Current Commentary

Time to call your Senator again

Having passed the House, the Senate has begun debating what to do with roughly 800 billion dollars. While it is a political certainty and inevitability that a package rounding to a trillion dollars will pass the Senate, there is definite uncertainty as to what the details will be.

Here's a rundown of the worst concepts of the House bill, and therefore what hopefully will be stricken or revised in the Senate version:

• Welfare payments disguised as tax cuts.
  If you didn't pay any taxes, you can't get a refund or a rebate. To do so is abusing the IRS to facilitate welfare payments. Call it increased welfare, and debate it as increased welfare. To call it anything else is a bald-faced lie.
• Spending projects the majority of which will not be spent until 2011.
  That evaluation is from the Congressional Budget Office, as reported in the Washington Post, a non-partisan government agency and a liberal newspaper.
• No tax cuts that are stimulative.
  There is no mention of reducing tax RATES for anyone, and there is no mention of cutting capital gains tax rates. Both of which are proven to be stimulative. There is an understandable reluctance to cut taxes on the rich, and that's fine. So cut taxes only for people making less than 61k/year. But cut them for someone! That would still give 75% of taxpayers more money in their pocket, and it would be far from cutting taxes for the rich.

In fact, while we are on the topic of cutting taxes for anyone who makes under 61k/year, try these numbers: Want to know how you can have three out of four taxpayers pay ZERO FEDERAL INCOME TAXES and do it for much less than the stim pack? Increase the standard deduction to $61,000. That would mean your first $61,000 of income would be FREE of federal income tax. The total loss of tax revenue would equal $180 billion or just 22% of the proposed stim pack. It would be a break to the working man. Politically, it would sell like hotcakes.

Last one. This one would more than pay for the tax cut above, while improving the transparency and integrity of our tax system: ELIMINATE THE SOCIAL SECURITY TAX MAX INCOME CAP. INCREASED REVENUE WOULD EQUAL $313 BILLION. Right now Social Security is a REGRESSIVE tax. That is, it taxes a smaller percentage of rich people's income. Once you make over 102k in a year, you stop paying SS tax. If you removed that limit and subjected ALL earnings to the SS tax, but exempted the employer's side (right now the SS tax is 12.4% split between the employee and employer, as to not affect business's margins or ability to employ, only remove the cap on the employee side) you would remove a huge REGRESSIVE component of our tax system, and revenues would increase by over 300 billion. You'd have enough to cut taxes on 75% of taxpayers and have enough left to triple the amount proposed to be spent on renewable energy technology.

Contact info for Maryland's U.S. Senators:

Sen. Banjamin L. Cardin:
202-224-4524, 410-962-4436
email form submission:
http://www.cardin.senate.gov/contact/email.cfm

Sen. Barbara Mikulski:
(202) 224-4654; (410) 962-4510
email form submission:
http://mikulski.senate.gov/Contact/contact.cfm

Wednesday, January 28, 2009 

Stimulus package debt, and your grandkids:
Don't worry about them; the pain will be much sooner.

I've heard many people talk about the debt from the economic stimulus package and how wrong it is to saddle our grandkids with it.  It's noble to care about future generations, but the reality is that most of the pain will be felt within our lifetimes, within Obama's first term in fact, likely before the end of 2009. 

Our government runs deficits (racks up debt) by selling bonds (a fancy word for IOUs). Buyers of government IOUs trade actual cash for those IOUs. The #1 and #2 buyers of US IOUs are China and Japan. Basically, China and Japan forgo the immediate privilege of putting new flat screen TVs in their homes, or granite counter tops in their kitchens, or new cars in their driveways, in exchange for a promise made by the US government to enjoy even more TVs, home improvements, and cars in the future.

The immediate danger to our prosperity is that our borrowing needs are beginning to far exceed the lending ability or appetite of our lenders. When this happens (and it is already happening in the mortgage market), the only buyer of US government IOU's will be the Federal Reserve Board. The problem is that the only money the Fed has is money that it creates from thin air. This is why the monetary base has gown at a rate of 400% in the last three months (see my previous post). When you make a lot more money then you have stuff to buy it with, that stuff gets more expensive and the money becomes worth a lot less. That is the immediate (6-12 months out) danger of all this borrowing. Don't worry about your grandkids; instead,, worry about how much $$ it will take to fill your grocery cart or gas tank next year. Worry about how much it will cost to heat your home next winter. Worry about what will happen to all the jobs that depend on discretionary spending that will disappear when people cut back to buying nothing but food, fuel, and housing.

