Tag Archives: US deficit

2 Cents Worth On Life Its Ownself

Do we laugh, cry or just go into our hole when we read the headlines from today?…thoughts and reflections on same follow.

Well, it is Yellen for the new Fed Chairmanship.  One wonders  a year from now who will be yelling for Yellen or yelling at her.   The elderly and the prudent savers of the US certainly won’t benefit from her severe easy money policies and extremely low interest rate regime.  The ants will continue to get crushed for their diligence and hard work and the grasshoppers will continue to eat off the fat of the land produced by the ants.

The arguments and conflict over the debt ceiling and payment of the Federal debt has been around since literally the inception of the country.  As we transitioned from the interregnum after the Revolutionary War to our current Constitution we had a big argument then about the debts run up by the Colonies to fund the War.  There were many who advocated not paying all that debt especially to the foreigners who had bought it i.e. the Dutch and French and even some Brits.   But Hamilton’s view prevailed and the Constitution honored all the outstanding debt of the US, Colonies.  Yes, there were some “fat cats” in the US who also profited enormously from this decision because they had bought up many of those bonds for pennies on the dollar.  But Hamilton and the like-minded believed we had to pay all those bonds to protect our credit and against the future need to borrow more and that meant paying all creditors regardless of their moral worth.  They were all paid 100 cents on the dollar with interest.

We are not yet bankrupt or a dead beat because the US does have the capacity to pay all its debts in full.  The current argument is correctly about future fiscal policy to see we remain that way.  The current trajectory of the Democrats will indeed drive us to bankruptcy.  That can and must be changed so we remain solvent.  The existing fight truly is about making the Democrats recognize that reality and adjust our spending accordingly.  Yes, the guy in the White House has it right–the numbers do not lie.   Houston, we have a problem!

Unless you keep up with the foreign press reports you would not know that the Arctic sea ice has in fact increased this year by 60%.  Strange that the Europeans are even more paranoid about the global warming hysteria than we are but they are the ones that most often report the facts and critiques of the IPCC reports and global warming alarmists excesses.

Historically, the Democrats and the Paul Krugman’s of this world have taken the position that the US debt is not a major worry because with just a little tinkering we can grow our way out of it.  They believe that increases in population will result in constantly growing GDP and thus the size of the debt will be manageable in relation to that larger economy.  Many arguments can be made against that proposition on the merits and the numbers especially when you include in the off balance sheet liabilities like Social Security and Medicare.   However there is one other flaw in the dialectic, who can guarantee they we will continue to grow?  Japan and Europe are already in the midst of a significant population slow as is China.  Why wouldn’t that happen here?    Then the debt would loom even larger not seem manageable relative to the size of the overall economy.   Those Democratic liberals are making a gamble on the future based on what scientific evidence?  They love to talk science.  But that theory is faith, not fact.

We’ve passed the Harvest Moon and already the moms in our neighborhood are putting out their Halloween stuff in the yards and on the doors.

I want to be safe and secure in the US and have no problem at all with taking out  the bad guys around the world.   The radical Muslims are our enemy and we do need to be vigilant and aggressive in combating them.  But, but, but….do we really need a million square foot facility in Utah for NSA in addition to all those thousands of worker bees there in the DC area?   Do we really need those 50,000 plus TSA folks doing those ridiculous searches at the cost it requires?  I don’t travel much anymore but when I do I sure don’t feel any safer with them around.  I don’t think they would deter in the slightest a serious terrorist bent on mayhem.  Indeed my last trip through their procedures I was questioned by a black lady wearing her hajib.  That didn’t exactly increase my level of confidence and it sure didn’t help that she was rude to boot to everyone passing through her line.   There are over 35,000 in the FBI and 114,000 in the Justice Department.  There is no way we need that many people protecting us from those breaking Federal criminal statutes.  They need to be cut back, not eliminated but cut back for heaven’s sake.   The FBI used to do most background checks for security clearances but they don’t even do most of that anymore it is done by contractors.    It seems to some of us that we have lost our sense of balance on these issues.

And on that subject why does the EPA, the IRS, Labor department, Interior department and many others have guys running around with guns and badges?  Can’t they have the FBI do the arresting when they come across a crime.

Wouldn’t it be interesting if the Feds were required by law to list all their departments, agencies, bureaus and the zillion other special committees along with their cost and personnel count online.  It wouldn’t be binding of course but then allow the public to “vote” on each one.   Either to eliminate it completely or change the funding level for each identified entity.  Might be a true wake up call for the Feds.

“All I know is what I read in the papers.”  Will Rogers  http://www.olcranky.wordpress.com



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Quirky Economics Or QE3

Ok, let’s buckle up the tool kit and look under the hood of what our Federal Reserve has been doing lately and indeed for the last few years.   A little historical review is necessary to put matters in a proper perspective.   It wasn’t but a few years ago that most of us would have had a really hard time naming the Fed Chairman and we certainly didn’t see many news items about the Fed meetings or the actions of the Fed.  They were few and far between and there sure weren’t any press conferences given by any of the Fed Chairmen.  About the only time the Chairman made any public announcements was twice a year when he testified to Congress and maybe a really short time answering a couple of questions from the press afterward and even then the new items were buried somewhere on page 9 of the paper.  Today we have a celebrity Fed Chairman who talks all the time and when he isn’t the various Fed Committee members are holding forth with interviews and news conferences constantly.  Back when those Federal Open Market Committee members were never heard from and they went about their work without notice or comment.

