If 41 cents of every dollar you made was going on your credit card, would you keep doing it?

According to the Department of the Treasury, 41 cents of every dollar spent by the federal government of the United States was borrowed. 

Think about that. Think about that long and hard. Can you imagine that any sane person can possibly think that this kind of reckless spending can be sustained?  This is the equivalent of a private person making about $25,500 spending $50,000 dollars every year. That means that they had to put $20,500 on the credit card in a single year to hit the same ridiculous deficit spending percentage our government has.

The Bi-partisan Debt Commission report has come out. It's harsh. It's going to ask Americans to accept deep cuts in many of the entitlements that we hold dear. It holds nothing back. Deep cuts are found in health and human services, Social Security, the Department of Defense, all of which been "untouchable" and "third rail issues" until now.

So its surprise to me that the commission itself was only able to get 11 of 17 to support the conclusions of the commission. 

Two examples:
Max Baucus of Montana refused to support it because of the proposed gasoline tax hike that would damage the agriculture industry.  That's nothing. If it were me I would end farm subsidies and let farmers grow whatever the heck they want in quantities they want.

Andy Stern, the president of Service Employees International Union (SEIU) also refused to support it, because it would have deep consequences for federal government employee union pension plans.

As long as people continue to think "Think not what I can do for my country, think what my country can do for me" we are going to head down the road of national insolvency.  When will We, the People, wake up and realize that we've allowed our politicians to walk us down a path paved with the false glitter of lies and promises right to the very trapdoor of financial hell?  When will we stop demanding that our government take money from some and give it to others, when in fact there just isn't any more money to take?  Yeah, the rich are rich, but there aren't enough of them nor do they make enough that by themselves they could pull us out of this mess we are in.  We have to reduce spending. All across the board.

Because unlike you or I who have our mortgage company or credit card company to send us into bankrupty, the federal government instead gets to answer to China and Qatar and the United Kingdom.  And they aren't likely to be any more understanding than your local debt collector. What kind of a debt collector would China use, anyway? Do we really want to find out?

Quantitative Easing and the 2010 G20 Summit.

From the FT.com (Financial Times): In an article by Ralph Atkins while in Frankfurt, Germany, he wrote about the "collision" course that Germany has plotted with regards to the United States.

Our policy makers are whining about our trade imbalance.  Wolfgang Schäuble accused the United States government of undermining its own policymaking credibility.  "It is not consistent when the Americans accuse the Chinese of exchange rate manipulation and then steer the dollar exchange rate artificially lower with the help of their printing press." He went on to say that American's have lived for "too long" on credit, overblown their financial sector and neglected their industrial base.  There are lots of reasons for the US problems -- German export surpluses are not part of them.

He further pointed out that we don't have a liquidity problem. There's a LOT of money in the system right now.  What he didn't say, but was definitely implied, is that borrowing is low because banks have increased standards for borrowing and therefore far fewer borrowers are found to be credit worthy. 

I've harped on this for years.  Part of our problem is that in the noble but misguided effort to make home ownership attainable to more people, the federal government put great pressure on banks to ease lending requirements, with the result that potential borrowers were not required to provide much proof that they could pay back the money they were borrowing. This risky behavior resulted in the mortgage bust of 2008, although signs could be seen as early as 2005-6.  Federal policy makers tried to exert pressure to roll back these practices but were soundly rebuffed by a Democrat-controlled Congress. 

If our government continues to "monetize our debt", soon the Federal Bank will be the only organization that will be willing to buy our debt, and at that point the "Weimar moment" as Glenn Beck puts it, will happen.  

Call your congressman, call your Senators and inform them that printing money is no solution to our problem.  Demand that they reign in federal spending, but be aware that in so doing you will be asking the government to reduce services, some of which you or someone you love and know are depending on. How tight are you willing to pull your belt in order to gain federal fiscal responsibility? Because until you are willing to live with less entitlements from our government, our government will continue to spend its way into debtor's prison.

Maybe the GOP gets it. Day 2.

Representative Eric Cantor (R-VA), who will likely become the House Majority Leader in January, distributed a document called "Delivering on Our Commitment" that will be given to new the new class of Representatives.  In it, Mr. Cantor reveals some detail on his proposed congressional agenda.

1)  He opposes a VAT.
2) Create a forum with the nation to seriously discuss entitlement changes necessary to maintain our obligation to retirees while still reducing overall entitlement expenditures. Outreach to the "minority" party is stressed.
3) Continue the GOP moratorium on earmarked appropriations and based on an outcome of the Organizational Conference, extend it to both parties. In short, no House legislation including earmarks will be allowed to the floor for discussion or balloting.
4) A systematic, piece by piece approach to repealing or defund the United States National Health Care act and replace it with "common sense" legislation. I have no ideal what "common sense" legislation means.
5) Implementation of rules for articulating clear standards for bringing legislation to the floor of the House. In summary, an argument must show that the legislation is not more appropriately a state or local government issue and that Congress is within Constitutional limits to pass such legislation. Further, the legislation must include a plan for paying for its implementation.  Shrinking the size of the Federal Government is a primary goal of these rules.
6) Changes to the Legislative Schedule and House Calendar, with focus on committee hearings and oversight uninterrupted by floor activities such as House votes.  Oversight committee reports can be brought to the floor for debate or even adoption.
7) Eliminate expressions of appreciation and recognition for individuals, groups, events and institutions in order to focus on the critical work ahead of us.  Also, consider designations and namings of post offices or other federal buildngs only once day a month.
8) A renewed focus on standardized goals, objectives and formats of oversight reporting in connection with a greater emphasis on individual member oversight initiative.

