Right Condition

Thoughts on Iowa results, what this means for Romney, Paul and eh...Santorum?

2012-01-04T13:08:00.001-05:00

Yesterday's results were a bit surprising for those not paying close attention when Santorum finished second in what can be best described as a dead heat. Paul finishing third was probably disappointing to some die-hard fans, but he had a good showing nonetheless and in line with previous polling data.

While I prefer to focus on more macro economic issues, I think it is worthwhile to at least briefly chat about the race. So what does this mean for the GOP and the candidates?

First of all, it is probably very difficult to predict based on Iowa's results how the actual race will unfold. Simply because America is a very diverse country and people's voting habits differ quite a bit based on their region. For example the folks that came out for Santorum in western Iowa simply do not exist in New Hampshire. Similarly the folks supporting Ron Paul do not exist in South Carolina, so forth and so on. Although Iowa's influence is undeniable as it propels candidates into spotlights as confirmed by Bachmann's campaign suspension, it is important to remember that the last presidential cycle had zero predictive value (Huckabee won, McCain finished 4th).

Indeed, it would appear that there is a more interesting dynamic at play here and this was the same dynamic that played out during the debate cycle. We saw an amazing number of people grab the spotlight only to flame out and be replaced by another bubble candidate. If you recall, it was Bachmann who surged ahead at first, only to be squashed by Perry who crashed and burned in the debates only to be replaced by Cain. Cain seemed to gain tangible momentum but the sexual scandals buried him and out came Gingrich. Gingrich peaked too early and gave an opportunity for Santorum to take hold and finish in an impressive second place. Why? Because a fraction of the GOP is simply not content and not ready to accept Mitt Romney as their candidate. They did not like him four years ago and they do not like him now. Hard to blame them, it is very difficult to like Mitt Romney. Romney personifies the stereotypical politician to the maximum and his track record as Govenor of Massachusetts leaves a ton to be desired. Yet Romney's finish in Iowa suggests that a certain faction of the GOP base. So it is clear that there are two distinct groups so far; Romney group and the non-Romney group. The fact that it is Santorum at the moment is not relevant at all and in fact, Santorum will cease being an important candidate by the end of January (although he might do well in South Carolina).

The question is, is there yet a third group whose leader at the moment is Ron Paul? Possibly, but hard to tell. Although Paul's performance in Iowa is commendable and he is poised to take second place in New Hampshire, it is a bit unclear as to what happens next. He could very well finish dead last in South Carolina (provided Huntsman drops out by then). There could be a very good explanation as to why Paul is polling so strongly in these states, but hovers around 10% on national polls. Paul's support could be stemming from non-Republican voters who will gladly support him in open primary states for their own personal reasons. They either want a candidate that truly represents their ideals, like ending wars and ending silly drug prohibitions or they want to sabotage the GOP by selecting what they perceive to be a weak candidate against Obama. I am inclined to believe that Paul could easily take on Obama, but liberal voters have a tendency to talk big, but act small and will invariably hold their nose and vote for Obama despite all the war mongering, civil infractions and continued drug wars.

In other words, Paul's position and support is yet to be determined. If indeed his base is real and represents a third faction within the GOP then we will have a very protracted and interesting primary season. If not, then Romney will sail into the nomination relatively easily as the non-Romney camp splinters and shoots itself in the foot over and over. Primarily because the non-Romney camp consists of a collection of candidates that have regional bases on support, but present no real threat to Romney on a national level. As I see it the regional locales will be: Huntsman in New Hampshire, Perry/Santorum in South Carolina and Gingrich in Florida. This spells good news for Romney.

This spells bad news for the rest of us as Romney represents more of the same status quo malaise that has dragged this country down into the pits. Romney's potential victory over Obama represents very little as there is no substantial difference between the two men despite all the colorful rhetoric.

Excessive force at UC Davis OWS protest?

2011-11-19T18:11:00.001-05:00

Everyone knows my high skepticism of the OWS movement as I have written previously about it extensively. However a video from what appears to be UC Davis of students being pepper sprayed strikes me as excessive, unnecessary and potentially dangerous. It is unclear as to what is happening and why, but one can glean the following:

1) This appears to be a university and the crowd consists of youth.
2) There are students who are purposely blocking a road/walkway of some kind, possibly preventing a police cruiser from driving through.
3) The students get pepper sprayed while sitting and then arrested.

I can't for the life of me understand why the police felt the need to cover students with noxious pepper spray before arresting them? As you can tell from the video the reaction of the onlookers was rather immediate and galvanized everyone against the police. While the video eventually turns into the typical OWS chanting it seemed pretty clear that there was quite a bit of tension as a handful of officers armed with more pepper spray and non-lethal weaponry were surrounded by an angry crowd.

This seems like excessive at best and potentially dangerous at worst. If this is indeed a campus and not a public street/road used for traffic then the action of the police offers is inexcusable. If the police felt the need to arrest them, then arrest them, but this is just fuel for a fire that will burn hotter and longer once the economy inevitably double dips.

Part 1: Is the love of money, the root of all good?

2011-11-03T22:48:00.002-04:00

You are probably familiar with the famous line from the First Epistle to Timothy in the New Testament:
"The love of money is a root of all kinds of evil", or the more commonly abbreviated albeit somewhat incorrect "Money is the root of all evil". We have been conditioned to believe that a love of money is something unhealthy and possibly abnormal, but allow me to simplify this further and show you that indeed the love of money is not only good and normal, but one of the pillars of America and the foundations of mankind.

First, what is money? More appropriately, what is money supposed to be in the most fundamental sense? At first blush, money is used to "buy" things, but what is the action of buying? Buying is the same as trading, except that you trade money for goods and services, selling is trading goods and services for money. Money has no other purpose, it functions as the primary tool for trade. That begs the question, why are we trading?

Presumably there are several important items that humans need in order to live and even more items in order to not just live, but enjoy life. Some of the most obvious items include food, water and probably shelter. In more adverse climates some kind of clothing. In order to acquire food and water and so efficiently the human requires tools. We can extrapolate forever, but lets stop right here.

Meet ZugZug!

ZugZug is a young, capable and clever cave dweller in the year 10,000 BC. Winter is quickly approaching and although ZugZug is a skilled forager, it takes him almost the entire day to harvest enough berries/mushrooms/plants to keep himself full in these chilly days. ZugZug comes across another sensible caveman, by the name of BugBug who happens to be a skilled trapper. Problem is, eating squirrels all day long is boring and BugBug developed a hankering for something new and exciting. So Zugs decides to trade, now both Zugs and Bugs have applied their skills and created a far richer diet - through trade. Of course Zugs is still naked, which is fine, but BugBug has gotten fat off the squirrels and needs to be clothed, if only for Zug's sake. Thankfully Zugs is acquainted with the perpetually hungry MagMag who is really good at crafting warm coverings for the naughty parts from the fur scraps left over by BugBug. All three decide to trade their goods and are now suddenly all fed and clothed to boot! I can probably keep going until I run out of idiotic caveman names, but I think you get the idea.

Trade is essential, it keeps society functioning and makes life better! However you can also clearly picture a scenario where trade becomes quite complicated as it always assumes that whatever you want to trade for is desired by whatever you are willing to trade away. Maybe, just maybe once Zugs acquired enough of MagMag's shoddy squirrel undergarments he no longer needs any additional pieces of clothing. But what if he decides to keep on trading and accumulating clothing. He can then stockpile enough of these garments and may even consider traveling to the village up north where the diet is more interesting and the clothing can fetch him something other than berries and squirrels! What has ZugZug actually acquired? Private property.

In fact, if he were so keen as to dig a hole in that cave of his where it is nice and cool then he could even keep some of the leftover grub, thus yielding you not only furs, but berries and meats. Piles of private property. Imagine also that ZugZug was able to trade for a spear, two knives and this large round thing with a hole that he is not quite sure what to do with, but apparently is all the rage. Either way, he has more and more private property, property that makes life easier! In fact with the private property Zugs can now hunt for squirrels with the spear, skin the animals with the knives and for a lack of a better idea plant a nice flower in the big round thing!

How do we call this accumulation of private property? We can call it wealth.

ZugZug is wealthy, for in that particular society he has everything in order to be well fed, rested and happy. Life is good. Now imagine that BugBug and MagMag were also able to acquire the same items, then everyone is wealthy, life is great!

Where does money come into the picture? It comes in quite naturally when the number of items that one exchanges is so great that trading becomes too difficult. After all, the last thing Zugs wants to do is run around like a chicken with his head cut off trying to find someone who needs the latest squirrel sock, because he happen to fancy the new spear (made with extra thick twine), but the spear owner is looking for two of those round things with holes in it for some inexplicable reason. Just becomes too damn confusing.

Now imagine we just got the past the whole "stone age" thing and tools are now made out of iron. In fact almost everything is made out of iron. Tools, shelter items, weapons and even belts! Everyone needs iron, everyone. Since everyone needs it, iron can now be used as the universal medium of exchange. Gone are the days where ZugZug needed to swap with BugBug and his entire extended family. As long as one had chunks of iron, the one could acquire *anything*. In fact at this point, storing berries and excess tools and weapons just for trading is no longer necessary. Not only do berries go bad, but hauling all that private property everywhere is cumbersome and hardly practical. Not to mention paying that idiot Bubba with endless supplies of different foods just to make sure that nobody steals ZugZgu's furs.

So what do we have?

We have iron, that allows for trade. Trade allows for everyone to get and exchange items they require which eventually leads to more and more people accumulating private property. This leads to a wonderful and fulfilling life. In this case iron is money. Money is therefore essential in making people happy, quickly and efficiently. All that is good was acquired by money.

Money is the root of all good.

Now pretend that everyone is happy with trading iron for goods. Yet somehow, with no real explanation every village becomes overrun with endless supply of iron from a mysterious source. At first, everyone is absolutely delighted for all the potential private property they can acquire. Until of course they learn that more and more iron is required to trade for the same berries, furs, meats and tools.

That my friends, is called inflation and will be explored in the next installment of ZugZug and friends.

San Francisco news purposely showing Mayor Jean Quan as a Republican.

2011-11-02T12:57:00.001-04:00

Oakland is in the news, as it should be given the police violence that occurred there during the encampement clearing last week. Although the police were provoked to violence by having bottles and rocks thrown at them their response has been deemed disproportional. One can agree with that.

What is equally interesting is the handling of the entire situation by Mayor Quan. First she coddled the protesters and left them alone. Then she requested the police to move in and clear out the encampment. Then she apologized for the way they were treated, vilified the police and allowed the protesters to return. All of this is costing the city hundreds of thousands of taxpayer money. A city that is financially strapped and cannot afford excessive waste. In spite of that, Mayor Quan is now supporting and endorsing a general strike by the protesters.

A strike like this will have massive financial implications on the city in the form of lost productivity, but the police are also prohibited from participating in the strike and in fact are being beefed up to insure that the strike remains peaceful. A strike that is encouraged and promoted by the very establishment that the strike is aimed at.

This has prompted the police of Oakland to write a public letter stating their confusion.

Meanwhile, Oaklanders are equally confused by Quan's bipolar handling of the situation and are giving her alarmingly bad approval ratings. From the SF CBS 5 local station poll:

"As for Quan, the CBS 5 poll found her approval rating is now a dismal 20% — with 64% of Oaklanders disapproving of the job she is doing."

In true California glory, a Mayor that disliked and that foolish as to purposely bring down the finances of the city *has* to be a Republican.

Below is a picture of the website from last week, with the party affiliation highlighted in red.

I am sure this is just an "honest" mistake, but it is one of those things that formulates public opinion and was done entirely on purpose. In case you think this is a fluke, they did it again five days later.

Mayor Jean Quan is a member of the Democrat Party and considered to hail from the Progressive wing of the party according to APAP.

Nice to see the Propaganda Ministry working overtime.

Oakland police did not violate anyone's first amendment rights.

2011-10-30T11:04:00.001-04:00

Quick and important observation. After last week's crackdown of the Oakland occupiers many accused the police of willfully disrespecting the right to assemble and petition the Government. What made me especially suspicious is that Oakland is generally a pro-OWS area. That is to say, the politics and the current mayor are likely allies rather than enemies to the underlying message of the movement.

After digging around it seems that indeed, police responded rather than initiated the violence. Allegedly the police complained that they were being pelted with stones and bottles, either as a form of provocation or as a response by the protesters for being removed from the park.

Now it is very simple you see, the local police have their own set of laws they follow and can react accordingly within the larger prism of the Constitution. So you may have a right to assemble, free speech and protest - but your right becomes impossible to perform if you attack a police offer because they have a right to restrain you. This is what happened, although the restraining was in the form of tear gas and flash bangs. Disproportional response? Possibly. However it is far from the one sided "policy brutality" nonsense we have been hearing all around. Perhaps the provocation worked as planned?

Here is a video of an Oakland protester admitting that the police were indeed being pelted with objects.

Latest poll confirms; OWS is an extremely Leftist movement.

2011-10-29T00:33:00.001-04:00

It has been quite a struggle to point out to people just how Leftist the occupy movement truly is. What makes it more frustrating is that certain "libertarian" bloggers and other individuals who are sympathetic with the underlying movement are either turning a blind eye or plain ignorant about the makeup of the protesters.

I have tried to present pictures and ideas, but am still accused of generalizing and blowing things out of proportion.

So a recent poll conducted with 301 protesters is shedding quite a light and confirming many of my suspicions.

Some of the highlights:

15. What is your employment status (check one)
Student………………………………………………………….25
Employed full-time……………………………………………..30
Unemployed…………………………………………………….28
Employed part-time…………………………………………….18

Fascinating. 70% of the protesters are either students, unemployed or partially employed. So much for representing main stream America.

