all get together to discuss a concept like government health care, you wonder what rock some of these people crawled out from under.
We need to be very careful of using words that are abstract. They give us a false sense of understanding that isn’t shared. For example, many Americans probably believe that the rest of the world should encompass Democracy with open arms. We lost the Viet Nam war because of that abstract concept called Democracy. The villager could point to his wife, kids and his land, he couldn’t point to Democracy. In undeveloped countries, you have a very hard time selling life insurance; it’s an abstract concept that sounds more like a con game to the average person.
The other day I was reading about a Congressional investigation of the oil industry. They wanted to know why the consumer was being gouged 4 dollars a gallon for gasoline. The answer is plain enough, inflation. But what is inflation? To most people, that’s where prices rise every year. But if you are worth your weight in salt, you know Congress is spending more than they are taking in. Inflation is a very abstract word. It’s kind of like the lost Viet Nam war, all over again. You can point to the price of gas, it’s real, but you can’t point to inflation.
We are looking at abstract names for groups of things, not individual items. This analogy will make more sense, if we picture ourselves making cookies in the kitchen. These cookies are going to be very different. We might use a hubcap as a cookie mold for making Democrat cookies. Follow me here. For Republicans, we might use a Jello mold. What we are doing is taking a container and stuffing it full of cookie dough and the shape represents our visualization of the group we are talking about.
There is where the problem lies. If the two of us were both discussing Democrats, the only part of the concept we share is the word. I’m using a hubcap as a mold for Democrats while you may be using a mop bucket.
Let’s make up a group. Combine Banker and Gangster and you get Bankster. For this cookie mold, I will use a cigar box and lace the cookie dough with bullets and a couple hundred copper pennies. Someone else may choose to use a chamber pot for a cookie mold mixing in expensive cigar butts and a 100 or so Mercedes car keys. We both end up with a cookie, with the same name, but mine won’t have that hint of ammonia fragrance. The thing to realize here is that we are talking about imaginary groups or abstract concepts. We created a container in our mind, given it a name and stuffed it full of cookie dough and whatever else suits us. The guy next to you is doing the same thing.
So when we all get together to discuss a concept like government health care, you wonder what rock some of these people crawled out from under.
We need to be very careful of using words that are abstract. They give us a false sense of understanding that isn’t shared. For example, many Americans probably believe that the rest of the world should encompass Democracy with open arms. We lost the Viet Nam war because of that abstract concept called Democracy. The villager could point to his wife, kids and his land, he couldn’t point to Democracy. In undeveloped countries, you have a very hard time selling life insurance; it’s an abstract concept that sounds more like a con game to the average person.
The other day I was reading about a Congressional investigation of the oil industry. They wanted to know why the consumer was being gouged 4 dollars a gallon for gasoline. The answer is plain enough, inflation. But what is inflation? To most people, that’s where prices rise every year. But if you are worth your weight in salt, you know Congress is spending more than they are taking in. Inflation is a very abstract word. It’s kind of like the lost Viet Nam war, all over again. You can point to the price of gas, it’s real, but you can’t point to inflation.
Wednesday, May 04, 2011
Disneyland Economics
Most of us pay taxes. This is money; we were paid for producing something. Tax dollars are for government consumption. Our savings are kind of like taxes also, we are not consuming product if we save our dollars. In order to save for retirement, we have to forgo consumption now, for consumption in our retirement years 20 to 40 years out.
From there, our saving flow into a bank. Lately you hear about all of the money the government has thrown at the “Banksters.” Let’s step back and take a second look. From 1999 to 2006 the banks threw money (your deposits) at anyone that wanted to sell a house (not buy, follow me). An 80 year old with a bad cough in a wheel chair, could qualify to buy a home. Nothing down and the owner got a cashiers check from the bank. Real money was paid by the bank for the home sale. By 2008 it was rather obvious that real estate loans with nothing down, were performing rather poorly. The banking system as a whole, had lent about (your estimate here or mine) 12 trillion dollars. The money was given to the sellers of the real estate. Now with homeowners walking away from their loans, the FDIC has to make the depositors “Whole again.” In order to do it, the FDIC prints dollars to cover depositor’s losses. The investors/owners in the failed banks lose their whole investment. FDIC insurance only eliminates bank runs.
Next, consider our government, they collect 2.1 trillion in taxes and spend 3.5 trillion. Congress is spending 50% more than they take in taxes. OK so it is a loan, but look at it this way, it is pure consumption. Government doesn’t produce anything. They had to borrow the dollars from us savers in order to spend them. The product consumed by government is now gone.
Just as a rough estimate, the National Debt is about 14 trillion. Add another 4 trillion for the worthless debt held as collateral at the Federal Reserve. Add another 1.5 trillion dollars a year, from now on, as part of the Federal budget.