I have only one relevant piece of advice for Mr. Cantor. Every single category of federal spending needs to be critically scrutinized and that there are no sacred cows.  Defense, Health and Human Services, the Federal bureaus and agencies, and yes, even Social Security all need to be looked at with an eye towards the reduction of spending.

Grumpy Conservative, The 2010 Midterm Results Prove Nothing.

As of 5:00 PM on November 3, 2010, I've heard a President admit he made mistakes and I've heard a resurgent GOP and their pundits talking about a "mandate". 

Florida Senator-elect Marco Rubio said it best. This election result is not an embrace by the people of the GOP, it is a second chance to get it right.

I'm already betting they don't. Because in order for the GOP to get it right, they are going to have to finally convince the American people that we no longer can afford all the programs, services and entitlements that we have come to expect from our federal government. They are going to have to convince the American people that they are going to have to cut over $600 billion dollars from the 2011 federal budget.  They are going to have to repeal parts of the health care reform. But that's only the start.

They are going to have to convince the people that every category of the budget will need to be cut.  They are going to have cut over $150 billion from health and human services. They are going to have to cut over $150 billion from the federal defense budget. They are going to have to dramatically change the way social security payments will be made to people who retire five or more years from now. They are going to have to cut and I mean DRAMATICALLY cut the budgets of federal agencies like the Dept of Education, the Dept of Energy, the Dept of Agriculture, the National Endowment for the Arts, the FBI, CIA. Across board. Nothing is sacred.

Oh yeah, they are going to have to RAISE taxes too. On everybody. Even those who currently don't pay.

And if you the American people don't buy it, then the GOP and the Democratic party are both screwed and the United States defaults on it's debt in 2012.

But the American people won't buy it so why in the hell am I even bothering? I'll see you in the bread line.

Quantitative Easing, Round Two.

Read this CNNMoney article.

Back in March of 2009, the Federal Reserve Bank printed $2 trillion dollars ex nihilo, which means that this money was being added to the money supply but was backed by no additional value in our actual treasury.  In April of 2009, every dollar owned by everyone everywhere was worth 17% less than it was just before they printed the money.

Why would they do such a thing? Well, as the article explains, they are doing this because the federal government is finding it harder and harder to get anybody to buy our deficits. You know... those deficits where our beloved federal government, at the behest of the American people is spending more money than they are willing to pay it for the services they demand their government provide.  So, if China or Bahrain or Qatar or the UAE or the UK are no longer willing to buy our bonds, then the Federal Bank is willing to step in.

Yup, they are going to electronically credit the Federal Reserve with an addition $600 billion dollars in order to be able to purchase our own debt. This is also called "quantitative easing", a desperation move that is taken by a government when an economy is stalled but interest rates for lending are already close to zero.  This is also known as "monetizing the debt", something that has been tried before. I document this in a previous blog posting you can read here.

The Weimar Republic, the German government after World War I did this in order to pay off the massive reparations that they were obligated to pay per the Versailles Treaty.  Look it up. It was not a happy time to be a German.

If you are OK with your government reducing the value of every dollar that you have saved or invested, then don't do anything. But if I were you, and especially if you are a Republican, now is the time to fire up your word processor and write your Senators and Congressman and tell them to STOP THIS NOW!

Amtrak Posts Record Ridership.

USA Today, in a Mike Chalmers article, reported that Amtrak posted record ridership with 28.7 million riders, an increase of 5.7% from 2009.  Ticket revenue increased by 9% to 1.7 billion.

However, Amtrak posted $3.5 billion in expenses for the fiscal year.
Let's see....  $1.7 billion from ticket sales against $3.5 billion in expenses.  Yup, another year in the red for Amtrak.

Taliban blown up by their own bombs

According to "the Sun", Taliban are being blown up by their own IEDs.

You can read about it here.

Boo hoo

Wake Up America! We are going to have to both cut spending AND raise taxes.

America, we are in big trouble. We have allowed our political representatives, senators and even our President to hoodwink us in believing that we can have a chicken in every pot today without paying for it until tomorrow. This is not a new phenomena. Anybody that thinks that reckless spending without restraint has only happened under President Obama's administration is delusional. Only one President in the last 40 years got us even close to a reasonable budget and that was President Clinton, who was the beneficiary of the tremendous "peace dividend" bequeathed to him by President Reagan and to a lesser extent President Bush (41).

Republicans and Democrats alike have flimflammed us, the American people in believing that the government can improve all of our lives if we just give a little more. And when we the people aren't in the mood they take anyway by simply selling off some more debt to the Federal Reserve or to foreign investors and in the process they mortgage us and our progeny.

We are now at the point where our progeny will be paying for the arrogance and greed of the Boomers, The X'ers and Y'ers and who knows what we will call the current generation, for decades to come.

Congress just raised the debt ceiling to 14.6 trillion dollars. We had a budget deficit of 1.2 trillion in 2009 and 2010 is going to have a 1.6 trillion shortfall. Our national debt now represents nearly 85% of our Gross Domestic Product. I am told that when it exceeds 90%, "bad" things are going to happen. This rant however, isn't about what those bad things are. Instead it's a high level view of what it's going to take to start curbing the debt.

Take a look at this chart:

This image is referenced from Wikipedia.

From this graph it is clear that unless Congress is willing to trim back spending in some of the "sacred cows" of the Federal Budget we are going to go the way of Greece. Which is bankruptcy.

The progressives complain that we spend too much on Defense. They have a point. We do spend a lot. But when you look at that graph, you see that we spend more on each of the following: Treasury, which includes interest payments on debt, Health and Human Services and Social Security Administration.

