Why Focus on Government Spending?

The mounting government debt--$2.98 trillion in recent bailouts and stimuli alone--is an oppressive anchor around the neck of every American.  Currently, every family of 3 is obliged to pay over $118,000 in the next 30 years.  That's a house payment with a variable-rate.  In other words, the government has done exactly what helped cause the mess for individuals by borrowing beyond its means at a teaser rate of 0.8 percent.   That Teaser Rate Will Skyrocket

In order to keep rates low, the Federal Reserve began buying up Treasuries bonds last week.  Sort of like your spouse co-signing a loan for you.  The idea was that the Fed's purchases would take some of the notes off the street, driving up the price (scarcity) which would reduce the interest rates. 

But it didn't work.  According to the Wall Street Journal on March 31:

The 30-year Treasury yield immediately moved higher Monday after the Fed bought $2.49 billion in long-dated government bonds, jumping as high as 3.656% from an overnight low 3.519%. The yield was pushed below 3.6% in the afternoon session as worries about U.S. auto makers and banks spurred a haven demand in Treasurys.

This will be an oft-repeated story until the Fed's spent its Treasuries allowance of $300 billion.  As the economy perks up (which it will for the next 2 weeks to 2 months), bond prices will fall, pushing up the yield.  Those yields will drive up the deficit and the national debt.  That's the adjustable-rate mortgage effect.  

US Debt Will Skyrocket

One reason that the deficits were so high under Carter and Reagan but low (actually some surplus) after the GOP took the House and Senate in 1995 was interest rates for government borrowing.  Even though Reagan's rates were cool compare the fever (18+) rates under Carter, they were still much higher at 8 percent under Reagan than they were in the 1990s. 

Today, rates are much, much lower than they were in 1998.  They are lower than they were late in George W. Bush's second term when, the Democrats tell us, deficit spending was "out of control."  Even with these all-time low interest rates, Barack Obama and the Democrat Congress have managed to explode the deficit and the national debt.

When rates move up, deficits and debt will move even higher.

Consumers Will Pay

In a sense, the worst thing that can happen to consumers is an economic rebound.  With trillions of dollars of cash poised to hit the streets and trillions of dollars of debt to pay, every up-tick in the economy--GDP, stocks, jobs, anything--will increase prices and rates disproportionately.  

Think of it this way (but ignore my numbers which are for demonstration only).  Suppose you own a stock whose volitility rating is 1.0.  That means if the S&P goes up 2 percent, the stock goes up 2 percent.  When the budget is close to balanced, that's how debt, rates, and prices respond to a growing economy.  If the GDP grows at the 3 percent, inflation will be around 2 percent.  

But our volitility rating is more like 1.5.  So a 2 percent increase in the broad market will yield a 3 percent increase in your stock.  In terms of inflation, a 3 percent increase in GDP will yield a 4.5 percent price increase.  (The GDP:inflation ratio might be much higher than 1.5 considering the amount of borrowing that's occured in a very short time.)  So your salary might go up 3 percent, but your cost-of-living will go up 4.5 percent, leaving you worse off than before.  

Unemployment sucks, and I want that rate to fall.  But be realistic.  Someone who lost a $60,000 job and finds a new $60,000 job will not be back where he started.  Even if he managed to survive on savings during the unemployed period, $60,000 will no longer buy what it did before.  That's the problem with inflation:  it erodes the purchasing power of the dollar.

Stop the Borrowing! Stop It Now!

The road to meaningful recovery requires the same steps as life-saving:

1.  Stop the Bleeding:  stop borrowing

2.  Start the Breathing:  cut taxes to drive investment and cash-based spending

3.  Treat for Shock:  let communities help those who need assistance until the economy lifts their boats

Currently, the administration is doing none of these.  It's force-feeding anti-coagulants which will increase the bleeding; it's raising taxes which will deprive the patient of oxygen; and it's forcing its heavy hand on those in need. Bassackwards.

Tea Party Message Sinking In

Rasmussen's weekly report shows the Tea Party message of limited government and lower taxes is hitting home with voters. Tax Cuts:  More voters than ever now say tax cuts help the economy.  Over 60 percent now agree with JFK, Reagan, Bush, and the undeniable facts of economic history: cutting taxes increases GDP and personal wealth.  

A separate survey released earlier today found that 66% of voters think the president is likely to raise taxes on those who make less than $250,000 per year. 

Obama Approval:  Obama's net favorability is down to +4 from + 30 after his inauguration.  Rasmussen notes that Obama's flurry of exposure--The Tonight Show, 60 Minutes, primetime press conference, townhall--did not increase his favorability at all.  In fact, it's fallen 2 points since last week.  

Nationalized Banks:  Only 11 percent believe the government can do a better job running banks.

If these trends continue, Obama will be unable to influence key Democrats in Congress, and he will be a 3-year lame duck.  That's the best the country can hope for.

You can help by spreading the word:  Obama's plans for a socialist dictatorship are dangerous and un-American.  

Stop him!  Stop him, now!

Obama Approval Down to +4; More Call Him “Extremely Liberal”

The latest Rasmussen poll has bad news for Obama, good news for those of us who’ve been warning America how dangerous he is.