In ’08 the Fed had a balance sheet with a bit over 800 billion in assets.  Now that balance sheet has ballooned to almost 3 trillion.  The Fed has worked with the Government to pump huge sums into our economy and allow deficits to exist and rise and for the national debt to increase exponentially.   In very late  ’08 we had the TARP program which was Congress but it had the enthusiastic support of the Fed.  That was about 700 billion and was sold as a fund to buy mortgages and mortgage-backed securities to shore up the collapsing housing market.   In fact the TARP money was used to buy positions in the various banks deemed to big to fail and for the bailouts of AIG and those darn car companies.  Then we had the first real QE which was over 1 trillion in Treasury purchases and other government paper and other mortgage securities; that lasted over a year.   Overlapping that was the  roughly 800 billion stimulus program under BO for all those “shovel-ready” jobs but which in fact went mostly to favored special interest groups in the electorate such as “activist” groups and unions and those public sector employees.   Then along came QE2 which was another 600 billion bond buying program by the Fed for more bonds of various sorts and right on the heels of that came the Operation Twist program to exchange the long-term Treasuries for short-term Treasuries to the tune of about another 600 billion but that didn’t really add to the balance sheet significantly because they were selling as they  bought.  Now before Operation Twist has concluded they have announced the new QE3 which will run at least 40 billion per month to buy–they say they will start with more mortgage securities but the field is open for anything else they set their hearts on.   There is no commitment that the purchases will only be 40 billion per month, it could be more, and there is no time limit and thus no monetary limit on how much money will be spent.    They will continue QE 3 they say until there is “substantial” improvement in the unemployment figures.  They don’t say exactly which figures–the rate, the participation rate, rate of employed to population, etc.  Hope you have been trying add some of this up.   You can double-check my figures all you want, I ain’t off but a rounding error.

Now let’s review what we got for this and what these programs in concert with the Administration have gotten us.  The Administration of course promised a 5.6% unemployment rate if the Stimulus package was passed and Biden even went so far as to state in the summer of ’10 that that was the summer of recovery.  Those claims were false.  Also we were told that the food stamps and other welfare payments had a multiplier effect and would produce something like 1.72 in economic activity for every dollar spent for those programs.  You can believe that one if you want.  If that were really true then why don’t we just all go on welfare, spend the money with that tremendous mark-up in economic activity and I guess we would all be very well-to-do.  AIG is being wound down and the Government is going to make a profit from its takeover.  I never liked Greenberg or AIG but it sure makes one wonder if he wasn’t right back in ’08 when he said the Feds were making a mistake and that the company didn’t need to be confiscated and nationalized.  I hope he and the other shareholders existing at that time  of the takeover sue the pants off the Government and win.   Are we really better off having bailed out the big banks?  A few might have gone under and their shareholders and investors would have been banged but that is the risk all investors take.  Our banking system as a system would have survived and might have thrived.  Remember there were over 7000 banks then and only a handful were in trouble.  The car companies could have done a regular and legal Chapter 11 and come out still in business; it would be owned by some one other than the unions however.  That was the whole point of the BO bailout, to foster union loyalty forever and give them a bonus.  The various QE’s have certainly added to our national debt.  It has gone from about 11 trillion to 16 trillion.  Those QEs have allowed the Government to run deficits.  Remember that in the last couple of years the Fed has purchased more that 70% of all the Treasuries sold.  That is monetizing the debt.  Who else would have bought those Treasuries?  All investors around the world have cut back on them.  Yes, there still would have been buyers but what rate of interest would they have demanded for their loan?  The Fed bought 1.7 trillion of all that debt in the last couple of years.

QE has driven down interest rates.  That has some benefit but also the unintended consequences and outright harm to some.  The savers and prudent people that lived carefully for the last few decades are getting hammered.  They saved their money and get virtually nothing for it if they put it in the bank.  Will sales of homes really go up significantly if the mortgage rates drop a little more?  That rates are already about 3.5% for a 30 year, that is historically very, very low.  So what if it drops to 2.8%?  Will that really spur more buyers and the banks have all tightened their mortgages requirements greatly under duress and threat from the regulators.   Will more debt get us out of debt?    Any way you cut if the Fed is simply printing money to buy those Treasuries and other securities.  It doesn’t have any money really, it literally just creates or prints more money with a computer stroke to buy those.  That diminishes the value of the dollar and will lead to inflation. We will have inflation because of what they have already done.  Barring a complete collapse of the economy, the only question is when and how bad the inflation will be.   You already see the price of gold moving up and so will all  other commodities over time.

We will examine more another day.  Please ponder these thoughts.  You might disagree with the analysis but the facts are not in doubt.  The outcome can’t be good.  Let the market work.  The Fed IS the speculator and market manipulator-in-chief and we all are watching it happen right before our eyes.   The wisdom of millions of us in a non-manipulated market will coalesce into a far better place if allowed to happen.
“the human fancy can paint with more energy the misery than the bliss of a future life”, from the Decline and Fall Of the Roman Empire.  E. Gibbon, English historian extraordinaire.   http://www.olcranky.wordpress.com


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2 Cents Worth On Life Its Ownself

Let’s dig through that old trunk in the attic and see what we can find…..