The big four (Treasury, Defense, Health and Human Services and SSA) represent about 80% of the total money spent by the Federal government. Everything else represent only 20% of the budget. If we were to completely shut off spending for everything except the big four, we would roughly break even. That doesn't pay down the debt we owe. We simply wouldn't add any more to it.

We as the American people must be prepared to sacrifice some of our "sacred" entitlements. And some of that may take some time.

Examples:
Social Security was originally intended to be insurance against bad times for those who needed it. It was not an entitlement for all. Americans must once again plan for the future and start saving for their own retirements plans now. And the younger they start, the more likely they won't need to depend on the rest of us when they can no longer work. And in the immediate future, the SSA is going to have to freeze cost increases. Families are going to have to step in and help with their elderly parents and grandparents. 2009 funds spent: $720 billion.

Health and Human Services. Much of the activity under this branch of government isn't even mandated by the U.S. Constitution. Be that as it may, this branch is also going to have to be slashed. On their own website (http://www.hhs.gov/about/whatwedo.html) they state that "HHS represents almost a quarter of all federal outlays". Assuming that cuts CAN'T be made in Medicare and Medicaid (which I don't agree with but for the sake of argument) then we MUST cut the other functions, such as the FDA, Research grants, Head Start, and emergency preparedness. Those functions that can be handled by communities must be. 2009 funds spent: $790 billion.

Defense: Robert Gates did a bold thing when he canceled more purchases of the world's best air-superiority fighter, the F-22 Raptor. In the process, he made a lot of people very angry. Like the Air Force and the good folks who build it. But we need that kind of slashing at every level and in every sector of the defense industry and department. 2009 funds spent: $690 billion.

Since these three departments represent about 65% of the budget, if we were to look at the 2009 budget deficit of 1.2 trillion, that means that we would have had to cut the budgets in these three departments by a combined $780 billion dollars, or roughly $260 billion dollars each.

But don't forget, just slashing these budgets will make things worse. Because to slash these budgets to this level only balances the budget, meaning we aren't adding any more to the public debt. But we still have to REDUCE it. And in the process we would add another 10 million people to the unemployment lines.

So obviously we can't just cut spending. We must raise revenue. There are two ways to do this. We can grow the economy by making our corporate tax rates competitive with other industrialized nations, or we can pay it through income. It will actually be a combination of the two.

America, you must remember that our government is of the people, by the people and for the people. In the final analysis, we let the politicians sham us. But it's our government, and therefore it's our responsibility.

The question is: Do we have the guts to make the hard call? Do we have the guts to force our federal elected representatives and senators to cut the budget where they possibly can? Are we willing to sacrifice our entitlements? Are we willing to start paying on the enormous spending spree debt that we have accumulated over the last forty years? Democrats sure don't have it in them to do that. Republicans could, if they were true to their principles. Tea party people, with their feet on the necks of the Republicans, do they truly understand the level of sacrifice that must be given by every single American to right our financial ship of state? Because let me tell you how it's going to happen.

Congress will slash the federal budget by 900 billion dollars. Conversely, they must raise tax revenues by the same amount to balance the budget. If we make America friendly for manufacturing again... if we make America friendly for business and industry again... we might make it without each taxpayer having to pay an additional 3,500 in taxes EACH YEAR. But unless we can grow the economy while simultaneously tightening our belts we'll never get out of this death-spiral that we're in and the U.S. as we knew it will vanish into the mists of history.

Another Argument for Government Not Running Your Healthcare Program

Original report can be found here.

LA Times bloggers Andrew Malcolm and Joanna Neuman reported today on that $5 billion in President Obama's stimulus money plan that was targeted to create 90,000 green-sector jobs and make 593,000 homes more energy efficient in the first year of implementation.

Well, it seems that like so many other government programs this one is falling a little short of it's goals. 98.5% short in fact. How about, only 9,000 homes so far?

Part of the problem is the rule of unintended consequences. The Pelosi-Reid stimulus plan includes an 80 year old legal provision requiring all federally funded programs to pay a prevailing wage to workers. The problem is...home weatherization under a "green-sector" industry niche hasn't really existed until now, so coming up with a "prevailing" wage for the over 3,000 counties in the U.S. has turned out to be a roadblock.

Free-market types would say: "Pay the workers what the market will bear." That's pretty easy, right? But apparently, the East Coast intellectual elite can't seem to accept that. There must be some "scientific" way to determine what the prevailing wage is.

Additionally, it looks like the National Trust for Historic Preservation must review most homes before contracts can be estimated or negotiated, with some states providing woefully adequate manpower for this task. Like Michigan, for example. With two, that's right, 2 people currently assigned to perform those reviews.

Finally, on the work done so far, $522 million has been spent on this program, improving 9100 homes. Let's do the math. Divide 9100 into 522,000,000, carry the one, and you get... $57,360 for every home fixed. Yup, that sounds like a government program to me.

Does any reasonable American tax-payer think that Obama, Pelosi and Reid can do a better job on managing national healthcare? My bet is ... not a chance.

Backdoor taxes to hit middle-class.

On the Rachel Maddow show on MSNBC she ran a piece about how Republicans don't support the President even when he is backing Republican issues like tax cuts for the middle class.

She then showed video of the President's State of the Union address where Pres. Obama declares that he has cut taxes for 95% of Americans. The left side of the aisle stands in thunderous applause and the right side of the aisle sits in stony and awkward silence. Pres. Obama then turns to the Republicans and says "I thought I would get some applause for that one."

Rachel Maddow than stated words to the effect that tax cuts will only be supported by Republicans when they are sponsored by Republicans.

What hogwash.

The Republicans didn't applause that portion of the State of the Union because it's not true.