Highlights:

imageThe number of people calling Obama “extremely liberal” has jumped 16 percentage points since the inauguration

Those expecting government spending to skyrocket is up to 72 percent from 54 percent on election day

Overall approval has fallen to +4 percent from +30 percent just after the inauguration

 

These falling numbers could get worse as more people realize the fact that Obama and Geithner contrived the AIG bonus scandal in order to divert popular anger from his socialist agenda to private enterprise.

Let’s strike while the iron’s hot.  Make sure everyone knows how you feel about this administration and its dangerous push for socialism.

Just today, the nonpartisan CBO declared Obama’s budget plans “unsustainable.” Obama’s budgets call for nearly $1 trillion increase in annual deficits atop those already in place.  Yet House Speaker Pelosi blames Georg Bush for Obama’s outlandish and economically disastrous budget and spending proposals.

Send a message to Congress, to the president, and to your fellow Americans by attending a Tax Day Tea Party on April 15th. 

Precarious Imbalance

There’s some sort of kid’s trick in which a spoon balances improbably—seemingly impossibly—on someone’s nose.  Or something. You’ve seen it, haven’t you? Of course, it only works while you hold your head up straight.

That’s America today.  In the leadership vacuum created when the left eviscerated George W. Bush in 2006, America’s precarious imbalance seems improbable.  Impossible. 

Perhaps it is.

Likely it is.

AIG people get bonuses and people are ready to tear down the AIG building.  Obama and Geithner apparently knew all along but feigned outrage when you, the people, found out.  I’m sure Obama’s mad at himself, too, for taking $101,000 bonus from AIG last year, just as he took $148,000 from Fannie and Freddie, both of which are about to reward their executives with bonuses. 

Christopher Dodd snuck in a provision to permit AIG to award the bonuses that enraged the President.  Then, according to CNN, Dodd lied about it.  When CNN calls a Democrat Senator a liar, there’s no need for a jury trial. 

Add to these outrages Obama’s $2 Trillion tax increase on energy and manufacturing, most of which will be siphoned off by the government, redistributed to Obama’s base, and whatever’s left used to fund other socialist initiatives. 

Add to cap-and-trade Obama’s confirmed plan to make heroes wounded in battle pay for their own medical treatment.

Add to that another $1.2 trillion that, today, the Treasury Department heaped atop $69 trillion of government debt and obligations.

Add to that the fact that multitudes are preparing to take to the streets on Tax Day to protest the bailouts, the borrowing, and the Bolshevism of Obama’s socialist revolution.

Add all these things, and more, together and you get . . .

REVOLT.

The American people are on the verge of full rebellion.  Doctors are preparing to quit their profession in droves, the Catholic church is preparing to shut down almost 1/3 of the nation’s hospitals, the American Legion is conducting its most vocal rebellion against a sitting president ever, school teachers are ready to overthrow their administrations.

This isn’t economic unrest; this is the start of a revolution that could get really ugly really fast.

Blame liberalism.

Liberalism told us  that we’re entitled to a free lunch.  Liberalism told us that others owe us everything we want.  Liberalism told us that some unnamed “rich” bastard is killing our kids, screwing our wives, beating our dogs, and selling crack on the street corner.

Liberalism lied, and you poor, ignorant bastards who listened and obeyed are about to find out and hard. 

No one living in America today, I’m pretty sure, knows what hyperinflation is like.  But we can read about it.  It sucks.

No one living in America today knows what civil war is like in a country still full of really tough, rich, heavily armed people.  But we can imagine thanks to the movies.

No one living in America today knows how this will end.  But we’ll be in tears before it’s over.

The time to choose is coming.  The choice is stark, simple, and moral.  On one side stand those who live to enslave.  On the other side, those who would die for freedom.

There’s still time to pull enough to the side of freedom that the forces of slavery rescind their immoral pursuit of power.  There’s still time for the freedom lovers to capitulate and lay their necks on the block.  But not much time.

I hate these moments, but they are, after all, why we’re here: We’re here to choose light or dark, good or evil, freedom or slavery, obedience or sin, God or Satan.

The other side doesn’t believe so much in God and never bought the idea of Satan.   The other side just can’t see the forest for the trees.

America’s head is pitching forward.

Democrats led by Barney Frank caused the economic meltdown

The current economic mess is a gift of the DNC.  Massechusetts Congressman Barney Frank (D) bears the lion's share of guilt.  Charles Schumer (D-NY), Maxine Waters (D-CA), and William Clay (D-MO) rank near the top of the list.[youtube http://www.youtube.com/watch?v=cMnSp4qEXNM&hl=en&fs=1] Please direct appropriate correspondence toward them. And if you're having financial troubles, please ask them to pay your bills. They seem to think that paying other people's bills is the patriotic thing to do.

Congressman Barney Frank 2252 Rayburn Building Washington, DC 20515 tel: (202) 225-5931 fax: (202) 225-0182

Charles Schumer 313 Hart Senate Office Bldg. Washington, DC 20510 202-224-6542

The Honorable Maxine Waters United States House of Representatives 2344 Rayburn House Office Building Washington, DC 20515-0535 Phone: (202) 225-2201 Fax: (202) 225-7854

William "Lacy" Clay St. Louis City office: 625 North Euclid Street, Suite #326 St. Louis, MO 63108 Phone: (314) 367-1970 FAX: (314) 367-1341 Office Hours: 9 a.m. – 5 p.m.