“the private sector is doing just fine”….naturally there was more than just an “hmmm” to that remark by BO.  Next thing you know he’ll have those bands start playing “Happy Days Are Here Again” rather than “Hail To The Chief” to set the right mood for his economic messaging.

How can academics by so smart and completely stupid at the same time?  We have an enormous debt and deficit problem.  Those that can do 4th grade math can see the problem there.  The liberal (European) solution is to print more money to cover the increased debt so that more debt solves the debt problem.   According to them we then re-distribute that money and use the “multiplier effect” whereby they assert that for every one dollar of money given by the Feds to anyone will produce a dollar and half of economic value.  Lord, why don’t that just give us all a lot of money and we’ll go spend and everyone will be rich.  Of course, I don’t know how you’ll get food, or gasoline or a car repaired or a haircut or anything else that you need.  After all who would need to work?  In the land of Oz anything is possible apparently.

You’ve heard of and maybe read “Two Years Before The Mast” by Dana.  It is the tale of the terrible conditions for sailors in the early 19th century.  There is some truth to that story.  But like so many headlines it is always good to look behind the curtain a bit and see the full show.  From the early 16th century traders from Europe and then the Americas were making sailing trips to the Far East and Mid East to barter and trade for spices and silks and other goods.  They took with them clothe and other manufactured goods to trade for those items.   Yes, it is true that the wages were generally very low but there was a common bonus feature that is too often overlooked.   A typical trading ship is say 1680 would allow the common crew members and set amount of storage on board.  Normally it would be measured by weight, pounds and/or square footage as another limit.  The sailor from the Netherlands or England could fill his portion of the ship with whatever he wanted to take East for trade.  Likewise on the return, he could fill his part of the hold with mace, ginger, cloves, pepper or other desired spices.  They would make a huge profit on their return home.  They wouldn’t become wealthy but quite comfortable for that age.  If they made several trips they could become quite well to do.   Of course that journey was dangerous and more than half did not survive the year plus round trip voyage, mostly due to disease, malaria, dengue fever and the like.  Point is though that they all weren’t dressed in rags upon their return to Bristol or Amsterdam.

Something is weird about the Commerce Secretary Bryson’s recent bizarre hit and run incident.  Maybe just a tragic story of a medical condition.  But I for one don’t believe the White House didn’t check into the details before the Press Secretary started his recent news conference.  In times past when an incident occurred with a member of an Administration that involved the police or a hint of scandal they would come to the defense quickly and forcefully of the team member, or fire them.  The no comment in effect that they gave makes one think there is something more than the announced alleged medical problem Bryson supposedly had.  If that were the whole story then the WH would jump to his defense; the hesitation is puzzling.  Stay tuned for the details that were surely emerged.

Defenders of the Administration have recently cited several times the Internet as an example of the Feds promoting innovation through research and development money put up by the Feds.  It is true that the US military did develop much of the basic structure for computers communicating with each other.  But that was strictly for military use in communications and control of satellites and other weapons systems.  Of course IBM and Cray were doing the heaving lifting in all those advances, not some Army sergeant and White Sands.   Furthermore that world-wide web was the brainchild of a Brit.  He is the one who realized all the computers everywhere could be joined and an information exchange.  Again, that had nothing  to do with the Feds or Federal advancement of private enterprise and innovation.  Just like it was not Al Gore it also was not the Feds that gave us the world-wide web that you type in on every web address.

As they say, let’s follow the money.  Someone or some entity in Europe (you’ll note that little detail is missing so far from all the news reports) is going to loan money directly to banks in Spain.  The lender(s) didn’t want to be seen supporting the sovereign debt of Spain because Spain has to clean up its act the European Union says.  But the interest rates for Spain have shot up dramatically.  Spain will still regulate its banks just like we do.  When the Spanish banks get that money for Germany and their entourage, and the Spanish regulators come along and “suggest” it would really be nice if they would use that money to buy Spanish government bonds do you think those banks will refuse?  So, the money will end up going to the Spanish government after making a short stop at the local banks.   But it is only 125 billion, pocket change apparently these days.   But the European will sure be showing those Spaniards who is boss by not giving the government there any money directly.

“Capitalists are no more capable  of self-sacrifice than a man is capable of lifting himself by his own bootstraps”  Lenin.  Rebuttal evidence–The Greatest Generation.  www.olcranky.wordpress.com

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2 Cents Worth On Life Its Ownself

The world turns a couple of times and the headlines change, or at least appear to, and there is more fodder for the thought mill.  Let’s see if we can get some grist from the fodder.

Let’s talk some numbers and facts when it comes to whether or not the Democrats are indeed a party of tax and spend.  BO is the top dog Democrat and he has issued his budget for the next ten years.   We won’t list all the tax increases but there are many including the Bush tax cuts elimination, the Buffet Rule increase, upping the death tax and of course the restoration of the FICA tax and the increase in Medicare taxes and the increases in the capital gains and dividend taxes.  The budget assumes that all these and more taxes will be implemented and collected for ten years.  That is sure taxing the “rich” as they want.  The result–the national debt after that ten-year period goes from the painful number of 16 trillion now to the ridiculous and astounding number of 29 trillion in ten years.   It their numbers and their calculations and they obviously are completely happy with the national debt moving to a level that can’t be paid without serious pain or indeed revolution  in the streets, a la Greece.