To illustrate: The following day, Reuters publishes a story which is picked up by a number of news outlets: "Backdoor taxes to hit middle-class". The story is then almost immediately withdrawn. But the lovely thing about web-crawlers is that cached copies of these stories can often still be found.

Normally, I would link to this story but since it's disappearing as quickly as it appeared, I'm copying it in it's entirety here with apologies to its author.

Backdoor taxes to hit middle-class.

By Terri Cullen Terri Cullen – Mon Feb 1, 4:09 pm ET

NEW YORK (Reuters.com) --The Obama administration's plan to cut more than $1 trillion from the deficit over the next decade relies heavily on so-called backdoor tax increases that will result in a bigger tax bill for middle-class families.

In the 2010 budget tabled by President Barack Obama on Monday, the White House wants to let billions of dollars in tax breaks expire by the end of the year -- effectively a tax hike by stealth.

While the administration is focusing its proposal on eliminating tax breaks for individuals who earn $250,000 a year or more, middle-class families will face a slew of these backdoor increases.

The targeted tax provisions were enacted under the Bush administration's Economic Growth and Tax Relief Reconciliation Act of 2001. Among other things, the law lowered individual tax rates, slashed taxes on capital gains and dividends, and steadily scaled back the estate tax to zero in 2010.

If the provisions are allowed to expire on December 31, the top-tier personal income tax rate will rise to 39.6 percent from 35 percent. But lower-income families will pay more as well: the 25 percent tax bracket will revert back to 28 percent; the 28 percent bracket will increase to 31 percent; and the 33 percent bracket will increase to 36 percent. The special 10 percent bracket is eliminated.

Investors will pay more on their earnings next year as well, with the tax on dividends jumping to 39.6 percent from 15 percent and the capital-gains tax increasing to 20 percent from 15 percent. The estate tax is eliminated this year, but it will return in 2011 -- though there has been talk about reinstating the death tax sooner.

Millions of middle-class households already may be facing higher taxes in 2010 because Congress has failed to extend tax breaks that expired on January 1, most notably a "patch" that limited the impact of the alternative minimum tax. The AMT, initially designed to prevent the very rich from avoiding income taxes, was never indexed for inflation. Now the tax is affecting millions of middle-income households, but lawmakers have been reluctant to repeal it because it has become a key source of revenue.

Without annual legislation to renew the patch this year, the AMT could affect an estimated 25 million taxpayers with incomes as low as $33,750 (or $45,000 for joint filers). Even if the patch is extended to last year's levels, the tax will hit American families that can hardly be considered wealthy -- the AMT exemption for 2009 was $46,700 for singles and $70,950 for married couples filing jointly.

Middle-class families also will find fewer tax breaks available to them in 2010 if other popular tax provisions are allowed to expire. Among them:

* Taxpayers who itemize will lose the option to deduct state sales-tax payments instead of state and local income taxes;

* The $250 teacher tax credit for classroom supplies;

* The tax deduction for up to $4,000 of college tuition and expenses;

* Individuals who don't itemize will no longer be able to increase their standard deduction by up to $1,000 for property taxes paid;

* The first $2,400 of unemployment benefits are taxable, in 2009 that amount was tax-free.

So when President Obama states that he has lowered taxes, it's a falsehood. Under his administration, EVERY American's taxes will go up. My taxes will increase by at least 3% simply because the "Bush" tax cuts will be allowed to expire. Additionally, since Congress has failed to change the "AMT" to index against inflation, millions more Americans face being included in this tax provision originally intended to soak it to the rich. Now, upper middle-class Americans are affected and soon, middle-class will also be affected. Additionally, the so-called "death tax" will reappear in 2011.

Stimulus Was Wasted According CNN Poll.

Findings of a CNN poll released on January 25th reported that an overwhelming majority of Americans think that at least half of the money spent in the Federal stimulus plan has been wasted.

http://www.cnn.com/2010/POLITICS/01/25/poll.stimulus.money/index.html?hpt=Sbin

"A CNN/Opinion Research Corporation survey released Monday morning also indicates that 63 percent of the public thinks that projects in the plan were included for purely political reasons and will have no economic benefit, with 36 percent saying those projects will benefit the economy."

Do you remember this?

I wrote a post on February 10th, 2009, the headline which was Real Stimulus. In it, I regaled you with the higher points of a report by the American Society of Civil Engineers that bespoke, in alarming detail, the continued decay of our national infrastructure. It identified nearly $1.6 trillion in repairs to U.S. bridges, roads, locks, the power grid, and water treatment systems. Fixing these would not only create many hundreds of thousands of jobs, it would create a legacy of a healthy national infrastructure for decades to come.

Nope. They would rather pay for wetlands studies on the coast of California, or improvements to the Las Vegas Strip.

Count me with the 63%.

News Flash -- Capitalism Works

On January 27th, Ford Motor Company announced that had a profit of $2.7 billion in 2009. While this was no doubt achieved with the help of the misguided "Cash for Clunkers" program that ran in the fall of 2009, the stunning fact is this: Ford, the only US based auto manufacturer that did not accept any stimulus or "bailout" money from the US Federal government was the only US based auto manufacturer to report a profit.

It is clear to this writer that Ford is exhibiting a better level of fiscal discipline and program management than either Government Motors or Fiat's Chrysler division. Ford is providing a quality product at a competitive price and consumers are buying. And the same attributes that made it possible for Ford to avoid living on the government dole are now paying in newfound profitability.

Congratulations are in order for CEO Alan Mulally and his company. I only hope that other American companies and THEIR GOVERNMENT take notice.