There comes a point to where educated people figure out that the game is over. I don’t think we are quite there yet. The government is both printing money and taxing us at the same time. Taxes work great, but you don’t have to raise taxes if you print money. Inflation is a silent and invisible tax and it pays government bills just as slick as taxes.
Congress has no idea of the mess they are in. FDR started the snowball rolling and it has gotten bigger. Today there isn’t enough product to satisfy the demand made by the savers, who over time, opted out for immediate gratification for consumption, by saving. Indirectly the money borrowed by government came from the banks and our Ira's. Without FDIC insurance in place the banks would have failed, and the government's source of funds to finance the deficit would have disappeared. (Can't have that happen, can we???)
In the truest sense, if our government was to pay back the 18 trillion dollars borrowed (laugh if you feel the urge), everyone would be whole, the trouble is, it is not going to happen. If Treasury rates were to hit 12%, it would take all of our taxes to pay the interest on the National debt. We have stepped into a new realm of economics I would like to label “Disneyland Economics.” You wish for what you want and Congress will provide it. The trouble is, real life doesn’t work that way. Congress borrowed 18 trillion of real money and wants to borrow more. It’s a little like buying a car and your only concern is, "Can I borrow enough to make the next payment?"
Looking at the bright side, this isn't the handbasket to hell drill, Congress is going to drive our nation to the new Disneyland in style. I'm so excited. Are we there yet?
From there, our saving flow into a bank. Lately you hear about all of the money the government has thrown at the “Banksters.” Let’s step back and take a second look. From 1999 to 2006 the banks threw money (your deposits) at anyone that wanted to sell a house (not buy, follow me). An 80 year old with a bad cough in a wheel chair, could qualify to buy a home. Nothing down and the owner got a cashiers check from the bank. Real money was paid by the bank for the home sale. By 2008 it was rather obvious that real estate loans with nothing down, were performing rather poorly. The banking system as a whole, had lent about (your estimate here or mine) 12 trillion dollars. The money was given to the sellers of the real estate. Now with homeowners walking away from their loans, the FDIC has to make the depositors “Whole again.” In order to do it, the FDIC prints dollars to cover depositor’s losses. The investors/owners in the failed banks lose their whole investment. FDIC insurance only eliminates bank runs.
Next, consider our government, they collect 2.1 trillion in taxes and spend 3.5 trillion. Congress is spending 50% more than they take in taxes. OK so it is a loan, but look at it this way, it is pure consumption. Government doesn’t produce anything. They had to borrow the dollars from us savers in order to spend them. The product consumed by government is now gone.
Just as a rough estimate, the National Debt is about 14 trillion. Add another 4 trillion for the worthless debt held as collateral at the Federal Reserve. Add another 1.5 trillion dollars a year, from now on, as part of the Federal budget.
There comes a point to where educated people figure out that the game is over. I don’t think we are quite there yet. The government is both printing money and taxing us at the same time. Taxes work great, but you don’t have to raise taxes if you print money. Inflation is a silent and invisible tax and it pays government bills just as slick as taxes.
Congress has no idea of the mess they are in. FDR started the snowball rolling and it has gotten bigger. Today there isn’t enough product to satisfy the demand made by the savers, who over time, opted out for immediate gratification for consumption, by saving. Indirectly the money borrowed by government came from the banks and our Ira's. Without FDIC insurance in place the banks would have failed, and the government's source of funds to finance the deficit would have disappeared. (Can't have that happen, can we???)
In the truest sense, if our government was to pay back the 18 trillion dollars borrowed (laugh if you feel the urge), everyone would be whole, the trouble is, it is not going to happen. If Treasury rates were to hit 12%, it would take all of our taxes to pay the interest on the National debt. We have stepped into a new realm of economics I would like to label “Disneyland Economics.” You wish for what you want and Congress will provide it. The trouble is, real life doesn’t work that way. Congress borrowed 18 trillion of real money and wants to borrow more. It’s a little like buying a car and your only concern is, "Can I borrow enough to make the next payment?"
Looking at the bright side, this isn't the handbasket to hell drill, Congress is going to drive our nation to the new Disneyland in style. I'm so excited. Are we there yet?
Wednesday, April 27, 2011
The Health Care Train Wreck
Government health care for retirement is not very well thought out. Some of us have already had a dry run with an aging parent or grandparent.
For example, a married couple that retire at age 65 with 300K of savings in the bank probably have at least $12,000 apiece or $24,000 total per year to live on from Social Security. The government health insurance provided for seniors would probably cost about 8 to 12 thousand per person per year for a private plan of equivalent value. To say the least, it would be unaffordable to most retirees. The government insurance is real, but invisible to the recipients. Uncle Sam pays all.