1. Do you approve or disapprove of the way Barack Obama is handling his job as president?
Approve……………………………………………………..27%
Disapprove…………………………………………………. 73%

Obama is economically, a very liberal president. He believes in distribution, bailouts, corporatism (biggest recipient of Wall St. donations, auto bailouts), green technology to the point of stupidity (Solyndra), class warfare and other popular Lefist rhetoric. Despite all that, he is getting major disapproval from the OWS folks!

3. If the 2012 election for the U.S. House of Representatives were being held today, would you
vote for the Republican candidate or the Democratic candidate in your district?
Democratic candidate………………………………………42
Republican candidate………………………………………...4
Wouldn’t vote……………………………………………....22
Someone else……………………………………………….32

While these folks are disillusioned with Obama, they still prefer Democrat over anyone else.

5. Is your opinion of the Tea Party movement favorable, unfavorable or haven’t you heard
enough about it?
Favorable……………………………………………………..7
Unfavorable…………………………………………………75
Haven’t heard enough……………………………………....18

This one is no surprise, but for the pundits out there claiming that there are many similarities between Tea Parties and OWS - firstly, completely incorrect and secondly, a vast majority disapproves of the TP suggesting there is no appreciation for the perceived commonality.

...and the two big ones...

8. Generally speaking, which of the following political parties do you identify with most closely?
(check one)
Democratic…………………………………………………25
Republican…………………………………………………..2
Tea Party…………………………………………………….0
Socialist Party……………………………………………...11
Green Party………………………………………………...11
Other……………………………………………………….12
I do not identify with any party……………………………39

17. When it comes to politics, do you usually think of yourself as (check one):
Extremely liberal………………………………………………….39
Liberal…………………………………………………………….33
Slightly liberal…………………………………………………......8
Moderate/middle of the road……………………………………..15
Slightly conservative………………………………………………2
Conservative……………………………………………………….3
Extremely conservative……………………………………………1

Right. So we have 11% admitting to being Socialists. Green party in the US share many platforms of Socialism, but to be generous we will attribute only half of those to Socialism. There is an overwhelming amount that does not identify with any party, so we look at question 17 instead.

With 39% identifying as extremely liberal it is the equivalent of modern day Socialists. Another 33% are liberal, from my experience half of the people who admit to being liberals sympathize with *some* elements of socialism. We can confidently say that 55% of the people asked prefer some kind of Socialism in this country. Going back to question 8, the lack of identification combined with Socialist/Green Party identification is about the equivalent that one can deduce from question 17.

Therefore, we can declare two obvious things.

First, there is a vast animosity to the Tea Party - a perfect ideological opposition. If a majority of Tea Partiers believe in limited government, constrained Federal power and libertarian ideals then the OWS movement endorses big government and more Federal power. A perfect opposite ideology of the Tea Party is the Socialist party.

Secondly, half of the respondents openly admit to being either left or extremely left of center.

Anyone who claims or thinks that OWS is some kind of organic movement representing a legitimate voice of middle class America is smoking something super potent.

Wall Street responds to the OWS movement.

2011-10-26T17:43:00.000-04:00

A reader passed this link along and I am compelled to share. This will of course not endear the movement to the wealthy and in fact reads more like a threat than anything, but is impossible to disagree with.

Most important point is that people are looking for a scapegoat.

Indeed when this country was juiced up on Fed funny money nobody was complaining. When people extracted equities out of their house to go on vacation nobody was complaining. When employment dipped under 5% under Bush nobody was complaining. When every mutual fund under the sun was making money by just buying and holding and 401ks ballooned, nobody was complaining.

Yet when the credit stopped flowing and the poor investments had to be erased then came the pain. Lots of pain. Instead of biting the bullet and bracing for austerity ACORN, unions and other radical leftists decided in the wisdom of Rhamb-o to utilize this crisis as best as possible. Ahh, people will never learn. Yesterday's Jews are today's Wall Street executives.

Second point, what will happen if indeed some of the most hard working and educated Americans decide to leave their reviled jobs and enter mainstream America. Not only will this have the same negative effect as the luxury tax did once their money dries up, but the last thing we need is more labor competition in a country where bankruptcy and downsizing awaits.

Response: (click for larger image)

OWS is a hard left movement. Warning: Graphic imagery.

2011-10-24T23:37:00.004-04:00

I have been getting some push back recently for my previous articles where I accuse the OWS/Occupy movement of being a bunch of socialist nutters. In fairness, I have also called them anarchists (socialists in disguise), Truthers/conspiracy fringe (they will protest regardless) and *even* regular people too. However it would be foolish to consider this movement as some kind of representation of middle class America, that it most surely is not.

Does it make me some right-wing extremist? No, I am simply making observations on the mountains of visual and audio data that is streaming from around the world. The comparisons with the Tea Party are absolutely laughable and simply shows how clueless people are when it comes to identifying basic ideological differences. Just because the Tea Party and OWS happen to object to TARP means absolutely diddly squat. It's like saying that Ron Paul and Bernie Sanders are ideologically compatible because they both oppose the Federal Reserve. At that rate, Obama is identical to Jim DeMint else because they both prefer oxygen.

See, Tea Partiers, before they got hijacked by Republicans were against TARP because it disrespected Capitalism and was a clear sign of cronyism. OWS is pissed off over TARP because it just happened to benefit the "enemy" which in this case happens to be wealthy bankers. Normal rational people do not hate or dislike successful people just because they have more, they dislike them when they no longer play by the rules. Capitalism is all about rules and playing the game within the confines of the laws established by the people. OWS could care less about capitalism, always favored socialism and hate the rich - they are just using this crisis as a staging platform.

Remember folks, OWS started first and foremost AGAINST budget cuts during the debt ceiling negotiations. That is right, despite being broke and being crushed by our mounting debt - the OWS movement organized itself against Federal budget cuts! Any libertarian who supports this absurd movement is siding with people who are fundamentally against limited Government. It is pathetic.

In case you are skeptical of my claims, observe the collection of pictures from various OWS movements around the world.

Then go over and watch a video of two clueless fools calling for Socialism while presenting North Korea as their model of success.

Calls for left wing coups. Wonderful.

( Lovely poster, what does it remind you of?)

...*sigh*...

Wealth inequality in America, understanding the source.

2011-10-22T17:11:00.003-04:00

With the OWS movement leaving many Americans confused as to whether they should support or stay away, one thing is for certain, Americans are aware of a certain truth that is happening in our country. We have a certain combination of events that is leaving many people struggling and asking very good questions.

The truth is this; We have structurally high unemployment, salaries are stagnant, debt burdens are rising, costs for education, health and energy are on the rise and we are increasingly overwhelmed with clear and present danger coming from every corner of the earth.

To make matters worse the ruling elite of this country and the very wealthy are continuing to benefit while the remainder of the population struggles. This is the appeal of the OWS movement despite the fact that the members making up the movement are advocating entirely unappealing solutions in the form of wealth distribution, punishing success and other hard left ideologies.

Of course in a country where American Idol and the Jersey Shore are better known than who currently runs the Federal Reserve it is hardly a wonder that cries for Socialism just sound appealing. To further exacerbate the overall ignorance of the populace our education system and emphasis on history and economics appear to be tilted in the direction that highlight correlation and anecdotal evidence rather that fundamentals and causation.

So let us tackle this "explanation" of inequality which is now being circulated on the internet and shared on Facebook with proud posters feeling rather enlightened about their "discovery". Unfortunately the explanations are nothing more than illusory and are further fueling the partisan divide and the protests against the "haves" of the society. The explanations either blame capitalism or Congressional policy favoring the rich.

Consider for example: Plutocracy Reborn by Business Insider which attempts to convince the readers that it is our policy that is causing another Great Depression in America. Without digging deeper than the surface they present for most people what appears to be a very convincing argument as to why the current Congressional taxation policy has created our wealth gap.

Another example: It's the inequality, stupid by Mother Jones showing a combination of pretty charts, graphs and bubbles that all attempt to convince the reader that the policies of America are entirely responsible for all the inequality in this country.

Too bad both sources are wrong. They are showing the effect, without any explanation.

It is easy to scratch the surface, notice a correlation and run with it. So stick with me for a little bit and I will show you the simple truth. Yes, we have inequality, but this inequality is neither driven by the free market nor by tax policy.

I have taken the plutocracy picture and placed two graphs under it:

What you are looking at:

Top - Average income and the uncanny relationships between inequality and economic calamity.
Bottom left - Monetary base from 1918 to 1930 (amount of money controlled by the Federal Reserve)
Bottom right - Interest rates from 1954 to 2010.

I have also added green and red lines that clearly demonstrate the relationship between the amount of money in the system and income inequality, these lines match the years perfectly and as you can see are inversely correlated.

Note regarding the bottom charts. The left chart is the monetary base, or amount of money sloshing around in the system, while on the right is a graph of interest rates. They appear to be inversely correlated in their effect on income equality, because they really mean the same thing. That is, cheap interest rates promote monetary expansion. Although we have no historical interest rate data going back to pre-Depression levels we can see that money *did* expand during that time. Thus the behavior of monetary expansion in the 1920s and the 1980s-2010s was quite similar!!

If you treat money as a commodity, which it should be, then like any commodity there is a price. We can measure the price of money by either looking at its value as it relates to other money (Euro vs Dollar) or its purchasing power or the rate of interest. Interest rates are always a measure of how valuable money is at any given time. If money is scarce then the interest rate is higher, if money is widely available then interest is lower. Right? Good.

As you can plainly see our centrally planned authorities dictate the price of the most vital and precious aspect of our economy, our money. When these authorities incorrectly price our money we develop massive distortions. The red and green lines coincide perfectly with rising and falling income inequalities!
When money is cheaper or more readily available then the very rich benefit the most.

Why does this happen?

Because money is priced through the banking system. That is, the quantity of money increases (when rates are low) through the banking system first and then into the general economy later. Therefore banks benefit first and foremost as they are the recipients of newly created money, while the rest of us poor shmucks see this increase in money through price increases. If you think about it, provided production capacity remains the same then the price of all goods invariable increase *if* the supply of money goes up. Yes?

So what does that look like?

Observe the massive price increase that began to occur around the 1970s. There were two things that happened in the past 40 years that contributed to this jump.

1) 1971: End of Bretton Woods and the US Dollar disconnecting from any material store of value (gold).
2) 1982: A thirty year prolonged effort of systematically lower and lower rates, thus making money/credit cheaper and more plentiful. As you can see in the first chart, we have now reached the floor at 0% interest rates or in more simpler terms the price of money is the lowest it has been in history.

Are there other effects of cheap money other than price increases?

Yes, salaries tend to go up.

Unfortunately the rate of salary increases does not keep up with the rate of price increases. You can tell in fact that at the moment of the writing real income is now lower than it was before the recession of 2008, yet price increases are at their highest!

Why does that matter? Because of the following:

Source

Rise in prices affect the lower income families the most. It is useful to look at the expenditure ratio of things like gas and food because these items are required for survival.

You need food and energy in order to produce and build capital. Without capital there is no wealth.

Visually the picture is starting to coalesce. The lower income families are having a harder and harder time building capital because they are spending at least half of their entire income on survival! The bad news does not stop there unfortunately because the price of money causes yet another distortion. It forces people to move potential capital into acquiring tangible goods instead of actually saving the money for more prudent purchases or investments.

This is the sad state of our society over the past 30 years:

As money becomes cheaper and more plentiful the rate of savings decline with it. This was happening DESPITE the fact that prices for all items were going up. Essentially this means that Americans were spending more and more, but getting less and less for it while diminishing their capital formation (wealth). The curiosity here is that with price increases one would expect people to spend less and save more, this is not happening. A disturbing distortion as it appears to be going against human nature.

You could argue for instance that purchasing items can be translated into wealth, but that is only true to a limited extent. Most items that you buy depreciate and this is is precisely why gold was always used a store of value, it never depreciated. Housing was another popular item for storing wealth, but houses also depreciate and the past few years demonstrated just how sharply prices can decline in what appears to be a traditional "store of value".

So what is the conclusion here?

In order for more and more Americans to participate in the American dream, there needs to be an accumulation of wealth. Wealth is accumulated through capital formation or more simply put, saving money. Saving money is effective only when the savers are guaranteed that the money saved provides the same purchasing power before the saving, as it does after the saving. In a climate where the amount of money is constantly expanded the saver gets no such guarantee. Incidentally, people chasing stocks, houses and other risky mechanisms for capital formation are doing so precisely to mitigate the hardship of saving in the western world.

In order for money to be saved there must be excess income generated after the staples have been purchased. As we saw up above, due to massive price increases due to money expansion the amount of disposable income is constantly being reduced. The days where a man could provide for his family and send kids through college are long gone, price increases cause this and nothing else.

The last consequence of cheap monetary policy, credit. Because money is cheap, debt is spurred. Therefore people can much more easily accumulate debt because the interest paid on this debt is "negligible". So not only are Americans not saving, but they are spending more and more on goods that they technically should be *not* buying. Whether that is electronics, cars or houses matters not. As you can see, the appetite for consumption has steadily increased:

Credit expansion causing housing bubbles is nothing new, consider for example the Florida housing bubble of the 1920s.

Unfortunately when large portions of income are spent on survival items, savings are destroyed and debt obligations rise - you are left with nothing...hell, nothing would be preferable to the mountains of debt that people have accumulated.

This is the source of our income inequality, this is what happens when the free market and capitalism are replaced with central planners and cronyism. This is our America.

Now what will you do to change it?