Meanwhile, even though I've always been a Chrysler kind of guy (RAM truck, Crossfire Coupe), my next car will probably have to be a Ford.

MacroEconomic Theory Rap

This is priceless.


Simply proof that anybody that is arrogant enough to think that we can design, much less control something as complex as macroeconomics shouldn't be working for the American people. The best we can do is bump the highs and try to shorten the duration or magnitude of the lows.

Is Archie Bunker talking about 1974 or 2010?

Happy New Year!

2008 sucked.
2009 sucked more.
2010 will probably suck less, because at least Wall Street is reviving from the great Recession of 2009, which means that my retirement portfolio is recovering. But the economy is still very shaky. Things that will, in my humble opinion, make 2010 suck more.

Nationalized Health Care Reform bill actually gets reconciled and passes. With that, my children will get health care (maybe) but they will also be in debt to the government their entire lives.

Whether Nationalized Health Care Reform passes or not, the government does not immediately begin to do something to restrain medical lawsuit abuse (called "tort" reform by some). Why should the lawyers and politicians miss out on the recession?

Timothy Geithner gets his wish and TARP money is instead used as an administration "slush fund". If they are not going to use it for Troubled Asset Relief, then they should put it back in the treasury. But instead it appears that the Chief Financial Wizards of Smart think that hard-earned American taxpayer money can be fraudulently used for any purpose they want once they manage to get it out of the treasury. Note to Congress: You want to spend TARP money on other funds to stimulate the economy? Cool. Put the TARP money back first, then have a stand-up debate in the Senate and House like you should, and if it passes, then GREAT.

The government printed $2 billion in March, 2009. This makes inflation an almost guaranteed bet to occur in 2010. To make 2010 suck less, take $1 billion of that out of circulation as a preventive measure. It would additionally make every dollar that would be left in circulation worth about 6% more, which would make everybody who invests or saves with dollars as opposed to, let's say, gold,(which is almost everybody) happy.

The government continues to advocate spending our way out of the recession (Cash for Clunkers, extension of the first-time homebuyer tax credit, the new proposed Cash for Old Appliances).

Bad Bankers, Bad Bad Bankers.

President Barack Obama appears to be a little irritated. First, it appears that the major lending institutions that took TARP money are paying it back faster than expected. Those institutions, such as Goldman Sachs, JP Morgan and Morgan Stanley now find themselves newly liberated from the onerous and vindictive eye of the Federal government, specifically the glaring spotlight from the U.S. "Pay Czar" Kenneth Feinberg.

This means that these same institutions that were literally saved by the American tax-payer can now get on with the business of paying effusive bonuses to their beleagured and misunderstood executives. Last report: $22 billion. Yes, that's a "b", not an "m".

Considering that over seven million American workers are out of work right now, the populist view is that these "fat cat" bonuses seem to be out of synch with the struggles of the American common laborer and that this money would be better directed towards programs that will funnel money towards the unwashed masses.

As offended as I am by these bonuses (have these people no shame?) I am equally offended by the tone of President Obama's current rhetoric with regards to our financial sector.

"I did not run for office to be helping out a bunch of fat cat bankers on Wall Street", said the Presdident in a CBS "60 Minutes" interview. Senior White House Advisor David Axelrod further stated "What the president is going to say to the bankers is, you guys were part of the problem, you helped create an economic crisis here that cost 7 million Americans their jobs and now you have to be part of the solution."

There is a growing resistance movement among the bankers, especially with regards to the creation of a government office called the "Consumer Financial Protection Agency". "He can say what he wants, but we're not going back to the kind of lending that put us in this mess" said a person who is helping to prepare the bankers for the meeting but who spoke anonymously because of lack of authority to discuss the plans.

We are told that executives at the highest levels of the mega corporations justify their enormous compensation because they "risk the most". But we've seen that they feel no pain in bad times. They keep making enormous salaries and receive extravagant even as they send pink slips to thousands of employees who watch as their pension funds shrink or disappear entirely.

But the US financial ship of state has been victimized in two ways. First, it was helmed by executives that were willing to pursue imprudent strategies because there was (is?) no perception of personal risk of loss if things went wrong. If you are looking for a poster-child for this kind of executive, look no further than Dick Fuld, the "Gorilla of Wall Street". Second, it foundered into a storm was of our government's own making. Many of those squalls and icebergs that disabled our hypothetical ship were the result of Federal politicians literally FORCING them to relax the very lending standards and practices that would have avoided much of the pain we have seen in the last four years.

The government insisted that banks lend to people that could not be reasonably expected to pay back the loans that they were taking out. The reasoning behind this was two-fold: First, loaning money to a poor family to buy a house so they can move out of a project not only feels good but also looks good on your political resume, especially on the first Tuesday in November. But good financial policy conflicts with touchy-feely politics. Secondly, by making loans available to a larger pool of borrowers, the residential housing manufacturing industry remained white-hot when much of the rest of the economy had cooled or even reversed. Even back in 2003-2004, many U.S. Senators and Representatives were beginning to discern the threat on the horizon and tried to get somebody, anybody, to take a real interest in the risk and IRRESPONSIBLE lending practices at Fannie Mae and Freddie Mac. But with the housing sector the only bright spot in a gloomy economy, nobody really wanted to look at it too closely.

And just like the Titanic, by the time anybody realized the danger, it was too late. Give President Bush credit, he tried to get Congress to look at it early in his administration. Then give him a whack on the head because he failed.

Now President Obama is insisting that the lending institutions, especially those that took taxpayer assistance TARP monies, needs to help by boosting lending to small businesses. The problem is that President Obama and his advisors seem to think that if they make money easily available to small businesses that they will just rush in to take advantage of it and begin creating new jobs.