Let’s go forward 10 years to age 75. At this point, a lot of retirees are ready for a rest home and these homes charge a minimum of about $4,000 per month per person. So with a married couple, that’s about 100K a year (the 300K in savings will go fast). Someone unfortunate enough to come down with Alzheimer’s disease, figure about $8,000 a month in a rest home (100K per year). Studies have shown that during the last months of a person’s life, they could rack up 180k in medical bills (in intensive care). The government gets to pick up the tab here too.
Social Security was a lottery ticket, when it was implemented. Everyone paid in but very few lived to collect. Living to age 65 today, is almost a given. Now, we have Medicare and Medicaid added on to retirement benefits. Where are the government funds coming from to pay for future elderly health care? Ask one question, how much in total did the retirees pay in taxes over a life time? Does it warrant the government payments being made in their behalf?
How much longer can the game go on? Entitlements already exceed tax collections. Who do we "throw under the bus," our kids? How about a Democrat or two?
For example, a married couple that retire at age 65 with 300K of savings in the bank probably have at least $12,000 apiece or $24,000 total per year to live on from Social Security. The government health insurance provided for seniors would probably cost about 8 to 12 thousand per person per year for a private plan of equivalent value. To say the least, it would be unaffordable to most retirees. The government insurance is real, but invisible to the recipients. Uncle Sam pays all.
Let’s go forward 10 years to age 75. At this point, a lot of retirees are ready for a rest home and these homes charge a minimum of about $4,000 per month per person. So with a married couple, that’s about 100K a year (the 300K in savings will go fast). Someone unfortunate enough to come down with Alzheimer’s disease, figure about $8,000 a month in a rest home (100K per year). Studies have shown that during the last months of a person’s life, they could rack up 180k in medical bills (in intensive care). The government gets to pick up the tab here too.
Social Security was a lottery ticket, when it was implemented. Everyone paid in but very few lived to collect. Living to age 65 today, is almost a given. Now, we have Medicare and Medicaid added on to retirement benefits. Where are the government funds coming from to pay for future elderly health care? Ask one question, how much in total did the retirees pay in taxes over a life time? Does it warrant the government payments being made in their behalf?
How much longer can the game go on? Entitlements already exceed tax collections. Who do we "throw under the bus," our kids? How about a Democrat or two?
Saturday, April 23, 2011
Inflation Defined: Government Printing Of Currency, In Lieu Of Taxation
Here are a few pictures of hyper inflation in Germany from the 1920's. We are not talking gold and silver here, just paper money.
We are not quite here yet. Toilet paper rolls are one inch shorter as are boxes of Kleenex. $3.99 for 10 ozs of potato chips rubs me the wrong way!
Let the Treasury print two trillion for next year and we will be here.
From there it is all downhill. Kiss your retirement savings good-by. Of course this can't possibly happen to us. This only happens in third world countries!
The picture below shows you what real money looks like. The government can coin it, but it can't create silver coins with a printing press.
The Silver dollar currently is worth about 40 dollars. The 50 cent piece is a twenty dollar bill. The silver quarter will buy lunch for two, and the minuscule dime will buy a gallon of gas. But hasn't gas gone up in price???
Ask yourself one question, if silver coins have held their value so well over time, why aren't we still using them? To quote Shakespeare's Hamlet; "Therin lies the rub."
We are not quite here yet. Toilet paper rolls are one inch shorter as are boxes of Kleenex. $3.99 for 10 ozs of potato chips rubs me the wrong way!
Let the Treasury print two trillion for next year and we will be here.
From there it is all downhill. Kiss your retirement savings good-by. Of course this can't possibly happen to us. This only happens in third world countries!
The picture below shows you what real money looks like. The government can coin it, but it can't create silver coins with a printing press.
The Silver dollar currently is worth about 40 dollars. The 50 cent piece is a twenty dollar bill. The silver quarter will buy lunch for two, and the minuscule dime will buy a gallon of gas. But hasn't gas gone up in price???
Ask yourself one question, if silver coins have held their value so well over time, why aren't we still using them? To quote Shakespeare's Hamlet; "Therin lies the rub."
Sunday, April 17, 2011
Taxing the Rich
The Democrats want to tax the rich. They are going to repeal those tax cuts given to the rich by the Bush administration.
The concept of being rich to the voter is something entirely different than what Congress is talking about, but they’re not about to correct Joe Six-pack's misconception. The average person envisions a rich person as someone with gobs of money that doesn’t have to work. So go ahead and tax the rich bastards. The trouble is, this is not the group Congress wants to pick on.