A couple of years ago we predicted that the interest rates for our debt would be moving back to historical levels or even higher–around 3 or 4% for the ten year Treasury note.   I never dreamed the Fed would work in cahoots so closely with the WH and monetize our debt the way they have with quantitive easing.   They have bought those Treasury notes out the wazoo to the tune of over a trillion dollars in the last two years and that is the main reason our interest rates have remained so low.  Sooner or later that game will have to stop or the inflation rate will be horrendous.   That is not just my opinion but check the views of at least some of the Fed board members and their comments regarding QE.  If the Fed hadn’t bought all that debt of the government to fund its deficit spending do you believe that there would have been investors around the world who would have loaned us that money at that interest rate?  If the average interest rate on our debt increases only 1% that will cause an increase of 160 billion per year just to service it without regard to the principle payments due.  Either our interest rates will go up or the Fed will have to simply print more money and neither of those options are good for us.

Every time anyone including even Democrats like Senator Wyden propose any changes at all to Medicare the rank and file Democrats start screaming–“They want to destroy Medicare as we know it”.   Let’s all hope someone will destroy Medicare as we know it because it and we are going broke with the current system.  Those are the facts regardless of ideology. 

Iran going to war with its neighbors is nothing new.  They have been at it since the beginning of recorded history with no let up except for relatively short intervals of truce.   Read your Bible for some early examples of this.  Then there were the wars with the Greeks.  Recall who Alexander the Great fought with in his campaigns.   Then the Romans were more or less at war with Persia throughout most of its history.  When the Prophet was first emerging in Saudi Arabia the Persian were again at war with the remnants of the Roman Empire in Constantinople. Heraclius led the Romans in years of war with them during the 7th century AD and then they fought with the Muslims as they rose to power.  The Israelis are apparently more attuned to the history of their adversary than we are and believe their threats carry real danger.

Right on time again the trees and shrubs have put out their blooms in my part of the country.  You can set your clock by it.   They come out within 48 hours either side of Valentine’s day in the Dallas area and have all my life (70) regardless of how cold or warm the winter was.   Nice to know some things  are dependable.

If we ever get the chance to colonize Mars we will have to dig deep or construct some elaborate structures to protect those pioneers.  Mars doesn’t have a magnetic field like the Earth.  Thus the radiation of the Sun would be lethal.  Our magnetic field protects us from the worst effects of solar radiation but that won’t be available there.   Again something you never think about but which is essential for our existence.  You think Mother Nature provided that just to make us happy or was there another guiding hand involved.

The current budget request 70 billion for the Department of Education.  The Federal government has no Constitutional authority to have anything to do with education.   That is strictly a State matter.  Again, let’s totally eliminate that agency and get the Feds out of all education.  Let the States tax their citizens as much as each may choose–they could tax up to the 70 billion number or not depending on the wishes of the citizens of each State and let them spend the money however they want on their educational system.  It would be more efficient and produce better results.  Why do we send our money to Washington and then allow distant bureaucrats to dictate how we spend our educational funds?   What next– are we going to allow Washington to tell us what our real estate laws must be or whether we can have sheriffs or what our hunting laws  must be?

Why have college tuitions risen so dramatically in the las 30 years or so?  Student loans.   Any time you have gazillions of dollars going out the door you will have price inflation for that product or service.  Sure the colleges can raise their tuitions and just have the students apply for those government loans and that is exactly what they have been doing for decades now.  Eliminate those loans and the tuition inflation will stop and there would not be a flood of qualified students dropping out of college.   Yes, the operative word is qualified, those who realistically can manage a college education.  It is ridiculous to assume that 100% of us are capable of a college education and there is nothing wrong with that.  Any and all work is noble with or without a college degree.

Each of us should aspire to the advise of Kipling to the young man–“To walk with Kings–nor lose the common touch”  www.olcranky.wordpress.com

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Money, Money, Everywhere

You have certainly heard the references to Bernacke over the last couple of years as “helicopter Ben” because of the allusion that he would simply fly over America and dump money out of a helicopter to stimulate the economy.  Of course we are too well aware that the trillions of dollars dumped into the economy was not that evenly spread.  Perhaps all that stimulus money would have done more good if it had been dumped from the helicopter rather than the methods employed by the Fed in reality.   Of course the Fed was not directly involved in the TARP funding, that was a Treasury action, but they made if possible by printing more money for Treasury to buy those bank stocks rather than the “toxic assets” they said they were going to buy.  Again, we probably would have been better off it they had bought all those bad mortgages. After all the government, us, owns over 90% of all the mortgages out there through Fannie, Freddie and the FHA anyway. 

Then the Fed bought over a trillion dollars worth of bonds, mortgages and Treasuries in ’09 to facilitate the government’s “Stimulus” bill rammed through by the Democrats.  On top of that there was the Obama budget with its built-in 1.3 trillion dollar deficit which had to be funded somehow and yes, it was with more debt.  That was mostly through the sale of Treasury bills and notes which were primarily bought by the banks and foreign entities, can you say Chinese?   The banks got their money to buy these Treasuries, from you guessed it the Fed.  Now the Fed is actively talking about doing another round of quantitive easing, that is buying more Treasuries to the tune of a trillion dollars in the near future.