Uh, did ANYBODY in the administration take Economics 101?

Manufacturing and services are always a waterfall economic indicator. Increases in production, which will spur increased employment, won't happen until AFTER there are clear signs that consumers will open their wallets again. News flash to Congress and the Administration, we have 10.2% unemployment (estimated by some organizations to be closer to 17% when you include those who are seriously underemployed). Further, for the first time in 40 years, the American consumer is starting to cut debt and save their earnings instead. In 1982 the average American had 60% of their annual income in some form of debt, much of it revolving. In 2007, the most recent reporting year) Americans were carrying 130% of their annual income in debt. So it will take TIME for us to get out of the hole we're in.

It seems that President Obama and staff seems to think that the US economy is going to swiftly return to the heady levels of 2004. Don't count on it. All indications are that down economy has handed the American consumer harsh lesson about high levels of personal debt. And regardless of all of the hippies that voted for "hope and change" in 2008, the traditional American wants to live a freer life. Debt is a shackle we put on ourselves.

If I'm right, American consumers will not start spending more soon. If true, then all of President Obama's ideas are barking up the wrong tree. He's focusing on getting more jobs by making it easier for small business to borrow. But no sane small business man is going to borrow money when he has no evidence that he can sell the increased capacity. Instead, he needs to keep more of the money that he currently makes now, so that he can invest it into his company or better yet, avoid becoming an additional statistic in the unemployment report.

HR-4191: Speaker Pelosi and Prime Minister Brown have Never Met a New Tax They Didn't Like.

http://www.cnsnews.com/news/article/58099

Considering the number of reports indicating that "stimulus spending" is actually not very stimulating, the job creation is being reported in districts that don't exist, or that job creation can't be actually verified or in fact job creation is being reported when the money allocated for the jobs hasn't been actually received or spent yet. In other words, there is little or no accountability for the current stimulus spending and strong questions as to whether or not there has been any effect at all.

At every turn, as more and more Americans are yelling at their Federal Government to stop the spending their elected representatives and Senators continue to suffer electoral deafness.

In this legislative silence comes Rep. Pete DeFazio (D-OR) who has proposed HR-4191, which would levy a separate tax on all stock trades, futures contracts, swaps, credit default swaps and stock options. These revenues would be used to fund another stimulus spending program, even though we're not even sure that TARP and TARPII are working. At .025 percent, the potential revenues generated are estimated to be $150 billion every year.

"To restore Main Street America, a small securities tax on Wall Street should be invested in job creation on 'Main Street'. This transfer tax would be assessed on the sale and purchase of financial instruments such as stocks, options and futures."

It did not take long, however, for other Democratic representatives to raise opposition. Notably, Reps Michael McMahon (D-NY), Carolyn Maloney (D-NY) and Debbie Halvorsen (D-IL) circulated a "Dear Colleague" letter that stated, in part: "A $150 billion tax on financial transactions will fall on millions of hardworking Americans who are saving for their future through their 401k plans, mutual funds, pensions and others savings vehicles." They correctly note that mutual fund and money market fund transactions are also purchases and sales of securities and bonds. They further note that the American version of the proposal would not exempt middle-class Americans because while the tax would be paid by major stock brokers. The brokers would almost assuredly pass the cost down to the investors, be they individuals or pension and retirement fund managers.

And wait a minute... the American version? That's right! This is part of a coordinated plan to make sure that this tax is global. The genesis of this idea comes from the embattled British Prime Minister, Mr. Gordon Brown. As part of his proposal all major financial centers - Asia, the EU, the U.S. and the U.K. - would also have to pass similar transaction taxes to avoid "disadvantaging" any single country's stock exchange. Nancy Pelosi apparently thinks that this "idea" might be popular amongst a public eager to see "Wall Street" firms "pitching in" to help the government grow the economy. Ms. Pelosi, how in the hell would Wall Street be "pitching in" to "help" when these taxes are being forced upon them by the bayonet point of the various law enforcement agencies of "all major financial centers"? The courts have a word for actions like this: Extortion.

To summarize, there is now a movement in the Democratically controlled U.S. House of Representatives to now levy a tax on most of all financial instrument transactions in order to create a new pool of money that can be used for additional "stimulus spending", even though there are convincing arguments that neither TARP or stimulus are having an actual positive effect and in fact are drowning our people in unimaginable levels of debt?

A warning to most of you Generation X and Y people. If you think that your 401(k) contributions will be affected, you'd be RIGHT.

How's that HOPE and CHANGE working for ya? For myself, I think it SUCKS.

Here's one more tidbit of information for you: http://blogs.reuters.com/james-pethokoukis/2009/12/07/cost-benefit-analysis-of-jobs-stimulus/. Summary: Since the Obama administration says that about 640,000 jobs have been created with the $157 billion already spent, that works out to roughly a quarter million dollars annual salary per job created. Since the average payroll employee made roughly $57,000 last year, had the government just paid for the labor, they could have created over 2.7 million jobs. But they want to create another tax (HR-4191) so we can enjoy the similar benefits of our highly efficient, honest, transparent and honest government.

57% of American's Want Tort Reform for Medical Malpractice Suits

Read the Rasmussen poll report here.

On August 12, August 18 and August 27 I bloviated expansively about the House version of the United States National Health Care act (USNHC). Specifically, I wondered how any act put before Congress that does not make any effort whatsoever to set limits on malpractice lawsuits, commonly called "tort" reform could actually claim to be a comprehensive plan to reduce the cost of health care to America's citizens.