[youtube http://www.youtube.com/watch?v=usvG-s_Ssb0&hl=en&fs=1]

Cincinnati Tea Party HUGE

Michelle Malkin has impressive photos from the Cincinnati Tea Party.  Thousands upon thousands of angry tax payers. Perhaps they were spurred on by Barack Obama's accusation that anyone who has done well financially in the past 8 years is a criminal who will be punished.  Directly from his budget, page 5:

While middle-class families have been playing by the rules, living up to their responsibilities as neighbors and citizens, those at the commanding heights of our economy have not.

That's one huge indictment from a many who's appointed more tax cheats to cabinet posts than any president living or dead.

His cure for this risk-taking he so despises is to prevent risk-takers from realizing rewards.  Taking risks is fundamental to growth.  Under Mr. Obama, there will be no growth, apparently.

Consider these:

~ Cap and Trade is $700 billion a year tax increase to be paid by consumers.  At least that's what Obama told the San Francisco Chronicle.

~ Individuals making over $250,000 a year will be punished for their productivity under tax increases and deduction limitations.

~ Judges will be permitted to rewrite home mortgages, reducing any sane bank's willingness to create new home loans.

I could go on all night.  But there's more.

The federal government has quadrupled last year's massive deficit in just 2 months since Obama's inauguration. The enormity of US debt has China, our leading lender, balking at buying more US Treasuries.  This will eventually unleash inflation that could be significantly higher than in the 1970s.  That's according to Obama-voter Warren Buffet.

My prediction:  Things will look good for the next 4-6 weeks.  What Obama described as the worst economic calamity since the Great Depression only last week is now over, according the same Barack Obama.  The stock market is taking on some cash that's burning holes in people's pockets.

Then the first quarter numbers on GDP, business activity, productivity, and unemployment will hit.  Interest rates will have crept up rather nastily as China cools its Treasuries buying and institutions shift from bonds to stocks.   The high cost of capital will create a teeter-totter effect:  even banks willing to lend will have to do so at interest rates that frighten away borrowers.  The prosperity that Obama now sees just around the corner will turn out to be a mirage.

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2009 Economic Prediction *Bumped and Updated*

*Originally posted February 15, 2009* I know this is a little late, but I was waiting for Congress to spend another trillion dollars or so before committing my prediction to the public.  Here goes:

GDP and unemployment will  flatten and even improve a bit in first half of 2009 for a couple of reasons:

First, people will begin to look for excuses to spend money.  This includes businesses.

Second, the hideous transfer of power from individuals to government that passed Congress on Friday will have a psychological effect on people making some believe that things will get better soon. 

Together, let's call this mass hypnosis.

That hypnosis, though, will wear off when we begin dissecting first quarter 2009 numbers in April.  The reality will then hit home:  downward economic trends slowed or reversed because things couldn't get much worse.  (Again, this is the psychological feeling, not economic reality.)  In other words, people will stop thinking "It's getting better," and start thinking, "We're stuck on bottom."  It'll be like old WWII submarine movies where the disabled sub settles on the ocean floor.  The crew's not out of the woods--oxygen will run out eventually--but they've stopped descending toward collapse depth. 

Then, of course, some idiot seaman rolls a bowling ball toward the bow, a rock they're sitting on gives, and the sub starts sliding into 38,000 foot trench. 

The other economic bowling ball that will hit the pins in early summer is Treasuries.  With the uptick in private sector activity and the flood of Treasuries hitting the streets, investors--especially China--will shift their purchases away from government debt.  This will drive up yields quickly until equilibrium re-establishes.  I don't know what the level will be, but it will be high.  

Having obligated over $65 trillion (with a "t") in promisory notes since September, the US government must issue massive amounts of bonds.  If you're a bond salesman with crateful of US Treasuries, a weak economy is a wonderful thing--there's nothing else for investors to buy.  But a growing economy makes Treasuries, which are now riskier than ever before, a less attractive alternative.  Stocks and corporate bonds offer the possiblity of recovering some of the losses of the 50 percent stock market dive.  Treasuries do not.  Not until their yields hit the 12 percent range.

High interest rates will cause already skiddish companies to pull back even more, touching off a new round of layoffs and another dive in both stocks and GDP.  

Of course, I'm just a computer guy; I could be wrong.

Democrats Destroying the Economy

The economy was just fine before you people elected a Democrat Congress.  The Democrat party has controlled government's taxing and spending policy since January 2007.  In that time, Harry Reid, and Nancy Pelosi, now joined by Barack Obama, have presided over the greatest market and economic crash since the Great Depression.

Everything They Do Makes Things Worse

The US and world economies have been in rapid decline since Pelosi picked up the Speaker's gavel.  As the Democrats amassed more power through legislation, regulation, and the 2008 election, they have driven the economy further south. 

big.chart

To be fair, the first of the Democrat-driven spending legislation hit the economy in about July 2007--right at the peak of the market.  From the time Democrat actions began influencing the economy, the DJIA fell off a cliff.  It has lost 50 percent of its value, not from its peak, but from the day Nancy Pelosi became Speaker and Harry Reid became Senate Majority Leader.