Wednesday, January 28, 2009 

Monetary base doubles in just 3 months.

http://seekingalpha.com/article/116297-evidence-that-big-inflation-is-coming

Check that link for a great read that takes about 10-15 minutes. I¡¯ll give you the CliffsNotes version: BUY PHYSICAL GOLD NOW!

Our fractional reserve system works by the Fed injecting money into member banks which creates a monetary base (M0-that¡¯s a zero); then those member banks use the money as reserves to make loans that become reserve deposits at other banks to make loans against. Basically, the monetary base gets run through the multiplier effect of fractional reserve lending at a rate of about 100:1. That final multiplied number takes months to work through the system and is what ultimately affects prices, but it starts at the base level.

For decades the base grew within a tight range of 2-10%. After September 2008, it went parabolic and closed out 08 with 99% year-over-year growth. The growth rate of the final three months of 2008 annualized at about 400%.

And in this morning's news, the White House has announced a plan to create new banks to absorb old banks' bad debts. With whose money? Yours, of course. It is becoming apparent why Wall St. donated to Obama at a rate of 2:1 over McCain. If you want banks lending in order to put money into the hands of people and you really care about the welfare of the working masses as opposed to the investor elite and you are willing to use public money/nationalize the banking system, then why not do the following? Use public money to create a NEW nationalized banking system, free of bad assets. Let the old banks fail. Well, the problem with that is that it would blow out the investor class. So with that in mind, whose interests are being represented here, your interests or the interests of millionaires? Ans speaking of the interests of millionaires, let's not forget Bernie Madoff who stole billions of dollars from people and who is under house arrest in a multi-million dollar penthouse PAID FOR WITH STOLEN MONEY!

Sunday, January 25, 2009 

New Deal or Raw Deal?
How FDR's economic legacy has damaged America

That's the title of Burton W. Folsom's new book. He spoke about it at a recent seminar and pointed out highlights of FDR's New Deal that should be shared, given our current circumstances and current plans of going down the path of heavy central planning.

First, the NRA -- no, not the National Rifle Association, but the National Recovery Administration. The NRA allowed business owners to set price floors for just about anything, and then throw people in jail if they priced anything lower than the floor. Henry Ford said to hell with it and refused to take part in it. Of course Ford was too big to throw in jail, but the federal government decided to penalize his company by not buying any of his cars or trucks for public works projects, even in an instance when Ford underbid the competition by $160,000 (about 2.4 million in today's money). The NRA did jail a man in NYC who charged 35 cents to press a pair of pants instead of the 40 cents set by the floor. The floor had been set by businesses on the main street/prime locations. The man who charged 35 cents was in a non-prime location, and he had used discount-pricing to compensate for the non-prime location and stay in business. The floor put him and many others like him out of business. Jailing men for pricing their goods and services competitively to stay in business! Can you believe that?

Next, the AAA -- no, not who you call when your car won't start, but the Agricultural Adjustment Administration. As a result of the AAA, at a time when 1/3 of the country's population was underfed, farmers were paid with tax dollars to NOT produce. The thought was farm prices were too low and the farmer couldn't make a profit, so to reduce supply (never mind the 1/3 of the population that is hungry) without causing farmers to go out of business, farmers were paid to idle a portion of their fields.

The bureaucratic machine it took to enforce all this-So how do you make sure no one is charging less than 40 cents to press a pair of pants, or that farmers aren't growing on land that is supposed to set idle??? Government inspectors of course. The central planning under FDR paid men to instead of grow food or press pants, go around and make sure other men were NOT growing food or pressing pants for too little. A group of men were able to put a roof over their head, and food on the table not by creating anything of value, but by making certain others followed the destructive rules of central planners. Bribes became a problem and more regulators were hired to regulate the regulators. Also, very few people could afford the high prices that the NRA artificially set which led to more business failings and layoffs.

At a time when seemingly intelligent men are suggesting such things as bulldozing perfectly good homes to reduce supply and raise prices, and we have nationalized the auto and financial services industries, it is important to remember the past, and the not so distant past at that. FDR masterfully prepared a peace loving, country that had practiced isolationism for full scale war, but his war on the Great Depression failed. The smoke from WW2 has obscured the popular historical account of what central planning does in this country, even when done with the best of intentions.