Apparently I am now one of a clear majority of polled voters who feel the same way. According to a Rasmussen poll published on December 2nd, 2009 57% of voters favor limiting monetary rewards to medical lawsuit plaintiffs, with 29% disagreeing and 14% not sure. 47% of voter respondents to the poll believe that limiting monetary awards would "significantly reduce the cost of health care in the United States", with 28% disagreeing and 25% unsure.

Finally, 60% of the respondents believe USNHC will increase the Federal deficit and a larger number believe it will result in higher taxes on the middle-class.

As I've said many times before, I believe that dramatic changes need to be made in our health care system.

Here's some of my list of items that need to be addressed by USNHC. Note that I'm not saying that we should abandon USNHC, only that if we truly want to believe that it will be a comprehensive bill to control the cost of health care to the U.S. consumer, then I think these issues need to be considered and added:

Have you talked to a health-care professional recently? A surgical doctor? A registered nurse? An emergency room technician? Did you ask them about the hours they work? I know very few health-care professionals that work LESS than 50 hours a week, and I know some that work over 80 hours a week. The old market rule applies in this case. If demand is high and supply is low, cost increases. How does USNHC plan to add more people to the medical profession? And if you think those resources are scarce now imagine when we add the so-called 47 million (I say so-called because it's been proven that there are not that many people with no medical insurance at any one time) to the insurance rolls? Now that somebody else (you and I) will be helping to pay for their care, you can bet that they will flood the system with requests for care.

The FDA approval process for pharmaceuticals adds exorbitant costs to the process of bringing new drugs to market. By itself, I don't have a problem with that. I like the fact that my government is trying to ensure that only high quality medicines make it to the consumer. But if the FDA is going to justify the hoops, the red-tape and the cost associated, then how come drugs keep getting pulled from the shelf and we keep seeing class-action lawsuits against drug manufacturers for drugs that were approved by the FDA? It's gotta be either one way or the other. Either the FDA stands by their approval and accepts some of the risk for their stamp of approval, or they need to admit that there's no way to test for all possible factors associated with drug use, in which case lawsuits against manufacturers for claims against FDA approved drugs should not be admitted to court.

Tort reform. All levels of the health care profession pay a LOT of money to insurers to protect themselves against lawsuits. But with America being the most litigious society on Earth, and there being nearly non-existent controls on both the validity of lawsuits and the rewards being sought, insurance premiums have skyrocketed. Reduce the cost of lawsuits and you reduce the cost of insurance paid by providers, the savings which can be passed on to the consumer. This is not to say that lawsuits aren't necessary. But a plaintiff shouldn't expect to profit from a mistake made or even malfeasance made by a provider. However, neither should they bear the loss. Basic market principle here is that if costs associated with a service or product can be reduced in a competitive market, the provider will reduce the cost to the consumer in order to remain competitive.

Increase competition between insurance companies by allowing consumers (businesses and individuals) to purchase insurance plans from across state lines. Basic market principle. Increased competition reduces cost as competitors seek to gain advantages on price through reduced profitability or improved efficiencies in doing business.

Provide incentives for the formation of benefit cooperatives that can cater to people employed by small businesses that cannot afford to provide health care from traditional insurance companies. Kind of like a medical version of a credit union. These coops, if run well, could really give traditional insurance companies a run for their money, and in so doing create an environment that would force insurance companies to compete or go out of business. Have you noticed that very few credit unions have been caught up in the current financial crisis? This is because they are run for the benefit of their shareholders, not stock holders. There is little incentive for credit unions to engage in risky and speculative financial practices. The same should be true for health care benefit coops, since their primary focus is to provide health care benefits at the lowest possible cost to their shareholders. How many hundreds of thousands (millions?) of Americans would take advantage of health care coops if they existed?

So why don't progressives want to talk about these ideas? Because none of them give the government more control over your individual liberty.

Jon Kyl has a Point, but is Anybody Paying Attention?

During a discussion of an amendment to the Baucus health care reform bill, Senator Debbie Stabenow (D-MI) stated that insurers should be required to provide basic maternity care. Senator Jon Kyl (R-AZ) responded: "“I don’t need maternity care, so requiring that on my insurance policy is something that I don’t need and will make the policy more expensive.”

Of course, this sounds like the typical kind of mean and hurtful and insensitive rhetoric that liberals expect to fall from the mouths of evil old conservative Republicans.

What Senator Kyl is trying to point out here, and nobody is bothering to listen, is that it makes no sense for a male insured to have basic maternity care covered on his policy as there is ZERO chance that any man will need to use it. What Senator Kyl is trying to say but nobody is listening is that the government should encourage that whatever comes out of the Baucus plan should be able to be tailored to each insured.

I'll bet if somebody were to ask Senator Jon Kyl if women should have an expectation to have basic maternity care covered in a general health care insurance plan, he'd probably be much more supportive.

Remember folks, insurance is supposed to transfer risk of disasters that you can't afford to a large group that can. We don't use health insurance that way.

In my opinion (and off-topic, by the way) health care insurance should be called something else, like health care benefits plan. It's NOT insurance.

Good Liberal Argument Concerning the National Debt

When you throw away the name-calling and other infantile behavior that currently plagues our legislatures at the Federal and State levels it becomes possible to listen to well-reasoned arguments from either side of the political spectrum and learn from it.

I was perusing a Progressive website (Centers for American Progress or CAP) and read an article written Michael Ettlinger and Michael Linden.

Michael Ettlinger is the VP for Economic Policy at CAP, principal developer of the ITEP Microsimulation Tax Model. He holds degrees from Cornell and American University.

Micheal Linden is the Assoc. Director for Tax and Budget Policy at the CAP. He has a master's degree in public policy from UC Berkeley. He is also a children's advocate, working at First Focus.