This Depression is Brought to You by the DNC

While President Bush had his shortcomings in spending and in public relations,he presided over an economy that grew slowly and steadily.  Remember that Bush, too, inherited a recession that was exacerbated by the September 11, 2001, attacks. 

Even before taking control of Congress, Democrats Barney Frank, Christopher Dodd, Maxine Waters, and Lacy Clay were primary accessories to the illegal activities of Fannie Mae executives Franklin Raines and Jim Johnson.  (Barack Obama, by the way, took more money from Fannie Mae and Freddie Mac than any member of Congress when measured by dollars per year in Congress.) 

This Economy Will Not Rebound Soon

Barack Obama's budget is pure fraud.  It assumes that this depression will end in June 2009, with historically high growth in 2010, 2011, and 2012.  No one in his administration is willing defend these lies.   

The administration predicted that the overall economy, as measured by the gross domestic product, will shrink by 1.2 percent this year but will grow by a solid 3.2 percent in 2010. That growth would be followed by even stronger increases of 4 percent in 2011, 4.6 percent in 2012 and 4.2 percent in 2013. [source]

Hopes of a 2009 end to the recession ended over the weekend when billionaire Warren Buffet admitted that the government has screwed up the economy so badly that even he can't make money at it.

That -1.2 percent growth Obama predicted for this year?  I'll predice -5.5 percent.  See who's closer on December 31.  For 2010, Obama says +3.2. Hennessy says -0.5.  For 2011, Obama says 4 percent; Hennessy says 2 percent.  No one can reliably predict 2012, and certainly a lawyer and community organizer who wouldn't know a balance sheet from cash flow. 

Repeal the Pork--Cut Taxes

What can you do?  Join the Tax Day Tea Party.  Tell the Democrat Congress to repeal the pork and cut taxes.  Continue working with the Tea Party folks to create a conservative majority Congress in 2010. 

Want me to be wrong about my dire predictions?  Here's the path to a fast economy recovery in 2010:

  • Eliminate the capital gains tax
  • Place a 3-year moratorium on corporate income taxes
  • Lock in the Bush tax cuts permanently
  • Take Cap and Trade off the table
  • Manage a structured bankruptcy for GM and Chrysler
  • Repeal the Stimulus package
  • Shred Obama's Business 101-inspired budget and run the government on continuing resolutions until grown-ups take over Congress in 2011
  • Help your neighbors and friends who are out of work because we were stupid enough to elect a liberal Congress

If, by some miracle, the government followed my recommendations (which are not all mine, but Newt Gingrich's and others), Barack's predictions will be closer than mine.  If they don't repeal the pork and cut taxes, if they do pass anything like Obama's budget, learn to enjoy soup and Spam. 

Uncle Barry’s Adding Machine Stimulator Regulation Gimmick

A few weeks ago, shortly after his inauguration, Barry “The President” Obama panicked:  the Republicans might talk the people out of the stimulus bill.

Barry moved quickly.  But Barry is an organizer, not an engineer.  He’s the cheerleader, not the quarterback.  He moves mobs, not nations.  And when panicked, he fell apart.

Barry decided to announce that life as we know it would economically end the Day After The Stimulus Bill Is Defeated.  The “greatest economic crisis since the Great Depression,” was a convenient bludgeon for Barry to use as a candidate against the two men least responsible for it:  Bush and McCain.  Now, that crisis was his to fix.

“A crisis into a catastrophe"

His words.  If Congress failed to pass a near-trillion dollar spending spree, then financial ruin would be upon us.

Congress passed it. The economic slide into depression accelerated.

Thanks, Barry.  Even Robert J. Samuelson – who was our Krugman when I was in college – is kind of appalled at the whole unseemly creation of this Frankenstienian spendfest.

Judged by his own standards, President Obama's $787 billion economic stimulus program is deeply disappointing.

Samuelson has more bad news for those who that the trillion dollars would do anything before the next election cycle. 

His [Obama’s] politics compromise the program's economics. Look at the numbers . . . At his news conference, Obama argued (inaccurately) that the two goals don't conflict. Consider, he said, the retrofitting of federal buildings to make them more energy efficient. "We're creating jobs immediately," he said.

Yes -- but not many. The stimulus package includes $5.5 billion for overhauling federal buildings. The CBO estimates that only 23 percent of that would be spent in 2009 and 2010.

Politics Over Principle

Were Samuelson not on the left, one imagines, his critique of Barry’s first major act as president would be scathing. 

By using the stimulus for unrelated policy goals, spending will be delayed and diluted. There's another downside: "Temporary" spending increases for specific programs, as opposed to block grants, will be harder to undo, worsening the long-term budget outlook.

The reason so many are vowing to attend Tea Parties to protest wasteful spending, skyrocketing debt, transfer of wealth, and creeping socialism is because we cherish freedom, not because we’re greedy.  Most of the people at the rallies have a net worth that dwarfed by Obama’s cabinet’s daily checking account balances.  We know the value of a dollar, and we to keep the few we earn. 