Saturday, January 24, 2009 

1/3 of US women plan no clothing purchases in 2009.

A recent survey by America's Research group showed that one third of US women plan on buying zero clothing in 2009. The annual survey usually shows 4% of U.S. women saying they will make no clothing purchases during the upcoming year. This year's 33% rate is an increase by a factor of more than 8, a huge shift.

We are still about 9 months out from the second negative feedback cycle that marks true death spirals. Specifically, it will be about another 2-3 months until unemployment cracks 8%, a widely recognized cause-for-concern figure. It will be at least a quarter or two (3-6 months) until that reduced employment will show up in earnings statements, and about a month from those reduced earning statements for the next round of layoffs to happen.

A recent television commercial has a story line about a beer business that brewed a great beer and the question was, "Can you sell it?" In the commercial, a sharp salesman went to every bar and got the beer on tap at every bar; before long, the brewery needed to increase production. If only real life was so easy for small businesses. Can you count the various regulatory agencies that such a business would need to navigate in order to get its brew into pint glasses of the masses? And you wonder why you pay at $3 or more for something that cost less than 50 cents to make. Hefty regulations are government-imposed barriers to entry. Such barriers to entry help big business and big business owners, and the same barriers hurt small businesses, consumers, and workers.

To see what federal, state, and local regulations and taxes might apply to such a fairytale startup beer brewery, check here: Government Beer Regulations

Thursday, January 15, 2009 

Bush declares emergency for inauguration.

Sound too crazy? Don't believe me? Check this:
www.msnbc.msn.com/id/28650363/

We now live in an Orwellian 1984 society where words have no set meaning. A celebration and ceremony becomes an emergency to facilitate the movement of money.

Sunday, January 11, 2009 

Home prices fall to 1996 levels as measured in gold.

themessthatgreenspanmade.blogspot.com

When your central planners make a coordinated effort to devalue your money, it's important to keep an eye on what pricing assets in things other than dollars reveals.  Check the site linked above. You'll see that, measured in dollars, home prices have fallen to about 2002 levels.  However, as measured in ounces of gold, HOME PRICES ARE AT 1996 LEVELS!

What does this mean?  The greatest fallacy of monetary policy is that wealth equals money.

Thursday, January 08, 2009 

The Trillion Dollar Obama spending plan
explained from both sides

A couple things here.

1. This is not a Democrat/Republican thing. The problems we face were created by both parties (Commodities/Futures Modernization Act of 2000 which turned the stock market into a casino), the bumbled attempts thus far (700+ billion dollar bailout that funded million dollar bonuses, and spa treatments), and any additional moves that take us further down the rabbit hole are all bi-partisan moves. Neither the Democrats nor the Republicans are worthy of any praise. The great divide is not Democrats versus Republicans, but rather investor class versus worker class. And even more specifically, it's the investor class's attempts to wash their losses out onto everyone else.

2. Would you care to understand the arguments for and against the "stimulus plan"?

FOR: Keynesian economics. In short, John Maynard Keynes, the father of modern economics argued that the government should step in and forcibly replace demand when people in the private sector consume less. The idea is to maintain total demand and thus maintain the overall economic level. Americans have run out of their housing ATM machines (home equity) and credit cards. Thus, private consumption, or demand is falling like a rock. Obama is trying to counter this move with a huge spending plan, and a wealth transfer plan that is being called a tax cut as it will give IRS checks to many who didn't pay taxes in the first place.