Most people don’t realize how that actually works.  What will happen usually is that the Fed will go to individual banks and buy Treasuries from them at a profit.  Remember that the banks bought these in the first place with TARP or discount window money and almost zero interest rates and were making a profit without having to administer anything.   These Treasuries will be sold at a profit to the banks.  That is how the Fed gets more money into the economy.  From a technical stand point that makes sense as the banks are the conduit for the flow of money into the economy.  But the rub is that where does the Fed get the money to buy all those additional treasuries?  They are the only entity that can create money from nothing.  They simply print up more money to give to the banks.  There is no inherent worth behind those new dollars they are merely pulled out of the Fed hat like the white pigeon from the magician’s bag of tricks.   That is inflationary.  One day you had x number of dollars in the economy and the next you have x plus y but without any increase in real economic output or activity.

All of which brings us to the interest rate on the Treasuries at the moment.  The 10 year note which is the more or less the bench mark pays a yield of about 2.40 at least as of last Friday.    So you invest say 10K and you get only $240 a year in interest.  I know it is not a true interest payment but for illustration purposes it is accurate.  Interest rates and returns on investment are always related to the amount of risk involved in the investment whatever type it may be–stocks, bonds, Money Market accounts, Treasury bills or whatever.   I completely understand the arguments about safety and that many investors and investment funds are seeking security and a high degree of safety with their money.  This is especially true since Obama was elected with all the uncertainty about taxes, regulations already on the way and the promise of even more to come if the powers that be in Washington remain in p0wer.  This is exacerbated by the hostile rhetoric spewing out of Washington like a steady drum beat for the last couple of  years.

Why would anyone accept such a low rate of return?  I think those who are only thinking of safety are myopic.  What good will the safety do them if inflation takes off again and the dollars they receive years from now on their investment won’t pay for cab fare?  The uncertain future of the value of the dollar is reflected many believe in the recent rise in the value of oil, gold and silver and other commodities.  That is probably true to some extent.   But why are billions of the Treasuries still be sold at such depressed interest rates?  The Chinese will continue to buy for a while because they need our consumers and our markets for their products.  But someday it will be a revelation when many investors realize all at one time that the  Emperor is not wearing any clothes.  After all several nations have defaulted on their debts in the past;  many European and a few Latin nations are near default again and have only avoided it with help from the IMF or the European Central Bank.  We have no guaranty that our debt is sacrosanct.  

When the day of revelation comes everyone will still be willing to buy the Treasuries, especially the big banks since they are regulated by the seller, but collectively the market will demand much higher rates of interest.  The risk is high of either default, partial default or inflation that devalues the investment and interest rates will zoom.  It can happen quickly.  Just like a street crowd when one person starts looking up, then another, then another, within seconds everyone is checking out the scene.  Watch the interest rates on those Treasuries for the early warning test for our future economic well-being.  The increase in interest rates will make our deficits and debt explode.  It will have an exponential effect.

At least with the gold standard governments could not manipulate the currencies or fiscal policies.  It has its drawbacks but also has its advantages. www.olcranky.wordpress.com

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Health Care Costs Without The Parachute

We are going to do a real brain teaser so sharpen your imagination and thoughts.  The country has endured endless debate and ultimately a mind-blowingly large health care overhaul.  You will recall that one of the major arguments of the proponents of the health care bill passed last spring was that it was a deficit fighter.  That health care change with government takeover of virtually the entire sector was essential to bring down costs.  It was argued that only government could do this.   It was offered as a way to reduce the deficit, the total US debt and “bend the cost curve” down in the out years.  You heard those arguments if you were awake during ’08 and into ’09.  The cost savings was a central mantra of the pitch for that massive 2700 page bill that Pelosi promised we would like once it was passed and we got to see what was really in it.

Of course this summer several major companies reported the increases to their costs for the Bill.  You will remember the WH yelled back saying they were just playing politics with the issue and trying to embarrass the President.  Then quietly the WH backed off because it became evident that those companies were merely doing what was required by law and if they hadn’t they would have been in trouble with the SEC for not making a disclosure of material information regarding their financial condition.  Recently, several insurance companies have submitted applications for increases in rates.  They are now having to cover more circumstances and take greater risks than before so, surprise, surprise, it will cost more for those risks.  The Secretary of Health and Human Resources has already lashed out at these companies too, accusing them of unjustified rate increases.  I don’t know how much each company is seeking but it goes without saying that there will be an increase; they can’t cover additional risks without all of their insureds having to pay more to cover that or they go broke which probably wouldn’t do anyone any good.

How about a radical idea for a change. Neither liberal or conservative.  Imagine for a moment a world with no health insurance, none, zip, nada.  None for individuals, union members, retirees, government employees.  No, really think about it and what would happen as a consequence.

First, there would still be a demand for medical services.  People would need care.  Those doctors and hospitals and specialty clinics would need to pay their bills and feed their families.  The competition for patients would be fierce and proactive.   The costs would drop, dramatically.   Each health care provider would be very interested in market share and volume.  Those MRI’s that used to cost $2000.00 would suddenly  be going for $750.00.   Those $800.00 a night hospital rooms would be $200.00 a night.  Doctors and nurses would make less but it probably wouldn’t be nearly as dramatic.  But the surgeon who used to charge $15,000.00 for a pacemaker would now be doing it for $5000.00.   The drugs and all other medical devices would likewise drop tremendously in price, they would have to because the patients couldn’t afford them anymore at the higher costs.  It doesn’t do a health care provider any good if it has the best product on the market but no one can afford to pay for it.  The price would adjust to the level the market (patients) could afford.