It’s Socialism, Stupid

Obama is an old-time socialist with new-fangled toys what whir and sizzle.  But the magic is getting old fast. 

What a tiny, tiny honeymoon for Uncle Barry’s Adding Machine Stimulator Regulation Gimmick.  Got my cynicism early, wouldn’t you?

The Other Shoe Drops

For months I've been echoing the warnings of Peter Schiff and others:  when China stops buying American debt, we're in deep, deep trouble.  The possibility for hyperflation, prices rise by double-digits on daily or weekly measures, becomes palpably high. Even though this article from IHT failed to suprised me, I have a sick, frightened gnawing in my stomach:

China has bought more than $1 trillion in American debt, but as the global downturn has intensified, Beijing is starting to keep more of its money at home - a shift that could pose some challenges to the U.S. government in the near future but eventually may even produce salutary effects on the world economy.

Thanks to Hank Paulson's Bailoutpalooza followed by Obama's promises to pile on more bailouts and $1 trillion or more in stimuli, the US single-year deficit for 2009 will be between $1.2 trillion and $2.5 trillion.

There are three ways to finance that deficit: tax, print, or borrow.

A tax increase, as we have been told, could push us into a deep depression.  We don't want that.

Printing $2.5 trillion in new cash would lead to hyperinflation.  Unless you want to buy bread for $3,000 a loaf, that's not good.

Borrowing delays the reckoning.

One way or another, we will deal with depression, hyperinflation, or--like Germany in the 1930s--both.  At least in a depression with deflation, cash will save you.  In hyperinflation, it's every man for himself.

Obama Is Simply Wrong

Obama: 'Trillion-Dollar Deficits For Years' - Capital Commerce (usnews.com)

Just mindblowing. Here is #44 today (via the AP):

Obama said Tuesday the deficit appears on track to hit $1 trillion soon. Speaking to reporters after meeting with top economic aides, Obama said: "Potentially we've got trillion-dollar deficits for years to come, even with the economic recovery that we are working on."

If Obama really believes that the world economy will tolerate annual deficits north one trillion dollars, he will receive a belated economics education in short order.

Such deficits won't won't work. Already investors are losing their fascinations with US Treasuries, realizing wisely that cash is better than zero interest treasuries. Once the treasuries market dries up, the government will have to choose between massive tax increases, which will spawn a deep depression, or massive inflation, will create massive misery.

Very quickly, the government in Washington must come to realize that returning to essential governmental functions--and no more--is the only option.

Begin by dissolving the Departments of Education, Health and Human Services, Homeland Security, and Veterans Affairs. Eliminate the National Endowment for the Arts and the EPA. Not sure we need NASA, but we might be able to find a private buyer.

The Constitution itemizes the essential operations of government in Article I constricted by the Bill of Rights. Read and understand these limited powers--they are in your future.

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Obama's $300 Billion Tax Cut

Let's give credit where it's due, if it's due. 

If Barack Obama sends a $300 billion tax cut proposal to Congress as the meat of his stimulus package, he deserves high marks.

Tax Cuts Increase Tax Revenue

A large tax cut aimed at tax payers--individual and business alike--will not only stimulate the economy, it will increase federal revenue, defraying the irresponsible and dangerous spending of Paulson and Bernanke. As Kennedy, Reagan, and Bush 43 understood, tax cuts, to a point, increase federal revenue.  Economist Arthur Laffer showed how in his famous, but seemingly forgotten, Laffer Curve:

  • At 0 percent taxation and at 100 percent taxation, tax revenue is zero.  The reason for no revenue at 0 percent is obvious.  At 100 percent, people have no incentive to work--so they don't.
  • Somewhere between these poles lies maximum or optimal revenue. 
  • Laffer's curve did not determine the exact location of this peak.
  • There are actually two peaks:  one for absolute tax levels, and one for marginal taxes.

The Curve Applies to Specific Activities

This curve applies both to aggregate taxes and specific economic activities.  If we increase the tax on capital gains closer to 100 percent, then people will stop doing things that result in capital gains.  If we tax dividends more heavily than capital gains, investors will favor growth stocks over steady stocks that pay dividends.  It's not very complicated.

Some economists have suggested eliminating business taxes altogether.  These taxes are always passed through either in the form of prices to customers or salary cuts to employees.  Either way, they reduce spending.  And spending generates income.

Kudos to Obama

But enough economics.  This story is really about Obama's apparent willingness to step across the aisle into the Supply Side world.  That would be a great thing for the economy and a liberating moment for Barack Obama.  It's so much easier to let the people decide how best to spend their own money. 

Addicted to Entitlement

Entitlement is the psychological abnormality in which a person believes that he is owed an enrichment or compensation earned by suffering or activity and that society or government is obligated to pay.  It is a psychological condition.  It is abnormal--or should be.

When a team of governors demands that the federal government steal wages and profits of the citizens and transfer those monies to state governors to dispense as the governors see fit, one wonders whether or not the disease is now the norm.

Governors [all Democrats] of five U.S. states urged the federal government to provide $1 trillion in aid to the country's 50 states to help pay for education, welfare and infrastructure as states struggle with steep budget deficits amid a deepening recession.