AGAINST: Austrian economics. In short, the belief in free, but common sense anti-fraud/force regulation markets(see CFMA 2000). The true measure of the cost of government is not what it taxes, but what it spends. (Milton Friedman, Nobel Prize winning economist who broke stagflation after Nixon closed the gold window. All prosperity of the last 20+ years owes a debt to this man). Many models have concluded that a 1% increase in taxes, REDUCES economic output by 2-3%. Granted that Obama is not planning to raise taxes anytime soon; however, if you apply Friedman's argument, the cost is not in the taxes but in the spending. Obama's plan represents 6.6% of the economy. Even if you spread it over two years, it is still 3.3% of the economy. Applying Friedman's logic to accepted mathematical modeling on the effects of taxation, THE OBAMA PLAN STANDS TO REDUCE ECONOMIC OUTPUT BY 6-9% ANNUALLY. For reference, a 10% drop in economic output is widely considered the mark that separates recession from depression. Additionally, any chance such a stimulus would have at being successful would be dependent on the government's efficient management of all this money. Does anyone really think that the people who brought you Social Security, Medicare/Medicaid, the Bridge to Nowhere, the War in Iraq, the CMFA 2000, a bailout of the banking system that included fat for Boyscout arrows, rum, wool and racetrack owners, and a US Capitol Visitor Center that was supposed to cost 65 million but came in at 675 million can be trusted to efficiently manage a trillion dollars? I can see from a mile away what kind of infrastructure projects we will get for a trillion dollars: a bunch of holes dug, footers poured, and a request for more money to actually finish the job. And that is the common sense reason why the government increasing their control of the economy will reduce economic output. Whether they be Soviet, Cuban, Chinese, Belorussian or American central planners, CENTRAL PLANNERS NEVER SPEND YOUR MONEY AS WISELY AS YOU'D SPEND IT YOURSELF.

So regarding the Democrats cussing out the Republicans and vice versa, unless you own a private jet or have a seven-figure annual income, you probably have more in common with each other than with the men who really are pulling the strings, who really got us here, and who plan to take you where you'd never believe. Don't be like the Native Americans of the 1800s -- fighting with each other, while the guys with the light skin, the funny clothes, and the boom-boom-sticks take everything that is yours.

Thursday, January 08, 2009 

Porn industry asks for a federal bailout.

Porn industry seeks federal bailout.

This is great.  It points out the total absurdity of this.  Thanks Stevie.

Wednesday, January 07, 2009 

Just what is 8 TRILLION dollars supposed to do?

The latest total for all the various bailouts is coming in at 8 TRILLION DOLLARS!  For perspective, that is over half the entire economy.  It's amazing just how fast a few hundred billion at a time adds up.  But the real question is what are we supposed to get from this?  Where is it supposed to take us?  What is the goal?

I ask this because I see where we are heading.  In just these last few months, we have brought almost 40% of the private-sector economy under government control.

Quick explanation:
Financial services & real estate = 21% of GDP (gross domestic product).
Autos = 4% of GDP.
That's 25% of the GDP now firmly under government control.

Government at all levels = 37% of GDP; thus, non-governmental = 63%.

25/63 = 39.6%.

It seems that there are two choices:

Choice A: Allow market forces to blow these Harvard MBA thieves out of power and into the gutter or jail.  They will be replaced by mid-level companies who managed themselves prudently and responsibly.  We also must repeal the part of the Commodities/Futures Modernization Act of 2000 that legalized credit default swaps and a mega-leveraged derivatives market for the first time in 93 years.  At this time, there is no serious talk of any such legislative reform; until that happens, the stock market will have more in common with a Las Vegas casino than with a place you want to entrust with your retirement money. The transition period will be painful.  Money will be lost; more workers will be laid off. But when the smoke clears, we will emerge a stronger, more prosperous and still free nation.  We'd have 18-36 months of 14-18% unemployment and 10-20% negative GDP growth (contraction), followed by unemployment around 5% and healthy growth of around 2-3%.

Choice B:  We keep printing and borrowing money that we don't have in order to keep Harvard MBA thieves in their opulent seven- and eight-figure-income positions of power.  Everyone pays for it through higher taxes and/or higher inflation and the resulting lower standard of living.  We have a decade-plus of 8-12% unemployment and 3-8% negative GDP growth (contraction), followed by a full scale abandonment of free markets and an all out embrace of communism. (However, it will be called something else, probably "nationalism," or "Americanism.")  We will have a cast system like India.  Upward mobility, small business, and any hope of a better tomorrow will be crushed.

While my two examples (especially B) may sound extreme, my basic premise is not:  There is a distinct trade off (or inverse relationship) between the length and the depth of any economic downturn, hardship, or "correction."  Also, there is a distinct trade off (or inverse relationship) between preserving failed institutions and allowing for opportunity for growth and advancement of non-failed institutions.  Preserving those who have failed crowds out and keeps down those who have not failed. 

Unfortunately, there is no honest and intellectual discussion taking place anywhere about this basic concept.  While option B has legitimate reasons and merits, but they must be argued within the context that there are real trade offs (costs) to the plan, and those costs are not being addressed.