The savings would be in the billions.  Don’t forget too that there would be enormous savings in the health insurance premiums we all have been paying and those paid by our employers.  That would also be in the billions every year, year in and year out.

Now the patients, us.  First, the overwhelming majority of us do pay health insurance premiums each year and so do most of our employers.  Let’s be arbitrary but within reason to assume a family of 4 would have been expending $10,000.00 per year for insurance.  Now they have that money in their own pocket to spend as they think fit for their health needs.  They will be good consumers and shoppers.  It is their money they are spending and they will use it much more wisely than any government program.  That facts are that many of them won’t have to spend that much in any given year and would be thousands of dollars ahead each year.  Those routine visits for the kids and regular flu treatments and arthritis, etc. don’t and wouldn’t cost that much for a visit.  You can bet your bottom dollar for sure that they would all ask questions  everytime the doctor ordered and MRI or Catscan.  They would want to know why and what it cost and if there was another way to find a diagnosis without it.  Or here is an idea, maybe just wait and see what happens.  The old Hippocratic doctrine of first do no harm.  There are millions of people like me who hasn’t cost his health insurance company but maybe a couple of thousand dollars over the last 40 years.  I am healthy and work at it.

For those really necessary and expensive treatments like heart transplants or cancer treatments we would pay those out over time.  The cost for them would drop because of the competition but when they were still too high the banks and other lenders would step in and make loans to be repaid over time.  The health care providers would likely jump into that lending market themselves.  Remember, everyone would be saving money each year equal to the old premium they had been paying.  Over the course of years that would a very tidy sum indeed and could cover even expensive procedures if utilized for its purpose.

Yes, there would be the need for charity.  There would still be those who are down on their luck, suffer a permanent disability or whatever circumstance prevents them from having the ability to pay.  Almost every community in America already has a charity hospital and it is paid for with local taxes.  In our community it is hundreds of millions per year and there are private charities available.  There is lots of money already spent on those in need almost everywhere.  Those taxes are already baked into the cake as it were.   We haven’t covered all the issues that would arise but the basic idea of dramatically lower cost is sound.  That most people most of the time would save thousands per year from medical premiums to cover current medical needs is obvious and so is the fact that most, most years would have thousands of dollars left over to add to next year’s savings.  You think about it.  Do we really need government intervention?  Do we really need medical insurance?   The market is efficient if left to operate.  Not only is it efficient, it is fair as opposed to government picking the winners and losers based on status or political influence.

Edison, Bell and Morse all were prolific innovators.  They advanced our industrial development in an astonishing manner.  What is of current value to remember is that they did all that without any government grants or loans.  Today, the government has its hand in everything from clean energy to stem cell research believing that only it can provide the direction for the future.  Thank God it wasn’t around when those guys were at their peak.  They would have spent all their time doing grant applications rather than inventing things that changed our nation and the world.    www.olcranky.wordpress.com

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Government, Inc. With One Checking Account

Government, Inc. has been spending money like there is no limit to what we have or what we can afford.  I noticed on the news today that the majority of economists think the monetary policies of the Fed have been about right but that a majority of them do not like the fiscal policies of the government–it is spending too much and not collecting enough.  Our deficits have been bad on occasion from time to time but relative to our GDP they have been more or less manageable and there was some hope and general agreement that spending would be reined in.  You recall the Gramm-Rudman act that required balanced budgets except for extraordinary circumstances and other like proposals.  We have nothing remotely resembling that on the horizon now.    The financial situation for the country is scary and will impede our ability to do all we want and all we should in vital areas.   An honest and, dare I use the word, transparent reporting of the nation’s financial condition would be a wonderful first step for all of us–we peons out in the boon docks and our lord and masters in Washington.

It has occurred to me that one of the reasons we are in such a mess is that our accounting method is totally out of whack with reality.  We have so many operations of Government, Inc. that are “off the books” as it were or kept separately.  We don’t do a simple balance sheet for all liabilities and we sure don’t do a regular cash flow analysis that makes sense to the average Joe.  We are a nation of average Joes which our leaders seem to forget all the time.  If I were king for a day the first thing I would do about our financial affairs would be to insist on one checking account for the Government.    That would be a shocker for starts.  I would not allow all this separate accounting for the operations of government. Whether the money was going out for Social Security, the Pentagon, Medicare or food stamps or the pay the interests to those holding our bills and Treasury notes, I would require all the money come from one account and and that all the deposits go into that one account.  I know many say we already do that with the Treasury.  Well, technically that might be true but the various expenditures are not accounted for or reported that way. It is a mish mash. 

We all understand at the personal level  and even for businesses the need to balance our checkbooks every month.  The government should have to do that too.  Just like you and me and the accounting of that checking account should be on line every month.  No hiding the social security or medicare payments off in some other category or account.  All the checks would come from the same account and the deposits would go into that account.  It would be a genuine wake up call for everyone.  The reports we get now are confusing and frankly dishonest in that they don’t give a straighforward and accurate account monthly of our income and expenses.   They should have to list everything.  After all they spent the money.  Your bank statement each month list all your checks. The Government should have to do the same thing.  Every check for everything and to everybody.  We all have an interest in where the money is being spent.  If money is going to ACORN or to Americorp community organizers then I want to see it every month.  You pick your own pet peeve you would like to track.  Why don’t we have the right to see that detail.  It is our money after all, not theirs. 