Over-extended States Should Fail

The reason the states cannot pay their bills is because they have engendered entitlement among their constituents.  Being convinced that food, clothing, shelter, medicine, entertainment, and happiness are divine rights and that government exists to fulfill those rights, these constituents believe working for their own survival a moral outrage.  In other words, the people are lazy.

The governors (plus Democrats in the House and Senate) feed the entitlement condition by reinforcing it.  Barack Obama and most Democrats ran on the principle that there is no connection between privilege and responsibility.  Obama has long preached that it is government's duty to provide every human want regardless of human behavior.

These states and others have created monsters of government largesse.  They have made laws that guarantee citizens effortless living.  But governments have no way of paying for these programs except by stealing the property of their citizens.  In other words, every state that guarantees enrichment to its citizen is immoral.  Every voter who votes for a candidate in hopes the candidate will steal from other or from them is committing the sin of stealing.

Entitlement is Dangerous

The federal government has extended this principle, now, to banks, brokerage houses, and the automobile industry.  By March, the government will have extended it to newspapers, steel, airlines, advertising, and other businesses and industries.  There seems no end to America's desire for a free lunch.

But the government cannot pay its bills.  Attempts to allow the American people to live a life of Reilly without consequence has created an enormous deficit.  Even as some Americans attempt to shift their own lives from consumption to savings, the government is discouraging this move toward responsibility.  Instead of encouraging sound financial planning, the government encourages reckless credit spending by businesses and consumers. 

Cost of Entitlement

No one can accurately calculate the cost of the entitlement disease on society.  Monetarily, the number is somewhere around $17 trillion--$56,666 per person in the United States.  The number grows by about $2,000 per day.  This is money you owe and will be required to pay.  You will go to jail if you don't make you payments.  Yet you never signed a promissory note.

The human cost is even higher.  Drug addiction, homelessness, domestic violence, aborted and abandoned children, foreclosure and bankruptcy are all symptoms of entitlement mentality run amok.  The ultimate cost is destruction of American society's foundations.

Fix It Now

Could you let go of your entitlement mentality?  If not, you are dooming yourself, your children, and millions of others to lives of insatiable greed and want.  If you could let go, then do it.  Vote only for candidates who believe--in their words and writings going back to high school--that the government is limited to the powers enumerated in the Constitution, that stealing is stealing whether legalized by legislatures and judges or not, that we are entitled to live, liberty, and the pursuit of happiness guaranteed by a government that stays the hell out of our shorts. 

Remember Ronald Reagan's first inaugural address:  "We are a nation that has a government; not the other way around."

 

Free Madoff!

In a just world where all men are created with equal rights, Bernie Madoff would be a hero.  More than any other private sector figure, Bernie Madoff perfectly embodies the new American ideal. 

What Madoff Did

Bernie Madoff admitted to investigators that he created an enormous Ponzi--or pyramid--scheme.  He promised investors very high returns.  He made good by paying of Round 1 investors with Round 2's money. 

image

As long as a new generation of investors, larger than the previous, lines up to invest, everything's good. 

 

Only two things can possibly go wrong:

1.  A round of investors is smaller (in capital) than the antecedent round, or

2.  Someone figures it out.

In the case of Madoff, both seem to have happened.  With the declining economy, a new round was smaller than the previous round.  This first-ever loss drew questions from Madoff's investors, including his two sons.  After Madoff admitted to his sons that the whole thing was Ponzi scheme, the kids called the Feds. 

Why Madofff Is a Hero?

Madoff at last tried to emulate the U. S. Federal government, and he may have given Hank Paulson and others the idea for the current bailoutmania gripping the nation's capital.

The Government Is a Ponzi Scheme

Beginning with Social Security in the 1930s, the U. S. Government has operated the largest Ponzi scheme in history.  The theory behind Social Security was that each succeeding generation of workers in America would be a) larger and b) wealthier than the one before it.  With this ever-growing pie of "investors," Social Security would never run out of money.

Then something awful happened:  the baby boom.  While the boomers became a windfall for Social Security when they started working, economists quickly realized that the end of the scheme was inevitable.  Unless the boomers produced 3.0 children per coupling, the jig was up.  Sometime around 2015, there would be 2 workers for every 1 retiree drawing benefits.  Add to that the fact that Social Security benefits increased over the years (as investors demanded ever-increasing returns from the Ponzi scheme), and you have the recipe for economic disaster. 

The Bailout Is a Ponzi Scheme

Having failed to learn its lesson with Social Security, the government has embarked on the riskiest Ponzi scheme to date:  bailouts.

The bailout scheme works like this:  as long as idiots in China and Japan keep buying US Treasuries, we can keep pouring money into bad business (like banks and auto makers) run by the people we cheated off of in B-school.

As of today, the government has signed about $8 Trillion in promissory notes on behalf of private companies.  The Feds plan to pay these bills by borrowing ever-increasing sums from China and Japan. 

It Won't Work

The sad thing for all of us is that this scheme simply will not work.  China and Japan will not continue to buy US Treasuries with a guaranteed loss when cash pays a better return.  (Treasuries are a guaranteed loss at 0% interest as the time-value of money flips--the longer you hold the T-Bill, the less it's worth no matter whether the money supply is inflating or deflating.)