No, actually I am the 99%.

2011-10-16T01:53:00.001-04:00

"We are, the 99% - we are, the 99%". This is the chant from the multiple 'occupy' movements heard around the country and as of recent times, around the world. As my previous article indicated, this particular movement is an amalgamation of socialist fringe elements, unions, leftists, angry liberals and an assortment of libertarians/conspiracy theorists and yes, even average Americans. However I would like to take this opportunity to invite you into my personal life and show you the real 99%.

My parents brought me to America in 1988 from Soviet Russia where life had become so unbearable and so awful that for the sake of my future and my soon to be born brother's future, everything was left behind and opportunities provided by the free market and capitalism were chosen. The very thing that the protesters now demand to be destroyed was entirely non-existent in the USSR and life for many consisted of nothing more than survival. Unless politically connected people acquired nothing, had nothing, had no hope, had no inspiration and no imagination. It was a "life" that many North Koreans and Cubans still experience, perhaps without the gulags as those have at least shutdown with the passing/murder of Stalin. Still, gulag or not, life where private property did not really exist was just barely existence. The Bolshevik revolution certainly started with far more benevolent desires. A war against the wealthy and the worker's socialist utopia involving the distribution of wealth with the ultimate goal for everyone to have as much as he/she can - never live in poverty, never be hungry and always be content. We know how that turned out. Despite what some clueless America college graduates like Jon Phoenix from the Occupy Boston movement thinks, Soviet Socialism did not fail because there was a lack of a Democracy, it failed because without private property and without the free market there is no desire or capacity to create a better you, better me or better world. I would refer our future Leninist thinker to F.A. Hayek's Road to Serfdom for a clearer explanation, but one requires a tad more than fantasy to formulate cogent thought.

I got my first job at the age of 12, delivering the Boston Globe in my neighborhood. It was very hard work, but I had no choice because my grandparents refused to hand me quarters to play Street Fighter at the local theater. If I wanted to play games, I had to work for it. After paper delivery came grocery bagging, then working at Hollywood video, mixed in with shoveling snow during our crazy winters. With manual labor losing its appeal my interest in computers lead me to the library. I rented several books and learned how to design web pages, navigate UNIX and even started learning C (condolences to the Ritchie family). My inspiration was my father who worked in the software industry and from our first day in America refused to accept one dollar of welfare despite speaking barely any English. Instead he lied to his first employer about his knowledge of a particular programming language and then learned it on the fly without the employer suspecting anything out of the ordinary. Sophomore year in high school my dabbling in web development lead me to a webmaster job at a local PR firm. All during high school I avoided spending money recklessly and unlike my friends bought clothing very rarely and avoided restaurants. I was labeled cheap by many, but it was preferable to be labeled something then go into debt.

I went to a state school and gave everything I accumulated to my parents who then fielded the remainder, poor grades in high school did not merit a more expensive college. Combined with loans and parents' generosity I graduated from Penn State with only 15k in debt. After graduating with a Computer Science degree my first job resulted in a very poor salary (under median income). So I decided to live at home and spend every dollar I made to reduce my school loans. Took a while, but it finally worked. To make additional money I went back to books and learned how to navigate and trade the stock market and play poker online competitively. Both of these resulted in small, but important cash flows that allowed me to buy a used car to replace a hand-me-down that broke down. There was an opportunity to buy a much nicer and newer car, but getting yet another loan after just paying off my school loan seemed entirely asinine. My position was terminated in about two years and I went looking for a new place of employment.

I interviewed for a long time until finally landing a new position. It took many months of studying, prepping, practicing and honing my skills to impress my future employer. I studied, learned and worked overtime as often as I could to impress my new boss and it began to pay dividends. This was roughly six years ago and my salary went from below median income, to slightly above it and then doubling it in five years.

Then came the decision to purchase a home. At the time my salary allowed for a $300,000+ home, but it became apparent that assuming such a debt burden would be too crippling so I settled for a townhouse for $219,000 instead. It was far from Boston, but it was all I could really allow myself to spend. During that time I tried to do as many improvements as possible by myself in an effort to save money, once again, dad's knowledge and assistance helped immensely. Still, my frugality never diminished. My clothe shopping, going out habits and even large ticket item purchases remained virtually unchanged. In fact I sold my car because the upkeep, insurance and gas mileage were too expensive and downgraded to a Nissan Sentra which now results in slight ridicule from my friends. Whatever, rather get ridiculed and get 31 MPGs then pay out the nose for a slick looking Audi or Mercedes.

Living within my means is still a top priority.

This means: I do not have a smart phone, I cook instead of going to restaurants, I do not have HBO, Cinemax or anything other than basic cable. I buy clothing when my existing wears out and becomes so old that even the Salvation Army regrets accepting my donation.

Perhaps for the many protesters currently occupying our streets this may be a very sad existence, but it is what I deserve based on my abilities. Yes, I wish I was born a genius or a super athlete or had family connections to get me into lucrative banking, but alas, I am just an average ~~Joe~~ Arkady. We are not all born equal, such is life. I repeat we are NOT born equal, we simply demand that we have equal opportunities.

So why tell you all this?

Because I am the 99%.

I am now paying almost half of everything I earn in taxes and more awaits me if I get promoted. 25% for federal, 15% for Social Security/Medicare (money I will never see again), 5.3% for Massachusetts and almost 4% in real estate taxes. This does not include the sales taxes, gas taxes, license fees and other hidden costs. My health care costs are staggering and currently standing at over $2,000 in premiums alone with thousands upon thousands of hidden costs that are absorbed by my employer at the expense of salary. Before you ask, this is the cheapest plan available to me and one that I must purchase or be penalized thanks to Mitt Romney and other bastard politicians dominating this state.

I am the 99%.
Not the 42% on food stamps.
Not the 33% on Medicaid.
Not the 47% who did not pay a penny in federal taxes last year.
Not the millions on welfare, on their way to 99 weeks of unemployment.
I am the 99%.

Do I wish to live right in Boston? Drive a nice Mercedes or BMW, shop at Banana Republic and go out to eat every week? YES. Very much so. However that would require spending almost everything I make today and possibly even borrow from the future. A model practiced by our Government and many of my fellow Americans. How do I know? See for yourself:

For thirty years the American people, American Government and the financial sector accumulated debt. This debt is now starting to destroy everything. This is why half of my income now goes to pay for the food stamps, medical care, housing subsidies and welfare of my fellow citizens. Our profligacy now stands at almost 50 Trillion!

Yet the amount taken from me still pales in comparison to what is taken from the 1% of the American population. A visual representation once again speaks volumes.

So to all the protesters claiming to be the 99%, here is a very simple request.

If you are the 42% on food stamps. Go home.

If you are the 33% on Medicaid. Go home.

If you are the millions on unemployment. Go home.

If you are the millions on housing subsidies. Go home..

If you went to college and willingly took on debt, but can't use your anthropology, english, economics, art history <insert useless degree here> to find a job. Go home.

If you have never had a job and paid income taxes. Go home.

If you have exhausted all your federal benefits, but still struggling. Go home.

If you have taken on debt that you cannot pay back and are angry at Wall Street. Go home.

For those that remain, please redirect your misplaced anger and embrace the following real and legitimate issues.

- Our Government should spend money only those things the State cannot provide. This means end all spending on education, energy, agriculture, parks, welfare, food and housing.

- Our Government should protect the best and most effective economic model in history, the free market. That means no cheating, exploiting and lying. Allowing certain corporations to get away with what others cannot is called CRONY capitalism and while the name may sound similar, has nothing to do with the free market. That means NO Tarp, no auto bailouts, no tax breaks, no loopholes, no subsidies, no loans to failing solar companies and no special privileges to anyone or anything. That also means those that break the rules are punished and jailed, something we have not seen during the start of the crisis in 2008.

- Our Government must allow competition in money. That means no more manipulation of interest rates by the Central Bank. No more punishing savers, punishing capital formation and forcing the 99% of us to chase risky assets just to keep up with inflation that benefit certain banks that happen form the Federal Reserve structure. Repealing the Federal Reserve Act of 1913 and returning money to the States.

- Our Government, should live like the 99%, that is, within its means. No more borrowing until the existing debt is reduced to $0.

- Our Government should embrace fairness. A system where half of all Americans pay for the other half is perverse and wrong. Do away with the current tax system that benefits the powerful and the privileged, this will automatically kill lobbyists and the power to dispense special favors. Then collect an equal share from every single person. Provide an option for the wealthier to donate more if necessary, call it the "Government spends money better than You, please donate" Fund.

Hopefully the window to my life exposes an important fact. There are many of us that work everyday, live within our means everyday and get virtually half our private property taken away from us everyday. We do this while watching our neighbors live off our fruits and labor. When times get tough and I am forced to seek help, my parents is who I go to. My parents' influence when it comes to work, career, avoiding debt and living prudently is a large part of who I am. The few times I had to borrow money, for example to make the full down payment on townhouse to avoid the PMI came from my father. I paid him back as quickly as possible, WITH interest. That is right, nobody owes me anything, not even my dad. Still, when I think of who will help me in times of need I think of my family and my friends. Not a giant Bureaucracy that relies on wrestling away private property from others to help others.

I also fully recognize that not everyone is as lucky and perhaps does not have a family that can act as such a strong and positive influence. There are many people who went through my exact same path, but for some unfortunate turn of events and perhaps bad luck cannot make ends meet. They have tried and exhausted all options. This is exactly why every year I donate to charity, because we need to come together as a society and take care of those who have fallen behind. When we form together in our hardest times, we emerge even stronger in easier times. Goes without saying that losing 50% of my income to pay for the largest Federal and State Governments in America's history makes it much harder to be charitable, so even charities now depend on the wealthy.

I am the 99%. Watching fellow Americans who live off my taxes while protesting "unfairness" and "inequality" while texting on their smart phones is disgusting. Instead of complaining against the wealthy, why don't you thank them instead and then take the grievances highlighted in blue up above and go to Congress, go to your State house, go to your local town halls and demand REAL fairness.

Anything else is misplaced anger by a bunch of petulant children completely void of basic knowledge, economics and sense of reality.

Occupy Wall Street - Trouble ahead.

2011-10-12T21:14:00.004-04:00

I have been resisting commenting on this movement hoping secretly that the notion of scapegoating the 1% of America's wealthy would not gather any steam - guess I was wrong. At first blush the movement and its message appear to be quite appealing, after all, the imbalance in this country is frightening and the widening gap between the wealthy and poor is growing. However it does not take a genius to figure out that the issue with our growing wealth disparity, mounting debt and increase in poverty has very little to do with the wealthy and everything to do with the political class that enables the injustice in the first place. On top of that and more importantly, the general animosity and hate of success and the generalization that anyone making more than a million dollars is somehow evil and should be punished is misplaced and wrong - this is like jailing the crack addict in hopes that crack would go away - oh wait...

So the first thing we must do as observers is to understand specifically what this movement is comprised of and the general message - assuming there is one. Because there is no clear leader or clear coherent goal, we must use what we have available to us and what I am finding is disturbing to say the least.

For starters, a list of demands by one user on the official website is fascinating as it provides for a window into the mindset of at least *some* of the occupy protesters.

Demand one: Restoration of the living wage. This demand can only be met by ending "Freetrade" by re-imposing trade tariffs on all imported goods entering the American market to level the playing field for domestic family farming and domestic manufacturing as most nations that are dumping cheap products onto the American market have radical wage and environmental regulation advantages. Another policy that must be instituted is raise the minimum wage to twenty dollars an hr.
Demand two: Institute a universal single payer healthcare system. To do this all private insurers must be banned from the healthcare market as their only effect on the health of patients is to take money away from doctors, nurses and hospitals preventing them from doing their jobs and hand that money to wall st. investors.
Demand three: Guaranteed living wage income regardless of employment.
Demand four: Free college education.
Demand five: Begin a fast track process to bring the fossil fuel economy to an end while at the same bringing the alternative energy economy up to energy demand.
Demand six: One trillion dollars in infrastructure (Water, Sewer, Rail, Roads and Bridges and Electrical Grid) spending now.
Demand seven: One trillion dollars in ecological restoration planting forests, reestablishing wetlands and the natural flow of river systems and decommissioning of all of America's nuclear power plants.

..and my favorite...

Demand eleven: Immediate across the board debt forgiveness for all. Debt forgiveness of sovereign debt, commercial loans, home mortgages, home equity loans, credit card debt, student loans and personal loans now! All debt must be stricken from the "Books." World Bank Loans to all Nations, Bank to Bank Debt and all Bonds and Margin Call Debt in the stock market including all Derivatives or Credit Default Swaps, all 65 trillion dollars of them must also be stricken from the "Books." And I don't mean debt that is in default, I mean all debt on the entire planet period.

OK. So clearly these are demands by an idealistic, mostly likely very young and awfully ignorant individual. Dispensing free education, free healthcare, living wage regardless of employment and a ridiculous minimum wage is straight from Marx's Communist Manifesto. Based on the feedback in the comment section, it is at least somewhat comforting to know that these insane demands are not fully embraced although they have generated way more discussion than they deserve.

Of course there is this kid, who thinks that billionaires should pay his tuition because it is just unfair that they have so much money. He seems to lack even basic knowledge about America's tax system, but that does not stop him from demanding money like a spoiled little brat - I am sure his parents are quite proud.