Forget the details, the politicos would go ballistic with this proposals.  There is no way they would want us common folks to see the money going out the door in its gory detail.   Your bank charges you if your are OD or over drawn on your checking account at the bank.  You have to make a deposit or they will bounce your checks.  The Government merely prints up the extra money it needs but they should have to report that every month.  When the deposits don’t equal the expenditures they should show us the newly minted money deposits.  I want them to be accountable with our money.  I want them to quit playing games and consider it a “cut” in spending when all they do is hold an increase in spending for the Commerce department to 5% rather than the projected 8% increase.  That is not a cut and we all know it.  Like that old saying —show me the money, and now, show me the accounting.  Let’s balance that Government, Inc. checkbook every month and make available to the account holders (us) all the details, where every single check went.

Will the Israelis take out the Iran nukes before the end of the year?  That is becoming a more realistic question.  It is no longer in the realm of the hypothetical.   We need to prepare for those consequences.   www.olcranky.wordpress.com

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The Printing Press and Debt

Of late we hear many politicians of both parties talking about running up debts that will be a insurmountable burden on our children and grandchildren.  This is certainly appropriate given the scope and size of the proposed budget of the new administration.  The numbers are truly staggering and almost incomprehensible due to their size.   That budget is in addition to all the extra money that has already been authorized for the current crisis which if my math is right runs to over two trillion.  I mean there is the 700 billion TARP money, the 787 billion stimulus money and then the over 800 billion of special funding from the Treasury and the Fed for asset purchases.  The largest item on the budget will be the interest on the national debt.  It will even exceed the defense budget; that is even with the extremely low interest rates prevailing at this moment in time.  Those rates will change in the near future.

Surely you have heard the rumblings from China who holds a very substantial portion of our debt.  First they argued about our stimulus Plan and the Buy American provisions, then they start talking about the value of our Treasuries and then they float out the idea of a new currency to replace the US dollar in international markets.  They are concerned with good reason about not just our existing debt but about the fact that there is nothing in place to demonstrate when or how it will ever be reduced.   The proposed budget is for a ten  year cycle.  That is a pretty long time and it makes no effort to reduce debt.  Indeed it only projects very large deficits for the entire ten year period.  That assumes that the budget is accurate as drafted which the CBO has questioned to the tune of over 2 trillion dollars–that is the deficits will increase by that much more than the administration’s budget projects. I suggest that the politicians quit worrying about our kids and start worrying about us in the here and now.  Those numbers are so huge they can’t be shoved off that long.  Those economic and fiscal chickens will come home to roost long before even the ten years have expired.  

The question that isn’t being asked is how are we going to pay for this debt?   That is the critical question and its answer or lack of one will affect our fiscal and economic well being now and over the next decade.  Everyone keeps talking about an emergency and how something must be done now.  I don’t accept that premise myself but that is of no moment since we are in the water now and we will be getting wet.   If you run up large debts and go to the bank for more they will ask you how you intend to pay it off and when.  They will want to see the numbers to justify your repayment plan.  Those international concerns and nations that lend us money are just like a banker to the US right now.  We in effect deal with a consortium of “banks” which includes China, Japan the Mid East nations and other large investors around the world.  The budget assumes we will continue to be able to borrow from those folks on a regular basis ad infinitum without ever having to explain our repayment program.  The question of dealing with the debt should be asked to the Presidend at every news conference and of all administration officials without let up until we have an answer.   I don’t think we will like the answer and that is why they don’t want to give one.

Our lenders aren’t idiots and they know there is only three ways we can  possibly begin a repayment program on this mother of all budgets–raise taxes substantially, which will deaden economic growth here and abroad; default on the debt in whole or in part, a la Argentina recently; or simply print up more money which will inflate the dollar and make them worth so much less that our creditors would not be excited about the thought of being paid in dollars worth less.  Maybe they would almost be worthless dollars.   They have a right to be concerned.  The next thing to watch for will be a slow down in the purchasing of the US Treasury bills and notes.  The sales of these items are held on a regular basis.  Those foreigners buy them on a regular basis. They are selling well now because on a comparative basis our economy is still stronger than some others.  But that is short term thinking.  As the debt builds so will the international concern.  One fine day some of those foreigners, probaby the Chinese, will not make a bid as expected for our debts.  That will immediately raise the interest rates on our Treasuries and correspondingly reduce the exposure on our debt to them.   Watch for it.  Unless we get a sensible answer to the question about our intentions on the increasing deficits and debt it will happen. The only issue is when.  That will put the kaboosh on government plans pretty quickly.  The Government will print more money but folks won’t value it as before and the spiral will have begun.  Higher interest rates which will  mean even more debt, much slower growth because credit will be unstable, and at the same damn time we will have increasing inflation.  That is your future world if this budget and others similar to it are passed in this term of the administration.   There will be some short term improvement in the economy until the investors and trading partners realize we aren’t addressing the long term debt problems.  The Chinese are clearly already sniffing around for alternatives to loaning us money.  They have tremendous room to grow their internal economy for years to come even if their exports diminish.   We don’t have the same room for internal growth because we are already developed.

A penny saved is a penny earned if you have the penny in the first place.   A pretend penny you think you might have in the future that you don’t spend now is not earned.  But the Feds don’t seem to get that.