With their own economies weakening, Asia will turn its attention home.  Without money coming into the Treasury in the form of loans, the government in Washington will have two choices:  default (on financial or political promissory notes) or print money. 

Either way, the US is in a for a decade of economic misery.  If the government prints money to pay its bills, inflation could run as high as 20 percent.  If it defaults, more trillions of dollars in wealth will vanish and the US will become a second-rate financial center.  No one, including taxpayers, will be willing to trust Uncle Sam with their dollars.

Prepare for inflation.  Unless Obama makes Madoff the next Secretary of the Treasury.

Predictions for 2009

After a 2 year hiatus from annual predictions, here's what I see happening in the precarious Year of our Lord Two-thousand nine:

The Dow:  The Dow trades within a range of 1,000 points with a daily average closing of 8,500.

GDP and Economy:  By July, everyone pretty much calls the situation "Great Depression II."  Unemployment, which declines in the first quarter, increases to more than 12 percent by fall.  Gross Domestic Product by quarter:

Q1:  -.06

Q2: -1.5

Q3: -6.5

Q4: -2.0

US Treasuries:  Moody's warns investors in US Treasuries that inflation could erode the real value of the paper dramatically but falls short of lowering bond ratings.  China and Japan sell over $1 trillion in long-term US debt.

Auto Industry:  The bridge loan isn't enough and the UAW refuses major compromises, but Obama and Congress block GM and Chrysler from bankruptcy.  Instead, Congress authorizes $70 billion in exchange for voting stock and a seat on the companies' boards.  The companies oblige, effectively becoming government agencies. 

Iraq:  The slow drawdown of troops will continue according to the plan approved by Iraq in 2008.  The net effect of Obama's win on Iraq is zero.

Iran:  The Obama administration achieves a pyrrhic victory by signing a non-proliferation agreement with Iran similar to the one Clinton (via Carter) signed with North Korea.  By the end of 2009, Iran's cheating is obvious, but both the US and UN ignore it . . . until it's too late.  Israel acts alone.

Key Legislation: 

Fairness Doctrine returns requiring television and radio stations to provide equal time to all sides of any news or science issue with the exception of climate science.

Emission Standards increased dramatically by Congress and rubber-stamped by GM and Chrysler boards.  Ford sues claiming unfair competition and anti-trust violations.  Suit will take years to settle.

Unions can demand to know a non-union's position on unionization votes.  Many shops turn union; many anti-union workers are assaulted and threatened. 

Medical workers are compelled to participate in abortions regardless of religious or personal beliefs.  Thousands of doctors and nurses quit in protest.  The Catholic church closes thousands of hospitals creating the greatest healthcare availability crisis ever in a post-industrial country.  Congress prepares, by year's end, to take over the healthcare industry and all medical universities and colleges.

Sports

Several major professional sports teams fold as advertising dollars disappear.

Entertainment

No one really cares after reading the list above.

Politics

Newt Gingrich prepares a presidential run in 2012 by quarterbacking a team of more than 200 Republican Congressional candidates on single agenda to win back Washington and capitalism. 

Climate Change:  2008 was the coolest year in almost 20 years, and 2009 looks to be even cooler.  A major flaw is revealed in the most sophisticated models.  James Hansen refuses to admit he was wrong, but even the media stop covering climate change.  Environmentalism shifts to potable water, an actual problem that will affect the US in 20 years as the Ogallala Aquifer dries up.

The Fiscal Calm Before The Economic Storm

New York, Illinois, California, and a dozen other liberal states will raise taxes dramatically in the next 3 months.  New York, for instance, is instituting 88 new taxes

OPEC will cut oil output until oil reaches their target of $75 to $90 a barrel, which equates to $2.30 to $2.80 gasoline.

Obama will impose regulations and taxes that stifle growth.

The Bush capitulation to the Unamerican Auto Workers thugs will allow Detroit to limp for several months before collapsing.

Things will look okay for a few months.  The DJIA will rise to about 9,800 by late January, though much volatility will remain.  Then the bottom will fall out in March or April.

Look back to 1929-1930, 1979-1981.  Both times, the economy began to recover before the big collapse.  But this collapse will be bigger because the government is just about out of options. 

The US government's credit-worthiness has to be suspect.  No one want's .25% T-Bills.  No one wants to invest in an organization that's increasing its debt by $8 trillion every 90 days, as the US government has been since September.  The government is almost out of the borrowing business.  It will have to massively inflate currency to run.

Buy necessitates.  If you must invest, Hormel, makers of Spam, is your best bet.

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Hey, UAW: Your Racket Is Over

The United Auto Workers is the sort of extortion racket that gives crime a bad name.  For 40 years--since the introduction of Japanese cars in the US market--these whining, overpaid slobs have bilked consumers for billions, insisting that they deserve to be overpaid simply because there's a bunch of them.  America would be better off if the UAW simply ceased to exist. 

They make the bogus claim that they are better workers than their non-union counterparts who assemble BMWs, Hondas, Nissans, and Toyotas.  Yet none of their customers agree. 