Isolated events? Unlikely. This morning on NPR, Tom Ashbrook invited several OWS activists and interviewed them for an hour without interruption. The primary spokesman was Jon Phoenix, a 23 year old Northeastern senior who tantalized Tom Ashbrook with his eloquence and amusing knowledge of history. Phoenix's primary grievance was the high cost of tuition and his big question was how to solve this vexing issue. For one hour we heard about the failures of capitalism, demands for universal healthcare and living wages with Phoenix at one point just outright demanding Socialism in America. Nice to see that NPR really vets their guests, but judging by the volume of callers who supported the rhetoric and gleefully trashed capitalism perhaps NPR is just catering to its listening audience?

Anti-capitalism appears to be popular message that is coming through many of the protesters regardless of which city is being occupied. Many have reported that posters and t-shirts featuring Che Guevara have been spotted frequently. Indeed, the main photo from yesterday's NYT story confirms the rumors:

Should we just laugh at these socialists? After all, they appear to be harmless right? Or is this video from an OccupyLA protest a sign of bigger trouble?

The fact that he endorses the French revolution which resulted in a spree of murderous terror is disturbing enough, but Americans cheering "long live Socialism" is just exasperating.

A perfect combination.

America is wounded, no doubt. We have been badly plundered by the ruling elite and the crony capitalists that benefit from our broken system. Our Government has spent more and more money on education, healthcare, military and the environment. The result is that we are massively in debt, our colleges are not affordable, health care costs are crushing salaries, we are not any safer than we were 11 years ago and everyday we hear about solar companies going bankrupt with millions of taxpayer funded loans going down the drain.

On top of that, the quasi-private central bank known as the Fed has utterly devastated savers, devalued the dollar making everything more expensive and discouraged capital formation by making people chase risky investments just to keep up with inflation.

Yet the very same politicians who constantly push for these failed policies are now embracing this occupy movement that is reeking with Marxist and Socialist thought and has the potential to get much worse as time progresses. Even Al Gore has to chime in, care to guess where he stands on the issue?

We have spent trillions of dollars, gone further and further into debt and have not fixed anything. Our banks are still under-capitalized and potentially very much compromised with their European exposure and mountains of MBSs that have yet to be cleared out of the system. Unemployment benefits, medicaid, medicare and social security are all facing the same daunting prospect - where will the money come from? Our economy is not in any position to create jobs because the bad debt has never been cleared out after 30 years of monetary expansion by the Federal Reserve. Non-stop expansion of Federal handouts in the form of unemployment, housing, healthcare and food stamps has created legions of dependents. These very same dependents who are now on Wall St. protesting the very people who pay for almost a quarter of the very same benefits that these protesters rely on!

We even heard comparisons that this occupy movement is the Left's response to the Tea Party movement. Oh really? Tea Partiers mobilized largely due to TARP and later emboldened by the Federal takeover of healthcare known as ObamaCare. Many Americans found the bailing out of failed banks to be entirely anti-capitalist, anti-American and economically dangerous and stupid. They also recognized that due to Medicare/Medicaid and mandates of employer funded health insurance that our Gov't is ruining our health care. Their anger was not against any particular group, did not espouse distribution, debt forgiveness or handouts. They simply wanted our markets to work properly with minimal intervention. While I do not embrace the religious component of the Tea Party movement, their primary grievances were for the restoration of things that once worked. While this movement is calling for and demanding forms of economics and Governments that have failed in every country while causing death, poverty and hardship for all.

Yet this is exactly what makes it so dangerous. This occupy movement has the sympathies of Hollywood, our media, the youth and the unemployed. As our economy continues to struggle, unemployment continues to rise the protesters will be further emboldened by their screeching cries for "equality". What makes matters worse, is that because of the partisan split that is clearly manifesting itself, if the GOP takes the Senate and possibly the White House then the movement will be injected with a healthy dose of steroids. Imagine, if there is already so much attention being given to these protesters with Obama the liberal darling in the White House - what will happen by the end of next year?

Obama to unveil new "Millionaire Tax"

2011-09-18T11:04:00.003-04:00

Next week will be yet another unveiling of another plan full of promises to shore up Americas ailing financial woes. Obama is ratcheting up the populist rhetoric sharply by first presenting a false choice during his "jobs bill" by suggesting that either the wealthy get tax breaks or teachers get to work and now by going directly after the richest of the rich. According to the New York Times who I am sure are devastated by this proposal:

Mr. Obama, in a bit of political salesmanship, will call his proposal the “Buffett Rule,” in a reference to Warren E. Buffett, the billionaire investor who has complained repeatedly that the richest Americans generally pay a smaller share of their income in federal taxes than do middle-income workers, because investment gains are taxed at a lower rate than wages.

Mr. Obama will not specify a rate or other details, and it is unclear how much revenue his plan would raise. But his idea of a millionaires’ minimum tax will be prominent in the broad plan for long-term deficit reduction that he will outline at the White House on Monday.

How cute. Buffet rule. Of course in typical Obama fashion none of the details are specified because that would require actual responsibility and a commitment, much easier to just stir the pot of an increasingly divided country and kick the entire boondoggle over to Congress where their approval rating is attempting to answer Ludacris's all important question.

Buffet who has long been an inspiration to investors and businessmen has turned into quite a disgusting individual. While nobody can take away from him the success that he has built with his own hands it is becoming quite apparent that crony capitalism is alive and well in America. For starters, Buffet's desperate pleas to "raise my taxes" are nauseating, but they get downright vomit-inducing when we learn that Buffet's lawyers have accumulated over one billion dollars of back taxes by fighting the IRS since 2002! From the NewsMax:

But it turns out that Buffett’s own company, Berkshire Hathaway, has had every opportunity to pay more taxes over the last decade. Instead, it’s been mired in a protracted legal battle with the Internal Revenue Service over a bill that one analyst estimates may total $1 billion.

The story of Berkshire's years-long tax battle, which is generally known in business circles, took on new life this week when a group called Americans for Limited Government (ALG) reported that, according to Berkshire Hathaway’s own annual report, the company is embroiled in an ongoing standoff over its tax bills

Isn't that special? Except that it gets worse, because Buffet gets his income from the investments he makes and then sicks his army of lawyers to insure that the IRS does not get the bulk of what his company owes thus making his "effective rate" lower than his secretary's - a "fact" he has claimed for years. But as the New York Post suggests there is more to his claim than meets the eye:

Fact is, unlike most other folks, Warren Buffett gets most of his income from dividends and capital gains, which are nominally taxed at 15 percent.

Left unsaid is that much of that is taxed at 35 percent (via the corporate income tax) before he even gets his hands on it. So in effect, he’s paying taxes twice (that is, when his companies actually pay, anyway).

It has been well understood that in his country the biggest taxpayers are the middle class, because the middle class cannot afford the lawyers and accountants that shield the wealthy and powerful from paying their taxes. So while Buffet shrieks for higher taxes in the NYT with one hand he is dispatching an army of lawyers to avoid paying taxes with the other. Since Buffet's friendship with Obama is well known, his op-ed in the New York Times appears to be nothing short of a propaganda move engineered by the White House, what remains unclear as to who actually came up with the plan.

From a pure economic standpoint, this idea by Obama, just like most of his ideas simply does not make any sense. For starters, if he really intends to go after millionaires and not "millionaires" then he is going after a very small pool of people. WSJ reports:

In 2007, 390,000 tax filers reported adjusted gross income of $1 million or more and paid $309 billion in taxes. In 2009, there were only 237,000 such filers, a decline of 39%. Almost four of 10 millionaires vanished in two years, and the total taxes they paid in 2009 declined to $178 billion, a drop of 42%

Not only does that negate the "rich are getting richer" mantra, but as of now we are looking at a combined income of 178 billion. If we raise their income taxes by an additional 10% or maybe even a prohibitive 20%, then we are looking at 17 to 34 Billion extra in revenue on a linear statistical projection. That is, if we assume that they will not change their behavior one iota. History suggests otherwise.

Most of these people are desperately trying to make *some* kind of money with their capital and in an era of zero percent interest rates courtesy of the Bernank, it has become virtually impossible. So these evil rich people park their money into investments. If Obama's plan becomes law (unlikely given the GOP House), then we can confidently expect money to promptly exit the markets which will damage a wide swath of the population who hold their money in their 401K Investment portfolios. So while I do not subscribe to the talking points that "raising taxes, hurts jobs", raising taxes on the rich does very little economically and can often have detrimental effects.

Those that point out that Clinton raised taxes and the economy boomed are confusing causation and correlation. In other words, had Clinton not raised taxes perhaps there would be more jobs, but more importantly the mechanism that drives job creation in America is first and foremost the monetary policy and not taxes. A chart of interest rates set by the Federal Reserve and a chart of employment make far more sense than dubious claims about taxation/employment (See my piece about Reagan).

So it is entirely appropriate and not altogether amusing to find that Obama's class warfare plan will be called the Buffet Rule. Nothing like naming one's flagship populist legislative propaganda after a corrupt and crony capitalist like Buffet.

Ten years after 9/11

2011-09-11T02:49:00.001-04:00

Today is September 11th, 2011 - exactly ten years after a terrorist attack changed this country forever. I am going to republish a piece I wrote two years ago because the exact same subject continues to haunt this country, a group of people convinced that the tragedy perpetrated by this country by enemies of the United States was nothing more than a complex conspiracy of epic proportions. Using junk science, lies and distorted pieces of information the Truthers have sharply divided this country and continue to soil the memory of 9/11 with their senseless calls for "truth", accusations of wrongdoing and offensive insinuations.

My original article also included the mention of Birthers who have largely vanished in the wake of tangible evidence released by the Obama administration, but it is a perfect example of how conspiracies become entrenched belief systems. For a long time I would get emails from people convinced that the Birther issue was real and that I was simply ignoring the "obvious evidence" before me. To their credit they have for the most part accepted the errors of their way, even if they did so silently. Tragically some conspiracy theories by their nature will never go away due to tangible evidence being destroyed and just like Pearl Harbor the attacks on 9/11 will live in infamy, that is, they will continue to be a source of speculation, conspiracy and wild allegations.

My article from the Examiner published on 9/11/2009:

Eight years after an event that once galvanized the country and served as the rallying cry for the Bush administration is now the source of extreme polarization, distrust and hate. Tragically, a third of the Democrats and possibly a quarter of Americans along with half of New York firmly believe that 9/11 was an "inside job". These individuals dubbed 'Truthers' based on what they seek, portray themselves as rational human beings exhibiting natural human traits like curiosity and skepticism. On the flip side, we have a group of individuals dubbed 'Birthers' who claim, based on lack of concrete evidence, that our current president Barack Obama is not a natural born citizen, but a Kenyan with no legal right to be president. Conspiracy theories and their appeal are as old as time and serve as amusement for those interested in "thinking" outside the box. Fundamentally Truthers are one of the most deplorable and incomprehensible theorists given the magnitude of their accusation, but they unwillingly have one thing in common with Birthers - both groups undermine America.

Birthers and Truthers often find themselves on polar idealogical spectrum, but they share commonality among themselves along with many other prominent conspiracy theorists. Consider the following; Both absolutely believe in what they consider the truth despite mounting evidence to the contrary. Both are emotionally and spiritually connected to their theory on a strange religious level accusing others of being "non-believers". Both are upset when they talk to "non-believers" and initially present information to persuade, but move to accusations of us being "brain-washed", "sheep" or "zombies" if persuasion seems difficult. Both believe that powerful people, corporations and networks operate in the shadows outside the realm of human knowledge. Both need a swift kick in the ass to wake the hell up.

Birthers and Truthers do have one major distinct difference and in fact Truthers for as long as I have examined them appear to be unique in contrast to other conspiracy theorists. Virtually all conspiracy theorists operate in the realm of explaining the unexplainable as a coping mechanism. JFK theorists simply refused to believe that a random schmuck armed with a sniper rifle could take out the leader of the free world and contrived the unimaginable because it made them feel better. Pearl Harbor theorists refused to believe that four Japanese carriers slithered past the watchful eye of the Navy and Air Force and assumed that FDR simply let it happen, they feel better about their country and FDR gets his war. Truthers are different in that respect. They are not explaining deficiencies, they are not out to make themselves feel better. Instead they have much more sinister motives and their constant cry for "truth" and "ask questions" suggest that their only interest is the prosecution of an administration. Willingly or not, their implications are laced with evil because unlike the typical conspiracy theorists where there are several key players sworn to secrecy, Truthers allege to thousands of individuals keeping the darkest secret in American history. Beyond the impracticality of police, fire, military, federal government, state government, citizens, family of citizens, pilots and air traffic controllers all keeping one big secret, Truthers exhibit a distrust of the human population to a sickening level. While all individuals are capable of heinous acts, a belief of this nature requires a level of cynicism beyond anything we have ever witnessed.

Truthers serve as a primary impediment for healing and unification in an already deeply partisan country. They prey on the ignorant and those immediately affected by the tragedy, making their actions even more deplorable. Worse yet, their persistence is magnified as time passes and their "unanswered" questions spread through the population like rats smitten with bubonic plague. All evidence by established sources like Popular Mechanics, National Geographic, scientists and researches are tossed aside and the likes of "Loose Change" (a flimsy documentary by a college student) is considered gospel. While Birthers act as an impediment to unification and selfishly compromise the "right" their intentions appear angelic in contrast to the Truthers. Many Birthers also claim their curiosity would be completely satisfied as long as Obama's certificate is physically extracted. Truthers have no such demands and are not interested in answers, because no answer is deemed acceptable!

While I am an agnostic myself, I am of the opinion that conspiracy theorists are largely void of religion (although Birthers put a dent into this theory) and like most human beings are compelled to believe in something higher than themselves. Theorists evoke out of us several emotions, primarily frustration, anger and desire to commit homicide, however we should instead be sympathetic. For to see a group of people so terribly lost, misguided and unproductive is truly tragic. You certainly cannot be angry at a bull after it impales the matador, the bull is just a big dumb animal unfairly provoked! However sympathy is difficult to procure for the Truthers, because people so full of malicious hate and distrust of their fellow citizenry are no better than the Saudi hijackers operating our airplanes on that fateful day, eight years ago.