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Funding the Deficit

The proposed budget of the new crowd in Washington calls for deficit spending in huge amounts for years to come.  The lowest level of those deficits is over 400 billion and shows increases in the out years, climbing all the way to over 700 billion in ten years.  A deficit of over 400 billion would be huge headlines anytime.  Here we are contemplating deficits of much greater size without any end in sight or any coherent game plan to rein them.   I know about the current economic crisis and the need for some action or inaction to get our economy moving again.   Motion however does not equate to progress.   These numbers are without even considering the need to stem the increases coming for Medicare and Social Securityd benefits.  There is more blather in Washington about working on those matters but we have heard this story before.  Excuse me if I think it is the little boy crying wolf again.  We last did a major overhaul of Social Security about 25 years ago and that was after more than a decade of dithering and delaying the political pain of dealing with the problem. 

We will be spending lots more money than we will be collecting.  Firstly, tax revenues will drop in the immediate future because the economy has weakened and personal and business incomes will be lower and thus the tax revenues.  That can’t be denied; only the amount and duration of the revenue loss can’t be speculated.  The new budget also calls for increases in taxes.  People generally don’t like to pay taxes especially if they don’t believe them to be fair or that their use is for purposes that they don’t support.   With these increases now looming on the horizon and coming closer with each passing day people will start making plans on how to lower their taxable income.  The changes in the deductible items will also dramatically affect how people spend their money.   The fellow who could maybe make 265,000 a year might take a hard look at the numbers and decide he is better off making only 230,000  because the bulk of the extra income goes to the IRS.   I remember when  the rates were so high before Reagan and I did the same thing every year.  I looked for every conceivable deduction and spread my income over the years at every opportunity to reduce my tax rate.  Millions will be doing the same thing now.   Sadly, all the special interest groups and lobbyists will be beating the walls down in Congress looking for deductions or exemptions for all those groups, industries or unions.   You see it has already started with the charities.  It will only accelerate.  

As an aside I have often thought that we would be more willing to pay our taxes if we were allowed to designate the use of the money on our tax return.   Just like they have designated gifts to Churches and charities where the donor can specify how the money will be used.  It has to be used for that purpose and no other.  Some folks will give money to their church for the music department.  That money can only be used there.  Be interesting to see how the money would be allocated if the Government provided a form on the back of the tax return with all the Government departments and their numerous agencies listed there so you could allocate percentages for each one or none at all.  I wonder how much would be allocated for HUD for example or snail darter research in the EPA.  Would the EPA get enough to function?  What exactly does the Commerce department do that makes your life better?  By the way it employs 65,000 government workers doing whatever the hell it is they do all day long.  Yes, I know they do the census.  Do they need 65,000 full time for that chore once every ten years.  They hire a couple million extra for that anyway.

These deficits will be funded by issuing more Treasury notes and bonds.  So far we  have buyers because the rest of the world is also facing difficulty.  That won’t last forever and the worlds’ governments probably won’t run deficit spending forever like we are projecting.  Not to worry we are told because if there is not enough demand then the Federal Reserve will buy the notes when foreign demand wanes.  It will wane at some point or else the interest rates will soar on those notes and that will make the deficits even worse, much worse with the increased interest cost.  You should note that the so-called bell weather 10 year Treasury notes have already soared to 2.88% from  2.07% in the last 2 months.  That is a huge leap in that time frame.  Those notes are normally a sleepy backwater in the financial markets and moves are normally a few basis points in a week at most.   That move is a harbinger of things to come.  Yes, something wicked this way comes.  When the Fed buys the Treasury notes it does so by printing up the money and it is the most blatant of fraudulent dealings imaginable.  I mean can you loan yourself money?  Wouldn’t it be nice to loan yourself a million dollars and put that on your balance sheet as a real asset?  It is not real and that is the problem.  Printing press money only dilutes the value of the dollar.  Sure the dollar is ok right now and even moving up against some currencies but that is due to weakness around the world not because of great confidence in the dollar as a resevoir of value.  It is higher now only by comparison and again that condition will not prevail for as long as the deficits are projected to extend.  Those Treasury notes bought by the Fed will only stoke the flames of inflation and I worry that the Dems will return us to those glorious days of Carter all over again.  We’ve seen this movie before. It is “stagflation”.  High tax rates, very high inflation, shortages of essential commodities and a floundering economy and high unemployment.  Inflation plus the unemployement rate was called the “misery index”.  Never forget it is people with more money than you that hire you as an employee or give your small business a contract for work.   I promise you will never work for someone poorer than you.  

If the budget is passed as is and the future budgets in the near term and so many programs become entitlements that weren’t before, we face a difficult and sagging, limping economy for years to come.   There will be an economy.  Just nothing that will make you happy.  It is not morning in America right now but a long evening we face unless our course is changed.   We better change it.   We’ve let the inmates take over the institution.  It is crazy enough with sensible people running the place.

This is the week that Texas celebrates its declaration of independence from Mexico and the Alamo fell.  That band of about 185 men indeed became immortal with their stand.  It matches the heroics of the Spartans at Thermopilae and is a story known literally by peoples around the world. 

“The ancient insanity of governments: the mania of wishing to govern too much”.  Robespierre.   We need to listen to that butcher.  Even a villain can have a good thought.

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