Now I'm a loyal US car buyer, believe it or not.  My last 4 cars, in order, were Jeep, Chevy, Ford, and Mercury.  I've bought one Nissan (which was a great car, but tiny), and a used Mazda (which I still miss but 160,000 miles was enough).  I want the US auto industry to flourish.

That's why I pray Bush keeps his hands out of the TARP funds, which I also opposed.  Let the bad companies take their lumps in bankruptcy court. 

To succeed in bankruptcy, though, everyone involved has to take a hit.  Owner value falls to zero.  Lenders (bond holders, suppliers, vendors) take pennies on the dollar.  Cities and states give up their kickbacks from idled plants.  Dealerships go out of business.  Most of all, the overpaid, under worked UAW members take a pay cut to bring them into line with most Americans.  And the retired grifters deal with retirement like everyone else; they don't go on make as much as they made when they worked every day.

The US auto industry's wage and tax system is unsustainable.  Billions of tax dollars will not fix it.  Only the legal protection of bankruptcy supervised by a brilliant business mind (I nominate Mitt Romney) will give GM and Chrysler a chance.   Even then, it's only a chance. 

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American Auto Industry Doomed

If you own US auto stock, sell.

If you work for a US auto maker, find a new job.

If you own a US-made car, start shopping.

The government is about to destroy the US auto industry, and it will cost billions of dollars.

Apparently, the White House and Congress are trying to invent an auto czar position to "oversee the restructuring of the industry [Wall Street Journal]."  That means that the problems that led to the current crisis will get worse and the possible solutions to the crisis will be outlawed.

Here are the problems contributing to GM's problems, in particular:

  • Union auto workers make more than doctors, MBAs, college professors with Ph.D., research scientists, or small business owners
  • Retired auto workers make even more than working auto workers
  • Laid-off auto workers make 80 percent of what a working auto worker makes
  • Idled plant workers make 70 percent what active auto workers make
  • State laws prohibit closing auto dealership even though GM has 4 dealership for every Toyota dealership
  • Idled US auto plants cannot be sold or leased
  • Rick Wagoner is an idiot

Each of these problems was caused by a Democrat special interest group, and the Democrats will not permit the problems to get fixed.  Bank on it. 

The solution to the US auto problem is simple:  bankruptcy.  A well organized bankruptcy will void UAW contracts, sell off idle capacity (to start-ups, if we're lucky), and tell the retirees to live like other retirees instead of like the idle rich.

I am writing my Congressional delegation to tell them to oppose any bailout of autos that does not include bankruptcy.  Do the same, or the US auto industry is toast.

*UPDATE*  Larry Kudlow has more:

We will not bailout our way into prosperity. Nor will we spend our way into prosperity. Somebody has to stand up and yell: It's time to cut tax rates on the supply-side. That will reinvigorate growth and infuse new spirit into a demoralized economy.

Bingo!

You Can't Be Stupid Enough Not To Get This

Fred Thompson provides the world with the wisest possible explanation of Washington's bailoutmania.

Watch the video.  Take notes if you need to.  Thompson speaks wisdom.

[blip.tv http://blip.tv/play/Ad3iNI+MAQ]

Did you notice he's not afraid to use the "d" word. 

No to GM.  No to Chrysler.  No to Ford.  No to Citi.  No to everyone. 

Work hard, save, invest, buy what you need.  It's that simple.

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Robert Rubin's Days Are Numbered

Robert Rubin was a key player in keeping Enron afloat while he and his cronies fleeced billions from employees and investors.

Robert Rubin abandoned the Clinton administration when a recession was unavoidable.  His relief was his protege, Larry Summers.

Robert Rubin talked the Citigroup board into investing in extremely high-risk mortgage-backed securities.  He also showed the bank how to carry those risks off the books--exactly the way he showed Enron how to do it.

Robert Rubin negotiated the Fed's bailout of Citi even as the government refused to help the auto makers. 

Robin Rubin installed Larry Summers on Obama's economic council in order to avoid prosecution as the kingpin of Citi's downfall, which should have resulted in Fed takeover and receivership.

If you want to know who's responsible for the economic meltdown, you've read them all here:

  • Franklin Raines
  • James Johnson
  • Jamie Gorelick
  • Robert Rubin
  • Lawrence Summers
  • Christopher Dodd
  • Barney Frank
  • Lacy Clay
  • Maxine Watters

There's your list.   These are the men and women who brought you to brink of a Great Depression.  And now the criminal, slimy thief Robert Rubin is whining and lying to the Wall Street Journal

Still, Mr. Rubin was deeply involved in a decision in late 2004 and early 2005 to take on more risk to boost flagging profit growth, according to people familiar with the discussions. They say he would comment that Citigroup's competitors were taking more risks, leading to higher profits. Colleagues deferred to him, as the only board member with experience as a trader or risk manager. "I knew what a CDO was," Mr. Rubin said, referring to collateralized debt obligations, instruments tied to mortgages and other debt that led to many of Citigroup's losses.

Disgusting. Yet Rubin is the odd-man out and could be the fall guy for the economic collapse.  Unlike the others listed, Rubin remains outside of Obama's inner circle.  He's a Goldman Sachs guy, which is not a popular thing to be these days. 

Look for some federal prosecutor to make a name for himself by indicting Rubin.