Social Security: Ponzi Scheme or Sacred Cow?

2011-09-09T09:46:00.005-04:00

The past two days Americans were treated with a Republican debate and a speech from our President. Both were snoozers as they said nothing new in reality, but one moment did jump out as notable. An exchange occurred between Mitt Romney and Rick Perry over "provocative language" regarding Social Security.

Why is this notable? Social Security was once labeled as a sacred cow by Milton Friedman because if any politician dared to touch it they would be burnt toast. Barry Goldwater serves as a shining example of how the ruthless American public will skewer any politician that goes after their "entitlements".

Seems like Rick Perry did not get the message, he not only called SS a Ponzi Scheme, but doubled down in the debate and reaffirmed his position when challenged by Romney. Now, Romney being quite shrewd on what to say in order to garner maximum support spoke of saving SS even citing that it is a Republican tradition to do so. This of course brings us to a much more critical point.

Despite what you believe is SS's role in our lives, can we at least admit that it is indeed a Ponzi Scheme? Or in even simpler terms does SS require a larger and larger pool of payers to support the "investors"? The answer is obvious. From the days of FDR where 14 people paid for one recipient we have come a very long way to just barely 3 people per one recipient. As the baby boomers retire in droves this ratio will flip and the entire system will be exposed for the fraud that it is.

Yet despite all that prominent politicians and pundits refuse to even discuss the fundamental flaw with SS. That it is neither an insurance policy nor is it a retirement investment plan - both things that the SS Administration once claimed.

Below is an absolutely perfect example of how the media continues to perpetrate the myth on behalf of the senior citizens in this country while the lone wolves get skewered trying to point out the obvious.

Rick Santelli takes on Thomas Friedman (who writes for the New York times and pretends to offer solutions to our most vexing problems) and the crew of CNBC. This is what happens to people who threaten SS - Rick Perry, take note.

Ron Paul supporters: A blessing or a curse?

2011-08-19T19:51:00.011-04:00

Here ye, here ye, this is addressed to a certain segment of the Ron Paul movement in an effort to explain to you folks that what you are doing, the things you are saying and that your action is having a very negative impact on both the candidate Ron Paul and the entire liberty movement. I know how passionate and hot headed you people are, so before you rush to the comment section to berate the living hell out of me please keep in mind that I am a Ron Paul supporter myself. Although I do not agree with all of Paul's positions and in fact have some strong criticism of certain things he does I strongly believe that other than Gary Johnson (due to 8 years of executive experience) there is no other Republican candidate that can help this ailing country.

Let me define this particular segment of the base to whom this is addressed.

1. First and foremost you are probably a zealot, while you may think that there is no amount of passion and fervor that can be devoted to a cause as noble as liberty and freedom - there is. Too much of a good thing can be a bad thing is an adage that aptly works in all facets of life including this one. You have created and continue to create a cult of personality around Ron Paul.
2. You have and will continue to call anyone that disagrees with Paul's ultra dovish stance as "neoconservative". Unfortunately for you, you still have no idea what neoconservative means. It makes you look silly to use terms that you can't even properly define, but that is OKwith you, because everyone is doing it.
3. You are a conspiracy theorist. You believe in any of the following: 9/11 was an inside job, the Fed is owned by a secret Jewish banking cartel, new world order and the Illuminati. There are plenty of others, but those seem to surface during any debate. Anyone who disagrees with you or points out that you are a conspiracy nut you immediately label a sheep and write off as being part of the problem. Yeah yeah, flame away.
4. You are rabidly anti-Israel

Now let us talk about these issues at length and perhaps you can appreciate how your behavior is extremely off-putting to a vast majority of the country.

1. Your total admiration of a principled and dedicated man that has devoted his cause to the Constitution for the past 30 years is understandable, but it is overwhelming and tiring, even Jefferson would tell you to tone it down. OK? Cult of personalities exist in precisely the type of environment that you theoretically despise. Totalitarian regimes thrive on cult of personalities in order to promote obedience and worship of a central heroic figure while stifling dissent. Do you recall how Obama was idolized to the point of mass mania? Children sang songs that reminded us of little Hitler youth zombies in the 1930s, while gigantic crowds swooned over candidate Obama as if he was the next messiah. Same of Stalin and Mussolini. Ron Paul is a politician! Nothing more. He wants you to promote and espouse his ideas not swoon over him like a teeny bopper at an Elvis concert. You do not need to worship and spam his image and name everywhere you go.

2. Consider this as an educational moment as I define neoconservative for you. Neoconservative is a term coined by the father of William Kristol (guy who runs the Weekly Standard) as a label for former liberals who have adopted a more hawkish stance and typically joined the Republican party. It does not describe anyone who supports the military or wants to stay in Iraq or thinks Iran is a threat. Cheney and Bush for all their problems, faults and awfulness were never liberals and therefore were and are not neoconservatives. It is really quite simple, get it?

Now I happen to agree with you that Paul's views on military intervention and policy are far more Constitutional than most Republicans', but we should view his position as that of financial prudence more than anything else. We simply cannot afford the wars, we cannot afford to be spending over 950 Billion dollars on defense and we cannot afford to antagonize other countries when we are stretched so thin. However there are plenty of legitimate arguments as to why bringing every soldier back home or ignoring Iran can be dangerous. Equally important to remember that of all the major issues discussed in politics, defense is clearly outlined in the Constitution. To disagree with Ron Paul on these matters does not make one a war mongering neoconservative Nazi scum that has to be made fun of. Plenty of people are willing to spend money in order to promote security even if that means creating a national offense as opposed to a much more preferred national defense.

3. Conspiracies. By far the most upsetting and disheartening issue has to be the conspiracy theories which have probably done more damage to Ron Paul than all other issues combined.

9/11 Truth: While I understand the utter futility of attempting to convince Truthers that a building that falls very fast does not actually translate into the most complicated, extensive and sophisticated conspiracy theory in the history of mankind - it might be worthwhile to explain why you should at least not talk about it.

See, most independents and liberals already view Ron Paul supporters as anti-government. Although I think we should be called pro-small Government once a label has been placed it becomes difficult to shake. If people want to label us because we want to return to a Constitutional form of Government while respecting the rights of States then that simply makes them ignorant. However if you suggest our Federal Government was willing to murder 3000 of its own citizens than you are indeed anti-Government. To win the hearts and mind of independent voters we should not be 'anti' anything. Believe it or not even the label 'anti-war' is stigmatized even if it is utterly idiotic to be anything other than anti-war, because really, what the hell is pro-war?

Truthers will remain Truthers until the end of time, because it has turned into a belief system. Ron Paul has made several mistakes by openly associating himself with the likes of Alex Jones and by constantly suggesting that he is uncomfortable with criticizing your beliefs. Still, Ron Paul is not a Truther and even his affiliation with Students for 9/11 Truth has been distorted (see Malkin). For example Paul believes that the 9/11 commission is flawed and perhaps a certain cover-up did occur, but it was a cover-up of the Government incompetence not a cover-up of some sinister plot. Our Federal Government's intelligence agencies failed miserably and screwed up the one legitimate function of our Federal Government - our security. Is it that unreasonable to believe that whatever report they issue will attempt to soften or hide their stupidity and the errors involved in the prevention of the biggest terrorist attack against this country? Not at all, one of the best things that our Government does is to routinely screw up basic functions. These people can barely deliver mail, piecing together random pieces of intelligence tidbits among 10 agencies is hardly a trivial task for a bloated giant bureaucracy. Oddly enough Paul's sloppy agreement was all the fuel that the Students for 9/11 Truth needed to further their damaging agenda.

The Fed: The fact that this is a conspiracy is just sad, for two reasons. Firstly it is amazingly easy to disprove and I will do that shortly, but it also fuels the anti-Semitic charges against Paul and his supporters. Ron Paul believes in freedom and liberty, he is not an anti-Semite although his comments against Israel are peculiar (more below). His crusade against the Federal Reserve is purely financial and one that makes perfect sense if anyone bothered to understand basic economics. Paul desires to repeal the Federal Reserve Act not because Bernanke and Greenspan are Jewish or "because it is funded and owned by European Jews". One of the most common and patently absurd pieces of evidence consists of listing the reserve banks and showing their ownership. Many websites/forums copy and paste this erroneous list and feel pretty good about themselves for pointing out such incriminating evidence. Too bad the sites are wrong and if you believe this list then you are clueless.

The list of so-called reserve members:

Rothschild Banks of London and Berlin
Lazard Brothers Banks of Paris
Israel Moses Seif Banks of Italy
Warburg Bank of Hamburg and Amsterdam
Lehman Brothers of New York
Kuhn, Loeb Bank of New York
Chase Manhatten Bank, and
Goldman, Sachs of New York

Supposedly these banks are internationally owned by powerful Jewish financiers. So completely wrong it is a wonder that this list is even circulated.

Here are the actual eight largest members of the Federal Reserve system:

Chase Manhatten Bank
Citibank
Morgan Guaranty Trust Company
Fleet Bank
Bankers Trust
Bank of New York
Marine Midland Bank, and
Summit Bank

If you are confused as to why this list is completely different, do not be. Accusing the Rothschild family of manipulating the world for financial gain is as old as time itself. In the 1800s Nathan Mayer Rothschild was accused of manipulating the stock markets by having inside knowledge over the Battle of Waterloo. This information was spread through pamphlets that were originated by an anti-Semitic French writer. As you may know, France was no stranger to high profile cases of discrimination and anti-semitism (Dreyfus affair). In fact accusing Jews of being filthy money grubbers that held countries hostage went back to 11th century England!

Christians outlawed usury and the job fell to the Jews who picked up this work because it made practical sense. Not only was it profitable, but after being bounced from country to country they figured that being in the highly liquid and portable banking industry made more sense than hauling paintings and furniture around. This did not stop the conspiracies and it in fact was a major Nazi platform used as an explanation behind Germany's economic woes. Believe it or not even the "genius" Adolf Hitler (and Henry Ford) drank the Jewish banker kool-aid when in reality it was nothing more than a failure of progressives attempting to centrally control inflation!! (See Rothbard's America's Great Depression)

By continuing to assert Jewish involvement in the Federal Reserve you are suggesting two possibilities. A serious lack of historical knowledge of the Fed's history (read Ron Paul's End the Fed) and anti-Semitism. This is not an attempt to bludgeon or silence opposition by invoking the all too common charge, but because the 8 major holders of the Fed are actually American owned companies and not in fact international Jewish banks. It seriously undermines your credibility.

As an amusing piece of evidence your hate of Jews is entirely self defeating considering that Ron Paul's economic beliefs were developed and popularized by people like Karl Popper, Ludwig von Mises, Murray Rothbard and to a lesser extent Milton Friedman. Paul's primary economic adviser is Peter Schiff. All Jews.

4. The issue of Israel is a bit tricky. Lets be super clear though, this is not an issue of foreign aid because Ron Paul's position on ending all foreign aid is not only financially prudent, but fair. Yet it does not make sense for you to run around and point out how much money Israel gets when Egypt, Pakistan and virtually everyone else gets billions as well. Although Israel receives the most surely there is a difference between a democratic country that provides the best life for Arabs in the middle east and all the other Arab dictatorships. It only makes sense to speak about ending aid from the perspective that we do not have the money and that virtually all subsidies yield poor consequences in the long run. Prime example being Egypt that has funneled money to their military to create an oppressive police state that ultimately turned into a revolution for Islamists and anti-American youth.

However this is the one place when Ron Paul's hypocrisy is blatant and frustrating. One admirable position of Ron Paul that I support is his insistence that we should mind our own business. Yet he turns around and accuses Israel of creating a concentration camp out of Gaza. Earlier he got on the House floor and suggested that Hamas was an Israeli creation, a topic I covered earlier. Despite that those two accusations are false and historically inaccurate, how exactly does that fit into the mantra of minding one's own business? Shouldn't Ron Paul mind his own business on issues as complicated as Gaza? Oddly enough there is plenty of information that proves Gaza and West Bank ghettos were created by Arabs. Arabs originally promised the inhabitants of Gaza their plight would be solved, but quickly discovered that turning Gaza into ghettos created an ever lasting international sore in the side of Israel - they were right. Arabs could care less about the Palestinians; Jordanians expelling them while Egyptians shooting them is proof positive.

Yet what do you as his supporters do? You get dragged into one of the most complicated international issues of our time without even fully appreciating the delicate history of the region. You then somehow make the Evangelical religious right of the Republican party become the sole defenders of Israel? Think about how sad that is. This is the same religious right who have accused Jews of being Christ killers! They only care about Israel for their own purposes and are willing to do what it takes to fulfill their religious destiny. Instead of choosing the objectively rational path, Israel is now being defended by people who get their instructions to do so from the Bible. Oy vey.

We are the only natural defenders of Israel because we are truly interested in helping the country succeed. By depriving Arabs of American foreign aid we level the playing field tremendously while empowering our own financial situation. By minding our own business we allow the Israelis to handle their security in a manner they see fit, instead of dictating to them which borders they must observe or where to build their settlements. By maintaining this position we do not get dragged into religious and philosophical debates that have no sensible resolution. This is where a cult-like following of Paul becomes detrimental, because it deprives you of the ability to approach the Israel issue from a pragmatic standpoint. Ron Paul is wrong about his accusations and he is dead wrong for the hypocrisy he exhibits. You could attempt to defend him by justifying his involvement as a result of us giving foreign aid to Israel, but then why does he not speak out against atrocities in place like Saudi Arabia, Pakistan, Syria and Jordan. Instead he is entirely mum on their wrongdoings in the spirit of minding his own business, but fails to extend the same courtesy to Israel. Why?