In order to pay taxes, you have to have earnings or a big healthy retirement plan. You can’t really tax a millionaires savings to death. Three million in the bank might return 30K a year but the taxes are a measly 4K.
The people the Democrats are targeting are the high wage earners and families where both the husband and wife work. Many of these people run businesses that have employees. If their future taxes increase, they will contemplate moving offshore. So we have more taxes and Obamcare for this group of rich people. If you’re an employer, it really puts a crimp in your bottom line. From off shore, the employer gets to keep the $12 profit per shirt and claim a modest one dollar profit as a jobber supplying imported product to the US. Notice how the taxes and labor costs drop out of the equation. I don’t think Congress can assume that rich people are stupid and are going to wait in line, to pay the new taxes.
The Democrats don’t need to tax the rich; the inflationary spending policy of Congress (printing money) does a superb job. Anyone with a savings account has lost 30% of their purchasing power over the last 10 years and we are liable to lose another 30% before the next election. That gentleman in the example above with three million in the bank now has the buying power of 1.5 million and he hasn't lost a dollar, kinda sucks doesn't it?
This snowball started rolling down the hill way back in FDR’s time. Very few people lived to collect Social Security at age 65 back then. Social Security in the beginning was a carrot on a stick. In today’s world, we either need a longer stick or a hell of a lot more carrots.
So rally around the Democrats, they are going to tax the rich and big corporations (who also pay no tax, the consumer pays it, it’s in the price tag). They are going to save Medicare and Medicaid for the elderly and keep those nasty Republicans at bay. “Nobody gets thrown under the bus.” Just love these analogies. Does Congress have a waiting list for people to be thrown under the bus?
We are spending 1.5 trillion more dollars than we take in, in taxes. If we cut out discretionary spending and the military, this budget could work. What’s left, is the money needed to service the national debt, Social Security, Medicare and Medicaid. And look out, here comes Obamacare entitlements.
People are beginning to realize that the budget has grown absurdly large and is very unrealistic. In Congress it is business as usual. By God, we are going to tax the rich and raise 50 billion. Of course we’ll need to raise the national debt limit up another trillion dollars. Do you get the idea that Congress is doing something incredibly stupid? Of course, it appears to be working so why worry.
The concept of being rich to the voter is something entirely different than what Congress is talking about, but they’re not about to correct Joe Six-pack's misconception. The average person envisions a rich person as someone with gobs of money that doesn’t have to work. So go ahead and tax the rich bastards. The trouble is, this is not the group Congress wants to pick on.
In order to pay taxes, you have to have earnings or a big healthy retirement plan. You can’t really tax a millionaires savings to death. Three million in the bank might return 30K a year but the taxes are a measly 4K.
The people the Democrats are targeting are the high wage earners and families where both the husband and wife work. Many of these people run businesses that have employees. If their future taxes increase, they will contemplate moving offshore. So we have more taxes and Obamcare for this group of rich people. If you’re an employer, it really puts a crimp in your bottom line. From off shore, the employer gets to keep the $12 profit per shirt and claim a modest one dollar profit as a jobber supplying imported product to the US. Notice how the taxes and labor costs drop out of the equation. I don’t think Congress can assume that rich people are stupid and are going to wait in line, to pay the new taxes.
The Democrats don’t need to tax the rich; the inflationary spending policy of Congress (printing money) does a superb job. Anyone with a savings account has lost 30% of their purchasing power over the last 10 years and we are liable to lose another 30% before the next election. That gentleman in the example above with three million in the bank now has the buying power of 1.5 million and he hasn't lost a dollar, kinda sucks doesn't it?
This snowball started rolling down the hill way back in FDR’s time. Very few people lived to collect Social Security at age 65 back then. Social Security in the beginning was a carrot on a stick. In today’s world, we either need a longer stick or a hell of a lot more carrots.
So rally around the Democrats, they are going to tax the rich and big corporations (who also pay no tax, the consumer pays it, it’s in the price tag). They are going to save Medicare and Medicaid for the elderly and keep those nasty Republicans at bay. “Nobody gets thrown under the bus.” Just love these analogies. Does Congress have a waiting list for people to be thrown under the bus?
We are spending 1.5 trillion more dollars than we take in, in taxes. If we cut out discretionary spending and the military, this budget could work. What’s left, is the money needed to service the national debt, Social Security, Medicare and Medicaid. And look out, here comes Obamacare entitlements.
People are beginning to realize that the budget has grown absurdly large and is very unrealistic. In Congress it is business as usual. By God, we are going to tax the rich and raise 50 billion. Of course we’ll need to raise the national debt limit up another trillion dollars. Do you get the idea that Congress is doing something incredibly stupid? Of course, it appears to be working so why worry.
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