Both of these gentlemen lean heavily to the left. But, can we actually hear words of common ground from them? You bet...

In an article hosted on CAP's website that was posted on September 30, 2009 titled "Deal wit It. A Guide to the Federal Deficit and Debt".

While I disagree with their position that heavy deficit spending is necessary to prevent economic collapse during challenging times, I found several of the following quotes to be self-evident and very common sense.

"The real challenge is what we face after the recession: significant sustained deficits which, while not quite as eye catching, are equally historic, harder to solve, and pose a greater danger."

They also point out that sustained high levels of national debt can deter domestic investment, lower future incomes, raise interest rates and promote inflation, which causes further damage to people who see their wages fail to keep up with increasing inflation.

They provide a dire warning by stating that the CBO1 and the OMB2 both project high deficits through 2019, the latest year for which they offer their estimates.

The offer the following for consideration:
1) Revenue shortfalls are projected in personal income taxes, corporate income taxes and payroll taxes, especially compared with previous periods (they cite 1998, when the budget was actually generating a surplus of .8 of GDP3). This is especially pernicious in light of the fact that in the short term, stimulus spending (TARP4, ARRA5, TARPII, CARS6) is going to produce greater deficits in the short term, adding dramatically to the national debt burden and therefore also the amount of money the federal government pays monthly on that debt plus interest.
2) Government health care spending is expected to dramatically increase as the baby-boomers go from workers paying INTO social security to retirees taking FROM the system. Hence, the extreme urgency of reforming health care. Yes, health care reform is a national security issue. It's the WAY that we reform health care that is the source of so much angst and invective in our current political conversation.
3) Because of our involvement in Afghanistan, the ongoing campaign against jihadist threats and the likelihood that we will be facing a resurgent threat from an increasingly socialistic Russia and an emerging threat from socialist China, our military expenditures are projected to INCREASE.

These postulations are not in dispute by any reasonable person of either party.

They emphasize the difficult decisions that we are going to have to make and offer the following analysis.

"The [deficit] 6.3 percent of GDP swing is driven by both decreases in revenues and increases in spending." This is also common sense and incontestable. They make more assertions. Let's see if you agree with any of them.

1) Across the board spending cuts aren't likely. Some areas of the [federal] budge will be spared, which means other areas will have to face deeper cuts. Examples: We aren't going to default on our debt payments. We are also not going to cut Social Security, simply control the rate of growth. By taking these two items off of the table, the REST of the budget would have to be cut by 27% to achieve balance, or 14% to bring the deficit to below 2% of GDP.
2) Health care reform (assuming that the current version of USNHC were passed) is assumed to result in significant Medicare cost reductions, but most of these reductions will not become apparent for a decade or more. Assuming we can't cut Medicare, then the remainder of the budget must be cut by 35% to balance the budget or 18% to get the deficit below 3% of the GDP.
3) If we also exempt military spending from the cuts, which we would probably be obligated to do considering our current geopolitical obligations and future scenarios, that would mean that the rest of the budget would have to be cut by 51%.

So what gets cut by 51%? Funds to health clinics, federal retiree and veteran benefits, public schools, grants to higher education, the entire transportation infrastructure, regulatory agencies, the US Post office, etc. This is not a realistic solution.

The other side of the coin is to balance the budget by raising revenues (taxes and fees). It's also equally dismal. We would have to increase federal revenues by 22% in order to balance the budget by 2014. That's a 22% increase in everybody's income taxes, gas taxes, payroll taxes and federal charges. And don't forget that the 50 states are also raising or will be raising taxes and fees. To bring the deficit to 2% of GDP would still require a 12% across the board increase in revenues. However, the current administration has promised that they will not increase taxes on individuals who earn less than $250k annually. This means that family's earning more than $250k annually and corporations would have to pay a tax rate of nearly 70% in order to cut the budget deficit to only 2% of GDP by 2014. Note that this does NOT balance the budget.

They then ask some questions that I don't agree with. Example: "Can the U.S. afford to continue to spend so much more of it's national income than the rest of the world on defense?" As of 2003, the U.S. spent 3.7 of national income on military expenditures, which represented 49% of U.S. discretionary spending. While this does not include the last five years, 49% of the discretionary spending budget is nearly the lowest percentage spent in any given fiscal year since before World War II.

For over four decades our government has run budget deficits, with the natural result that our national debt has grown to a dangerous high. The conclusion: In order to slow our deficit spending and return to a balanced budget or even a budget surplus will require significant sacrifice on our part.

Here's the part my conservative friends isn't going to like. Our economy is a national security issue. We must stop spending money that we do not have. Quite the opposite, we must start to repay the money that we have already borrowed. The only way that we are going to be able to do that is to both reduce government spending (including military and health care) while at the same time, all American citizens are going to be called upon to pay more in fees and taxes while at the same time receiving less entitlements. It's going to hurt. Any conservative that tells me that we can solve this solution while not increasing taxes is not looking dispassionately at the facts of our situation. However, any liberal that thinks we can balance the budget and reduce the debt by increased taxation alone are also equally deluded. Programs of all kinds, including social programs (education, housing, health care, regulatory agencies) are going to have to be cut or dramatically reduced.

We've had our party. It's time to pay the bill.


(1) CBO: Congressional Budget Office, a non-partisan Federal organization that provides the Congress with financial impact analysis.
(2) Office of Management and Budget, a Federal organization that monitors existing Federal spending.
(3) GDP: Gross Domestic Product
(4) TARP: Troubled Asset Relief Program
(5) ARRA: American Reinvestment and Recovery Act
(5) CARS: Car Allowance Rebate System