Conclusion: We are fighting for the same cause. We believe a smaller Federal Government is better. We believe in State rights. We encourage personal choice and freedom by scrapping oppressive drug laws. We believe an economy that is sound must run on sound money. We believe that centrally planned interest rates are flawed and are the anti-thesis of a free market. We believe that corporate subsidies are just as bad as personal subsidies and are just as eager to end handouts to Big Oil companies as we are to end welfare. We believe in worker rights by allowing them to negotiate their terms, salaries and benefits without the oppression of monopolizing unions and Federally mandated work laws.

Those beautiful ideas and concepts are difficult enough to explain and sell to an America that is growing more and more dependent on Government handouts, entitlements, special interests. To go down a rat-hole of factually incorrect conspiracy theories while demonizing anyone that does not immediately agree with you simply makes the advancement of liberty that much harder. While Ron Paul's finish in Ames and his undeniable growth in popularity can be attributed to the very rabid base I admonish it will paradoxically insure that Ron Paul will never ever get the nomination either. You will simply reach a critical mass of followers that will either be sympathetic to your rabid viewpoints or choose to ignore you like I and many others do, but it will never be enough to win over the crucial independents that ultimately determine the outcome of every presidential race. If you truly cherish freedom, liberty and the many causes that Ron Paul advances then pass this article along and spend more time listening/learning and less time making yourself look crazy.

Mainstream GOP blog still does not understand the Federal Reserve, mocks Ron Paul.

2011-08-17T22:24:00.001-04:00

I have had many issues with the way certain mainstream GOP blogs portray libertarian leaning candidates like Ron Paul and Gary Johnson, but sometimes they expose their own lack of understanding to such a point that it becomes impossible to ignore.

HotAir's self proclaimed RINO Allahpundit who is generally very "reasonable" decides to poke fun at Ron Paul because Paul found Rick Perry's comments about the Fed to be ridiculous:

Via Politico, the key bit’s at 4:00. Can we now safely agree that Perry went too far? When Ron Paul is taking shots at you for being fringe-y, you’ve crossed a line that no man should cross.

Except maybe in libertarian Waterworld.

“Now they have this other governor, I can’t remember his name,” Paul joked. “He realizes that talking about the Fed is good, too. But I’ll tell you what, he makes me sound like a moderate. I have never once said Bernanke has committed treason. But I have suggested very strongly that the Federal Reserve system and all the members have been counterfeiters for a long time.”

Old theory: Ron Paul’s too radical to win New Hampshire. New theory: Ron Paul — the great centrist hope?

Funny. Really funny. Except that Ron Paul is right and it would serve the HotAir readers quite well to understand the issue.

Ron Paul's main issue and an issue he has been fighting for decades is the fact that the Fed inflates the money supply. By inflating the money supply he makes everyone poorer if the inflation does not keep up with production output. Starting around 2008 people are starting to understand this simple concept and the issue of the Federal Reserve has become more mainstream. In fact I would say it is probably the single most important issue of every single economy in the world, because every economy runs on money. If the very thing that every economy is being run on is constantly being debased and devalued then every economy is playing catch up.

The issue in fact has become so mainstream that people like Palin, Bachmann and Perry have all jumped on the anti-Fed bandwagon. I admire them for doing this, but there is really now way of determining whether they really have issues with our central bank or scoring political points.

Perry's insinuation that if Bernanke launches QE3 certain unpleasant things would happen got the attention of the media.

But he didn’t pass on Fed Chairman Bernanke. “If this guy prints more money,” Mr. Perry said, pausing, “I don’t know what you all would do to him in Iowa, but we would treat him pretty ugly down in Texas.”

While this may score political points with some folks it is indeed a brash and silly comment that is designed to generate buzz more than advance the issue of solving our most pressing problems. Blogs like HotAir and other entrenched Republicans need to understand that the central bank has not only caused a great deal of instability in this country while undermining the working class, but they need to promote and defend people like Ron Paul who have fought against this institution for decades.

There are enough Democrats and liberals who are completely void of any economic thought to provide ridicule, least we can get is some civility from the Republican side.

America downgraded to AA+ for the first time in history. What happens next?

2011-08-06T10:29:00.000-04:00

Americans are waking up to some unpleasant news this Saturday morning, we have been downgraded. Indeed, for the first time since 1917 Standard & Poor's has lowered our credit rating from AAA to AA+ (full text). Their outlook is negative, meaning that we could be lowered to AA if our situation worsens.

The reaction on the Internet seems to be one of shock and fear, but neither reactions are appropriate. Lets first examine some of the key points of the text to find out what S&P lists as their primary reason for this particular action.

The downgrade reflects our opinion that the fiscal consolidation plan that Congress and the Administration recently agreed to falls short of what, in our view, would be necessary to stabilize the government's medium-term debt dynamics.

...and...

We lowered our long-term rating on the U.S. because we believe that the prolonged controversy over raising the statutory debt ceiling and the related fiscal policy debate indicate that further near-term progress containing the growth in public spending, especially on entitlements, or on reaching an agreement on raising revenues is less likely than we previously assumed and will remain a contentious and fitful process. We also believe that the fiscal consolidation plan that Congress and the Administration agreed to this week falls short of the amount that we believe is necessary to stabilize the general government debt burden by the middle of the decade.

Point #1: S&P finds the latest "debt deal" insufficient. To whom is this really a big surprise? Step back and consider the situation in pure numbers. Our annual deficit is 1.5 Trillion. The deal achieves to 'not spend' an extra 200 Billion a year. Most of the 'not spending' is done at a later time with a future Congress that may or may not pursue those plans. I use the term 'not spend' because no actual cuts were performed. Congress simply agreed to roll back some of the projected spending. It is insulting. Here is another beautiful example in terms that are easier to digest:

"If the US Government was a family, they would be making $58,000 a year, they spend $75,000 a year, & are $327,000 in credit card debt. They are currently proposing BIG spending cuts to reduce their spending to $72,000 a year. These are the actual proportions of the federal budget & debt, reduced to a level that we can understand."

Now imagine that this family suddenly gets labeled a deadbeat and unreliable. Where is the shock? Both political parties are completely ineffective at grasping and handling the seriousness of our financial situation, perhaps this will serve as a gentle reminder. (Quote comes from Dave Ramsey)

Point #2: S&P finds that the amount our Government spends is too excessive and highlights Social Security, Medicare and Medicaid as the primary culprits. Did you hear that? A liberal's head just exploded. In case you think that S&P is full of hot air, perhaps a visual aid?

In other words, what S&P is saying has already been known to us for quite some time. In fact the fiscal conservatives have been beating the drums on this for quite a while and why should this be a shock to anyone is really beyond me. It is also worth noting that the full text singles out Medicare which as you can tell by the chart is the biggest spender of them all.

So what happens next?

Now that we have accepted that this downgrade is deserved we can either start the blame game or determine what will transpire. ABC has already listed their five possible outcomes this morning, let us take a look.

ABC: The interest rates the government pays to finance the growing national debt will almost certainly rise as a result of the downgrade up to $75 billion in additional costs in the coming years.

ME: That is true and frankly much deserved. Due to the intervention by the Federal Reserve through QE2 and other mechanisms our treasury bonds have been artificially lowered. This was done to spur borrowing (which failed), but has also kept our debt payments very low. This had the effect of sidelining the issue of debt service because 200 Billion dollars annually for a country that makes 2.2 Trillion was not a big deal. These costs will rise and they have to rise. If rates rise sufficiently the debt service alone will start to eclipse every single other spending program. This really underscores how stupid and ineffective our Congress really is, because they have failed to address this critical issue.

ABC: The interest rates YOU and YOUR EMPLOYER pay will go up. Costs for borrowed money goes up, effectively raising the price of anything you're not paying for with cash.

ME: While the first point is guaranteed there is no guarantee here. Sure, most loans are tied to what happens on the bond market, but not directly so. Remember, one of the biggest problems that the Federal Reserve tried to overcome was the issue of banks refusing to borrow. By outright purchases of treasuries Bernanke hoped to lower rates and spur borrowing. Theoretically he achieved his desire although many argue that American bonds rose due to Europe and the rest of the world posing a greater risk that America. Regardless of the reason the lower rates did not materially improve lending because the economy was unable to absorb any additional borrowing. This critical point underpins the primary difference between the failed Keynesian policies of the Obama administration and the Austrian economic principles of people like Ron Paul, Rand Paul, Justin Amash and other minority voices of dissent.

ABC: Needless to say, increasing costs for consumers and businesses tends to slow their economic activity. Some estimates put a downgrade like this as likely to shave 1 percent off GDP. This slowing certainly increases the risks that the U.S. will have a second dip into recession. It also means less tax revenue, so the potential for additional debt increases.

ME: This is propaganda and fear-mongering using misdirection. It is true that higher rates could expedite the contraction of the economy, but it is also quite true that this contraction was coming anyway. The Dow Jones dropped 500 points last week, manufacturing slowed and unemployment suggested that our participation labor rates are lowest since 1984 - all of this happened before the downgrade. In fact, desperate voices in the media have already been requesting additional intervention from the Federal Reserve for weeks now because our economy *still* has not done the one thing it needed to do since 2008. To properly contract and purge the bad debt out of the system. Everything that Bernanke and Obama and now Boehner have done is to simply kick the can down the road by papering over losses. Sorry, this ponzi scheme cannot be sustained.

ABC: As the economy slows, expect the stock market to react. After all, investors buy shares to get a piece of growing profits. A slowing economy means profits grow less rapidly or go down. The relative value of a share of anything will go down. Some experts predict a downgrade could force stocks to sell-off by 6 percent to 10 percent in short order. That's another 1,100 points on the Dow.

ME: Recessions a.k.a. contractions cause the stock markets to decline, as discussed previously this was coming anyway. Nothing to do with the downgrade, everything to do with the years and years of reckless spending.

ABC: A slowdown in economic activity also means less demand for workers. The non-partisan group Third Way has published estimates that a simple 0.5 percent increase in interest rates could erase more than 640,000 jobs.

ME: Once again, ABC likes to engage in blame games instead of accepting reality. Recessions cause unemployment because economic contractions force bloated companies to downsize and lay people off, nothing to do with credit ratings. It will be very unfortunate if unemployment ticks up in a few months and the likes of ABC will blame it on the downgrade instead of the actual culprit - excessive spending.

Last Thoughts

I do not view this downgrade in a negative light and either should you. Consider what happened as a reminder of our failed policies and be grateful that at least some third party agencies (regardless of their previous mistakes) is now starting to sound the alarm. Although the alarm has been ringing by people like myself and many other more notable individuals the country has been asleep at the wheel. We did notice a resurgence in political activity in 2010 when many Tea Party individuals were sent to Congress, but the latest polls suggest that many Americans still do not 'get it'.

Polls are suggesting that Americans are confused as to what the best approach is in terms of solving our mounting debt, although they are reluctant to raise taxes they are equally reluctant to cut Medicare or Medicaid. People essentially are acknowledging the problem, but are refusing to let go of what they perceive to be their entitled share. Yet as you saw on the chart, leaving Medicare and Medicaid as-is cannot be. Truth is, spending almost a trillion on defense (2010) is hardly sustainable either, but really it goes beyond the numbers.

What we see on paper is the total Government revenues and expenditures, that is we see red ink. This red ink or the deficit is dubbed as the pressing issue, which it certainly is, but Government spending is far more sinister than just the deficit it creates. In fact you can significantly mitigate the deficit by confiscating more and more private wealth (until it runs out), but that does not solve the other looming issue. That is, Government spending creates massive distortions and damage to prices!

When I scream for cuts the screaming is not so much a desire to reduce deficits, but to return to real prices. If you look at every major Government program intervention you will find price distortions that spill out in the market causing damage to everyday working class Americans. This is what we must eliminate and this is what will finally create jobs, bring about capital formation and lower costs for *everything*. Some simple examples:

1965: Medicare/Medicaid enacted. Health care costs spiral out of control bringing about the HMO act, rise of crappy health insurance companies and mounting health care costs. Eventually leads to RomneyCare and ObamaCare. Massachusetts over the past several years has experiences the biggest price increase of any other states, unless ObamaCare is repealed prices will rise everywhere.

1979: Department of Education formed. Billions directed to education through federal programs creating layers of bureaucratic nonsense that were never needed in the first place. Expenses on education have risen every year until today and yet the results are standard with America showing lackluster results compared to every other modern country. Grants, loans and federal aid increased causing massive tuition hikes across the entire country resulting in a college tuition bubble. What once used to be affordable through simple budgeting and saving has become either an impossible dream for most or financial slavery.

1930s: FDR's legacy lives through his intervention in the housing markets with the creation of agencies that ultimately turned into Fannie and Freddie. For decades the US Government has intervened in guaranteeing, underwriting and directly providing paths toward home ownership. Whether it is Reagan's mortgage deduction credit or Clinton's CRA - our Government has spent money to encourage ownership. Result? Housing in some areas is completely and utterly not affordable and for many has turned into a disaster after the 2008 Housing crisis.

While there are plenty more examples the theme remains the same among those who fundamentally believe that the role of Government lies in protecting us and preserving our rights and freedom. As soon as those principles are abandoned and the chains of the Constitution are unshackled the path towards ruin begins. Whether it is Rome, Byzantine or Babylon the end result is the same. Perhaps this little warning shot will be all that is needed to drastically change course and embark on a journey of financial repair and responsibility.

We can only hope.

If you were Congress, what would you spend without borrowing?

2011-07-29T00:33:00.000-04:00

Washington Post has a wonderful interactive webpage that puts you in charge of spending. We all sit behind our screens and bravely make wild assumptions, opinions and other noise without ever having to perform any difficult decision. Now is your chance.

Below are my choices and my explanations.

Some things are easy:
Interest payment, social security, medicare,medicaid, military active duty.
Not only are those liabilities that the Treasury owes from previously collected taxes, but interest payment is the one thing that will ensure that no actual default happens. This is proof positive that the fear mongering performed by Obama and others is just that, fear mongering. I prefer deceitful lying, but perhaps I tend too be slightly melodramatic.
It also shows that the path of entitlement programs are not sustainable. Monthly payments of 118 Billion on entitlements out of the 172 in revenues is nothing short of crazy.

Some things are tougher:
Veterans programs, food/nutrition/TANF.
We cannot abandon our veterans, but the nature of these programs at least raises questions. What are these programs specifically, what do they do and what do they cover. Is it health related or beyond that? Same with TANF. America will never abandon its most needy citizens, but we are now giving out record number of food stamps per year! This is of course related to the recession and a high unemployment, but after our Government spent trillions in various bailouts, stimulus, relief checks and other assistance - why oh why - are we at record level food stamp consumption?

Some things are painful:
Federal salaries and unemployment insurance.
Federal employees as reported by USA Today are enjoying the highest salaries and benefits in history while the average private sector worker is flat. Government workers are by their nature, service workers, that is they do not produce or create anything that contributes to the GDP, but rather provide services to their citizens. Thus, paying 14 Billion in services that most Americans cannot see, feel or appreciate is extremely difficult. Most Americans pay hefty amounts in the form of state income taxes and real estate taxes, these services in the form of police, fire, schools, roads and administrative assistance are visible and appreciated. Federal employees, not so much. This also includes Congress and the White House, the most irresponsible and useless federal employees of them all as can be clearly observed by the recent circus known as the debt ceiling debate. Still, causing an abrupt Government shutdown due to lack of salaries is neither desired nor useful.

Unemployment insurance is equally difficult, but similar to the food assistance program. Only problem is that the 99 weeks of unemployment benefits is the longest in history and as can be seen by the unemployment numbers not effective at getting people back to work. Instead of repealing arcane and detrimental wage laws, removing health insurance obstacles and burdens and lowering corporate taxes to encourage work - our Government is paying 12.8 Billion in month to people sitting at home!

Those payments that I refused to make were rather simple. Most have no business being federally funded in the first place and should have been shut down long enough. The section labeled 'other spending' probably contains some important funding, but if it is not important enough to be classified as its own section then it is not important for tax payers to be spending money on it either!

With that in mind, there is still a small surplus available! With adequate reform of entitlement programs, winding down military bases and going to a flat tax more money will be available, but that will obviously never happen with the embarrassingly useless Congress and President we have today.

Debt ceiling crisis - Republicans or Democrats, who can we trust?

2011-07-28T16:05:00.000-04:00

The saga continues as the "deadline" of August 2nd approaches. You know the crisis is reaching a boiling point when both Obama and Boehner felt the need to interrupt Hell's Kitchen! We now have had two bills passed by the House, one bill proposed by Boehner, one bill proposed by Reid and something or other proposed from Obama although nobody can explain what it is.

So who is looking out for America? In recent polling there seems to be a growing consensus among people that spending needs to be curtailed - with 55% disapproving a tax hike and Gallup finds a majority opposed to raising the ceiling in the first place! Pew polling finds similar numbers with people split on whether going past August 2nd! Wow. So far so good, nice to see fellow Americans not getting snookered by the Teleprompter in Chief or the likes of NPR who are both beating the drums of death in case Congress *gasp* does not allow our greedy Government to borrow more money. As discussed before, the issue of default is nothing more than a blatant lie, with just over 200 Billion in interest annually that can be easily covered by over a Trillion in tax receipts that the Treasury currently brings in. Obama's recent TV appearance also attempted to scare the dentures out of our senior citizens by suggesting Social Security checks will stop, an odd accusation considering in 2010 the Treasury brought in more Social Security Taxes then it paid out. Hmmm.

So far, the only remotely credible suggestion I have personally seen was that of Senator Coburn's Back to Black proposal. A combined effort to cut save 9 Trillion over the next ten years by shrinking Government 25% and reforming defense and entitlement. Of course Coburn got flack from Republicans who noticed a one trillion dollar increase in revenues, but it was an increase in revenue by broadening the base not by raising taxes. In fact most of the gains were from removing loopholes while lowering rates - a most welcomed proposal. Coburn then went ahead and shot himself in the foot by rejoining the Gang of Six and standing behind a different proposal that not only lowered the total savings by many trillions, but went after Social Security by redefining CPI thereby stripping away payments to seniors. Terrible.

Then came John Boehner's proposal which will be voted on by today. Not only will that bill be killed in the Senate, but had to be rewritten because the CBO found the bill did not actually cut the amount that Boehner claimed. As of today, CBO released the scoring of the rewritten bill and found that by 2021 the bill would save, ok get ready, big breath, 915 Billion dollars. Yes, 10 years. Yes, I am serious. No, it is not a typo. How much is the current deficit? Great question! About 1.5 Trillion, just for 2011! See, John is pretty stoked about this piece of crap he wrote because he gets away with two very important things. Sticks to his pledge of not raising taxes and back-loads the cuts. In other words the majority of the cuts and restraints will be happening the future at the discretion of future Congresses. More on that later.

At the same time Harry Reid released his proposal claiming almost 2.7 trillion dollars in cuts. Two immediate problems with Reid's claims. First, CBO scored the bill and found a $500 Billion shortage and more importantly, as explained by Paul Ryan a trillion of the "savings" come from not spending a promised amount of money. An example would be if Congress planned to cover every square inch of our interstate highway system with provolone cheese at a cost of 18 Trillion dollars, but then scrapping the project for a savings of 17.99 Trillion (expenses for provolone samples non-refundable). In Reid's case it was for winding down expenses on defense that were either already accounted for or were never going to happen in the first place. Oddly enough after all the bullsh*t, Reid's plan offers more savings than Boehner's bill although also suffering from back-loaded cuts.

What is the problem with the back-loaded cut? Beyond the fact that our Congress constantly utilizes propaganda to sell their legislative accomplishments and have lost all ability of operating in an honest fashion, the back-loaded cuts pose a practical challenge. There is just simply no way for our current Congress to demand or promise any future politicians to perform these cuts. Impossible. Neither Boehner or Reid can go on TV and promise to make 900 Billion or 1.25 Trillion or any other future cuts because they will be happening in future Congresses! Elected officials in 2016 can just as easily raise spending with absolutely no regard for whatever piece of junk will be passed in the coming weeks.

Therefore, both Republicans and Democrats have bamboozled the American public in amost stunning display of arrogance while completely skirting their primary responsibilities. Instead of tackling trillion dollar YEARLY deficits Americans are now relegated to bickering over 90 to 110 Billion a year in cuts that are not even guaranteed to happen! Amazing eh? Our politicians are ineffectual, our President is useless and the financial burden is growing and growing. Credit can only be given to the brave handful of Republicans who are refusing to go along with the Boehner plan, a number that barely exceeds 30 people. Out of 535 members of Congress, less than 10% understand the gravity of the situation.

Home mortgage interest deduction - keep it or toss it?

2011-07-24T17:16:00.001-04:00

One of the most popular and beloved deductions among Americans has to be the mortgage deduction. According to New York Times this deduction is supported by almost 90 percent of the population. Wow, the last time this many Americans agreed together probably involved American Idol. Yet with debt ceiling negotiations hitting a fever pitch there is a strong possibility that this popular deduction might be slashed or removed entirely.

The popularity of the deduction especially among middle-class Americans is something of a mystery considering that a vast majority of the people who benefit from the deduction are considered to be top earners (those making over 75k), although your definition of "top earner" may vary. Wealthier people certainly stand to gain more from this deduction due to a simple reality, wealthier people tend to have more money to purchase homes. Those claiming the deduction is portrayed neatly within the NYT article.

In true NYT spirit the article rails against the injustice of wealthy people owning homes and builds a strong case for the removal of the deduction because of its perceived "unfairness". If only more and more people could afford homes, then all would be well in this world. Oh wait, that backfired badly, no?

I present a different argument. In our world where the progressive tax with its thousands of pages is the sad reality, politicians have used the tax code to pass out special favors and perform social engineering for decades. It has now become an accepted fact, that if you want more of something - subsidize it, if you want less of it - tax it. The history of the mortgage deduction is one such example.

Although the United States has provided deductions on interest for as long as there has been an income tax, it was only during the 1986 Tax Reform Act where our politicians got the idea of placing mortgages into a special category. In fact the actual idea was presented even earlier by the most over-rated and beloved conservative figure of all, Ronald Reagan. At the National Association of Realtors in 1984:

"I want you to know that we will preserve the part of the American dream which the home-mortgage-interest deduction symbolizes."

Yup. After Reagan observed the power of the Federal Reserve and its ability to jump-start an economy with debt, it was only natural to assume that taking on debt in the housing market would attain the same effect. Now there is no strong correlation between the passing of the 1986 Tax Reform Act and housing prices, but logic suggests that the subsidy principle is at play. In 2009 this subsidy amounted to about 80 Billion dollars, greatly eclipsing the now infamous and notorious Agricultural farm subsidies. If we agree that farm subsidies skew and distort the market and create artificial prices for farm goods, then we can just as easily agree that this massive subsidy distorts and manipulates the housing prices. This historic chart seems to confirm(from JP's real estate charts):

Focusing on real prices (inflation adjusted) there was an immediate jump in housing prices after 1986, but prices fell immediately after a massive contraction took place fueled by the 1987 stock market correction. This contraction which lasted through Bush Sr's era was due largely to the massive liquidity expansion facilitated by the Federal Reserve in the 1980s, but I digress. The housing bubble that took place in the late 90s eclipsed the 80s, thus showing that the mortgage deduction is just a small part of price fluctuations in a rather complex market.

That being said, like any other Federal subsidy performed through tax exemptions the costs are real and sometimes hard to pinpoint. Not only do they result in a more complex tax code, but the price distortions can have deep and meaningful consequences on the market as a whole.

In the spirit of true fairness the following should be done. Remove all mortgage interest deductions from the tax code, no exceptions and no adjustments, the whole damn thing - throw it out. Then reduce the rate proportionality across every tax bracket to preserve the 80 Billion within the private sector. This is a revenue neutral move insofar that the Federal Government does not gain any additional revenue because Americans will pay a lower overall tax.

This will have an immediate positive effect on housing prices by stabilizing the true value of home prices by removing the price distortion caused by people buying homes that they normally could not afford due to this incentive. A step in the direction of a universally accepted flat taxes without *any* deductions, preferably with a rate between 0% and 0%.

One simple chart showing why America's path is not sustainable.

2011-07-17T20:29:00.000-04:00

This should be more aptly called "one of many charts" showing our sad trajectory, but it is food for thought anyway. Note that this is not an exhaustive or comprehensive list as it does not include every American on the dole, but that simply makes the chart this much sadder.

Now recognize the impact of the chart in the context of the debt ceiling discussions. Then ask yourself, what is the point of working your ass off when you are just paying for every soldier, welfare recipient and bureaucrat. Finally, if the Government was structured like a voluntary business how many of these people contribute to a productive economy. Mmmkay then.

Bernanke considering QE3? Impeachable offense.

2011-07-14T10:26:00.000-04:00

While Congress performs yet another kabuki dance over the debt ceiling, a stealthy Ben Bernanke is sneaking up behind the US Dollar ready to slit the jugular. This is the kind of stuff that you can only learn from Bernanke's latest book - Mastering Jew-Jiutsu: The Art of Economic Destruction. Order now and you will get Master Greenspan's pamphlet - Basic Jew-Jitsu: Bubble Bubble Toil & Trouble for free!

Yesterday's announcement sent several key markets into their respective corners.

"Fed Chairman Ben Bernanke has made it plain to the world that the Fed is not ready to put the U.S. economy's crutches back in the closet," Douglas Borthwick, managing director with Faros Trading, said. "Saying the economy still requires a good deal of support, the chairman is making it plain that QE3 is still on the Fed's mind and is on the table."

Good news that Ben's mind is still operational, could have fooled us. Predictably the following happened.
Gold printed new highs, stocks rallied and the dollar plunged. Speaking of the dollar, let's discuss.

After the collapse of the global credit economy in 2008, housing and other nonsense our bubble economy was poised for a massive contraction. This contraction would have meant severe short term pain, but it would have also boosted the value of the US Dollar. Why? Because in a contracting economy as bad debt vanishes via default and money becomes hard to obtain the value of the existing supply rises. Yet in Bernanke's infinite Keynesian wisdom, a contraction (read: deflation) is the enemy of mankind and must be eradicated at all costs. To counteract this contraction our stealthy assassin employed a combination of shockingly low interest rates and liquidity injections. Observe:

As you can see the dollar sharply rallied from the 2008 collapse only to be smacked down like a red-headed stepchild by the mighty Chairman. Despite purchasing well over a Trillion dollar worth of useless and rotting MBSs from the too-big-too-fail banks the dollar continued to rally as the contraction persisted. You can find my previous articled on the matter, but essentially QE1 failed to inject money into the system directly and instead the banks hung on to the freshly printed money via reserves. This annoyed the great Chairman and QE2 was implemented which physically moved the reserve money out of the banks and injected them into the economy through the US Treasury. This part should be obvious to even the most casual observers, but in America the one reliable spender of last resort will always be our stupid Government. Even when the banks were yelling loudly and clearly that this economy does not want and cannot absorb any additional debt, our Government moved forward with steely resolve. Bravo, applause please.

As you can also see by this chart, our poor dollar is hanging somewhere around multi-year lows. It is amazing what powerful central planning can do to a 'free market'.

So why do you care? Simple, our standard of living rises and falls with the dollar. That is, your purchasing power of common goods. Below is a chart of the MIT Prices Project, their own dynamic and interesting take on a CPI alternative.

Prices are now well above where they were in 2008. This is extremely dangerous because unemployment is higher, GDP is lower and a record number of people are on welfare. The only reason prices have gone up is because the purchasing power of the dollar went down. The MIT project is perfect to look at, because unlike the CPI they use multiple data points and have no political interest in trying to suppress the official numbers.

Think about the prices that affect you on a daily basis. How about filling up your car?

Look at the drop during the 2008 decline. Without delving into the ramp up that occurred by the very same policies we are experiencing now, look at the "rebound" in gas prices. This is not a rebound that was fueled (intended) by a thriving economy or supply considerations, it was a rebound by a declining dollar and the respective rise in oil prices. When you see hundreds of your dollars go down the drain, you can thank Bernanke because his actions are directly related to virtually every price you see in this country.

I can go on and on, but it is as clear as daylight that the policies of printing money, never ending liquidity, worthless interest rates and central planning of money only positively affects stocks and commodities. The rest of us poor suckers watch our savings melt away and our purchasing power diminish.

Fixed income recipients like senior citizens get the worst treatment of all because their payments are manipulated by faulty Government CPI numbers *and* they have to pay higher prices for everything. Double whammy and it is an injustice of the highest magnitude. Working poor and less affluent are also affected in a disproportional manner because they have to spend their paychecks on necessities, the same necessities that are constantly going up in price.

If Ben Bernanke is serious about ruining our lives further with a third installation of stupidity then he should be removed from office. Not only is attempting the same approach incredibly dumb given that it failed twice before, but wide sweeping centrally planned approaches cause a lot of unjust pain to every facet of our population. We desperately need a contraction, removal of bad debt and the termination of ALL non-essential Government spending. Without these rapid changes the pain will continue and I hope you pass this article along so that everyone can understand what is happening, who to hold responsible and to demand change.

Wisconsin collective bargaining bill already making a difference?

2011-07-11T14:43:00.000-04:00

When Wisconsin Governor Scott Walker threatened to push through a collective bargaining restriction bill the country stopped and listened. Every media outlet, blog and casual politico had an opinion. Suddenly experts on Wisconsin teach salaries, school rankings and the Wisconsin budget appeared out of nowhere. It seemed like everyone had an opinion and it broke down along two simple lines.

Either you welcomed the change because you felt the concept of public unions to be offensive and silly or you were against the change because any attempt at perceived union busting was met with hostility. At the end of it all, like so many political discussions in America the fight turned into another bitter partisan slug fest. After all said and done the wounded unions walked away with promises of revenge, recall petitions and an angry and energized Democrat voting bloc. Most have now forgotten about the Wisconsin budget battle, but there are some stories emerging from the aftermath that may be of interest.

Keep in mind, the primary argument against Walker was that he was trying to destroy the teachers and that his actions would seriously undermine the very people we are trying to protect - our children.

In a very straightforward piece from the Washington Examiner it would appear that exactly the opposite has happened.

The Kaukauna School District, in the Fox River Valley of Wisconsin near Appleton, has about 4,200 students and about 400 employees. It has struggled in recent times and this year faced a deficit of $400,000. But after the law went into effect, at 12:01 a.m. Wednesday, school officials put in place new policies they estimate will turn that $400,000 deficit into a $1.5 million surplus. And it's all because of the very provisions that union leaders predicted would be disastrous.

As the proponents of the bill suggested, by removing the ridiculous hurdles set forth by the unions it would provide for a mechanism to negotiate with teachers on a more level playing field. Because unions generally try to provide the least amount of services for the most amount of money, it does not take a math wizard to conclude that an absence of union bargaining would materially improve one's bottom line. So what is the outcome of such a financial surplus?

The changes mean Kaukauna can reduce the size of its classes -- from 31 students to 26 students in high school and from 26 students to 23 students in elementary school. In addition, there will be more teacher time for one-on-one sessions with troubled students. Those changes would not have been possible without the much-maligned changes in collective bargaining.Teachers' salaries will stay "relatively the same," Arnoldussen says, except for higher pension and health care payments. (The top salary is around $80,000 per year, with about $35,000 in additional benefits, for 184 days of work per year -- summers off.) Finally, the money saved will be used to hire a few more teachers and institute merit pay.

Reducing class sizes, more one-on-one time and hiring *more* teachers. It would appear that the fundamental beneficiaries of this bill are none other than children. Yes some teachers have to contribute more money to their pensions, but their contributions still give them a significant advantage over private workers. With a combined salary of 115k for a non-full year the compensation is not exactly terrible.

It is a shame that these kinds of stories will go un(der)reported and most of the individuals participating during the peak of the argument will have walked away with the opinions thereby learning nothing of substance. We can only enhance our collective wisdom if we are to learn from our experiences, whether they be mistakes or otherwise. So far it would appear that if one school district can reverse its fortunes then many others will follow for the greatest benefit of all - improving our education.

Debt ceiling debate, public radio, numbers and more.

2011-07-05T18:53:00.001-04:00

On the way to work today and on the way back National ~~Public~~ Propaganda Radio was running pieces on the national debt and the debt ceiling. Not surprisingly the several guests they brought were of the same opinion, any failure to raise the ceiling immediately would result in a catastrophe. Their explanation was quite simple and partially correct and as usual the devil is in the details and NPR has masterfully ignored them.

NPR and the guests they have procured have recited a popular rhetoric. A default will cause the interests rates to skyrocket and the value of the dollar to plummet causing long term economic damage. That is correct, provided of course that the US Treasury chooses to not pay the interest on outstanding debt or pay out maturing debt. Failure to not pay for schools, agricultural subsidies, homeland security, military bases, lavish transportation costs for Congress and even social security/medicare will not in any way impact our credit standing. The only way that America can ruin the credit rating is to forego on its external responsibilities.

What are those responsibilities?

Quite simply, as of 2010 the payments for the outstanding interest stood at: 210 Billion dollars.

As a matter of perspective, this this is how much the US Treasury collected in taxes: 1.09 Trillion dollars. (This does not include social security, ad-valorem and other revenues amounting to an additional Trillion).

Therefore, the only way to really default is to willingly take the two trillion dollars in revenue and purposely and maliciously *not* pay the interest, or a mere 10% of total revenues.

Everything else you are hearing is pure demagoguery, propaganda and misleading information designed to instill fear and terror.

Now the more sticky and unpleasant question is raised, that is, if the ceiling is not adjusted then the US Government is going to stop paying out certain obligations. So which ones?

Social Security: As of now this is a non-issue. In 2010, 864 Billion was collected and 790 Billion paid out. Therefore the biggest promise of all is still somehow revenue positive and under no circumstances should/could deprive senior citizens their own money. The fact that the social security fund is actually broke is an entirely different issue.

Defense: In 2010, 960 Billion was spent. Think about that for a moment. A staggering number. Of that number only 140 Billion was spent on Veterans and can be considered an unbreakable promise. The remainder is a luxury in the form of equipment, bases, material, salaries, etc.

Health Care: In 2010, 880 Billion was spent. Of that, 490 Billion spent on Medicare, the remainder is welfare. Medicare is a promise that must be kept.

That leaves four promises that the US Government, pending serious reform must pay out in 2011.
Social Security: 790
Medicare: 490
Veterans: 140
Interest: 210
------------
Total: 1.6 Trillion (2010 numbers)

Revenue looking at only two sources comes out to:
Income Taxes: 1.09 Trillion
Social Security: 864 Billion
--------------------------
Total: 1.95 Trillion

That leaves 300 Billion to pend on critical defense, keeping Congress operating and unemployment/welfare and paying out maturing treasuries.

Everything else "defaults". Is this a solution? No. Is this sustainable? No. Are people going to get angry? Of course! We are paying over 1 Trillion in taxes and under this "default" there will be virtually no services what so ever. However this will underscore the need for social security/health reforms and will illustrate to the public that our spending structure is unrealistic. Not raising the debt ceiling will actually force Congress to finally do their jobs instead of kicking the can down the road.

Our investors will get their payments and will be absolutely content. To them it does not matter whether or not the Departments of Education and Energy suddenly shut their doors. In fact, if anything, it will instill more confidence in our credit system because the revenue ability of the country remains unchanged while spending dramatically plummets!

Any ideas or notions of ignoring interest payments are silly and downright stupid. Anyone who thinks we can just selectively default on certain bonds is smoking crack. For example an idea was floated to ignore all bonds purchased by the Federal Reserve - not going to happen. Even if they purchased these bonds with printed money a domestic default will cause massive damage to the fragile banking system.

Nope, we have to suck it up and pay the piper. We just need to do it honestly and without the propaganda. We need to have a mature and serious conversation about austerity which is inevitable and the role of the Federal Government in our lives. So far, there is no indication that this country, president, Congress or media is prepared to have this kind of conversation.

Obama's visions of Carter, the Misery Index signaling trouble.

2011-06-19T10:42:00.000-04:00

After Barack Obama assumed the presidency of the United States there were some speculation that the young and charismatic Democratic leader was going to become the next Lincoln (Newsweek even ran a piece comparing the two men that at the time seemed a tad premature). Yet my view back then given Obama's inexperience and skewed perception of where America should go was such that Obama has a much better chance of becoming the next Jimmy Carter rather than some great emancipator.

Fast forward to today and it would appear that the conjecture was correct. One of Carter's notorious legacies was the Misery Index (MI), a very simple number denoting inflation and unemployment. While some can dispute the accuracy of the index given the difficulty of relying on Government data for inflation, nobody can dispute that using the same formula the index has been steadily rising. Although the MI numbers only go back to the Truman error, you can see here that Carter's accomplishments consist of registering the highest MI year ever with 20.76 in 1980.

Zoom forward to the era of Obama. We would need to go back to 1983 to find a number higher than that of what we have today. Because Americans and most casual observers of politics and economics generally remember headlines, tidbits and convenient numbers this statistic does not speak of well of Obama's ability to govern nor does it speak well of Obama's chances of being reelected.

Now, let me spend a moment and discuss the actual index in terms of how fair it is and whether one can actually draw any meaningful conclusion of a president based on the MI.

The chart above breaks the index up into unemployment (blue) and inflation (red). Although the President should not be actively involved in controlling employment most people disagree and expect the Federal Government to "fix" employment and become very angry when the "fix" takes too long. Since most people have only a limited understanding of how the economy works, what role Congress plays and no understanding of money - the result is usually to either blame or praise the President.

It is true, certain policies can affect employment, but we usually see the Government react too slowly and even when the reaction succeeds there are nasty consequences that manifest themselves elsewhere. This brings to the more important point and the second part of the index, inflation, a phenomenon that has very little to do with the President. Sure, the President does appoint the sole individual responsible for controlling inflation, the Federal Reserve chairman, but it is only the Senate that can ultimately decide whether or not the individual actually becomes chairman.

In fact if you scroll back up and observe the Carter era you will see that employment in the stagnant 1970s was actually lower than today, it was the inflation that spiked the index and ultimately cost Carter the presidency! It was the inflation that created the misery and it was in the inflation that still evokes horrible memories from Americans when they are asked to reflect on the economic condition of that decade. Similarly, looking at Reagan's era the employment rate barely budged by the time he ran for reelection, but through his appointment of Paul Volcker to the Federal Reserve he was able to enjoy a significant reduction in inflation. Ask people about the 1980s and they will tell you that the economy was booming and times were great. Was Carter to blame for the high misery? My answer would be, Carter should get as much blame for the high misery as Reagan should get credit for the low misery.

Now, before you make the conclusion that we need to throw Ben Bernanke out (not a bad idea regardless) and replace him with someone like Paul Volcker, let me remind you that the policies during Reagan's time were misleading and planted the seed for the violent booms and busts we experienced over the past few decades. I will encourage you to explore my piece on Reagan and the Economy, where you will find a straight forward explanation of why the 1980s were so "good" and why Reagan receives much more credit than he deserves. In a nutshell, Volcker flooded the economy with liquidity by dropping interest rates which made money cheap to borrow and in combination of a new industry (software, hardware, telecommunications) with lower tax rates created a perfect combination of growth. Ironically enough the true measure of inflation (amount of money in the system) grew, but was simply offset by rapidly increasing production which percolated through every facet of the economy.

The cold hard truth, is that neither the President nor the Federal Reserve should be in control of something as large and complex as the economy. Yet even whey do succeed in creating temporary relief through manipulating the amount and cost of money in the system or playing with tax rates there is always a price to pay in the future. This is precisely why Bush Sr. suffered through a recession upon Reagan's departure, because there is a price to pay for flooding the system with money and that price is called a contraction or commonly known as "recession".

Alas, until more individuals become aware of just how much intervention occurs in our everyday lives by powerful people, nothing will ever change.

Note: There are only three Presidential candidates as of now that are determined to limit or restrict the amount of intervention in the economy by the central planning Federal Reserve. Ron Paul, Gary Johnson and Michele Bachmann. So when you think about who to support, think about the Misery Index.